MONETARY POLICY (Hansard, 15 November 1979)

§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
With the permission of the House, Mr. Speaker, I should like to make a statement on monetary policy.
The figures for October, just published, show that sterling M3 grew by 2 per cent. in that banking month. The growth since mid-June, the beginning of the target period, has been equivalent to just over 14 per cent. a year. Although the figure for banking in October was erratically high, it is clear that the underlying growth of sterling M3 is still significantly above the target of 7 per cent. to 11 per cent. There have been two principal causes of this excess: a higher than expected public sector borrowing requirement in the first half of the year, and the persistently high level of bank lending.
Because of the timing of the Budget measures—in particular receipts from VAT and reductions in public spending—the PSBR was always expected to be higher in the first half of the year than in the second. In the event, the PSBR in the first half year has been further increased by strikes and other industrial action which have delayed the collection of value added tax and telephone bills. At the peak, arrears on telephone bills are expected to reach £1 billion. A large part of these arrears will be made good in the second half-year. Even so, the best estimate which could now be made of the PSBR for the year as a whole, if no action is taken, is that it would be about £9 billion compared with the £8.3 billion Budget estimate.
The monthly growth of bank lending has averaged about £700 million over the last quarter. Although the timing is difficult to predict, its growth can be expected to fall in due course. Nevertheless, it is necessary to take action now to bring the growth of the money supply within the target range. The Bank of England accordingly announced this morning, with my approval, that minimum lending rate would be increased to 17 per cent. This goes beyond the rise in market interest rates at home and demonstrates the Government's determination to act with the firmness foreshadowed by my right hon. Friend the Prime Minister earlier this week.
1514 The House will realise that interest rates overseas have risen sharply as other countries have moved to fight inflation by limiting monetary growth. In the United States, for example, prime rates have risen from 11½ per cent. to l5½: per cent. since the summer.
In addition to sales of gilts, we intend to secure further funding of the PSBR through national savings. The limit on holdings of the index-linked national savings certificates retirement issue will be increased next month from £700 to £1,200. A new ordinary national savings certificate will be introduced early next year. The interest rate on the National Savings Bank investment account will be raised to 15 per cent. from 1 January next.
Although much of the increase in the estimate of this year's PSBR is due to the timing of receipts, further action is required to bring the PSBR down. In the light of this, we shall require oil companies to make a payment on account of petroleum revenue tax at the time when they make their returns. This will have the effect from now on of advancing the due date for collection by two months, thus bringing the arrangements for PRT into line with those for collecting royalties. This will ensure that PRT reaches the Exchequer with the minimum of delay at a time when oil prices are rising.
The Bill to achieve this will be introduced shortly. It will reduce this year's PSBR by £700 million and thus bring the estimated level back to the original Budget figure of £8.3 billion. It will also yield an extra £300 million next year, in addition to £400 million or so from the deferred payment of telephone bills
I set in hand some months ago a review of methods of controlling the growth of the money supply. The main instruments must continue to be our public expenditure and tax policies, which together determine both the size and the composition of the PSBR, and interest rate policies. Recently, the supplementary special deposits scheme, or corset, has also played a part in monetary control. I am well aware of the limitations of this scheme and do not believe that it has a permanent role to play. Nevertheless the Governor and I have agreed that it is right that it should continue for a further six months. The Bank announced the arrangements this morning.
1515 In the future, other techniques, including one of the variants of monetary base control, could play a useful without the disadvantages of the SSD scheme. The Bank and Treasury will therefore shortly issue a discussion paper for consultation. I must, however, stress that no such scheme can avoid the need for the right fiscal and interest rate policies. Indeed, one of the possible advantages would be to improve the response of interest rates to monetary conditions.
Finally, I am extending the period covered by the present target range for sterling M3 of 7 per cent. to 11 per cent. per annum. That target at present applies to the 10 months from mid-June 1979 to mid-April 1980. It will now cover the 16 months from mid-June to mid-October 1980. The effect will be to avoid building into the target for the new period the excess growth of the money supply in the recent past, while allowing a reasonable period in which to offset that excess.
Britain's future depends, above all, on mastering inflation. That can be done, as the right hon. Member for Leeds, East (Mr. Healey) well knows, only if we bring the money supply under firm control, progressively reduce the rate of monetary growth over the years and pursue the most rigorous restraint on public spending. The supposed alternatives to these policies are a delusion. None of those alternatives would be responsible and none would be sustainable. The action that I have taken today underlines the Government's total and continuing commitment to getting inflation down.

