Letter: Raise taxes, not interest rates

Sir: The emphasis which Lord Desai (Letters, 31 May) places on interest rates not being raised at this juncture, to avoid a rise in the exchange rate, recalls the period of shadowing the German mark in 1987- 88.

As related by Margaret Thatcher in her memoirs: "For the whole of this period the interest rate was too low. It should have been a good deal higher, whatever the effect on the level of sterling . . ." In view of this episode and its consequences, there would be no point in repeating it now.

However the Bank of England's freedom to conduct monetary policy is exercised, any debate which assumes that higher interest rates can be a substitute for increased taxation, or vice versa, seems rather artificial.

Monetary and fiscal policy ought to be complementary - another economics lesson which should have been learnt over the years.

RONALD EYRES

London NW5