Monetary Aggregates: Growth (Hansard, 3 July 1984)

§ Lord Bruce-Gardyne
My Lords, I beg leave to ask the first Question standing in my name on the Order Paper.

§ The Lord President of the Council (Viscount Whitelaw)
My Lords, in substitution for my noble friend Lord Gowrie I shall give the Answer to my noble friend Lord Bruce-Gardyne. In the three banking months to the end of banking May, £M3 grew by 10.5 per cent. on annualised rate, PSL2 by 17.8 per cent. and M1 by 29 per cent. No figures are available for total bank lending to the personal sector on a banking month basis. I would remind my noble friend that we have never targeted bank lending and that PSL2 and M1 are no longer target aggregates. M0 and £M3, the 1984–85 target aggregates, are growing satisfactorily against the ranges set for them at Budget time.

§ Lord Bruce-Gardyne
My Lords, I am most grateful to my noble friend for that information, which I shall study with great care and interest. Will he elaborate on the statement issued by the Bank of England last week, which said that the present condition of monetary policies suggested that, on domestic grounds, there was no case for a rise in interest rates? Are we to deduce from that that although the Government have no intention of using a rise in interest rates to restrain any tendency of the pound to fall against the dollar, they would still take action on the interest rate front if they were satisfied that the growth of consumer credit in particular was too fast?

The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie)
My Lords, I apologise to the House, to my noble friend and to my noble friend the Leader of the House for this quick change act, which we in the arts are of course used to. I believe that my noble friend Lord Bruce-Gardyne must be thinking not just of lending to persons, for which, as he has acknowledged, banking quarterly data for banking March, April and May were published on Wednesday, 27th June. Those figures 138 have shown that lending to persons has increased as a proportion of total sterling lending—and I think that that gives him some cause for concern—but that the total sterling lending has remained fairly steady. I appreciate that this is a matter which he raised before with my noble friend Lord Cockfield, and that he is concerned about it. At the moment I do not think that his concern is too strongly based in view of the steadiness of total sterling lending, but we are keeping an eye on this.

§ Lord Barnett
My Lords, as nobody really understands these matters other than the noble Lord, Lord Bruce-Gardyne, and perhaps the noble Viscount who answered the Question in the first instance, would it not perhaps be better to ignore these aggregates, as most people around the world are now doing, and to concentrate (as, for example, are the United States) on expanding our economy and reducing unemployment?

The Earl of Gowrie
My Lords, the noble Lord, Lord Barnett, is a little disingenuous. He understands these aggregates perfectly well as he was Chief Secretary when they were first introduced. The fact of the matter is that the United States are fortunate in being able to expand their economy internally at the expense of what the rest of us have to suffer, and this is part of the problem.

§ Lord Elwyn-Jones
My Lords, can the noble Earl supply the House with a translation—either in English or, if need be, in Welsh—of the Answer originally read out by the noble Viscount the Leader of the House?

The Earl of Gowrie
My Lords, again, that is a nice try by the noble and learned Lord, because the Government, of which he was a luminary, to their great credit introduced these methods of monetary measurement. They are now the common currency of all governments around the world, and broadly speaking if we get our calculations on this front too far wrong—and they are complex and difficult—we soon suffer, whatever our political interests or tendencies, from very adverse effects.

§ Lord Harmar-Nicholls
My Lords, can my noble friend tell the House on what grounds he is able to suggest so confidently that a Minister who introduces such technicalities as these necessarily knows what they are all about?

The Earl of Gowrie
My Lords, it is my experience that Ministers try to master these matters. The difficulty is that there has been considerable controversy within the trade, if I may so describe it, as to which particular altimeter one should watch at which particular time.

§ Lord Barnett
My Lords, is not the anxiety of the noble Lord, Lord Bruce-Gardyne, who asked the Question, well placed? Is not the answer given by the Minister that the totality of borrowing is the same but that its constituent elements have altered in that private borrowing has gone up and corporate borrowing has gone down? Is not that the wrong kind of mix, to put it in its simplest terms? Would not we prefer it to be the other way round? Do not those 139 figures indicate that there is private spending, which is not productive, at the expense of corporate spending, which is?

The Earl of Gowrie
My Lords, I think that it is a little simplistic to say that all private borrowing is unproductive. Obviously, those people who are the beneficiaries of individuals' borrowing and the changes in their spending patterns as a result of the borrowing would not take that view at all. Many of those who so benefit are of course corporations, building societies, the construction industry and the rest. However, it is certainly true that one would wish for an emphasis on corporate borrowing. One of the reasons why the Government try to keep their own borrowing down is so that business interests will be encouraged to borrow.

§ Lord Bruce-Gardyne
My Lords, would my noble friend agree that it really is a little breathtaking for the noble Lord, Lord Barnett, to dismiss the significance of monetary aggregates since he played such a prominent and distinguished part in educating the then Chancellor into their application in the middle 1970s? May I press my noble friend further on one point? Can he say whether it remains the policy of Her Majesty's Government that movements in the exchange rate are to be regarded as a possible indicator to domestic monetary conditions, rather than as a pointer to the desirability of changes in interest rates?

The Earl of Gowrie
My Lords, the current movements in the exchange rate, particularly against the dollar, indicate more about the management of the American economy which the United States can to some degree handle in a manner which is disadvantageous to the rest of us, or to many European economies. That is a slightly different question. As to my breath being taken away, I am old enough in the game now to cease to be surprised at the difference between Ministers in Government and Ministers in Opposition.