HC Deb 24 January 1980 vol 977 cc620-1
1. Mr. David Price

asked the Chancellor of the Exchequer if he is satisfied that his current instruments of control of the money supply are adequate.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

The fundamental elements of monetary control are fiscal policy, that is, the public sector borrowing requirement, and the level of interest rates. Within this context, the Treasury and the Bank will shortly be publishing a consultative document discussing possible improvements to existing techniques.

Mr. Price

In that consideration, are my hon. Friend and my right hon. and learned Friend aware that present interest rates have to take too much of the heat and burden of necessary monetary discipline? Is he further aware that there is a variety of techniques open to the authorities to widen the range of monetary control, such as the broadening of the range of public sector debt management? Will he consider a number of such options?

Mr. Lawson

As I told my hon. Friend a moment ago, the Bank and the Treasury will jointly be publishing a consultative document shortly in which a number of these matters will be discussed. I have to tell my hon. Friend that the real and only way of getting the heat and the burden away from interest rates, to which he rightly alludes, is to bring down the public sector borrowing requirement. I hope that he will support us in our endeavours to do just that, by, above all, making further economies in public expenditure.

Mr. Healey

How does the hon. Gentleman reconcile what he has said with the speech he made a few days ago—reflecting, I am glad to say, the influence of the new economic adviser to the Treasury—in which he said that he is prepared to see the public sector borrowing requirement rise next year in money terms? That is sensible. We think that it should also rise in real terms. Does he really think that, in an area such as monetary policy, where it is impossible to define or monitor money in any real sense, it makes sense to change the whole system at a time when the Bank of England has said that the most important thing is firmness and consistency in present policies?

Mr. Lawson

Firmness and consistency in monetary policy is exactly what we are carrying through. That is increasingly recognised in world markets. I am glad to have the approval of the Chancellor of the Exchequer—

Mr. Winnick

A Freudian slip.

Mr. Lawson

—the ex-Chancellor of the Exchequer—for my remarks on Monday about the public sector borrowing requirement. I well remember the damage that the right hon. Gentleman did when he was Chancellor. It is difficult to forget that. As I say, I am glad to have his approval. However, I do not think that his interpretation is correct.

Mr. Healey

The hon. Gentleman indicated that he is prepared to see the public sector borrowing requirement increased in money terms next year. Is he aware that that is the first time that any Government representative has expressed that view?

Mr. Lawson

My right hon. and learned Friend the Chancellor of the Exchequer will be announcing the borrowing requirement for the coming year in his Budget Statement.

Mr. Tapsell

Would it not be desirable to introduce mechanisms directly to limit bank lending and domestic credit so that interest rates might be expected to fall rather further and earlier than now seems likely?

Mr. Lawson

I am not sure what mechanisms my hon. Friend has in mind. The main mechanism for controlling bank lending is interest rate. Fundamentally bank lending may be controlled only by controlling borrowing. Any attempt to control lending directly will lead either to other forms of lendingoutside that control being increased, or to lenders other than those who are being controlled increasing their lending. We have seen that in practice with the supplementary special deposit scheme.