HC Deb 23 June 1969 vol 785 cc1001-10
The Chancellor of the Exchequer (Mr. Roy Jenkins)

On 14th May I told the House that there had been discussions with the I.M.F. staff about further standby facilities for the United Kingdom, and that a full statement would be made when the arrangements were complete.

These arrangements are now complete. On Friday last the fund board approved a standby facility for the United Kingdom of 1,000 million dollars over the next year. Five hundred million dollars are available for drawing immediately; the rest will become available in three quarterly tranches, after consultation with the fund in each case.

The amount and phasing of this facility is related to the schedule of repayments in respect of our drawing in May, 1965. This was 1,400 million dollars, of which 600 million dollars have so far been repaid and a further 800 million dollars remain to be repaid in instalments between now and May, 1970. The new arrangement is a way of refinancing part of our debts. Our total indebtedness to the fund, so far from being increased, will be approximately 400 million dollars less in May, 1970, than it was a year ago, on the assumption that we draw the full amounts.

In accordance with normal practice, I addressed a Letter of Intent to the managing director on 22nd May. Copies have been made available to hon. Members in the Vote Office this afternoon and the Letter will be published in the OFFICIAL REPORT. The letter follows the main lines of the financial policy announced in the Budget. But for the present purpose I have expressed two features of that policy in quantitative terms. First, I am stating an objective of a £300 million balance of payments surplus for the current financial year. This is an interim objective, a measure of our intended progress towards the continuing surplus which we need.

Second, I emphasised in the Budget the need for restraint in the expansion of credit to the domestic economy. Domestic credit expansion—that is, broadly speaking, the net addition to the borrowing of the public and private sectors taken together—is intended to be limited to not more than £400 million in 1969–70.

In addition to the annual figure, I have made estimates, of which I have informed the I.M.F., of an appropriate quarterly path for domestic credit expansion and for the central Government borrowing requirement within it. I do not propose to publish these quarterly figures. Were I to do so, I would be encouraging speculation in a way that would make more difficult the management of the gilt-edged market.

I regard the conclusion of these discussions with the Fund as satisfactory. The House will have the opportunity to discuss the matter on Wednesday, when I hope to enlarge on this statement.

Mr. Iain Macleod

The House will be grateful to the Chancellor for making available in advance of the debate both the statement today and, more particularly, the Letter of Intent. As he says, the debate will take place within a very short time.

Is the Chancellor aware that both his statement and, more particularly, the Letter of Intent make quite clear his capitulation to the monetary policy doctrines of the I.M.F.? As this is a matter of such grave importance, it is probably better to debate it and, therefore, I do not wish to pursue it further by questions this afternoon.

Mr. Jenkins

I note what the right hon. Gentleman said. I will not pursue him further than he wished to pursue me, except to say that it is rather odd to describe as capitulation a policy which I clearly announced in my Budget speech two-and-a-half months ago and which I intend to pursue.

Several Hon. Members

rose—

Mr. Speaker

Order. I remind the House that we are debating this statement on Wednesday.

Mr. Barnett

Does paragraph 11 of the Letter of Intent mean that the import deposits scheme is to continue beyond the end of this year? How does my right hon. Friend expect to get an overall surplus on total balance of payments, including capital account, without adequate control over capital outflow? Does it mean that he intends to maintain a stricter control over capital outflow in future?

Mr. Jenkins

The import deposits scheme remains exactly as stated by the Government and is not affected one way or the other by paragraph 11 of the Letter of Intent.

I remind my hon. Friend that our capital account has been in balance for the past year on private account and that even allowing for some official outflow the deficit was only £7 million.

Mr. Tapsell

Does the Chancellor still stand by his declaration of a year ago that it was essential for the country to achieve an overall balance of payments surplus of £500 million a year?

Mr. Jenkins

What I said a year ago was that it was desirable to move as quickly as we could towards a balance of payments surplus of that order. I still believe that that is desirable.

