Money Supply (Hansard, 23 March 1978)

§ 7. Mr. Hoyle
asked the Chancellor of the Exchequer what is the latest figure for the growth of the money supply.

§ Mr. Denzil Davies
Over the month to mid-February, sterling M3 grew by a little over 1 per cent, on a seasonally adjusted basis.

§ Mr. Hoyle
When my right hon. Friend the Chancellor is considering the Budget, will he take into account the need for more public spending and, if tax cuts are to be given, for import controls to ensure that any increased spending does not go on foreign goods?

§ Mr. Davies
I am sure that my right hon. Friend will take into account the need for high public expenditure, as he will take into account the need to reduce levels of taxation. I entirely accept that if we had substantial tax cuts, as the Leader of the Opposition was advocating the other day, to use the North Sea oil revenues, there would be an effect on imports and we should fritter away the benefits of the North Sea on those imports.

§ Mr. Hordern
As both the Chief Secretary and the Minister of State appear to believe that the growth of the money supply is the principal cause of inflation, how does the right hon. Gentleman explain that the growth of the money supply measured by M3 has increased by 20 per cent, since last August and makes a mockery of any hope of keeping the rate of inflation below 10 per cent, for any appreciable period?

§ Mr. Davies
The hon. Gentleman must know, if he is a monetarist, as I believe 1727 he is, that one of the prime causes of the rate of inflation of the past few years was the disastrous money supply policy, if it can be called that, of the Opposition. They issued that wretched document "Competition and Credit Control", which brought the whole banking sector almost to bankruptcy.

§ Mr. Pavitt
In striking what is a difficult balance between the amount of our income which we shall spend on public expenditure and the amount of tax relief which we get, may I ask my right hon. Friend to bear in mind, when formulating his Budget, that not many of us are prepared to spend our own money on other people's children, other people's grandparents, the disabled and the sick and, therefore, we need to do it communally? Will he please take these things into account when striking his balance?

§ Mr. Davies
A balance has to be struck, and sometimes it is difficult to do so. We have to look at tax levels because of the effect of the present tax structure on people with low incomes. We have also to maintain high public expenditure.

§ Mr. Budgen
Will the Minister comment on the report in the recent Quarterly Bulletin of the Bank of England that in the nine months to mid-January M3 increased by 11 per cent, above the target figure of between 9 per cent, and 13 per cent.? Does that not clearly indicate that by the end of the year inflation will be above 10 per cent?

§ Mr. Davies
No. The annualised rate of M3 since mid-April is 14¾ per cent. The figure over the past month shows that it is coming back to trend and by the end of this financial year we shall be back on the target trend.

§ Sir G. Howe
Does not the Minister accept that the annualised rate over the past 10 months at 14¾ per cent, has been followed by an annualised rate over the past six months of 18 per cent, and that the growth rate for Ml is in each case running about 10 per cent, ahead of those figures? Why on earth is it that the Government continue to blame the inflation over which they have presided on the monetary expansion of the last Government and are blind to the risks of inflation which will follow from the money supply expansion now taking place?

§ Mr. Davies
The right hon. and learned Gentleman shows again in Opposition what the Tory Party demonstrated in office—that it does not understand the money supply. However much he wriggles and tries to reallocate the figures, it is clear that the Government have pursued a responsible montary policy, whereas a Tory Government pursued an irresponsible one.