Real Interest Rates

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 15th April 1999.

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Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I meet regularly with business representatives to discuss issues, including interest rates. Compared to an average of more than 4 per cent. for the past 20 years, real short-term interest rates are below 3 per cent, at 2.8 per cent. Real long-term interest rates are at their lowest level for more than 40 years. Mortgage rates are at their lowest level for 33 years.

Photo of Tim Boswell Tim Boswell Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Trade and Industry)

I thank the Chancellor for that reply and acknowledge that the recent cut in interest rates has been helpful to business, but will he concede that there is still a substantial gap between our real interest rates and those of our competitors, particularly after the recent reduction in the eurozone? What consolation can he offer to businesses, which, despite the protestations of the Chief Secretary, are facing increases in taxation inherited from previous Budgets, additional regulation and a continued heavy burden of interest rates?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

The people to whom the hon. Gentleman refers will be pleased to know that, while real interest rates peaked at 8.9 per cent. under the previous Government, they are now 2.8 per cent. under Labour. People can see the difference between the downturn in the early 1990s—when 1 million manufacturing jobs were lost, output in manufacturing fell by 7 per cent. and manufacturing investment fell by 28 per cent.—and the current situation with low inflation, interest rates coming down and a growing economy. The hon. Gentleman might want to tell his friends what the vice-chairman of the Conservative party said about the Budget: We welcome the help for small businesses. I think that is good. Overall, not a bad business Budget.

Photo of Barry Sheerman Barry Sheerman Labour/Co-operative, Huddersfield

Does my right hon. Friend agree that the two surveys this morning that show growing optimism in small business, large business and the City are good news for Britain because we have a period of certainty and certain prosperity? Will he tell the Opposition to stop whingeing and talk Britain up, not down?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I am grateful to my hon. Friend for that question. I welcome the fact that he is chairing the all-party committee on Europe, which has no Conservative party representation. The British Chambers of Commerce survey shows that confidence in turnover and profitability is rising. We have managed to cut interest rates, keep inflation low, maintain stability and invest £40 billion in health and education—something that the Conservatives would not do. We have also introduced a minimum wage and the working families tax credit, which the Conservatives opposed, as well as increasing child benefit and introducing a £100 winter allowance for pensioners, something that we know that the Conservatives would never do.

Photo of Malcolm Bruce Malcolm Bruce Liberal Democrat, Gordon

Does the Chancellor accept that the Liberal Democrats welcome the recent reductions in interest rates and hope that they can be sustained? However, does he acknowledge that there is a problem for savers and that some financial institutions have not passed on the full benefit of the reductions in interest rates to mortgage holders? In that context, is it not absurd to refuse to extend the benefit of the 10p income tax rate to income from savings, which would cost only £85 million?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

As usual, the Liberal party wants to make another public spending promise that it has no means of meeting from any of its revenue proposals. The hon. Gentleman is proposing another loss of revenue to the Exchequer, but he never says how he would fund his ideas. We introduced a new savings bond for old-age pensioners in the Budget. The individual savings account has been introduced and people are taking it up. The best thing that we can do for savers is to keep inflation low. Our policy is to keep inflation at or near the target of 2.5 per cent. I hope that the Liberals' finance spokesman welcomes our actions on all those issues. We are combining stability in the economy with help for the pensioners whom he says that he wants to help.

Photo of Mr Tam Dalyell Mr Tam Dalyell Labour, Linlithgow

Will interest rates be affected by the debt in the contingency fund brought about by the NATO operation? Is the Chancellor sure that the costs can be contained in the contingency fund?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

It is precisely because of our prudence over the past two years in reducing the deficit from £28 billion that we are able to meet contingencies as they arise.