§ 51. Mr. Cronin
asked the Chancellor of the Exchequer if he will make a statement on the circumstances under which the Bank of England took action which resulted in a sudden depression in the value of Government securities on 24th February.
The fall in the prices of Government securities on 24th February was primarily attributable to the action of those holders who decided on or about that date to make very substantial sales and was of course a natural consequence of such decisions. The Government do not believe that the market ought to be insulated by official action from the effects of decisions by holders of gilt-edged stock to buy or sell, though at times it may be desirable to assist in maintaining orderly market conditions. I am entirely content with the course adopted by the Bank of England in allowing the weight of selling on that occasion to be reflected in a fall in market prices.
§ Mr. Cronin
If, as appears to have been the ostensible purpose, this withdrawal of Bank of England support was to limit bank advances, why did not the right hon. Gentleman use other of the several methods at his disposal—a direct request to the banks, or the powers given to him under the Bank of England Act, or the power to withdraw special deposits from the banks?
I think that the hon. Member has not quite got this matter in perspective. It was not a withdrawal of support, but only to a support at some lower prices. Support was not completely withdrawn.
§ Mr. Roy Jenkins
Is the Chancellor trying to tell us that the Bank of England behaved in a purely neutral manner on this occasion and showed a behaviour in no way accounted for by a desire slightly to tighten the credit mechanism?
The position, as the hon. Gentleman knows, is that when stock is quoted in rather unusual quantities the authorities very often ease the 1118 transition in prices by some support. In this case there was a quite exceptional weight of sales and the extent to which, at any rate the point at which, they supported the market was a rather greater differential than usual. But their practice would depend on the volume of stock which was hanging over the market. It would be quite unreasonable to expect the authorities to buy stock regardless of quantity.
§ Mr. Gaitskell
Will the right hon. Gentleman answer my hon. Friend's question about the intentions of the Bank in this matter? Was it intended to tighten credit or not?
It was in line with the Bank's normal practice, except that the amount of stock offered, on top of what the Bank had already bought, was quite exceptional and unusual and, therefore, the differential was larger than usual. It is that rather than any sharp change in policy.
§ Dame Irene Ward
Will my right hon. Friend bear in mind that those with small fixed incomes from securities of this sort are badly affected? Will he not agree that they are not likely to be able to invest in equity shares?
I will, of course. I am always sorry when holders of Government stocks suffer loss. I will certainly bear in mind what my hon. Friend has said.
§ Sir C. Taylor
Can my right hon. Friend say why there was this abnormal weight of sales at this time? Had the abnormality anything to do with the decisions of the Bank of England?
I think that the rather exceptionally large volume of stock offered for sale was due to sales by the banks in order to improve their liquidity in view of the growing demands on them for advances.