HC Deb 19 February 1968 vol 759 cc173-85
Mr. Alison

I beg to move, Amendment No. 13, in page 10, line 21, to leave out from ' raised ' to ' and ' in line 22 and insert: 'only by the creation and issue of securities or as provided in subsections (5), (6) and (7) of this section'. The Amendment owes its inspiration to my right hon. Friend the Member for Thirsk and Malton (Mr. Turton). I hope that he will be able to elaborate on my few words and further expound its value. It is not unrelated to the earlier series of Amendments, the object of which was to try to tighten up the process of Government financing, or at least the surveillance which the House has over that method of financing.

The Amendment gives us the opportunity to consider, perhaps in slightly more detail, how vital it is that the whole machinery of Government financing should be tightened, and at the same time it gives us another quick look at some of the extraneous sources of finance which the Government have at their disposal, and over which Parliament has remarkably little power of scrutiny.

The first reason we feel that we want this tightening up process is the enormous and growing scale of Government expenditure, of which the Chief Secretary must be very well aware. I am not referring simply to the social services expenditure, which in many ways is by no means the one which makes the big inroads. It is the huge volumes of capital raised by the Government, and to be raised in future through the National Loans Fund, for onward transmission to the nationalised industries. When one reflects on how the scale of the financing has grown in the last five or seven years one becomes acutely aware of the need to keep a grip on it.

The second point is the way in which this juggernaut of Government expenditure has gone on even in periods when the Government have allegedly been imposing a squeeze. One of the most significant episodes we have had under the present Government was surely in the year beginning July, 1966, when the Government imposed a squeeze on the economy allegedly designed to extract£500 million worth of spending power, on demands on goods and services, by means of the tax apparatus, and at the same time increased the expenditure for which the Exchequer was responsible by more than they took out of the system through taxation—about£725 million extra Exchequer expenditure at a time when they were reducing expenditure by the private citizen to the extent of£500 million a year. The case is very formidably argued in "The National Recovery Programme." Perhaps the Chief Secretary will make an allusion to that.

It is not only the scale of Government expenditure and the tendency for it to increase relentlessly. The real difficulty that we face in the present situation is the corresponding difficulty the Government find in meeting the extra outlay that they have to make by genuine borrowing. This is where the various extraneous sources come into operation which we hope we shall he able to pinpoint and eliminate by our Amendments.

In considering the Exchequer net deficit, the large gap to be financed outside the tax-paying system, I remind the Chief Secretary that in the quinquennium 1961–66 the Government's domestic borrowing—the amount they were able to borrow in terms of Government marketable securities, sales of stocks and shares to the buying public—was able to be precisely counterbalanced only by the amount that they were able to raise in non-marketable securities. They had to pay more back in terms of market securities—short-term, medium-term and long-term bonds sold to the banking and non-banking sector—than they could borrow. So the Government were net losers, a serious situation for them. They were able to meet their requirements in terms of actual loans from the public by the various non-marketable obligations which they incurred through the Post Office and Trustee Savings Banks and the rest, but they were net losers to the extent of nearly£500 million on their dealings with marketable securities. The market is glutted.

Also, in conditions in which inflation is rampant it is not surprising that the public are not interested in medium-term and long-term gilt-edged securities whose capital value is almost bound to depreciate, which is no hedge against inflation. The Government are finding themselves in a progressively worse position, loans to the public on medium- and long-terms by the Government being more and more unacceptable to the public. The whole tendency is for borrowing to have to switch increasingly into the short end of the market, with all its problems of the increasingly liquid base, the banking system and the general inflationary tendencies in the economy.

It is because the Government are finding that the market is glutted with the traditional kind of Exchequer instruments—the loans and issues of medium-and long-term—that they are tending to have recourse to these various extraneous sources. We have touched on one. The right hon. Gentleman was kind enough to make a reference to it and try to give us reassurance. It is the sterling market equalisation account as a result of the gold and dollar currency and corresponding inflow of sterling, which goes on to the Exchequer and helps with its financing problems.