§ Mr. Healey
Is the right hon. and learned Gentleman aware that the measures that he has just announced will mean that millions of our fellow citizens will face the unhappiest Christmas on record? Is he aware that a Government who rely exclusively on monetary policy have proved totally incompetent even at that and that, as a result, the British people now face the highest interest rates and mortgage rates in our history and the possibility of a further rise in mortgage rates in the new year? The House will want a full-scale debate in Government time on these matters.
I hope that the right hon. and learned Gentleman can assure us that he will shortly be publishing the mid-year fore-cast, that it will include an estimate of the PSBR in the coming year and will 1516 make clear that, thanks to the fall in output engineered by the Government, public expenditure as a percentage of gross domestic product, even after the cuts, will still be higher next year than this year, contrary to what the Prime Minister told us it should be on Tuesday.
Government policies will push the inflation rate up to 20 per cent. or higher in the new year. Is the right hon. and learned Gentleman satisfied that a minimum lending rate of 17 per cent. will achieve his objective on the money supply, since it is bound to be a negative interest rate when inflation rises to that level?
The abolition of exchange control has opened a gaping loophole in the Government's control of monetary policy. Will the right hon. and learned Gentleman explain how, weeks after he announced the abolition of exchange control, he and the Bank of England have still failed to agree on how to plug that loophole? Why is he keeping the corset still in place when it is well known throughout the financial community that its worth is absolutely useless now that he has abolished exchange control?
Why has the right hon. and learned Gentleman taken no action in this mini-Budget on credit cards and Access cards, as private borrowing is the main cause of the monetary problems now facing him?
How does he propose to protect millions of householders, particularly small families, against a further increase in mortgage rates in January?
How does he propose to help the thousands of small businesses that now face bankruptcy as a result of this blow to their financial viability?
Has the right hon. and learned Gentleman yet made an estimate of the further increase in unemployment that will follow this tightening of the cash position of British companies?
Finally, for how long will Conservative Members allow the nation's economic prospects to be ruined by a bunch of bungling doctrinaires?

§ Sir G. Howe
I do not intend to compete with the right hon. Gentleman in discussing the quality of the Christmases over which he presided when he was at the Treasury. I shall take in order the serious questions put by the right hon. Gentleman.
1517 First, we shall certainly be publishing the forecast for next year at the appropriate time as required by the Industry Act. When we consider the right hon. Gentleman's suggestion that the Government have engineered or presided over a fall in output, we begin to see the quality of his comments. It is high time that he realised, as the country realises, that declines of that kind are the consequences of the condition of the economy over which he presided when he was at the Treasury. The right hon. Gentleman also understands the extent to which continuing shortcomings in our industrial performance are caused by recurrent irresponsible industrial strike action instead of a willingness to improve productivity.
If, as the right hon. Gentleman suggested, public expenditure next year were to be a larger proportion of our gross domestic product, I hope that he would join us in the continuing and necessary task of reducing that burden of public expenditure, which is what we are determined to do.
The right hon. Gentleman knows that these problems are nothing to do with the modest expansion of credit attributable to the use of credit cards but concern the continuing size and burden of public spending. That is why it is important that it be reduced.
The right hon. Gentleman suggested that exchange control may or may not have had something to do with these matters. The monetary figures underlining the decisions that I have announced today accrued before the decision to modify exchange control was announced. As regards exchange control, I am delighted to stand on the judgment given by the former Member for Manchester, Central, now Lord Lever, who, in his maiden speech in another place, said that, speaking as a member of the Labour Party and of the former Government, he welcomed the end of this exchange control, which had served no useful purpose and the abolition of which could be a considerable encouragement to a great trading, insurance and banking nation like ours.
Finally, protests by the right hon. Gentleman about the Government's determination to take the necessary decisions to assert and carry through effective control of monetary policy come ill from 1518 him. I remind him of what he said to the House just over 12 months ago: If the Government were to … fail to take timely action when necessary and lose control of the money supply, the sufferings of the whole of the British people … would be infinitely more serious than suffering brought about by increases in mortgage rates".—[Official Report, 9 November 1978; Vol. 957, c. 1233.]

