HC Deb 23 February 1971 vol 812 cc311-2
Q4. Dr. Gilbert

asked the Prime Minister how many times he has been officially entertained at the Bank of England since 18th June, 1970.

The Prime Minister

None, Sir, but I have accepted an invitation to lunch with the Governor and the Court on 6th May.

Dr. Gilbert

When the Prime Minister meets the Governor will he discuss with him the fact that his Government's heavy reliance on monetary policy is having serious effects on efficient firms which have a small ratio of cash to sales, whereas inefficient firms with large cash balances not invested are managing to get along all right? Is not this a policy of the survival of the fattest rather than the fittest? Was not this comment a criticism which the right hon. Gentleman himself made of the introduction of corporation tax, a very fair criticism when the tax was introduced in 1965? Are we not now saddled with a situation in which the pernicious effects of the tax system, which the right hon. Gentleman himself identi- fied, are reinforced by his own Government's monetary policy?

The Prime Minister

It is not true that the Government are relying only on monetary policy. We are relying on a combination of economic weapons in order to deal with the inflationary situation. Nor is it true that because a firm does not have a satisfactory cash flow, it is therefore efficient, or because it has cash resources, it is inefficient. That surely is a very arbitrary judgment.

Mr. Marten

If the Prime Minister does lunch at the Bank will he remind the Governor that under the Labour Government Bank Rate was never so high for so long since 1694 when the Bank was formed?

The Prime Minister

I do not think it necessary to remind the Governor or the Court of that fact.

Mr. Cant

When this engagement takes place, would the Prime Minister congratulate the Governor upon his control of money supply, at any rate in recent weeks? Would he accept the fact that the problem of managing the economy is a consequence of the very large balance of payments surplus bequeathed to the Government, plus the fact that Bank Rate is at such a very high level that we have this vast flow of hot money? Would he say to the Governor, "Please reduce Bank Rate so that we can ease this problem"? Is he aware that that might lead to a more satisfactory solution to the inflation problem?

The Prime Minister

I am glad to hear the tribute to the Governor over the control of the monetary policy, because it has been regained in the last six months. When the hon. Gentleman speaks of an inflow of money into this country he is also accepting that the control of monetary policy has been maintained even in the face of this inflow, and that is the consequence of activities on the gilt-edged market.

Mr. Barnett

If the Prime Minister is using not only money supply, would he say what other solutions he is using to reduce unemployment?

The Prime Minister

We had this debate on Thursday. Unemployment at the moment is to a large extent the reflection of the cost inflation against which we are battling.