But it is not enough simply to say that the Public Accounts Committee has access to the way this is managed and engineered and how much the Government get out of this Exchange Equalisation Account. The real problem is that the Government should not be using this once-for-all source of financing. They should not be living on this sort of capital. If there is an outflow of currency and a corresponding inflow of sterling, so that the Government can use this windfall of sterling, the whole situation in which gold and foreign currency is flowing out on a grand scale and making us lush with sterling is one in which the Government should cut back on this juggernaut of expenditure.

Yet the Chief Secretary says that all is well, that the Public Accounts Committee can have access to it. But that is part of the problem. The Bill does not give a really sound instrument to control Government expenditure in the sense of regulating the basic health of the economy. The same applies in the case of another extraneous source which is not, strictly speaking, mentioned in the Bill—the sterling accruing to the Exchange Equalisation Account not through the loss of gold and foreign currency but because the Government are borrowing overseas. If they are borrowing overseas, and the money comes in in the form of gold and dollar currency—as naturally it will—in short-term expenditure, one has to think of repaying it and getting out of debt as soon as possible. It creates a surplus of sterling requirements to the E.E.A. which gets back to the Exchequer for financing purposes. This again is a once-for-all source which the Treasury can use for the Government's financing sources. But it is an illegitimate source for the Government's day-to-day financing, and we have no control over this sort of financing.

There is also the scandalous ability the Government have through the fiduciary issue—the issue of notes and coins. I recall the striking passage used in the Radcliffe Report—admittedly under a Tory Government—when it was said that the Treasury was able to meet the Government's financial needs to the extent of£700 millions over a period of five or six years through the fiduciary issue. This, of course, is tantamount to saying that they printed money. No wonder that sometimes the Directors of the Bank of England include famous newspaper proprietors with excellent access to printing machinery. This seems one of the traditional ways of financing the Government's own deficits.

Then we have a source which is an item which appears in the pro forma of the accounts which the Financial Secretary gave us—interest-free notes, which is a useful source of funds to the Treasury to which the Treasury can have access and which will appear on the National Loans Fund Accounts in future.

Interest-free notes, I understand, is a situation which arises when the Government have to borrow massively from the I.M.F. and either receive foreign currency from it for bailing out purposes in this country and they correspondingly have to send the I.M.F. sterling equivalent in interest for exchange for foreign currency they receive from the Fund. As I understand this matter of interest-free notes, the I.M.F. lends back to the Government the sterling which they originally exchanged for foreign currency. They have the best of both worlds. They have foreign currency to get them out of a jam, and they use the sterling which they have set apart. This item of interest-free notes is thrown into the kitty for the Government's juggernaut process of huge outlays, with no control over the underlying economic situation which gives rise to the need for these loans and the outflow of confidence in sterling which the loans represent.

10.45 p.m.

All these other sources which my right hon. Friend the Member for Thirsk and Malton is trying to pin down in this Amendment, outside the strict issue of securities, outside the methods specified in subsections (5), (6) and (7), have grave disadvantages. They are not, strictly speaking, susceptible to Parliamentary control in terms of the volume of funds upon which hands can be laid for Government financing purposes. Nearly all of them represent once-for-all sources, which means in effect living on capital—the Exchange Equalisation Fund, the interest-free notes and all the rest of it. There is no real discipline imposed upon the Government in their onward march of Government financing. For these reasons we want to pin the Government narrowly down and to turn the tourniquet on these sources in all sorts of different quarters which flow into the Government—the I.M.F., loans overseas, the run on sterling and all the rest of it.