§ Mr. Healey
Would the right hon. and learned Gentleman answer two of the questions that I put to him? First, will the mid-term forecast be published next Tuesday, as the press has been led by the Treasury to expect, and will it include a forecast of the PSBR next year? Secondly, the Government proved incompetent at controlling the money supply even before the abolition of exchange control. The point that I put to the right hon. and learned Gentleman was that the abolition of exchange control would make the problem still more difficult. What does he propose to do about it?

§ Sir G. Howe
I propose to take the necessary action that I have announced to ensure continuing and effective control of the money supply. There has been a developing case over a number of years for examination of the methods of control of the money supply. That is why I set in hand the inquiry to which I referred in my statement. But it would be unwise to proceed at a faster pace than we are going in that respect.
The statement under the Industry Act will be published in due course.

§ Mr. Healey
Will it include the forecast of the PSBR?

§ Sir G. Howe
The right hon. Gentleman will find out in due course when the statement is published.

§ Mr. Maurice Macmillan
First, to what extent is control of the money supply made harder by the fact that there is no restriction on acceptances and the degree to which clearing banks, by accepting paper, can, in effect, lend without doing so directly? Secondly, am I right in thinking that there is about £1.7 billion of acceptances outside the banking sector which is perhaps increasing the money supply by about 2 per cent.?
Thirdly, would it not be right to assume that the extent to which people could borrow from abroad, because of the lack of exchange control, is less effective than 1519 the right hon. Member for Leeds, East (Mr. Healey) would think, because the foreign banks have to find sterling somewhere, and that probably means obtaining it from British banking institutions?

§ Sir G. Howe
I am grateful for my right hon. Friend's comments in the second part of his question.
Acceptances are taken into account in the measurement of the money supply at the present time. If we were to seek to act directly to control them, the result would be a further variation and distortion in the system. Therefore, there would be no purpose in acting separately on that account. That is one of the factors that must be taken into account in this country, as in others, in continuing to develop the techniques by which we measure and control the money supply.

§ Mr. David Steel
Does the Chancellor recognise that the principal criticism levelled at his economic policy is that he is relying wholly and exclusively on control of the money supply as the weapon for controlling inflation? Has he not yet reflected on the folly of abandoning any attempt to introduce a policy on increases in prices and incomes? Since he is anxious to create an incentive economy, how does he expect business men to respond to an improvement in their personal tax returns when they must now go to the market to raise money for their businesses at a rate of around 20 per cent.?

§ Mr. Skinner
The right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel) tells a different story every week.

§ Sir G. Howe
In response to the last point made by the right hon. Member for Roxburgh, Selkirk and Peebles (Mr. Steel), action of this kind is necessary in order to establish, in the long term interests of business, effective control of inflation. Businesses would find it much more difficult if this kind of action were not taken in time. It is remarkable that the need for firm and early action of this kind is widely supported by those in small and large businesses. Business men recognise the Government's determination to bring inflation under control. The right hon. Gentleman persists in repeating the canard that we are relying solely on monetary policy to defeat inflation. That is not so. As a crucial part of supporting monetary policy, we are implementing 1520 fiscal policy and policies to control and reduce the rate of public expenditure.
We recognise, and continue to assert, the necessity for those responsible for pay bargaining to conduct their affairs in a way that is consistent with the growth in the money supply. We do not believe that it is right, in the light of the experience of successive Governments, to intervene for direct regulation of income growth and bargaining. Experience has shown that that sows the seeds of its own destruction. It is therefore necessary for those involved in pay bargaining to understand the imperatives that follow from the implementation of an effective policy for the control of money supply. Both sides of industry have a high responsibility for ensuring that their pay bargains recognise the actual resources, increased performance and productivity in the firms in which they are employed. They ignore that lesson at their peril.

