HC Deb 06 April 1976 vol 909 cc236-7

Despite the large borrowing requirement, the supply of money has been contained. Last year I said that it was essential that my strategy should not be undermined by a relation of our stance on monetary policy. In fact, the rate of growth of money supply on the broader definition was lower in 1975 than in 1974; M3 increased by 8 per cent. in 1975 compared with 13 per cent. in 1974. Monetary growth in both these years was far lower than the 28 per cent. increase under the previous Administration in 1973. I do not believe that anyone would now deny that my monetary policy has helped in the fight against inflation whereas my predecessor's made inflation much worse—and for a long period after he had left office.

More than half the public sector borrowing requirement in 1975 was financed by the sale of public sector debt outside the banking system, while demand for credit from the private sector remained slack. In keeping with my policy of concentrating credit on the essential needs of the economy, the qualitative guidance to the banks and finance houses was renewed in December. They were asked to ensure that any expansion of their business was directed to the needs of manufacturing industry for working capital, expansion of exports, import saving and industrial investment at home.

For the future my stance on monetary policy is unchanged. First, I am concerned to ensure that industry's requirements for finance are not crowded out by other demands, notably by those of the public sector. This is the financial counterpart of the Government's concern that resources should be available in the economy for industrial investment during the upturn, as the Public Expenditure White Paper makes clear.

Second, it remains my aim that the growth of the money supply should not be allowed to fuel inflation as it did under my predecessor. To this end, I aim to see that the growth of the money supply is consistent with my plans for the growth of demand expressed in current prices. If it became clear that this aim were not being achieved, I would be ready to use the appropriate mix of policies—not necessarily monetary policy alone—to redress the situation. After two years in which M3 has grown a good deal more slowly than money GDP, I would expect their respective growth rates to come more into line in the coming financial year. But, as we have seen over the last year, there can be big fluctuations in the growth of money supply from quarter to quarter, and this will no doubt be true of the future.