Finally, one should mention this mysterious facility which we know the Government have even when they increase the floating debt, which is a form of issue of securities about which we all know and which is permitted by my right hon. Friend's Amendment. Even when they finance themselves through Treasury bills and the floating debt, there is this mysterious and inflationary technique through the use of the Bank of England of the giving of help, as it is euphemistically called, to the market, under which, when the Government want to borrow from the market and the market has not got the money, the Bank of England dips into the kitty, buys Treasury bills and short-dated or even medium-dated securities in order to get the money to lend back to the Government. So we get this vicious circle of inflationary finance.

We believe there are real gaps in the financing facilities of the Government over which Parliament has no control, and we want to see this haemorrhage finally healed.

Mr. Nicholas Ridley(Cirencester and Tewkesbury) rose—

Mr. Diamond

With respect—I offer no discourtesy to any hon. Member—having listened carefully to the extremely long speech of the hon. Member for Barkston Ash (Mr. Alison), who built up an enormous political and inaccurate case on the basis of this Amendment, I thought it would be appropriate for me to reply immediately so as to remove any misconception.

What the Amendment deals with, as opposed to what the hon. Gentleman entertained us with, is the removal of certain words. The Amendment proposes that the following words shall be removed: …in such manner and on such terms and conditions as the Treasury think fit… The hon. Gentleman wishes these words to be removed, and it was on that basis that he gave us his interesting and entertaining speech.

I want to make it absolutely clear straight away, therefore, that what he is proposing is that powers which the Treasury has had in these precise words since 1919 should be withdrawn.

Mr. Ridley

Too long.

Mr. Diamond

I wonder how many times the hon. Gentleman said that when his party was in power. I am resting myself quite simply on the proposition that these words and these powers were thought right in 1919 when they were first introduced. They were confirmed in the National Loans Act, 1939. They have been there ever since. They have been found right and we propose to continue them. I reject the Amendment.

Mr. Ridley

The Chief Secretary has done no service to the House by rejecting the Amendment with such a cursory argument. He says merely that because it has been the custom since 1919 that the Treasury should, so to speak, "fiddle the books", he does not see why the Treasury should not continue to fiddle the books from now on. This is the root cause of the maladie anglaise. It is this money printing which, the Chief Secretary knows, goes on which is doing our currency in. It is no argument to say that, because the Tories did it, as did the Labour Government before that and the Tories before that, right back to 1919, it should be sacrosanct and that it is wrong for us to question it, or to suggest in any way that it should be stopped.

The Amendment would prevent the Treasury from raising money through the National Loans Fund by increasing net indebtedness to the Bank of England Banking Department, or increasing the notes and coins in circulation. Those are two rather sophisticated forms of money printing in which the Treasury is currently engaged.

I have taken the trouble to arm myself with the figures to see to what extent it is being done. I said earlier that it has been done by Governments of both parties for many years, but what is alarming is the extent to which it has been accelerated by right hon. Gentlemen opposite. The difference between net borrowing requirement and taxation surplus may not be the most important figure, but it is the figure which I have been studying. This is the figure which is made up by borrowing abroad, by borrowing at home, by a reduction in our gold and dollar reserves and by printing money. It may interest the House to see the way in which the figure has suddenly leaped. In 1958. it was£182 million; in 1959,£314 million; in 1960,£394 million; in 1961,£211 million; in 1962,£66 million; in 1963£478 million; in 1964,£386 million; in 1965,£576 million; in 1966,£740 million; and in 1967,£943 million.

Those are by no means figures of which we can be proud. They show a rapid acceleration and the failure of the Government to borrow the money which they claim to be borrowing. It would not be so bad if this money could be borrowed from the public, but that cannot be done—it would be out of order to explain why now. Suffice it to say that we do not borrow this money, but we have funded it. partly by borrowing abroad and partly by printing. We are therefore right to try to write some disciplines into the Bill.