§ Mr. Donald Stewart
Is the right hon. and learned Gentleman aware that his announcement will stoke inflation, which will now go like a forest fire? What will happen to the desirable policy, advocated by the Prime Minister, of encouraging more home buyers? Will the Government now assist them to pay the mortgages that they can no longer afford?

§ Sir G. Howe
Home buyers, like other members of the community, would not profit by a failure to control the rate of growth in money supply. The effective remedy, in that respect as in every other, is to bring money supply growth under control. No service whatsoever is done to the British people by ignoring that lesson.

§ Mr. Cockeram
Will the Chancellor of the Exchequer accept that it was a mistake to stabilise the level of Government expenditure in his recent White Paper, which took last year's level—established by a Socialist Government—as its starting point? Does he agree that cuts will have to be made? Will he make a start with the rate support grant by not maintaining it at the previous Socialist level of 61 per cent.? Does he agree that otherwise it will be seen that "the party" is continuing?

§ Sir G. Howe
I am grateful to my hon. Friend for underlining the continuing need 1521 to scrutinise the rate, the pattern and the size of public expenditure. The imperative need to carry that task through the years ahead will be with us throughout that time. My hon. Friend must await the announcement on the rate support grant by my right hon. Friend the Secretary of State for the Environment.
My right hon. Friend will certainly need to take into account the fact that the rate support grant will be setting down the limits within which total local authority expenditure—including local authority pay bargaining—will have to be undertaken. Those responsible for those matters will have to accept the same need for restraint as others who are trying to live with a sensible monetary policy.

§ Mr. Joel Barnett
In the Budget, the Chancellor spoke of the need for a new beginning and said that he would achieve his monetary targets without curbing the private sector. What is he doing now?

§ Sir G. Howe
We are continuing to achieve those monetary targets as swiftly and effectively as possible. Of course, it will be more and more easy to achieve those targets with less discomfort to the private sector if we maintain the battle against excessive public spending. I am grateful for the candour with which the right hon. Gentleman said, not long ago, that if borrowing and taxation reached a point beyond which it was not feasible to go it would be necessary to restrict public expenditure. I hope that he continues to hold that view. We look forward to the courageous and candid support of the right hon. Gentleman for many years.

§ Mr. Neubert
Does my right hon. and learned Friend agree that not the least factor in our present problems is the expansion of public spending unleashed earlier last year by his predecessor, at a time when he thought that the general election would be held in the autunm?

§ Sir G. Howe
My hon. Friend is entirely right. One of the first things to which we had to address ourselves on coming into office was the containment and reduction of the massively expanded public expenditure plans on which the previous Chancellor and his friends had so irresponsibly embarked before the general election.

§ Mr. Skinner
Is the Chancellor of the Exchequer aware that when his side-kick reported on the cuts in public expenditure a few days ago he announced that approximately 300,000 more people would be thrown out of work as a result of that policy? Will the Chancellor specifically answer the questions put to him by my right hon. Friend the Member for Leeds, East (Mr. Healey)? Will he come clean and tell the House how many more people will be ruined and put on the pile of human misery known as the dole queue as a result of that statement?

§ Sir G. Howe
I am grateful to the hon. Member for affording me the opportunity of correcting his misunderstanding about my right hon. Friend's statement. My right hon. Friend did not tell the House that there would be an increase of 300,000 in unemployment as a result of the measures that he announced to the House.

§ Mr. Skinner
Twisting again.

