International Monetary Fund (Hansard, 25 May 1978)

§ 3. Mr. Neubert
asked the Chancellor of the Exchequer when he next expects to meet the managing director of the International Monetary Fund.

§ The Chancellor of the Exchequer (Mr. Denis Healey)
I expect to meet the new managing director, M. Jacques de Larosiere, at the IMF and World Bank annual meetings in Washington at the end of September. I have now written to the present managing director, Mr. Witteveen, following the regular annual consultations which have just taken place between the United Kingdom and the staff of the IMF, and I will, with permission, circulate a copy of my letter in the Official Report.
The letter reaffirms the policies for the PSBR and domestic credit expansion which I first stated in my letter of 15th December 1976. These policies are fully consistent with those I described in my Budget speech and are also consistent with continuing the standby. In my Budget speech I set limits of £8.5 billion for the PSBR in 1978–79 and of £6 billion for DCE. I have reasserted my determination to observe these limits. The IMF 1724 team expressed confidence in our policies. They were particularly impressed by the way in which our policy for prices and incomes in the past three years had helped to roll back inflation and to open the prospect of further reductions in unemployment.

§ Mr. Neubert
As the money supply is 50 per cent. off target and as average earnings are likely to be equally wide of the mark, how can the IMF, the City of London or, for that matter, anyone else, have any confidence in the Chancellor's forecasts and his ability to avoid further double-figure inflation?

§ Mr. Healey
I am sometimes surprised by the attitude of Opposition Members. Sometimes they appear to think that all the successes that the Government have had in the last 12 months or so are due to the IMF, but when the IMF congratulates the Government on their courage and wisdom it is considered to be totally unreliable as a witness.
The fact is that we have the confidence of the IMF. We have had it for 18 months. We shall continue to maintain it for the next 12 months. The continuation of the standby is the best proof of that.

§ Mr. Ioan Evans
When my right hon. Friend reports on the progress of a large number of economic indicators, will he also say that although he has had a little difficulty over the Budget in this present Parliament, when the General Election comes the public will put that right?

§ Mr. Healey
I have no doubt that my hon. Friend is completely right in his prognosis on this matter, as he often is on other political matters.

§ Mr. Hordern
Does the Chancellor recollect, however, that during his Budget speech he also made a forecast for the increase in the monetary aggregates during this year? Since M3 has now risen by over 20 per cent. in the last six months, what conceivable hope can there be of restricting inflation during next year below the level of 10 per cent?

§ Mr. Healey
The hopes that I share with the IMF staff. We shall be coming to Questions on this matter in a few minutes' time, and I shall be delighted to give further answers to questions of this nature then.

§ Mr. Skinner
Does the Chancellor accept that one of the reasons why political fortunes have changed somewhat during the past eight or nine months is that there has been increased purchasing power as a result of increased wages, over and above the 10 per cent. in many cases? Therefore, will he turn his mind not to stage 4 but to free collective bargaining? The increased purchasing power arising out of increased wages might even get him back in his job.

§ Mr. Healey
I am not sure whether my hon. Friend is wishing me well or ill by his final remarks about my position after the next General Election. However, on the question of wages, the tax cuts which the Government introduced last October have done a great deal to stimulate demand and have helped to produce the increase in output during the first quarter of this year, which shows that the Government are exactly on target in their growth targets for the present year.
The extent to which the increase in earnings is above that which the Government have expressed a desire to see is liable to increase prices and will tend to reduce output and jobs in the longer run.

§ Sir G. Howe
If the performance of the economy is so fully consistent with what the Chancellor previously said to the IMF, may I ask whether he told the representatives of the IMF how the monetary growth rate—as my hon. Friend the Member for Horsham and Crawley (Mr. Hordern) said, it is well in excess of 20 per cent. in the last six months—is in any way consistent with those targets? Did he explain to the representatives of the IMF how he intended to regain control of the money supply during the months ahead? Will he be kind enough to tell the House how he intends to do so?
Will the Chancellor confirm that this is, in fact, the fifth Letter of Intent of this kind to be sent by a British Government to the IMF—every one of them sent by a Labour Government? If the economy is as healthy and as splendid as the Chancellor would have us believe, why on earth does he not repay the outstanding debt and get shot of the IMF?

§ Mr. Healey
I have already told the House that I am repaying ahead of time. I have already paid $1,000 million of 1726 IMF debt ahead of time, and I have arranged to pay a further $1,000 million ahead of time.
On the question of my discussions with the IMF about the money supply, the IMF has a very close knowledge of the way in which money supply moves in all countries, and it is very familiar with fluctuations in increases in money supply, such as, for example, those we have seen in the Federal Republic of Germany on a very large scale in recent months, due in large part to the same factors as the increase in money supply in this country last year, namely, very large and unexpected external inflows.
I would hate to rob other hon. Members who have had the foresight to put down Questions on this matter by answering the right hon. and learned Gentleman in greater detail now. I hope to have the opportunity to do so in a few moments' time.