In Committee the Financial Secretary tried to suggest that it would be wrong of Parliament, myself in particular, to try to write into the Bill anything which would bind future Chancellors of the Exchequer, which would bind future Governments in future years, about how to conduct the nation's financial affairs, because Parliament could never bind itself for the future. But every other country dos bind itself for the future. West Germany, for example, has a constitutional law which limits what the Government may borrow short, either from the Bundesbank or by the issue of Treasury notes, to£300 million at any one time—

Mr. Diamond

There is nothing in the Amendment about limiting it.

Mr. Ridley

The right hon. Gentleman is wrong. The Amendment would limit the Government by preventing them from using foreign borrowing or increasing their net indebtedness or increasing the fiduciary note issue to finance their schemes and the vast amount of capital which they dish out to their creatures, like the Transport Holding Company and the National Coal Board. It is this vast flow of money, which they call capital, to the nationalised industries, which is bringing our currency into disrepute. The Chief Secretary knows that. At least they should raise it honestly on the market or from the citizens to cover this profligate spending.

The argument that the House should not know in advance does not hold water. Going on the gold standard and having gold behind one's currency is a discipline. The Germans do it by the law which I mentioned. There are millions of disciplines and now the Government have one, in the form of the I.M.F. string that the net borrowing requirement should not exceed£1,000 million. I would have preferred a limit of£100 million, which would have been a much more realistic straitjacket for the Government and would greatly have benefited them.

The Amendment is very important. The fact that it is late at night, at the tail end of a Bill which has not aroused a great deal of interest, should not take the House's attention from the fact that my hon. Friend is here proposing a means of limiting the amount of bogus money which the Government can print—[Laughter.] It is no good laughing at this. This is not a technicality: this is where the currency is being eroded. For every£100 in a citizen's pocket, a few£s extra is being printed, so his£100 is worth less. It is this constant process, when the Government's credit has evaporated of printing or borrowing abroad at high rates of interest to make up the borrowing which has destroyed our financial standing and the honesty of our currency.

I earnestly expect the Amendment to be accepted because it contains Parliament's first serious attempt to put some shackles on this rake's progress. This is not a laughing matter, but a very important point. Everything which my hon. Friend said is true, except that he said it in such a sophisticated and charming way that it might not have been immediately apparent to the Chief Secretary. The Chief Secretary's answer—that, because he had been doing it for 50 years he would go on doing it—was not worthy of him. I hope that he will reply in detail.

Mr. Turton

It is curious that, when right hon. Gentlemen get on to the Treasury Bench, they become more and more reactionary the longer that they are there. I am surprised that the Chief Secretary, whom I used to know in the old days as a progressive Member, now has this reactionary tendency, and argues that, because something has been going on since 1919, we cannot change it.

My hon. Friends have put the case for the Amendment very clearly. What is wrong with this country is, unfortunately, the Treasury quasi-automatically creating money, and it is dealt with in the Clause. I fear that the Amendment does not go nearly far enough to stop the Treasury. At least, it gives them a certain amount of fresh discipline to try to stop what has been going wrong. I do not say ever since 1919, but I certainly say in a period of six years, extending back to the time before the Chief Secretary entered the Government.

11.0 p.m.

We are asking why the Treasury should have power to raise money in any way it likes. If it wants that power, let the Government define it in the subsection. We have provided that the Treasury can raise money under subsections (2), (5), (6) and (7). What more does the Treasury want? I know that it is a dangerous way to raise money by Treasury bills. If the Government want another paragraph dealing with some queer transaction through the Exchange Equalisation Account, no doubt that could be inserted if the right hon. Gentleman will recommit the Bill for that purpose.

I beg the Government and the right hon. Gentleman to think deeply and clearly on this subject. What has gone wrong has happened not merely with the present Government, although, as my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) has said, they have been using the printing machine for creating money to a far greater extent than their predecessors did; but their predecessors did it, too. That is the kernel of the matter.