§ Sir G. Howe
Will the hon. Gentleman be patient enough to listen to my reply? What my right hon. Friend said was that one of the working assumptions underlying the White Paper was that unemployment would be higher to the extent of 300,000 next year. That is not in consequence of the White Paper. It is nevertheless a fact to which the House must reconcile itself, that unless we are able, by all our policies, to secure better performances in our industrial and manufacturing sectors it will be very difficult to avoid an increase in unemployment of that order. The Government's policies, including fiscal policies and our determination to control public expenditure, are designed to make our economy the better able to fight rising unemployment.

§ Mr. Healey
May I press the right hon. and learned Gentleman on this matter? Even if one accepts that what his right hon. Friend meant was something different from what he said, the fact is that as a result of all Government policies—according to the right hon. and learned Gentleman—unemployment will rise by 300,000 next year. By how much further will that figure rise as a result of the collapses in private industry following the measures that he has announced this afternoon?

§ Sir G. Howe
I am astonished that the right hon. Gentleman should seek to 1523 perpetuate that falsehood about my right hon. Friend's statement. [HON. MEMBERS: "Answer the question."] I am endeavouring to answer the question and will do so if Opposition Members will do me the courtesy of listening to what I am saying.
The right hon. Gentleman, who was Chancellor of the Exchequer not long ago, knows perfectly well that at the time when he published his public expenditure White Papers they contained a working assumption about the likely level of unemployment in the year ahead. The figure about which my right hon. Friend was asked when he made his statement was precisely that assumed figure. He told the House that the working assumption was for an increase of 300,000. What he did not say, and what was not implicit in his statement, was that that figure was a consequence of Government policies. That working assumption remains exactly the same.
The right hon. Gentleman and his hon. Friends must understand that the prospect of unemployment in the year ahead and thereafter depends on the willingness and capacity of the people to turn away from irresponsible industrial action and to work together to improve productivity and the performance of our economy. They must recognise that we are long past the point when people should believe that each and every thing that happens in our economy can be influenced by direct Government action.
We are creating conditions under which it will be easier for the British people to improve their economic performance. On that we must concentrate in the years ahead.

§ Mr. Lawrence
Is my right hon. and learned Friend able to quantify the exact effect of the disastrous engineering strike upon the economy?

§ Sir G. Howe
The engineering strike was one of a number of strikes that had a substantial impact upon the performance of industry. It added substantially to the growth of bank lending in order to protect firms which had to resist such industrial action. Each action of that kind contributes directly to the dangers that our people face. We must understand that reponsible industrial conduct has as much a part to play in improving 1524 our economic performance as anything that is said in the House.

§ Mr. Robert Sheldon
Is the Chancellor of the Exchequer aware of his addiction to untested theory? What does he intend to do if this experiment fails? What will he do if inflation continues to rise, if unemployment rises even higher than the estimate, and bankruptcies rise still further to horrifying levels? What contingency plans do the Government have in the event of failure?

§ Sir G. Howe
The policies that we are pursuing are consistent and coherent. They will be sustained. They are policies for the control of the rate of growth in the money supply, the control of public expenditure, the restoration of incentives, and the restoration of balance in our industrial society. We have been in office for six months and the Opposition have been on the Opposition Benches for the same time. They have proferred no alternative policy.

§ Mr. Latham
Can my right hon. and learned Friend confirm that today's announcement will have its effect on the future output of the economy? Does he accept that as a result the figures for cash limits in part II of the public expenditure White Paper will have to be revised? Will he confirm that whatever else we need we need no lectures on the economy from the man under whom inflation rose to 25.6 per cent.?

§ Sir G. Howe
I agree with my hon. Friend's last point. He will have to wait until the cash limit figures and the remainder of public expenditure plans are published, in due course.

§ Mr. Arthur Lewis
Have the same Treasury nuts advised the Chancellor as advised my right hon. Friends? I meant to say "knights", but a slip of the tongue often speaks the truth. Have those nuts or knights given the Chancellor of the Exchequer any idea what will happen if his proposals are successful, or if they are not? Can the Chancellor say whether unemployment figures will go up or down, and whether the rate of inflation will go up or down?

