HC Deb 26 March 1981 vol 1 cc1066-7
8. Mr. Nicholas Winterton

asked the Chancellor of the Exchequer if he has any plans to move the United Kingdom on to a monetary base system of controlling the money supply.

Mr. Lawson

The changes announced by my right hon. and learned Friend in his Budget statement are consistent with a gradual move towards monetary base control. Further decisions will be taken in the light of experience.

Mr. Winterton

I am grateful for my right hon. Friend's detailed reply. If the Government are seeking to move Britain to a sound monetary base, why has private industry had to shoulder the major burden of the impact of Government policies to date to subsidise our inefficient industries, especially in the public sector, which are not founded upon a sound monetary base?

Mr. Lawson

I concede that there is much force in what my hon. Friend says. He is clearly drawing the attention of the House, as is proper, to the massive pay increases in the public services as a result of the post-dated cheques signed by the Opposition when they were in Government, which we were obliged to honour. That meant a substantially increased burden in public expenditure. The Clegg settlements involved about £2.5 billion and there were other similar settlements. Inevitably that burden has been borne by the private sector. Fortunately that phase is over. The Clegg commission has been abolished.

Mr. Jay

Does the Financial Secretary expect his monetary policies to be as successful in the future as they have been in the past two years?

Mr. Lawson

The monetary policies over the past two years have been successful in reducing the rate of inflation. I expect that success to continue.

Mr. Whitney

Does my right hon. Friend agree that the skill of the financial institutions in creating credit has shown over the past two years that the method of managing monetary interest rates is ineffective, which therefore strengthens the case for considering urgently a move to a system of monetary base control?

Mr. Lawson

I can assure my hon. Friend that we are considering this, as I said in my answer to the main question. It is an illusion to suppose that interest rates would cease to be a major instrument in the fashioning of monetary control if we were to move to monetary base control.

Mr. Robert Sheldon

Is not it clear that the Government have failed to keep their monetary target and that they are now relying more on PSBR objectives? As the right hon. Gentleman forecast that the PSBR would be £8½ billion and it turned out to be £13½ billion, why does he think that he will be more successful by trading in the money supply totem pole for the PSBR one?

Mr. Lawson

The right hon. Gentleman has never understood that it is not a matter of totem poles in either instance. Monetary control was accepted by the right hon. Member for Leeds, East (Mr. Healey), under whom the right hon. Gentleman served, as being of the first importance, as it is by every responsible finance Minister. The public sector borrowing requirement is not a totem pole. It measures precisely what the Government have to borrow. The Treasury team of which the right hon. Gentleman was a member was not particularly accurate in its forecasts of the PSBR on a number of occasions. That does not mean that it is a matter of no importance, as the right hon. Member for Stepney and Poplar (Mr. Shore) suggested a short while ago.