§ 2.35 p.m.
§ LORD PETHICK-LAWRENCEMy Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government whether they were informed by the authorities of their intention to withdraw, on 24th February, support from the gilt-edged market; whether they concurred in this decision; and, in view of the concern felt at the continuing deterioration in the values of the national funds, whether they will consider indicating any floor below which they are not prepared to allow them to fall.]
§ THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE)My Lords, Her Majesty's Government are in the ordinary course kept informed of developments in the gilt-edged market and are consulted upon the broad lines on which the monetary authorities intend to work in their operations, though noble Lords will readily understand that the actual conduct of the operations must remain in the hands of those authorities. Her Majesty's Government were informed of the course of events on February 24 and are entirely content with the action taken. To describe this action as a withdrawal of support is, however, an overstatement. The Government do not believe that the market ought to be insulated by official action from the effects of decisions by holders of gilt-edged stock to buy or sell, though at times it may be desirable to assist in maintaining orderly market conditions. It follows that the answer to the last part of the noble Lord's question is in the negative.
§ LORD PETHICK-LAWRENCEMy Lords, while thanking the noble Earl for that Answer, may I ask him, in connection with the proposal contained in the third part of my Question, whether the Government have any other scheme or plan by which they can encourage holders of the funds? The noble Earl must realise that a large number of people, through no fault of their own, are very seriously hit by these falls in the value of the funds, and surely the Government have some responsibility for encouraging these people.
§ LORD TEVIOTMy Lords, may I, before the noble Earl answers, ask a simple question to which I suppose I ought to know the answer: who are the authorities referred to in the Question, and how are they appointed?
§ THE EARL OF DUNDEEMy Lords, if I may answer my noble friend first, the authorities are the Issue Department of the Bank of England and the Government broker. What the noble Lord, Lord Pethick-Lawrence, asked was, have the Government no responsibility to the holders of these stocks. Of course we appreciate that people can lose their capital if the stocks go down, but all that the Government try to do through the authorities is to even out temporary fluctuations in the price so as to maintain an orderly market. If it seems that supply is persistently in excess of demand so that the natural price tends to go down for the time being, the Government do not feel obliged to maintain the former price at an artificially high level by continued Government buying. We do not think it is right that the Government should be a kind of sink for unwanted Government stock at an artificially high price.
§ LORD PETHICK-LAWRENCEMy Lords, I quite appreciate that answer, but surely the Government have a great deal of responsibility, because it is their policy and their handling of the monetary situation over a period of years that have brought about this enormous drop in realisable value of gilt-edged stock and Government securities in particular.
LORD REAMy Lords, may I put a further question? Do the Government propose at any time to take steps to alleviate the really rather alarming position of those investors, most of whom 489 are dependent on unearned income, who by taking Government advice about savings are put at a great disadvantage?
§ LORD BOOTHBYMy Lords, before the noble Earl answers, may I ask one more question? Is he not aware that the Radcliffe Committee recommended that when action of this kind was taken some explanation should be given? On this occasion no explanation was given. May I ask the noble Earl whether Her Majesty's Government are really quite indifferent to the fate of millions of shareholders in Government securities who were induced to buy them on the strength of what now appear to be almost fraudulent prospectuses?
§ THE EARL OF DUNDEEMy Lords, I do not know how far your Lordships would like to have at Question Time a general debate on monetary policy; but all that happened last week was that the weight of selling, mainly from the banks, was so great that the authorities decided to make a larger reduction than normal in the price at which they were prepared to buy. There was no question of withdrawing support altogether, only of lowering the price at which the authorities were prepared to buy. I was most interested in the comments of my noble friend Lord Boothby in the Sunday Dispatch yesterday on this question. I assure him I read them with the greatest interest; also the not quite similar comments of the Sunday Dispatch Stock Exchange Correspondent on another page. I would also assure him that we do pay great attention to these views. But I think it is going a little wide of the Question to debate these general matters of economic policy at Question Time.
LORD HAWKEMy Lords, may I ask the noble Earl whether he could tell me from what source Her Majesty's Government obtain funds wherewith to support the market?
§ THE EARL OF DUNDEEMy Lords, I think they obtain them from the Issue Department of the Bank of England.
§ LORD LATHAMMy Lords, may I ask the noble Earl whether he is aware that the Financial Times on Saturday described this action on the part of the Bank as a clumsy manœuvre, and would he agree with that description?
§ THE EARL OF DUNDEEMy Lords, I do not think, after considering the matter very carefully indeed, that I would agree with that. I have the Financial Times of February 26 here, the article on the financial page. It must have been in some other part of the paper that they used that description, which is surely a matter of opinion.
§ LORD LATHAMMy Lords, the 26th was Friday, and not Saturday.
§ VISCOUNT ALEXANDER OF HILLSBOROUGHMy Lords, could the noble Earl tell us whether the "authorities" referred to are aware of what was the real dynamic of the action of the banks in unloading these Government stocks at such a rate as he describes? Was this a deliberate act of policy on the part of the large banks?
§ THE EARL OF DUNDEENo, my Lords. The dynamic was simply that the supply of bonds was keeping persistently in excess of the demand. The Government were not trying to lead a movement to push down the price at all. The fall of the price was a natural movement of supply and demand.