GOVERNOR OF THE BANK OF ENGLAND (Hansard, 22 November 1977)

§ Q2. Mr. Watkinson
asked the Prime Minister when he proposes next to meet the Governor of the Bank of England.

§ The Prime Minister
I have no fixed date in mind for such a meeting.

§ Mr. Watkinson
When my right hon. Friend next meets the Governor of the Bank of England, will he discuss the instability in international money markets? Does he agree that there is a need to control funds of speculative, footloose money which flow through the exchanges and cause problems for the balance of payments, money supply targets and imports and exports? Is it right that Governments should be held to ransom by speculators?

§ The Prime Minister
The large volume of international footloose funds does cause problems and creates instability in the markets. There is no doubt about that. However, it is much easier to analyse than to control. But the fact that we cannot control it does not mean that we should not indicate that it causes instability and is a cause of altering economic 1311 policies domestically. The best way forward, although a difficult path to pursue, is to try to get agreement on domestic economic policies which are internationally compatible. That, in present circumstances, means that the countries with the stronger economies should expand as far and as fast as they can.

§ Mrs. Thatcher
As the policies pursued by the Bank of England are Government and Treasury economic policies, will the right hon. Gentleman say whether, apart from productivity deals, 10 per cent. is a maximum figure for all wage increases in the public sector?

§ The Prime Minister
I was not proposing to discuss this with the Governor of the Bank of England, but, if the right hon. Lady wants an answer to her question, I point out that it has been answered on many occasions. My right hon. Friend the Chancellor of the Exchequer has made clear that 10 per cent. is the increase in national earnings that would lead to our being able to sustain inflation within single figures during the greater part of 1978. There has been a great improvement in the retail price index and the rate of inflation, which means that inflation has been increasing at only 3.4 per cent. in this last six months. I am not extrapolating that figure because, to some extent, the future rate will depend on the level of wage settlements. But I point out to the right hon. Lady that we are able to foresee that we shall reach single figures for inflation during the next year. The Government's aim is to sustain that improvement as being the most solid foundation for economic progress.

§ Mrs. Thatcher
I think that the Prime Minister has given the answer—that 10 per cent. is not a maximum figure and. therefore, the firemen would be free to negotiate in the national joint council within the cash limits.

§ The Prime Minister
No, Sir. The right hon. Lady is not correct. The Government have been pressed time and again, both by hon. Members opposite and by industry, to hold increases in the public sector within the 10 per cent. limit, and that is what we are doing.

§ Mrs. Thatcher
The Prime Minister has given two different replies. First he said that it was not a maximum, then he said 1312 that it was a maximum in the public sector. Which does he mean?

§ The Prime Minister
I think that the right hon. Lady is capable of reconciling the two statements. They are reconcilable. National earnings must be held within the 10 per cent. limit. In the public sector, where there is very little wage drift, the Government, in order to give an example to all those in the private sector who are calling upon us not to give way—some of them, I regret to say, are giving way themselves—are adhering to their own policy by not giving way.

§ Mr. Wrigglesworth
Does not my right hon. Friend agree that one of the difficulties in getting disputes resolved is the comparisons being made often between net and gross pay? Will he try to put a figure on the benefits which have accrued to workers as a result of the tax cuts made by the Government in recent months?

§ The Prime Minister
Yes, Sir. Such a figure can be put on. I have been preparing it for a speech that I hope to make tomorrow to a trade union conference. For the man on average earnings with two children, the improvement resulting from the tax cuts this year is equivalent to 6½ per cent. of his gross pay. That will be in addition to anything else that is negotiated.