§ Sir G. Howe
The hon. Member must understand that a large part of the answer to both those questions depends upon how 1525 far those who are responsible for management and trade union negotiations understand the facts of economic life. A crucial part of Government responsibility is to maintain control of the money that is available. Equally, a crucial part of the role of those involved in industry is to avoid strike action, to avoid industrial disruption and to achieve pay settlements that are consistent with the growth of productivity and the maintenance of employment. If people bargain in a pattern that is consistent with the policies that I have laid down the future for both employment and inflation will be more hopeful.

§ Mr. Bruce-Gardyne
May I congratulate my right hon. and learned Friend on a wise and courageous statement? Does he agree that his task of financing this year's PSBR in a non-inflationary manner might be facilitated if he restated publicly and as quickly as possible his intention to achieve a lower target figure for PSBR in money terms next year? Will the Chancellor also tell the House what the achievement at the top end of the sterling M3 money supply target for the next 12 months will mean in terms of sterling M3 growth over the whole of the current 16 months?

§ Mr. Skinner
The Chancellor should not forget that his hon. Friend is after his job.

§ Sir G. Howe
I shall take up the last question of detail afterwards. I am responding for the third time in almost the same number of weeks to my hon. Friend's question about the PSBR next year. We take account of the point that he makes. Our plans will be announced in due course.

§ Mr. Speaker
I propose to call four more hon. Members from either side. Mr. John Hunt.
I apologise to the House. I think that I have lost the balance, but I shall make up for it later.

§ Mr. John Hunt
Does my right hon. and learned Friend agree that credit cards represent an open invitation to overspend? Did he see an advertisement last night in a London evening newspaper by a leading multiple store offering an instant £240 on the basis of repayments of £10 a month? Is that not a major factor in 1526 the growth of money supply? Should not something be done to curb it?

§ Sir G. Howe
That is a matter about which my colleagues and I have been concerned, and we have made a number of inquiries about it. Personal lending, including credit cards and similar devices, is less than one-sixth of total bank lending—a small proportion. The contribution made by credit cards as part of that proportion is even smaller.
Experience with previous patterns of direct control suggest that if one controls this or that type of credit new and more sophisticated types of credit are created. We must remember that credit card lending, like any other, is subject to the consequences of a higher lending rate. It becomes more expensive and borrowing on a credit card is already an expensive way of borrowing. I shall bear in mind the anxiety that has been expressed. However, I should not like the House to believe that we are likely to discover a special method of dealing with that form of credit.

§ Mr. Dalyell
Does the Chancellor think that it is wise to have dismantled exchange rate controls? Even at this eleventh hour and fifty-ninth minute, is it too late to preserve the mechanism which he may need?

§ Sir G. Howe
I have no reason to question the wisdom of the policy change referred to by the hon. Member. I take comfort from the glowing tribute by Lord Lever and from the fact that most people regard the abolition of exchange control as a significant contribution to the capacity of the country to use its resources more effectively. I have no reason to change that view.

§ Mr. Jay
Is it not clear that in all the circumstances the abandonment of exchange controls was a reckless and disastrous blunder?

§ Sir G. Howe
From the right hon. Gentleman's long tradition of believing that the gentlemen in Whitehall know best, he would believe the abolition of any control to be a reckless and disastrous blunder. The abolition of exchange control represents a sensible change in policy which brings us into line with many other countries. It lays the foundation for the more effective use of the nation's resources.

§ Mr. Robert Taylor
Does my right hon. and learned Friend agree that much of the increase in private sector borrowing is used to finance stock increases to avoid corporation tax? How long is he prepared to allow that to continue?

§ Sir G. Howe
That is an issue of legitimate importance. It is one of the factors underlying the decision announced in my Budget Statement to undertake a review of the entire pattern of corporation tax. That review is continuing.

§ Mr. Anderson
Will the Chancellor of the Exchequer dare to contrast the near ecstasy with which his first Budget was greeted by his hon. Friends with the current gloom and the fast-emptying Tory Benches? Is this the incentive that he promised private industry? What is the working assumption for industrial investment in the next year as a result of this package?

