HC Deb 22 February 1973 vol 851 cc657-8
1. Mr. Norman Lamont

asked the Chancellor of the Exchequer if he is satisfied with the working of the policy of competition in credit.

The Minister of State, Treasury (Mr. John Nott)

Yes, Sir. The changes have resulted in a welcome increase in competition and innovation in the banking sector.

Mr. Lamont

I accept that the principles in the Green Paper have had a good effect on the economy in waking up the banking sector, but does my hon. Friend not agree that there is some anxiety that even the present high level of interest rates will not be sufficient to enable the Government to reach the declared objective of moderating the rate of increase in money supply? If further increased rates are necessary to achieve this and to sell more Government securities to the non-banking public, will the Government allow this to happen, or will they consider resorting to other types of control over particular types of lending?

Mr. Nott

I cannot make any forecasts or comments about the future course of interest rates, but the weapons available under the new monetary arrangements are adequate. A return to ceilings on bank lending in the private sector would stifle competition and in any event would have severe limitations as a monetary tool.

Mr. Hordern

Will my hon. Friend accept that it is undesirable to revert to a system of credit control by sector, and that to do so could only have the effect of increasing interest rates? If there is one sector that needs to be controlled, it is that of Government expenditure.

Mr. Nott

We debated Government expenditure a week or two ago. I agree with my hon. Friend that the main effect of selective controls would be to alter the channels through which finance flows, and in less efficient directions. Ceilings—which existed under the Labour Government—do not represent a viable alternative to the use of interest rate to control money supply, particularly in the present conditions of very strong demand for credit.