Mr. Cant

Would not my right hon. Friend agree that the attitudes of some hon. Members on either side of the House to the I.M.F. is a strange mixture of pessimism and paranoia? While one would welcome the acceptance by the Chancellor of the monetary policy as outlined on previous occasions, may I ask whether he will not in any circumstances be seduced by the new argument of the Chicago school in relation to float-exchange rates or even gliding parities?

Mr. Jenkins

I have no intention of either floating or gliding.

Mr. Sandys

Will the Chancellor say who governs Britain—the international bankers or the T.U.C.?

Mr. Jenkins

Her Majesty's Government govern Britain, as they did when the right hon. Gentleman was a member of a Cabinet which wrote four Letters of Intent to the International Monetary Fund without publishing a single one of them.

Mr. Dickens

Is my right hon. Friend aware that few will be deceived by the generally soporific and utterly misleading terms set out in the text of the letter? Is he further aware that his claim that the text of the letter is in line with his Budget strategy more than amply confirms the worst suspicions of those of us who want to see more rapid expansion, a fall in the level of unemployment, and an increase in the rate of investment?

Mr. Jenkins

I hope that nobody, least of all my hon. Friend, will be deceived by anything. I hope that, if he disagrees with my Budget strategy—I regret it if it is so—he will blame me for that and not the I.M.F.

Mr. Stratton Mills

Is the Chancellor aware of the formidable difficulty there is in believing his forecast of £300 million in the light of previous experience? What is to happen if this forecast is not met?

Mr. Jenkins

I think that the prospects of achieving this are good. Nobody can predict with certainty that this will happen, but I am determined to pursue the policies necessary to achieve it.

Mr. Sheldon

Is my right hon. Friend aware of the very great risk that is incurred in committing ourselves to a precise figure of money supply is very likely to cause? Will the tranches available from the I.M.F. be dependent on the respective performances of this indicator and other indicators?

Mr. Jenkins

There is no direct trigger relationship, as it is sometimes called. As I said, we shall consult the I.M.F., but in those consultations not only this factor but all the factors in the situation, including the general state of our economy and of our balance of payments, will be taken fully into account.

Mr. Richard Wainwright

In view of the Chancellor's explicit opinion in his Budget Statement that there is no magic about a particular figure for a surplus, why is he now committing the Government to a specific figure at a specific date?

Mr. Jenkins

There is no magic about it, and I am not committing the Government to a specific figure. I would like to get more than £300 million, and think that we might get it.

Mr. John Mendelson

Whilst my right hon. Friend is obviously confining his remarks to a minimum because of the debate, can he comment today, on this first occasion, on the fears that have been expressed, not by people who want to ask trick questions, but by serious economists—[HON. MEMBERS: "Oh."]—on both sides; there was the question by the right hon. Member for Streatham (Mr. Sandys) about the T.U.C.—that the restriction on credit may have a serious effect upon our industrial production at a time when there are other independent tendencies moving in the direction of recession?

Mr. Jenkins

Of course, I take into account the fears that have been expressed. As I have said previously, and gladly repeat today, the object of my policy is to achieve the most rapid improvement in the balance of payments compatible with a good rate of growth. Certain dangers have to be balanced, though I am bound to express the view that I think that some of the dangers of recession have been exaggerated in recent days. After all, the unemployment figures published last week were the lowest for 23 months and the figures for unfilled vacancies were the highest for two-and-a-half years.

Sir D. Walker-Smith

Asking as a serious if not, I hope, particularly solemn economist, and reverting to the question asked by the hon. Member for Heywood and Royton (Mr. Barnett), will the Chancellor confirm that control of capital payments overseas to the Western European sector would be incompatible with the Treaty of Rome, unless he envisages a situation where Britain is going perpetually to invoke the exemption clauses in respect of balance of payments difficulties?

Mr. Jenkins

I used to argue with the right hon. and learned Gentleman on this subject, but it is a little time since I have actually studied the Treaty of Rome. I am prepared to look at this matter immediately it becomes actual, but there is no question at the moment of there being freer capital movement than we have at present with various parts of the world.

Mr. Albu

Did my right hon. Friend say that he intended to attempt to reach a balance of payments surplus of £300 million this year or at the rate of £300 million by the end of the year? Is it his intention to use the drawings from the fund only for the rescheduling of payments from previous borrowings?