§ Sir G. Howe
I am quite certain that failure to introduce such measures would have gravely worsened working assumptions for industrial relations and other aspects of the economy. Such action is and was essential to restore the monetary balance. It is only under a Government who have the courage to take such action that we can look forward to restoring this country to prosperity.

§ Mr. Kenneth Lewis
Is my right hon. and learned Friend aware that what he has announced today will undoubtedly have a tremendous effect on the private sector? Is he satisfied that in the public sector, through the measure that he has announced or through any other measures, he can hold back what many believe will be wage and salary rises that are far too high?

§ Sir G. Howe
My hon. Friend is entirely right to draw attention to the continuing danger of pay claims that are excessive by any standards in the public as well as the private sector. The measures that I have taken are necessary to control the total resources of money available to meet those claims. Those who are conducting pay bargaining must recognise that if they press their claims too far they increase the chances of unemployment increasing, and destroy the chance of advancing prosperity.

§ Mr. Campbell-Savours
Would not the right hon. and learned Gentleman accept that there is a lesson in his statement for both Front Benches in this House, namely, that traditional solutions will not resolve these traditional problems and that if the objective is to be growth it would be well if the Government were to accept the need for a change, in terms of a transformation in the relationship between capital and labour, because that is at the root of the problem?

§ Sir G. Howe
I am sure there is lesson not just for both Front Benches but for Front and Back Benches on both sides of the House, namely, that it is not sufficient for a Government to take the steps which this Government are taking—the action that they can take—to control the central features of the economy; but that it is important, as the hon. Gentleman puts it, for relationships between capital and labour to be transformed in the direction of common sense. If those who are conducting negotiations between capital and labour recognise the extent to which they can destroy their jobs, their firms and their futures by irresponsible action, and instead behave in a sensible fashion, devoted to raising productivity and improving job security, a great transformation would indeed follow. If the hon. Gentleman would join us on the Government side of the House in preaching the cause of industrial responsibility, no one would be happier than I.

§ Mr. John H. Osborn
The right hon. Gentleman the Shadow Chancellor raised the question of public expenditure as a percentage of the gross national product. Is my right hon. and learned Friend aware that trade unions and Socialist councils from South Yorkshire are coming to the House next week to urge a further increase in public expenditure? Would he comment on that, and would he explain the extent to which this dilemma is due to the failure of an incomes policy last winter?

§ Sir G. Howe
My hon. Friend is right to remind the House of the extent to which many of the problems that we have inherited are the result of the failures of the last Government in the winter of discontent through which we then lived. He is also right to remind us that the 1529 question that we should be constantly addressing to hon. Members on the Labour Benches is whether they are criticising us today for taking action to reduce public borrowing or public spending, or, on the other hand, for not spending enough. The dichotomy in policy on the part of the Labour Party has to be resolved. I hope very much that Labour Members opposite will support us, as we need their support, in continuing to reduce public expenditure so as to restore the health of the economy.

§ Mr. Meacher
Given that the main cause of an extension of the money supply is now the soaring amount of bank lending to the private sector, will the Chancellor accept that the supplementary special deposit scheme is now totally inadequate to remedy this? If that is so, why has he maintained it? Or, if he still thinks it is relevant, why has he not blocked such patent evasion measures as the issue of acceptances?

§ Sir G. Howe
For the reason that I have explained to my hon. Friend, that action to block one variation of that kind is all too likely to lead to the development of some variation beyond it making it more difficult to measure and identify what is taking place. As I said in my statement, I recognise that the supplementary special deposit scheme has many shortcomings about it, but it would be foolish to sweep it away without having further thought about what supplementary system ought to take its place. That is why studies are continuing on a monetary-based control.
The hon. Gentleman would be unwise to conclude that our problems spring mainly or wholly from expanding bank lending to the private sector. He should bear in mind the extent to which public borrowing has, as I said in my statement, been substantially and unpredictably increased to the tune of no less than £1,000 million, as a direct result of irresponsibility by no more than 80 people.