It is no good merely trying to cut the social services. What must be done is to stop the inflation of money at the source, which is here. On an earlier Amendment, the right hon. Gentleman said that the Bill was merely an accountancy measure. Clause 12 goes into a different field. It gives the Treasury power to inflate the currency. We ask that that power should be limited. If those outside the House of Commons read the reply given by the Chief Secretary to the Amendment, they will realise the danger from which the country is suffering from him and those who hold office with him.

Mr. Diamond

I rise to respond to the right hon. Member for Thirsk and Mahon (Mr. Turton), who was courteous in his comments, and to assure him that I trust that I have become no more reactionary than I have always been and to make clear to him that if the Amendment dealt for one moment with a limitation of inflationary tendencies, I would be only too happy to respond.

The Amendment has nothing whatever to do with that, nothing to do with the speech of the hon. Member for Barkston Ash (Mr. Alison) and still less to do with the speech of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). What the hon. Member for Cirencester and Tewkesbury wanted to do was to stop the Government having the power to provide the nationalised industries with the means they need, to cut the nationalised industries' throats. That is as plain as a pikestaff.

Mr. Ridley ros—

Mr. Diamond

I will give way later.

The hon. Member for Barkston Ash revealed his intention to anybody who has the minimum knowledge of psychiatry. He talked about pinning the Government down and turning the tourniquet. That is what he would love to do. Unfortunately, we are talking about means by which the Government borrow—not amounts which the Government borrow, not increasing amounts, minimum or excessive amounts, but the means by which the Government borrow. That is what the Amendment refers to.

All that the right hon. Gentleman and his hon. Friends are seeking to say is that whereas since 1919 the Treasury has had power to borrow in the most economic and sensible way, in the interests of the Government and of the country, now, because there is a Labour Government in power and no longer a Conservative Government, the Treasury should be limited in its borrowing facilities so that borrowing should be made more expensive to the Government and, perhaps, more remunerative to the lenders. Who knows?

Mr. Ridley ros—

Mr. Diamond

I will give way later, not now. I want to make the answer clear, because the hon. Member appealed to me to give him an answer. His speech was totally irrelevant to the narrow point of the Amendment, which seeks to deal with borrowing powers and to limit them in a certain way. It limits it in a way which the Treasury has never had it limited, and it would be against the interests of the Treasury, against the interests of the Government, against the interests of the people of this country who have to pay the amounts which borrowing money requires to be paid to service the loans. It would merely be putting a halter round our necks to provide for the political views of the hon. Gentleman who loathes, despises and hates nationalised industries, and of the hon. Member for Barkston Ash who hates this Government and everything to do with them. Having made that moderate and conciliatory speech I will now give way.

Mr. Ridley

I am grateful to the Chief Secretary for giving way. I did not say the nationalised industries ought not to have money. What I did say was that, instead of giving the Government power to print money to give to the nationalised industries, we should insist that they borrow money from genuine lenders. I hope the right hon. Gentleman will retract the remarks he made about me. If he looks at HANSARD he will find that I did not for one moment say that nationalised industries should not have money lent them, but that they should genuinely borrow from genuine lenders and not have the money printed on the Government's filthy printing presses. I should be grateful if the right hon. Gentleman will deal with that point and not with one which I did not make.

Mr. Diamond

It is a pleasure. I heard what the hon. Gentleman said. I am withdrawing nothing, because I heard the hon. Gentleman use words which described precisely the kind of attitude which I attributed to him.

I will now deal with the other question which I did not hear the hon. Gentleman raise, but which has been raised, and that is, why did the Conservative Government depart from having the nationalised industries borrow from the market? Why did the Conservative Government suggest that the nationalised industries should borrow from the Government and why have we continued it? The answer has been given many times—because it is cheaper. It is a cheaper way of borrowing, and we do not propose that the nationalised industries should be burdened with expensive loans even to conform to the hon. Gentleman's ideas.

Mr. Ridley rose—

The Deputy Chairman

Order. The hon. Member has exhausted his right to speak.

A mendinent negatived.

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