Mr. Jenkins

I indicated that I hope that the balance of payments surplus in our financial year 1969–70 would be £300 million—a total and not a rate.

On the second part of the question, it is, broadly speaking, the case that we intend to do this, but because of the exact conjuncture in time of drawings and instalments due there is no exact balance between the two. After all, we have at present paid off £600 million and we shall withdraw rather more, but the net effect of the whole exercise is that when we come to the end of the repayment period in May we shall owe the I.M.F. less than we did a year ago.

Sir G. Nabarro

How does the Chancellor relate his repeated references to adhering to his Budget Statement with the fact that he has apparently overturned that part of his statement which said that he intended to implement without delay, this Session, the principal provisions of the White Paper "In Place of Strife"?

Mr. Jenkins

Because it has proved possible to get an arrangement with the T.U.C. which I believe will work. My right hon. Friend the First Secretary of State made it quite clear in the Budget debate that, if objectives could be secured that way, that would be satisfactory. I believe that it is satisfactory. If hon. Members are interested—I do not expect the hon. Gentleman to be—in improving the climate of industrial relations during the next year, they should take some satisfaction in the settlement rather than being merely interested in a narrow piece of party politics.

Mr. Michael Foot

What is the Chancellor's forecast for the level of unemployment over the next 12 to 18 months? Will he take it that, despite the latest welcome reduction, many of us still regard that figure as being intolerably high? Talking of serious economists, will he give us an undertaking that the whole Government repudiate the views of Professor Paish?

Mr. Jenkins

On the first part, I am not prepared to publish an exact forecast, as it has not been done previously. I know my hon. Friend's views on this matter. I know, also, that he and many others expressed great concern at this time last year and thought that the rate would rise substantially during the late summer, autumn and winter. It did not do so. That does not prove anything for the future, but it does prove that desirability of waiting and seeing what happens.

I am reasonably optimistic about the prospect. I believe that the rate of growth I announced in my Budget speech can be attained, provided that our export performance does well and our balance of payments follows my forecast.

Mr. Longden

Irrespective of who signs Letters of Intent, is it not obvious that people who are constantly being asked to afford facilities to chronic borrowers will make their terms harsher? Is not what we should be worrying about the fact that the British Government have to go cap in hand every six months or so to beg more money to enable us to spend more than we are able to earn?

Mr. Jenkins

I hope that in that event the hon. Gentleman and his hon. Friends will give more support to measures to put the balance of payments right than they have hitherto done.

Mr. Marquand

Will my right hon. Friend give the House some idea of what the implications for the £300 million surplus target he mentions in the letter are of the recent under-count in exports which we have heard about?

Mr. Jenkins

To some extent these figures make the target easier to achieve, though as the error, although it affects the balance of payments, does not affect our debt position or our reserve position, and as the standby is for dealing with our debt position and our reserve position, it makes it the more desirable if we can to get beyond that target at the earliest possible date.

Several Hon. Members

rose—

Mr. Speaker

Order. The House is to debate this issue on Wednesday. I must protect the business of the House.

Following is the Letter of Intent:

Dear Mr. Schweitzer,

The Government of the United Kingdom hereby requests of the International Monetary Fund a stand-by arrangement under which for a period of one year the United Kingdom will have the right to purchase from the Fund currencies of other members in exchange for sterling in an amount equivalent in total to $1,000 million. The Government intends to make an immediate drawing of the equivalent of $500 million. Before making a request for a further purchase under the stand-by arrangement, the Government will consult with the Fund and reach understanding regarding the circumstances in which such purchases may be made. Before making purchases under the requested stand-by arrangement, the Government will consult with the Managing Director on the particular currencies to be purchased from the Fund.

2. The purpose of this stand-by is to support the Government's economic objectives and policies. It will facilitate the repayments of external debt now falling due, including the scheduled repurchases of sterling from the Fund in respect of the 1965 drawing by the United Kingdom, and will assist in maintaining stability in the international monetary system.

