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Lord Mackay of Ardbrecknish: My Lords, it is certainly true that the high value of the pound helps to keep down inflationary pressures. Indeed the CBI today in a report on wages states that there is little pressure on wages at the moment. That, of course, is a helpful factor in keeping inflation under control. The noble Lord, Lord Wyatt, makes a valid point. Who knows what chaos
would ensue if the party opposite were to win the election? However, I am confident that we shall not be visited with that.
Earl Russell: My Lords, is there any party opposite the noble Lord, Lord Wyatt of Weeford?
Lord Mackay of Ardbrecknish: My Lords, I did not quite hear that question. I presume it is the usual one, asking me not to direct my fire only at one party opposite because there are two parties opposite. In that case my fire is directed at both of them.
Earl Russell: My Lords, I beg the noble Lord's pardon. I asked whether there was any party opposite the noble Lord, Lord Wyatt of Weeford?
Lord Mackay of Ardbrecknish: My Lords, from what the noble Lord, Lord Wyatt of Weeford, said, he sees the parties opposite the same way as I do.
Baroness Seccombe: My Lords, does the Minister agree that it was good to hear the noble Lord, Lord Eatwell, say that the figures given by my noble friend were so impressive? Does my noble friend also agree that this is the time to congratulate the Chancellor of the Exchequer on his excellent running of the economy? That is particularly highlighted in the horrific rise in unemployment on mainland Europe compared with our month by month reduction.
Lord Mackay of Ardbrecknish: My Lords, my noble friend makes a valid point. One has to look at many factors in the economy. One of the most important factors that used to concern the parties opposite--namely, unemployment--is certainly moving consistently in the right direction. That has been the case for a long period of time. Over the past year employment in our country has risen by 300,000 people. More of our people are in work than is the case with all of our major European friends. Our unemployment rate is significantly below that of Germany, France, Italy and Spain. In the past month or two we have seen some significant rises in unemployment in Germany in stark contrast to the falls in unemployment in this country.
Lord Eatwell: My Lords, has it not been clear that the main element in inflation we have seen this afternoon is the length of the noble Lord's answers, but what we have not had are answers to the questions asked? My noble friend Lord Barnett asked about real interest rates. Will the noble Lord explain why the long bond rate is 1.75 points higher in the UK than it is in either France or Germany? Will he answer my question and explain why our inflation rate is steadily rising higher and higher relative to the European Union average?
Lord Mackay of Ardbrecknish: My Lords, I am sorry if my answers are becoming longer. Part of the reason is I realised that the Question on dogs did not run for long enough and therefore I have plenty of time to answer all of the questions on this matter in some
detail. I have already referred to the fact that interest rates are arrived at for a variety of reasons--the state of the economy; how we look vis-a-vis our competitors; and the position in our competitor countries. There is no doubt that in this country over a long period of time, under governments of all complexions, we have not had a good record on inflation. Quite clearly the world market is still suspicious of us. We say clearly that we believe inflation should be kept under control and we are taking firm steps to do that. Perhaps the world markets are not quite so sure about the party opposite.
Lord Sudeley: My Lords, is the Minister aware that, in the view of the Christian Council for Monetary Justice, a basic cause of inflation is that the banks lend out more money than they have? That has been the position since the Tudors when the goldsmiths were the antecedents of our present banking industry.
Lord Mackay of Ardbrecknish: My Lords, my noble friend makes an interesting point. Not being a historian, I am afraid that I have no idea how the Tudors dealt with banking, or anything else for that matter.
However, the banks and financial institutions play an important part in the economy of this country. If my noble friend had been present at the debate on the City, he would have learned of the very considerable inflow of funds to this country thanks to the work of the financial institutions.
Lord Peston: My Lords, I had thought that the whole point of being a bank was to lend out money that it did not have; but that is by the way.
I always enjoy the Minister's long answers. However, I was puzzled by his response to the noble Lord, Lord Wyatt of Weeford. Is he saying that it is government policy to keep sterling as high as it currently is? Is that a state of affairs that the Government like? For example, is that the rate at which they would like to see sterling enter the monetary union if, when the time is ripe, we decide that entering monetary union is in our national interest?
Lord Mackay of Ardbrecknish: My Lords, the noble Lord knows well my arguments and answers on EMU: that we will indeed enter EMU only if we believe that it is in our national interest.
So far as concerns the level of sterling, that is one of the factors that my right honourable friend the Chancellor takes into account. But we do not believe that it is possible to make the level of sterling the primary objective of economic policy. As I have said on a number of occasions, we believe that meeting inflation targets is a vital aspect of keeping the economy on an even keel, with the prosperity increase and fall in unemployment that we have seen.
Baroness Farrington of Ribbleton: My Lords, will the Minister advise the House whether the increasing and prolonged trade deficit figures are a deliberate part of the Government's policy? How will those figures contribute in the long term to the overall battle against inflation?
Lord Mackay of Ardbrecknish: My Lords, we have moved a little away from inflation targets. However, the balance of payments is but one of the many aspects I have already mentioned that we have to look at when considering the economy and the policies that the Chancellor should follow. One of the important aspects about manufacturing industry in particular, but also the invisibles, is the considerable increase in inward investment in this country. If my memory serves me right, we gain about one-third of all inward investment coming from the rest of the world into the European Union. I believe that that is thanks to the labour market policies pursued by the Government.
Lord Taylor of Blackburn: My Lords, does the Minister agree that the price we have had to pay for lower inflation is very tragic? The number of people in gaol, the number of broken homes, the number of children taking drugs are all part of the social price that we have had to pay.
Lord Mackay of Ardbrecknish: My Lords, I do not agree with the noble Lord. I do not see any link between the number of people taking drugs and the inflation rate. What I see and appreciate is the fact that, thanks to the economic policies of the Government, we have seen unemployment falling month by month and year by year. The figure was down 300,000 last year in significant contrast to Germany, France, Italy and Spain whose unemployment figures are rising and are much higher than ours.
Lord Acton: My Lords, bearing in mind that we live in a global economy, does the Minister recall that on 27th January, in reply to a Question for Written Answer, I was told that the most recent International Labour Organisation rate of unemployment for the United Kingdom was 7.9 per cent., for the United States of America 5.2 per cent., and for Japan 3.4 per cent.? Should not the goal of this country be the American rate and ultimately the Japanese rate?
Lord Mackay of Ardbrecknish: My Lords, the noble Lord makes a valid point. If we consider the figures for Japan and the United States, we see the kind of targets for unemployment at which we should be aiming. The United States record over the past decade in creating new jobs is very impressive indeed. It is one that the European Union should be seeking to copy instead of appearing to go in the opposite direction. However, the fact is right: our unemployment is still above the Japanese and United States level. But the most recent figures that I have indicate that the UK is at 7.5 per cent., Germany 9.3 per cent., France 12.5 per cent., Italy 12.2 per cent. and Spain 22.3 per cent. It seems to me that we have something to teach our European friends as regards the labour market.
Lord Acton: My Lords, surely the question is how we are doing on global terms. To say that we are doing better than Weimar levels is no doubt admirable, but surely we should be doing as well as America or, if possible, Japan.
Lord Mackay of Ardbrecknish: My Lords, I absolutely agree with the noble Lord on that. I thought that I made that clear. We have to look at the levels of unemployment in the United States and Japan. That means considering how to create new jobs. I do not have the figures with me but the American creation of jobs in the past decade has been really impressive in contrast to the European figure.
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