HL Deb 14 July 1980 vol 411 cc1529-31

My 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 what assumptions about national production were made when deciding money supply targets for the current year.

The MINISTER of STATE, TREASURY (Lord Cockfield)

My Lords, the present money supply target range was announced in the Budget speech on 26th March. Forecasts of output were published on the same day in the Financial Statement and Budget Report.


My Lords, I thank the noble Lord for that Answer. Even if we accept the proposition of Her Majesty's present Government that we can meaningfully measure the supply of money, if the policy adopted to restrain money supply also has the effect of reducing the production of goods, are we not left with a situation where less money is chasing even fewer goods and therefore we are not advancing the fight against inflation?


No, my Lords, the fall in output is due to three main factors. First, the world recession which affects everybody as well as ourselves. Secondly, the long-term declining trend in productivity in this country; and, thirdly, the failure of wage bargainers to respond to the tighter monetary conditions. I have repeatedly made clear in speeches in your Lordships' House that the effects of excessive wage settlements will be a loss of output and a loss of jobs.


My Lords, in making their assumptions, did Her Majesty's Government take the view that our competitive edge is blunted as much by outmoded restrictive practices and failures to meet delivery times as by the high pound and rising wage costs?


Yes, my Lords; that is a point of great importance—we shall only get a higher standard of living if we earn it through a higher level of output. We can get a higher level of output only if we improve our level of productivity, and that means the removing of restrictive practices and excessive manning levels.


My Lords, will the noble Lord also tell his noble friend that a much more important influence as regards getting productivity up is to improve the utilisation of equipment, and that if the noble Lord really thinks that the action taken by Her Majesty's Government in reducing money supply in this country is not affecting manufacturing industry, then he really is not looking at the world outside?


My Lords, of course we need to improve the effective use of capital equipment, and that is why the point made by my noble friend is so important; namely, that we should improve on restrictive practices and remove excessive manning. As regards the remainder of the noble Lord's supplementary question, the vital thing is to reduce and ultimately to eliminate inflation, and that is the only way in which we and other countries will succeed in resuming a path of growth.


My Lords, does that answer mean that the noble Lord subscribes to the thesis that high rates of interest are good for investment?


My Lords, high rates of interest are an essential part of a strategy to reduce the level of inflation and, when we reduce the level of inflation, that will give us stimulus to profitable investment.


My Lords, can the Minister tell us to what extent his Government's policy has resulted in the reduction of inflation during their first 12 months of office?


My Lords, in the course of the next few months we shall see a substantial improvement so far as inflation is concerned.

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