HC Deb 23 February 1978 vol 944 cc1691-2
16. Mr. Ridley

asked the Chancellor of the Exchequer if he is satisfied that the money supply is within the target range.

18. Mr. Wyn Roberts

asked the Chancellor of the Exchequer what is the current rate of growth of the money supply.

Mr. Healey

In the month to mid-January, the sterling M3 measure of money supply grew by about 2¼ per cent. This high figure can be accounted for largely by the once-and-for-all effects of the tax refunds resulting from the reliefs which I announced in October. The underlying trend rate of growth is, therefore, well below this. I am confident that the next few months will show that trend to be within the desired range.

Mr. Ridley

If the further figures to be published show that the growth in the money supply is still above target, will it be the Chancellor's priority to proceed with his tax cuts in the Budget, or will he turn his priority to reducing the growth in the money supply?

Mr. Healey

The hon. Member knows that fluctuations in the money supply from month to month, or even over a period of more than one month, are perfectly consistent with keeping the monetary aggregates under control. In Germany, which is always held up by the hon. Member as a model to be followed by this country, the increase in money supply over the last three months has been at an annual rate of 15.5 per cent., nearly double the amount provided for a year ago. Yet the Bundesbank has quite rightly decided to maintain an 8 per cent. target for the increase in money supply for the coming year. We propose to follow the type of flexibility which has been successfully followed in Germany. I am glad to see that the reaction in the markets to the figures published last week has been a great deal more sensible than that of Conservative Members.

Sir G. Howe

Does the Chancellor of the Exchequer recognise, and can he confirm quite clearly, the need for next year's monetary targets to be set at significantly lower levels than have prevailed this year?

Mr. Healey

I shall give the House my views on next year's monetary targets—[HON. MEMBERS: "Answer."] I have not the slightest intention of answering the question now. Instead, I refer the right hon. and learned Gentleman to the fact that Germany has consistently overshot its announced monetary targets without the consequences that the Opposition would expect. Ever since those targets were introduced they have been overshot year by year. The German Government, however, have sensibly set their monetary targets so as to leave genuine scope for growth without reigniting inflation. We propose to follow that example, and I suggest that the right hon. and learned Gentleman would make a more useful contribution to this debate if he studied the experience of countries the Governments of which, unlike his Government, have maintained a sensible and flexible control of monetary aggregates.

Mr. Stoddart

Bearing in mind that when the last Conservative Administration was in office the money supply was rising at an annual rate of 28 per cent., does my right hon. Friend not think that the Opposition are displaying sheer effrontery to raise the matter, let alone anything else?

Mr. Healey

For the last four years, having listened to the Opposition, we have become quite used to the spectacle of Satan rebuking sin.