HL Deb 10 June 1985 vol 464 cc993-5

2.37 p.m.

Lord Beswick

My Lords, I beg leave to ask the Question standing in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what increase in money stock has taken place over the most recent available 5-year period and what percentage of this is accounted for by increased issue of currency.

Lord Brabazon of Tara

My Lords, the increase in the broad money stock, as measured by sterling M3, seasonally adjusted, over the five years to mid-April was 101.9 per cent. The increase in notes and cash in circulation outside the Bank of England accounted for just over 5 per cent. of this increase.

Lord Beswick

My Lords, I thank the noble Lord for that Answer. Will he accept that I am not here trying to get involved in any argument in regard to Milton Friedman or Maynard Keynes? My Question is a comparatively simple one. It is clear there has been an enormous increase in money stock. Will the Minister agree that it has not been caused by the Government printing notes or minting money? My question therefore is: ought we not at this point to have a really serious attempt to find out precisely how the financial institutions do create this extra purchasing power?

Lord Brabazon of Tara

My Lords, the reason for the increase in the broad money stock to which the noble Lord referred is the much larger aggregate, most of which is interesting-bearing. Narrow money contains no interesting-bearing element, being mostly transactions balances. The innovation in the financial markets has had different impacts, tending to reduce demand for transactions balances but perhaps raising the demand for deposits, with an increase in the demand for liquid assets as a form of savings.

Lord Stoddart of Swindon

My Lords, is the noble Lord aware that the amount of money in the economy—that is, cash in circulation and bank deposits—is now expanding faster than the target rate of 7 to 11 per cent. laid down in 1980, when the Government in fact laid down their medium-term strategy? Does the noble Lord agree that since then all sorts of things have been happening, including mass unemployment and the highest rates of interest in any advanced country? Where in fact is the Government's policy leading us, and when can we expect a reduction in interest rates which would not only help home owners but also help our economy to expand as it should?

Lord Brabazon of Tara

My Lords, sterling M3, I agree, is above target, but the narrow margin M0 is firmly on track. As the noble Lord says, real interest rates are still high and there is little other indication that monetary conditions are not tight enough. But no risks will be taken with inflation. Interest rates will be held at whatever level is needed to maintain monetary conditions which will continue to bring inflation down.

Lord Beswick

My Lords, I am not disposed to query anything that the noble Lord says. I am not saying that the money created is not performing a useful service. What I am saying is that at the present moment almost the whole of the money which the Government borrow is to pay interest on money which they have already borrowed. In these circumstances, is it not absurd to leave the creation of money to some private institutions and then for the Government to pay interest on that money when they borrow it?

Lord Brabazon of Tara

My Lords, I take note of what the noble Lord says and I think the best thing I can do is to draw his remarks to the attention of my right honourable friend.

Lord Bruce of Donington

My Lords, is not the noble Lord aware that it would be of great assistance to the House and to the City community at large if his right honourable friend could make up his mind as to which definition of money stock he proposes to adopt? Is it M3, M2, M1 or PSL2? Surely we are entitled to know which measurement the Chancellor is prepared to stick to through thick and thin, instead of varying it whenever it suits his purpose.

Lord Brabazon of Tara

My Lords, I reject the charge that my right honourable friend varies it according to what suits his particular purpose. The two main factors are M0 and M3, and they are given equal weight. They will continue to be interpreted in the light of other indicators of monetary conditions, including the exchange rate.

Baroness Seear

My Lords, is the Minister aware that we on these Benches sympathise with his attempts to deal with these "googlies"?

Lord Brabazon of Tara

My Lords, I am grateful to the noble Baroness.

Lord Beswick

My Lords, may I take it that I have the noble Lord's approval for an attempt I shall make in the future to have this matter raised again in debate?

Lord Brabazon of Tara

My Lords, as I have said, I will draw the noble Lord's remarks to the attention of my right honourable friend, and that is about as far as I can go at the moment.