COUNTER-INFLATIONARY POLICY: BORROWING LEVEL (Hansard, 7 August 1980)

Lord MORRIS
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The MINISTER of STATE, TREASURY (Lord Cockfield)
My Lords, the achievement of the Government's target for money supply growth is central to their policies for bringing down the rate of inflation. While no target is set for bank lending as such, growth in bank lending to the private sector is one of the factors influencing money supply growth. Accordingly, the Government's interest rate and other policies are directed at ensuring that such growth is compatible with the money supply target.

Lord MORRIS
My Lords, I thank my noble friend for that Answer. While I assume that my noble friend agrees with his right honourable friend when she stated the other day that we will be able to reduce the interest rate when fewer people, including the Government, are living on credit, may I ask the Minister whether he can reconcile that view with the unfortunate practice of the clearing banks of continually, energetically and expensively exhorting people, and particularly the young, to pledge their credit as hard as they can go, bearing in mind the unfortunate economic and social ills that must flow from that practice?

§ Lord COCKFIELD
My Lords, I appreciate the important point that has been raised by my noble friend. The directional guidance issued by the Bank of England to the clearing banks enjoins 1592 strict control over advances to individuals to ensure that the needs of priority customers are met. The need for caution was also underlined by my right honourable and learned friend in his Budget Statement on 26th March.

Lord BRUCE of DONINGTON
My Lords, is the noble Lord aware that the events of the last few days, including the publication of the figures, show clearly that Her Majesty's Government have no control over the money supply and, in the words of the Financial Times of yesterday, … the Government's complete monetary policy is in a mess"? Does he also realise that this is further underlined by the fact that only yesterday the Bank of England had to inject a further £500 million into the banking system? When will the Government admit that the whole of their policy in respect to monetary affairs lies in complete shambles?

§ Lord COCKFIELD
My Lords, not even the noble Lord is entitled to draw such a conclusion. The corset control was imposed by Mr. Healey in June 1978. It greatly obfuscated the position. This now has been swept away and we can see what the true position is. If the noble Lord is interested in pursuing the question of the faults in the Financial Times from which he quoted, I might draw his attention to what appeared in their leader of the same day. It read: What has been revealed is not a new horror but a past error. The real economy shows clearly that whatever happened last year restraint is now a fact". I commend that thought to the noble Lord.

Lord BRUCE of DONINGTON
My Lords, arising out of that reply in which the noble Lord admits that the Government have been labouring under some illusions for, at any rate, the last six months, will he give an undertaking that during the very welcome Recess he and his colleagues will do a bit of homework and get their figures right?

§ Lord COCKFIELD
My Lords, unlike the previous Government, this Government do not labour under illusions, or for that matter, delusions. It is well- 1593 known that the money supply growth figures published in the lifetime of the Labour Government were, in fact, substantially understated because of the leakage as the result of the corset control. We were aware of the existence of that leakage and it was one of the factors taken into account in setting the money targets.

§ Lord ORR-EWING
My Lords, will my noble friend arrange with Hansard to have an asterisk put to the first supplementary which came from the noble Lord, Lord Bruce, because he appears to have kicked the ball through his own goal?

§ Baroness LLEWELYN-DAVIES of HASTOE
My Lords, is the noble Lord aware that, whereas the House expects from him in answer to every question put to him an analysis of the work of the last 18 months of the previous Government, it would greatly appreciate a more constructive and very much lighter approach from him in answer to questions?

§ Lord COCKFIELD
My Lords, the Government have a constructive policy which I have endeavoured to explain to noble Lords opposite on a large number of occasions and I would recommend the noble Baroness to read what I have said because it sets out the position with great clarity. The Government have a clear policy and they propose to pursue it to success.

§ Baroness LLEWELYN-DAVIES of HASTOE
My Lords, is the noble Lord aware that it is bad enough to have to listen to it?

§ Lord AVEBURY
My Lords, would the Minister admit that extortionate interest rates are one of the main causes of the large numbers of liquidations in private industry and that in the long run it will be inflationary if domestic companies are supplanted in the home markets by foreign competitors whose prices are not under the control of the Government?

§ Lord COCKFIELD
My Lords, I do not accept the noble Lord's analysis of the situation. We have made it clear repeatedly that if, for example, there are excessive wage settlements, these result in 1594 both liquidations and insolvencies on the part of companies and unemployment on the part of the workers who demand these excessive increases. We have no desire whatsoever to see these effects. They are the regrettable consequence of the paramount need to bring down the rate of inflation.

§ Lord MISHCON
My Lords, is the noble Lord aware that political irony is not acceptable to this House as a substitute for proper, informed replies to questions? Is he further aware—and, if not, would he consult the Equal Opportunities Commission—that controls are not exercised formidably by corsets in these days; and if he is in any doubt about the effectiveness of corsets as a method of control, would he kindly consult his right honourable friend the Prime Minister?

§ Lord COCKFIELD
My Lords, I have not the slightest doubt that the noble Lord is a greater authority on corsets than I am.

§ Lord WHADDON
My Lords, is the noble Lord aware that the Government's smugness and self-satisfaction are not shared by Britain's export industries—in which I must declare an interest—since these industries constantly have to fight against an artificially high exchange rate caused by the Government's savagely high interest rates at home?

§ Lord COCKFIELD
My Lords, the Government are very fully aware of the problems that are faced by export industries. The performance of such industries reflects very great credit on them and they have succeeded in holding their own to a remarkable degree. But I think that it is valid and important to point out to the noble Lord that the greater part of the rise in costs from which the export industries suffer is due to the rise in labour costs.

§ Lord BESWICK
My Lords, would the noble Lord now be good enough to say in the present situation by what means the issue of credit is to be controlled? If he tells the House that it is by the high interest rates, will he bear in mind that the useful export earning industries cannot afford that high interest rate and it is tending to be the non-useful, the speculative interests, that afford that high interest rate?

§ Lord COCKFIELD
My Lords, I do not accept this analysis. The important aspect so far as British industry as a whole is concerned, and export industry in particular, is that it should restrain the rise in its costs, and particularly the rise in its labour costs. If this is done it will greatly improve its competitive position.

§ Lord BESWICK
My Lords, would the noble Lord now be good enough to answer the first part of my question? Will he say, now the corset has gone, what powers the Government have to restrain the issue of credit by the banking system?

§ Lord COCKFIELD
My Lords, there are various ways that credit is restrained and the most important is the rate of interest which in effect rations the available money to the demand for it. The most important point of all is to bring down the rate of inflation. If we were to bring down the rate of interest prematurely, it would merely result in a further upsurge in inflation. As soon as it is clear that the monetary aggregates are under proper control, reductions in the rates of interest will follow.

§ Lord LEATHERLAND
My Lords, is the noble Lord aware that I agree with everything he has said in the last answer? But may I also ask him to tell us by what percentage inflation has risen since the present Government came into office? Is it not about 20 per cent.?

§ Lord COCKFIELD
No, my Lords, it is not. The rate of inflation was on a steeply rising path at the time that this Government took office in May of last year. This is amply demonstrated by the fact that if one compares an annualised six-month figure it is substantially higher than the 12-month figure. The rate of inflation has already begun to fall and we anticipate that it will fall further.

§ The LORD PRESIDENT of the COUNCIL (Lord Soames)
My Lords, we have had a good run on this Question and perhaps it is important, in the interests of the House, that Questions do not turn into a matter of debate.