3. In accordance with the normal practice of the Fund in regard to applications for stand-by facilities, I summarise in this letter the Government's main economic objectives and policies, as set forth in my Budget speech on 15th April, 1969 and other recent statements of policy.

4. As I said in my Budget speech, it is the Government's policy to do everything necessary to put the United Kingdom balance of payments on a secure and healthy basis, as an essential means to sustained growth and prosperity. The Budget was designed to continue and strengthen the balance of payments strategy which the Government has been pursuing. The objective is to obtain a substantial and continuing balance of payments surplus.

5. Strong action has been taken, and the balance of payments has already improved considerably. Progress has not been as large or rapid as the Government wished but the Government intends it to continue and strengthen. The Government is taking and will continue to take the action necessary to this end. The growth of public expenditure and private consumption is being limited so that there is room for the desired substantial and continuing balance of payments surplus to develop. The intention is to make sure that the turn-round in the structure of the United Kingdom economy gains full momentum. Substantial further progress is intended and expected during the next year. In the financial year ending in March, 1970 the objective is to obtain a surplus of at least £300 million on the current and long-term capital account of the balance of payments.

6. Public expenditure for both 1968–69 and 1969–70 is running within the totals announced by the Government in January, 1968 (Cmnd. 3515). In 1968–69 aggregate expenditure is estimated to have increased in real terms over the previous year by 4.1 per cent. This was within the announced limit of 4.75 per cent. For 1969–70 public expenditure will again be held within the totals announced in January, 1968 which allowed for an increase of 1 per cent. in real terms over the planned level for 1968–69; the increase over the actual outturn for 1968–69 will be larger.

7. The full year yield of the increases in direct and indirect taxation made in the 1968 Budget, in November, 1968 and in the 1969 Budget, is in total some £1,500 million. The Central Government borrowed £1,331 million net in 1967–68. In 1968–69 the Central Government borrowing requirement (excluding receipts from import deposits) was about £70 million. In 1969–70 the Central Government's accounts (again excluding import deposits) are intended to be in surplus by at least £850 million, and the current estimate is of a surplus approaching £1,000 million, an improvement of more than £1,000 million over the previous financial year.

8. As was also stated in the Budget speech, the Government attaches the greatest importance to monetary policy, which provides an essential support to fiscal policy. The rise in money supply in 1968 of £986 million was broadly in line with the growth of G.N.P.; but the increase in credit in the economy was too high, and the Government intends not to permit credit to be supplied to the economy on anything like this scale in 1969–70.

9. The Government will therefore watch closely the development of domestic credit expansion during the year. The Government's objectives and policies imply a domestic credit expansion for the private and public sectors in the year ending 31st March, 1970 of not more than £400 million, compared with some £1,225 million in 1968–69. It is the Government's policy to ensure that the course quarter by quarter of domestic credit expansion as a whole, and of the Central Government borrowing requirement within it, is consistent with the intended result for the year as a whole, and to take action as appropriate to this end.

10. The statutory powers relating to prices and incomes policy introduced in the exceptional circumstances following devaluation continue in effect until the end of 1969. Thereafter the powers of Part II of the 1966 Prices and Incomes Act will be activated, and will be used to defer, in appropriate cases, the implementation of a pay settlement or price increases for three to four months in the context of a reference to the Prices and Incomes Board. Further guidance to negotiators will be issued in a new White Paper later in the year.

11. The Government is confident that its present policies will strengthen sterling as an integral part of the international monetary system. Freedom of international trade and current payments continues to be an aim of policy to which the Government attaches great importance. It is the Government's policy to maintain the present degree of trade liberalisation, and to abolish as soon as the balance of payments allows the restrictions which it currently maintains on travel expenditure and small cash gifts, and also the import deposit scheme.

12. The Government believes that the policies set forth in this letter are adequate to achieve the objectives of its programme, but will take any further measures that may become appropriate for this purpose.

13. The Government will consult with the Fund from time to time, in accordance with the regular policies of the Fund on such consultation, about the course of the United Kingdom economy and any further measures affecting the balance of payments that may be appropriate.

Yours sincerely,

ROY JENKINS.