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Financial Targets

Volume 973: debated on Thursday 8 November 1979

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4.

asked the Chancellor of the Exchequer what further consideration he has now been able to give to the establishment of medium-term borrowing and monetary targets; and with what results.

I am considering whether there would be advantage in formulating more precisely the Government's longer-term monetary objectives which I set out in my reply of 19 July to my hon. Friend.

Will my right hon. and learned Friend bear in mind that the publication of objectives showing a steady decline over the years ahead in monetary targets, and a commensurate decline in the public sector borrowing requirement, might well be a considerable reinforcement of the Government's central camgaign to beat inflation? Can he assure the House that it remains his intention that in the next financial year the PSBR will have a lower target in money terms than it had this year?

I am grateful to my hon. Friend for reminding me of arguments that are certainly valuable and important. The PSBR for next year will be announced at the appropriate time. I assure my hon. Friend that it will be consistent with the Government's policy of securing a reduction in the rate of growth of the money supply.

Is my right hon. and learned Friend satisfied with the present method of measuring and controlling the money supply? Is he yet in a position to express a view about suggestions that have been made for moving to a monetary-based system of control?

My hon. Friend will appreciate that all those who are concerned with the management and measurement of the money supply are constantly aware of the imperfections of the instruments of measurement and seek to improve them. One of the suggestions for improvement that is under consideration is the one to which he has referred.

Is it not the case that the PSBR next year is bound to be higher than this year unless there is a substantial increase in taxes in the next Budget? That being the case, is it not necessary, according to Conservative philosophy, for money supply targets to be higher next year than this so that there is no inconsistency between the Government's borrowing and monetary policies?

The right hon. Gentleman must wait and hear what is announced in due course. If his diagnosis is already to the effect that next year's PSBR will have to be substantially increased, I hope that I can look forward to his enthusiastic support in our plans for the reduction of public spending next year.

Does my right hon. and learned Friend agree that the publication of these targets is necessary to reassure the public that the first objective of the Government is to control inflation, particularly as recent figures show that the money supply, as widely defined, and including commercial bills, is growing at about 16 per cent. a year?

My hon. Friend draws attention to a significant argument in favour of what has been suggested. However, it is not the only argument to be taken into account. My hon. Friend can rest assured that the Government are determined to bring and keep the money supply under control. The latest figures suggest that it may take longer than we anticipated to bring down the massive rate of growth of the rate of money supply that we inherited from the previous Government.

Is the Chancellor of the Exchequer conscious of the fact that we are once again approaching the "Grand Old Duke of York" syndrome? In effect, the money markets are such that the money supply is increasing not by 16 per cent. but by 17 per cent., including accommodation credits, and that we are on the verge of round-tripping, which will further increase the money supply. Is the right hon. and learned Gentleman aware that by next week, if he intends to finance his PSBR this year, he will, in effect, have to raise the minimum lending rate? When will he do something about the gilt-edged market in order to bring some sense into the situation in which we are confronted with new crises every six months?

It is unwise to speculate on future changes in the rate of interest. That depends on a number of factors. The hon. Member knows that the figures for any one month are bound to be erratic. He will understand that by far and away the most important contribution that can be made to bring all these factors under control is an effective reduction in the size of the public sector as a proportion of gross domestic product.

Is the Chancellor aware that if, as a result of a consideration of medium monetary objectives, he were to adopt the practice of fixed advance public monetary targets he would be adding to the commitments in his party manifesto and creating an unsustainable burden for his office?

I always listen attentively to advice from the hon. Gentleman—but not too attentively.