§ 3. Mr. Campbell-Savoursasked the Chancellor of the Exchequer which measures in his statement of 24 November will most benefit manufacturing industry.
§ The Chancellor of the Exchequer (Sir Geoffrey Howe)The two percentage point reduction in the minimum lending rate.
§ Mr. Campbell-SavoursWithin the boundaries of a monetarism which is characterised by soaring Government borrowing and a money supply figure which is out of relationship with what the Government want, does the Chancellor accept the need to restore output and demand in the economy? Is not that the root of the problem which has put nearly 1 million people out of work in the last 18 months.?
§ Sir Geoffrey HoweThe hon. Gentleman must understand, as more people are coming to understand, chat the way to restore the health of our economy is not by the Government seeking to reflate demand and generate a false surge of output in that way. The reduction of inflation, to which the Government are committed, and the other changes in the fiscal system are the right methods of securing a healthy and sustainable growth in output.
§ Mr. EggarAre the figures in the medium-term financial strategy achievable in the light of my right hon. 1055 and learned Friend's announcement on 24 November? If not, when may we expect a re-basing of the sterling M3 and PSBR monetary targets?
§ Sir Geoffrey HoweMy hon. Friend will recall that at the time of my statement on 24 November I said that I should be considering and making announcements about the monetary target at the time of the Budget, when I shall also make announcements about the prospective size of the borrowing requirement next year.
§ Mr. WoolmerWhy did the Chancellor on 24 November seek to give the misleading impression that he was increasing Government tax revenues from North Sea oil and gas by £1 billion on top of the levels previously forecast, saying that there was
scope for a further increase in oil taxation"? — [Official Report, 24 November 1980; Vol. 994, c. 317.]Why did not the right hon. and learned Gentleman tell the House that his own private forecast was that those revenues would be £1 billion short next year unless he took action? Is not the Chancellor giving the distinct impression that, on top of the employers' national insurance contributions chaos, either his budgetary policies are in chaos or he does not know what is going on?
§ Sir Geoffrey HoweThe hon. Gentleman gives me an opportunity to correct at once the entirely false report on the front page of today's issue of The Times to the effect that the position about the yield from North Sea oil was not fully presented to the House on 24 November. He will recall that I said in my statement that the changes proposed in the oil tax regime would
together yield around £1 billion in 1981–82, mostly from the new tax."—[Official Report, 24 November 1980; Vol. 994, c. 317.]The hon. Gentleman will also recollect that the forecast published on the same day, and republished in the Economic Progress Report Supplement for December, made perfectly clear thatAfter taking account of the proposed tax changes announced on 24 November, revenues from North Sea oil and gas in 1981–82 are expected to be in the range of £4½-5 billion, a little higher than forecast at the time of the Budget.It was made absolutely clear that the new tax revenues were being taken into account in the figures set out plainly in the forecast.
§ Mr. BudgenIn view of the money supply figures for the past two months, will my right hon. and learned Friend explain the technical, as opposed to the political, arguments for reducing minimum lending rate by 2 per cent. without there being compensating and contemporaneous cuts in public expenditure and increases in taxation?
§ Sir Geoffrey HoweI explained to the House as well as to my hon. Friend that the well-justified reasons for the welcome reduction in minimum lending rate were, first, the prospect of declining monetary growth, particularly when the public sector moves into surplus in the new year, and, secondly, the fact that the inflation rate has been coming down and is continuing to come down very sharply, so that the real rate of interest has been rising at the same time. In those circumstances, for monetary and other reasons, I have no doubt about the justification for the reduction in MLR.
§ Mr. ShoreFollowing the Chancellor's initial reply that he thought that the benefit of his measures was embodied in the reduction of MLR by 2 per cent., does he 1056 really think that that is a satisfactory move, taking account of the plight of British manufacturing industry and the fact that in his own forecasts introduced at the same time as his mini-budget he expected a further fall in manufacturing output next year of another 5 per cent.? Does not that suggest to the Chancellor something far more dramatic—that the basic problem is indeed a lack of effective demand in the economy? Will he not be concerned with the kind of points made by his hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) about whether he is achieving or under-achieving his so-called money supply targets? In our view, these are matters which are totally irrelevant to the successful management of the economy.
§ Sir Geoffrey HoweMay I take the opportunity of welcoming the right hon. Gentleman to his new Shadow portfolio and wish him a long tenure of that role?
It is plain from what the right hon. Gentleman said that he intends to signal a change of management, since he has taken the first opportunity to discard the respect for monetary policy which was at least the one hallmark of his predecessor. That is a signal of economic and financial irresponsibility.
The answer to the point specifically raised by the right hon. Gentleman cannot be repeated too often. We are not likely to succeed in restoring the health of our economy if we continue to deceive ourselves that we can do so by expanding demand within the United Kingdom. The crucial cause of declining prosperity in this country has been the continuing loss of competitiveness by British industry, attributing itself far more to high and rising wage costs than to any other cause. The right hon. Gentleman must cease deceiving himself in looking for an increase in demand as the right economic prescription.
§ Mr. ShoreThe Chancellor is absolutely right in what he attributes to me as my attitude towards monetary policy. But what the House would like to know in the light of the Chief Secretary's speech to Conservative Back Benchers yesterday is whether the Government themselves have at last seen sense and are prepared to abandon their obsession with money supply targets.
§ Sir Geoffrey HoweThe Government are united in their determination not to follow the right hon. Gentleman down the path of economic irresponsibility.