HC Deb 05 February 1976 vol 904 cc1396-8
9. Mr. Luard

asked the Chancellor of the Exchequer what was the average monthly percentage increase in the money supply—M1 and M3—between June 1970 and February 1974, and the corresponding figures for the period since March 1974.

The Chancellor of the Exchequer (Mr. Denis Healey)

Monthly series for the money supply going back to June 1970 are not available. On the basis of seasonally adjusted quarterly figures, the average annual rate of growth of M1 was 8.8 per cent. from end June 1970 to end March 1974 and 17 per cent. from end March 1974 to end September 1975. The comparative figures for M3 are 20.2 per cent. and 11.3 per cent. respectively.

Mr. Luard

Is it not surprising that the figure for M3—which is generally regarded as being the significant figure—is given such inordinate importance by the Opposition when my right hon. Friend's achievement is so much better than was the achievement of the Conservative Government?

Mr. Healey

I am grateful to my hon. Friend. For those who are interested in controlling the money supply, the fact is that my achievement on M3 was four times superior to that of the Conservative Government, which allowed M3 to increase in their last year of office, 1972 to 1973, Q4 to Q4, by 29 per cent. as against a 13 per cent. increase in money GDP. The figures for Q3 1975 on Q3 1974, showed an 11 per cent. increase in M3 as against a 21 per cent. increase in money GDP over the same period.

Mr. Powell

To what causes does the right hon. Gentleman attribute the inverse contrast between those two pairs of figures?

Mr. Healey

Primarily to the far superior fiscal probity of the present Administration.

Mr. Hordern

Does not the right hon. Gentleman recognise that the only reason for the money supply figures that he has given being lower than they were during the Conservative Administration is that investment is now declining and the rate of increase of consumption is falling dramatically? Is it not clear that during the next two years, if the Chancellor's policy of encouraging investment is to be possible, the money supply must grow unless he proposes to reduce public expenditure within the next two years?

Mr. Healey

I do not agree with the hon. Gentleman's latter point. As regards the money supply figures, he will recall that in the year to which I was referring, 1972 Q4 to 1973 Q4, investment was still falling under the previous Conservative Administration. Growth came to a total halt in the middle of that year.

Mr. Nott

As the right hon. Gentleman has laid all his stress on the M3 figures, will he undertake to concentrate entirely on M3 during the course of the next year as being the only real indicator of the money supply?

Mr. Healey

No, I shall publish both figures. I have made them clear this afternoon. The hon. Gentleman will know that there is great dispute among theologians who profess the theory of monetarism as to which is the best indicator. The United States Administration takes the view that the M1 is the better indicator.

15. Mr. Bates

asked the Chancellor of the Exchequer what was the growth of the money supply on the M3 definition in the last full year for which figures are available.

Mr. Denis Healey

Over the 12 months to mid-December 1975 M3 rose by 7.9 per cent. seasonally adjusted.

Mr. Bates

Is not my right hon. Friend's careful handling of money supply one of the most optimistic features for the future continued decrease in the rate of inflation? Is it not typical that Opposition Members, having called for such a policy, do not now seek to applaud it? Will my right hon. Friend reiterate his view that it is not necessary to make public expenditure cuts?

Mr. Healey

I am always grateful for support from my hon. Friends, or indeed from any part of the House. I used to have support on these matters from prominent Opposition Front Bench spokesmen. I ask the House to recognise—I apologise, Mr. Speaker, for answering at this length; I have your rebuke very much in mind—that people tend to exaggerate the importance of the money supply. I think it is important to keep the matter under control and I have done so. However, I do not think that that aspect is as important as many hon. Members believe.

Mr. Alan Clark

Does the Chancellor agree that the principal objection levelled against following a so-called monetarist policy was that it would lead to a million or more unemployed? Is it not a curious and dangerous paradox that the moment our unemployment figures rise, the right hon. Gentleman suddenly discovers this new technique of financial probity which is to be imposed on top of our other economic stresses?

Mr. Healey

I cannot fully track the intricacies of the hon. Gentleman's argument. The fact is that I started to control money supply the moment I came to office two years ago. The country that uses money supply control as a main instrument of policy is the United States. There unemployment is very much higher than it is in Britain and, according to official forecasts, will remain higher than in this country for the next five years.