§ 3.18 p.m.
§ Lord BESWICKMy 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 new factors have appeared in the national economy which made possible the reduction of the MLR announced on 3rd July.
§ The MINISTER of STATE, TREASURY (Lord Cockfield)My Lords, the reduction in minimum lending rate was justified by the current and prospective trend of monetary developments.
§ Lord BESWICKMy Lords, is the noble Lord aware that I for one greatly admire the zeal with which lie strives to defend the indefensible, but does he not sometimes lay himself open to the charge of self-contradiction? Has he not hitherto always maintained that it would be impossible to bring down the MLR except 1947 as and when the rate of inflation comes down? Can he tell us by how much the rate of inflation has come down since the MLR went up to its panic rate of 17 per cent.?
§ Lord COCKFIELDNo, my Lords; there was never any panic increase in minimum lending rate. The increase in minimum lending rate was necessary in order to curb the rise in money supply, which had got out of control during the period of the previous Administration. The reduction that has now been made in minimum lending rate reflects the success of the Government in bringing monetary growth back under control. The figures that were published a few minutes ago indicate that the growth in M3 in the four weeks to 18th June was 0.7 per cent., and that the growth in the money supply in the previous six months was 10¼ per cent. These developments are both a tribute to the success of the policy and a justification for the reduction in minimum lending rate.
§ Lord ALPORTMy Lords, will my noble friend agree that the country in general is well satisfied with this very small U-turn on the part of Her Majesty's Government?
§ Lord COCKFIELDMy Lords, there was no U-turn on the part of Her Majesty's Government. In fact, the reduction in the minimum lending rate indicated that the Government were proceeding straight ahead on the policy which they had so clearly laid down. So far as the rate of inflation is concerned, we hope that we are now at or near the peak in the rate of inflation, and that in a few weeks' time we shall see a fall in it.
Lord BRUCE of DONINGTONMy Lords, is the noble Lord aware that the miniscule decrease in the minimum lending rate has brought no relief to the smaller businesses in the United Kingdom; and will he give some indication as to the amount of additional unemployment and additional bankruptcies as a consequence of the Government's policies he requires in order that there may be a further and significant reduction in the MLR?
§ Lord COCKFIELDMy Lords, the reduction in the MLR will have brought 1948 relief to businesses of all sizes, large as well as small. The hope is that it will be followed in due course by further reductions in the MLR, but this must depend upon future monetary developments and future monetary prospects. So far as the level of unemployment is concerned, I have made it clear in every speech I have delivered in your Lordships' House since 19th June last year, when we debated the Government's Budgetary proposals, that a rise in unemployment is the inevitable result of excessive pay settlements. This is why we have endeavoured to drive this lesson home, and I hope we have the noble Lord's support in doing so.
§ Lord BOYD-CARPENTERMy Lords, is my noble friend aware that many of us feel gratitude for this first manifestation of the success of the Government's policy, but that our gratitude is subject to the classical definition of that word—"a lively anticipation of favours to come"?
§ Lord COCKFIELDMy Lords, I am most grateful to my noble friend, both for what he said in the first part of his question and for the good wishes contained in the second part.
§ Baroness GAITSKELLMy Lords, will this Government not go down as a Government of promises, and will they not be called the "this year, next year, some time, never" Government in the matter of reducing unemployment?
§ Lord COCKFIELDNo, my Lords. This is a Government which have a clear policy. They propose following that policy, and they propose following it to success.
§ Lord BESWICKMy Lords, may I refer the noble Lord to the Answer he gave me on 29th April, when I first raised this question of the MLR, in which he said, at col. 1131:
Interest rates will come down only as and when we can reduce the rate of inflation".The fact of the matter is that the rate of inflation has not come down; but may I ask him whether he is aware that I heartily support what has been said by his noble friends on the other side of the House? If we can look upon this reduction of I per cent. as an indication 1949 that they recognise it is a failure as a counter-inflationary instrument, then it will give much more encouragement to industry generally.
§ Lord COCKFIELDNo, my Lords. The reduction of 1 per cent. in MLR is a clear indication of the success of the policy, and not of its failure. It has produced the results it set out to produce, and it is this fact which has enabled the rates of interest to be reduced. So far as the rate of inflation is concerned, my right honourable friend the Chancellor of the Exchequer has made it clear in another place—and I repeated it here—that in the course of the next few weeks and the next few months we shall be seeing a significant reduction in the rate of inflation.
§ Lord JACQUESMy Lords, is the noble Lord aware that we shall see a reduction only because the increase in VAT will no longer be in the index? Is he further aware that in maintaining high rates of interest for a long period the Government are going against what has been accepted as good economic sense over the past 20 or 30 years?
§ Lord COCKFIELDMy Lords, the first part of the noble Lord's question merely confirms what we said at the time; namely, that the increase in the VAT brought about a once-and-for-all increase in the retail price index, and that will be clearly brought home when the index for July is published in the month of August. So far as the second part of his question is concerned, I think the noble Lord is thinking in terms of theories of economics which, fortunately, have long since been discarded.
§ Lord SOAMESMy Lords, I hope the House will agree that we should move on to the next Question.