Below is the text of Mr Major’s response on interest rates made on 26th April 1990 in the House of Commons.
Mr. Alfred Morris To ask the Chancellor of the Exchequer how many letters he has received from small businesses about the level of interest rates.
Mr. Major A small number each month.
Mr. Morris Will the Chancellor explain to people who run small businesses how a rise of over 100 per cent. in the number of firms going into receivership caused, they say, largely by the Government’s policies of high interest rates and the uniform business rate, helps Britain prepare for the challenge of 1992? If a doubling in the number of firms going bust was not the purpose of those policies, will he now at least urgently address himself to their undoubted effects?
Mr. Major The most crucial element of all for 1992 is to make sure that by then we have a competitive economy and much lower inflation than at present. That is the purpose of the Government’s present monetary policy. The right hon. Gentleman quotes the number of companies going into receivership; he might equally have quoted the net number of new companies which is running at a record level of 1,300 each week.
Mr. Ian Stewart Will my right hon. Friend assure the House that whatever representations may be forthcoming from business, he will not consider reducing interest rates until it is clear that inflationary and monetary pressures are at last abating?
Mr. Major I am entirely content to give my right hon. Friend that assurance.
Mr. Radice Has the Chancellor noted the Treasury and Civil Service Select Committee report that was published today, in which we say that the level of interest rates has a major impact on the timing and level of investment? Is not there a case for the Government not to rely so exclusively on interest rates in managing the economy?
Mr. Major The hon. Gentleman will also be aware that interest rates are a powerful counter-inflationary weapon. It is precisely for that purpose that we believe that monetary policy is so important. I must echo to the hon. Gentleman what I affirmed to my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart): interest rates will have to remain high until I am confident that inflation is on a downward trend.
Mr. Burt Does my right hon. Friend recognise the damaging connection between high public expenditure and interest rates? In particular, does he share my concern about the impact of high local authority expenditure on public expenditure generally? I am sure that he will have noticed that the high-spending authorities are Labour controlled. Does he share my worry about the impact on interest rates in the future if a party that is committed to high local expenditure should again get its hands on the Treasury?
Mr. Major I entirely share my hon. Friend’s view. That matter will he watched carefully in the coming months. It is essential that we retain firm control of public expenditure which we intend to do.
Mrs. Beckett Does the Chancellor recognise that the danger that most people, particularly in small businesses, fear is not that he will prematurely lower interest rates but that he will shortly raise them again? Will he reconsider the use of increased interest rates as the sole instrument of policy, particularly in the light of the recent Bundesbank report which showed that across the major economies of the world credit controls play a useful, if minor, role as a direct alternative to the use of interest rates alone? Will he assure the House that he is not waiting until 4 May to increase interest rates?
Mr. Major I am not entirely sure that the hon. Lady carried all her hon. Friends with her in every aspect of her question, which she founded on a misconception. Monetary policy is backed by fiscal policy, and must remain so.