HL Deb 20 April 1971 vol 317 cc629-31WA
THE EARL OF DUNDEE

asked Her Majesty's Government:

Whether the estimates for money supply in the financial year 1970–71 under the proposals announced by the Chancellor of the Exchequer on March 31; what will be in each case the national insurance contribution payable after September 20, 1971 (distinguishing between those who are and those who are not contracted out); what will be the net pay after deduction of tax and national insurance contribution payable after September 20,1971 (distinguishing between those who are and those who are not contracted out); what will be the net pay after deduction of tax and what percentage in each case this will constitute of the gross pay.

THE LORD PRIVY SEAL (EARL JELLICOE)

The information is as follows:

described in the Budget Statement (OFFICIAL REPORT: Commons; March 30 1971, col. 1374) are greater or less than the increases which have taken place in each of the years since the 1967 devaluation, and whether Her Majesty's Government do not consider that an increase of 3 per cent. a quarter, or 12 per cent. in the year, combined with a growth rate of only 3 per cent. for the year, is likely to promote further inflation and to encourage inflationary wage settlements.

EARL JELLICOE

The average rate of increase in the money supply (M3) of 3 per cent. a quarter in the first three quarters of 1970–71 was above the average quarterly rates of increase of 2 ½ per cent. in 1967–68, 1 ½ per cent. in 1968–69 and ½per cent. in 1969–70. As regards the year ahead, the Chancellor of the Exchequer's Budget Speech deliberately did not set a figure of 12 per cent. for the year as a whole. What the Chancellor said was that, in view of the dangers for liquidity and employment, he would not seek immediately to reduce the growth of the money supply to much below 3 per cent. a quarter. Later in the year, however, as the rise in costs and prices was moderated, the aim would be to slow down the growth of the money supply.

With regard to the second part of the question, the Chancellor made clear in his speech that monetary policy would play its part in the containment of inflation. In particular, he did not intend that the growth of the money supply should simply accommodate the going rate of inflation. On the other hand, the Chancellor warned that monetary policy could not be expected of itself to solve the problem of cost inflation, and emphasised the importance of making progress with the de-escalation of pay settlements.