HC Deb 26 January 1971 vol 810 cc297-301
6. Mr. Barnett

asked the Chancellor of the Exchequer if he will make a statement on the extent to which he is using control of the money supply to control inflation.

Mr. Barber

A firm control of credit and money supply is an important part of our strategy for controlling inflation.

Mr. Barnett

Will the right hon. Gentleman now answer the question put to him by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins)? What does the right hon. Gentleman estimate the effect of his monetary policy will be on unemployment? Will it increase it or reduce it?

Rate, the hon. and learned Gentleman referred to the past. The Question asks about the position at the end of May, 1970, and how many O.E.C.D. countries had higher rates on 1st January of this year. On both dates, Bank Rate was 7 per cent.

The information is as follows:

Mr. Barber

I have said in the past, and I adhere to it in present circumstances in the light of the latest figures of unemployment and the information available, that we shall continue to pursue a tight money policy, which is essential if we are to get a grip on the present rate of inflation.

Mr. Sheldon

Answer the question.

Mr. Barber

That is our first task, and we shall succeed.

Mr. Cant

Is the right hon. Gentleman aware that, whatever our views on the Government's monetary policy and monetary supply, his speech to the Finance Houses Association suggests that that policy is in a state of almost total dither? Has the right hon. Gentleman given the Governor of the Bank of England a directive to follow a policy of the aggressive selling of gilt-edged stocks, or has he accepted the issue of these tap stocks because he believes, as the Governor believes, that it is important to have a healthy gilt-edged market?

Mr. Barber

Here again, the hon. Gentleman knows that Chancellors of the Exchequer do not answer questions about the management of the gilt-edged market. This question is concerned with the control of the money supply. The facts are simple. I have given them before, and I am pleased to see the ex-Chancellor with us and no doubt ready with another supplementary question. I repeat the facts to the House. Between April and June of last year, when the right hon. Gentleman was responsible, the money supply, seasonally adjusted, rose by £646 million. In the next quarter, for which the present Government were responsible and for which we have the latest figures, it rose by only £240 million, which is a pretty good comparison.

Mr. Roy Jenkins

Yes, but the right hon. Gentleman would surely be aware that the make-up date for banks was 17th June and not 30th June. Will he tell us by how much the money supply increased to 17th June as opposed to 30th June?

Mr. Barber

It is perfectly clear that, while it might make some minor difference to the overall figure in the total of money supply, there can be no doubt at all that there was a very considerable increase in the money supply in the three months to which the right hon. Gentleman refers and for which he is responsible. It will be recalled—he is referring to bank lending—that the bank lending guide lines which he issued were those which would be effectively operating at that particular time.

Mr. Roy Jenkins

Will the Chancellor of the Exchequer tell us whether it is or is not the case that bank lending, a crucial element in money supply, increased by substantially less, indeed hardly increased at all, in the quarter to 17th June, and increased by very much less than it did in the quarter to 17th September?

Mr. Barber

The right hon. Gentleman knows that bank lending is only one component of the money supply. [HON. MEMBERS: "Answer."] The right hon. Gentleman knows full well, because he was responsible for this particular period, that the overwhelming increase in the money supply in the period of the last three months when he was Chancellor of the Exchequer was due to his policies and was his responsibility.

Mr. Hordern

Is my right hon. Friend aware that the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), does not appear to know the difference between d.c.e. and money supply, since bank lending has no part at all in the money supply. Is my right hon. Friend aware that the increase in the money supply to which he referred in those three months was largely a result of the sale of gilt-edged securities which occurred largely at the end of April and the beginning of June and for which the right hon. Member for Stechford was entirely responsible?

Mr. Barber

I had assumed that, as the right hon. Gentleman was talking about bank lending, he was referring to d.c.e. If he would like the figures for domestic credit expansion and would consider them more relevant, 1 would remind him that in the last three months for which he was responsible they rose by £667 million, and in the first three months for which we were responsible by £347 million.

Mr. Roy Jenkins

Will the Chancellor answer two questions, and answer them directly? First, does he agree with the extraordinary remark of his hon. Friend the Member for Horsham (Mr. Hordern) that bank lending has nothing to do with the money supply? Secondly, will he agree that bank lending rose more in the quarter to mid-September than in the quarter to mid-June? If not, will he tell us why he does not so agree?

Mr. Barber

As the right hon. Gentleman knows, the main relevance of bank lending is in relation to domestic credit expansion, but the right hon. Gentleman is surely not pretending that the considerable increase in d.c.e.—[HON. MEMBERS: "Answer."]—during the period April to June for which he was responsible was not far in excess of what he had in mind when he set the target in his Budget Statement. The right hon. Gentleman knows this perfectly well, and it is apparent that he has a guilty conscience about this, otherwise he would not keep on about it.