HL Deb 20 February 1991 vol 526 cc541-3

2.48 p.m.

Lord Donoughue asked Her Majesty's Government:

Why the United Kingdom monetary authorities have felt constrained to renew the issue of gilt edged stocks.

The Parliamentary Under-Secretary of State, Scottish Office (Lord Strathclyde)

My Lords, the decision to issue gilts on 23rd January, 4th February and 18th February was taken to assist market management by the Bank of England and is fully consistent with the Government's funding policy.

Lord Donoughue

My Lords, I thank the Minister for that Answer. Is he aware that the latest respectable City forecasts from Kleinwort Benson show the domestic deficit, the borrowing requirement, becoming £11 billion in the next year? The necessary funding for that is forecast to be £20 billion. Is he further aware that in last year's Budget speech Mr. Major stated—and I quote this in order not to do him a disservice—that he deplored previous governments who, spent more than they were prepared to raise honestly from taxation"?—[Official Report, Commons, 20/3/90; col. 1014.] Later, in the Independent newspaper, he said that he would prefer to raise taxation rather than return to deficit.

Can the Minister inform the House whether the Government will honestly raise taxation to cover this huge deficit, or will they run a disreputable deficit like their predecessors?

Lord Strathclyde

My Lords, I do not know whether or not the noble Lord's forecasts from the City are respectable. However, I do know that in the Autumn Statement the Chancellor of the Exchequer forecast a public sector debt repayment of £3 billion. As I am sure the noble Lord knows, a new forecast will be published in the Budget Statement on 19th March.

Lord Bruce of Donington

My Lords, is the noble Lord aware that the latest issue, far from being a market adjustment, is the first visible and minute acknowledgment from the Government that their policy of privatising the public sector borrowing requirement has failed? It has so far reduced the finances and cash flows of industry, with likely losses and reduced profits to be made in the forthcoming year, that a public sector borrowing requirement will be inevitable in default of any increase in taxation.

Lord Strathclyde

My Lords, I am afraid that the noble Lord is quite wrong. In recent months there have been substantial purchases of gilts from the private sector by the banks and building societies. The full fund objective means that such purchases have to be funded by sales of gilts by the authorities, thus adding to the amount of gilt sales required. That is why there has been an issue of gilts; nothing else.

Lord Gisborough

My Lords, does my noble friend agree that the party opposite is expert at borrowing, if at nothing else? Does my noble friend further agree that it is expert as regards approaching the International Monetary Fund?

Lord Strathclyde

My Lords, my noble friend is absolutely correct. Noble Lords opposite who were in another place at that time will no doubt know considerably more about that matter than we do.

Lord Stoddart of Swindon

My Lords, is the noble Lord aware that today's figures show that we are now officially in recession? Would not the right policy be for the Government to run a public service deficit, coupled with substantial reductions in interest rates?

Lord Strathclyde

My Lords, as the noble Lord knows, that is of course a decision for the Chancellor of the Exchequer when he makes his Budget Statement in March.

Lord Peston

My Lords, I was surprised by the remarks that the Minister made in reply to his noble friend. Surely the Minister is aware that the overwhelming majority of the national debt of this country was incurred by Conservative governments, mostly to finance wars over a long period of time. It would be wrong of the Minister not to acknowledge that. Having endeavoured to help the Minister, I must say that I thought I heard him say that the recent issue of gilts was part of the Government's funding policy. Will the Minister tell us what the Government's funding policy now is, and particularly what it will be, as the Government themselves have pretty well acknowledged that the Budget will go into deficit in the coming year?

Lord Strathclyde

My Lords, I do not think the Government have suggested any such thing. On the point about funding policy, my right honourable friend the Prime Minister said in his new year interview in the Financial Times: The objective is to balance the budget over the medium term, not in every single year. If damaging and destabilising tax changes are to be avoided, this could mean moving into modest deficit when output is below trend and modest surplus when output is above trend". I do not think I can express the position more clearly than that.

The Earl of Lauderdale

My Lords, can my noble friend remember any date on which the party opposite when in power repaid one single penny of the national debt?

Lord Strathclyde

No, my Lords. However, this Government have repaid debt to the tune of some £26 billion over the past 11 years.

Lord Peston

My Lords, I do not like this shilly-shallying, but if noble Lords opposite insist on this kind of nonsense I hope I may point out, without boasting—

Noble Lords


Lord Peston

My Lords, I shall get to my question in due course, but the Minister normally likes to understand what the question is about before he endeavours to answer it; that is why I am endeavouring to help him. I speak not for myself but for the noble Lord, Lord Jenkins. Does the Minister recall that the last Chancellor who brought the Government's finances into some kind of equilibrium was a Labour Chancellor of the Exchequer? That fact gives us no cause for shame. While we are on this subject, is the Minister aware that what his right honourable friend the Prime Minister stated in the Financial Times interview was a complete departure from what his own predecessors had been saying for the past 10 years, which was that the Budget should be balanced every year and not just over the cycle? The Government have quite clearly made a U-turn.

Lord Strathclyde

My Lords, we have as a long-term objective sought to obtain a balanced Budget every year. However, as experience has shown, that is not always possible. Our long-term aim has been to achieve balanced Budgets, and in that respect we have been considerably more successful than the previous Labour Government.

Lord Mackie of Benshie

My Lords, do I understand in my simple agricultural way that the Government need more money? Is that because they have overspent or because they have not earned enough?

Lord Strathclyde

My Lords, the answer is essentially that we are balancing the amount of Government income and spending on the basis that we are repaying some of the gilt edged stocks which are maturing in the current year.