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International Monetary Fund

Volume 932: debated on Thursday 26 May 1977

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2.

asked the Chancellor of the Exchequer if he will make a statement on the proposed increase in International Monetary Fund quotas.

The Interim Committee in April concluded that there should be an adequate increase in quotas, and urged the executive directors to pursue their work and prepare a report for the Board of Governors. The committee will consider this report in September at its next meeting. I hope that it will be possible for the executive directors to reach speedy agreement on recommendations which will further increase the ability of the fund to contribute towards tackling the problems of recovery from the recession.

Does my right hon. Friend agree that there are two important points of policy? First, does he accept that adequate quotas should be allotted to some of the major oil-producing countries whose petrodollars are still creating problems? Secondly, does he agree that quotas should recognise the difficulties of developing Third World countries, which could be helped by adequate arrangements in this respect?

My hon. Friend will know that quotas were redistributed the last time that they were increased. It is not currently proposed that they should be redistributed. It is proposed that there should be a substantial increase in the size of individual quotas.

As the IMF inspection team has been here this week, will the right hon. Gentleman reaffirm and reassure us that the IMF ceilings set in the December Letter of Intent remain at the heart of Government policy? Will he share his intentions with the House in respect of the Government's proposals for the next tranches of the IMF loan that was negotiated last December?

I am passionately anxious to answer those questions but as there is a specific Question later on the Order Paper relating to these issues, which I shall be reaching in a few minutes, I think that it would be discourteous if I gave the answer in reply to the hon. Gentleman.

8.

asked the Chancellor of the Exchequer if he was satisfied with the latest series of talks with inspectors of the International Monetary Fund on the United Kingdom's economic progress following the loan facility in the autumn of 1976.

A team of IMF officials is currently in the United Kingdom for the regular annual consultations. It has never been Government policy to comment on the detail of these discussions, but I can tell the hon. Member that we and they have taken satisfaction in the dramatic turnaround in our economic and financial positions since the end of last year.

Does the right hon. Gentleman mean that despite the current rate of inflation of nearly 18 per cent., if a satisfactory pay agreement with the TUC is concluded in July the inspectors will allow the Chancellor to reflate the economy in a July Budget?

The hon. Member is mixing up a number of considerations. I made it clear in my Budget speech that I was being deliberately cautious at that time because I was not certain how solidly our balance of payments improvement had been established. The last figures for the balance of payments were encouraging. If that is maintained, I shall be able to be less cautious later in the year.

The critical issue for the IMF is the size of the public sector borrowing requirement. The Government have made clear in another place that although decisions taken in the House on petrol duty and VAT and the Government's decision to pay a telephone rebate in November have increased the PSBVR somewhat, that has been roughly offset by the lower costs due to a faster fall in interest rates than we expected. Therefore, we still have a margin for further expansion if we wish to take advantage of it when the time comes.

In the light of assurances to the IMF on the exchange rate, can my right hon. Friend give the House an assurance that no more money from reserves will be spent? May we also have an assurance that interest rates will not be pushed up to prop up the pound to a level that means that our export prices are less competitive than at any time since 1967?

I do not know whether my hon. Friend made a slip of the tongue, because interest rates have come down dramatically from 15 per cent. in October to 8 per cent. last week. I do not think that is pushing up interest rates. I hope that interest rates will not go up again. I remind my hon. Friend that the endorsement that he gave to the false report in The Sunday Times is responsible for making the retail price index 1½ per cent. higher than it might have been. In the four days following that report there was a fall of 10 cents in the exchange rate. Since the December measures the pound has been stable. The matter has been thoroughly discussed in the House. I am glad to say that since the December measures the pound has been stable at a rate of 16 cents above the level it reached in that week. That is of great advantage to all men and women in this country and it is compatible with the continued competitiveness of British industry.

Does the Chancellor of the Exchequer agree with the Secretary of State for Social Services in his adumbration yesterday of raising pensions November to November?

Will my right hon. Friend seize this opportunity to explain to the IMF what nonsense it is that we must count any increase in child benefit as an item of public expenditure, given the ceiling that has been accepted in the Letter of Intent? In contrast, any increase in child tax allowance, which has exactly the same economic effect, is not so counted. Will he explain the principles of the child benefit scheme to the IMF and achieve freedom to increase child benefit?

There is room for argument whether the classification for various financial measures should be public expenditure or tax. That is open to discussion. The important ceiling for the IMF is that of the PSBR. That is not affected by the question whether child benefit changes are counted as tax or public expenditure.

Will the Chancellor now answer earlier questions about the Government's policy on the next tranches of the IMF loan negotiated last December? Will he categorically reaffirm that the IMF ceiling remains at the heart of Government policy.

I confirm that which the hon. Member asked in the second part of his question. Owing to the adoption of ceilings and the fact that we have kept well within them we have had a dramatic turn round in the value of sterling and interest rates. I wish to see that progress maintained. We certainly plan to take the next drawing available from the IMF, which will appear in the figures for this month or next month, but we shall decide later whether or not to draw on future entitlement.

Does the right hon. Gentleman recognise that it is unworthy of him to blame his hon. Friend below the Gangway for the collapse in the value of the £ sterling last year and accept that that was due to the absence of any effective monetary or public spending guidelines during that period? Does he also accept that the collapse of the pound was due to his own expansion of the money supply at a rate that approached 30 per cent. last summer and autumn? Will he accept responsibility?

I really recommend the right hon. and learned Gentleman to read the speech made by Mr. Paul Volcker, the President of the New York Federal Reserve Bank the other day, when he pointed out that variations of money supply from month to month or even over a period of months are not important. The important figure about last year is the year figure, where the increase in M3 was only 7½ per cent. If one were to believe some of the monetarist gurus—to whom the right hon. and learned Gentleman is now, I am glad to say, paying less attention—one would guarantee single-figure inflation next year, whatever we did about pay policy. But I agree with what I suspect is the right hon. and learned Gentleman's view—that anyone who believes that can believe anything.