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Bank Of England

Volume 979: debated on Thursday 21 February 1980

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asked the Chancellor of the Exchequer when next he will meet the Governor of the Bank of England.

When the Chancellor meets the governor of the Bank of England, will he inquire of him why he has taken so long to finalise the long-promised Green Paper on the control of the money supply? Will he able to finalise with the governor a date for the publication of that Green Paper?

The Green Paper is being prepared jointly between the Bank of England and the Treasury. We hope to be able to publish it shortly.

When the Chancellor meets the governor, will he, after that meeting, explain to the British people why the Government printed £500 million last week in order to give the banks extra money to lend, whereas they are not prepared to raise cash limits to save the jobs of steel workers and coal miners?

The Government allowed the Bank of England to adjust one aspect of monetary control last week. Monetary policy depends upon fiscal policy as well as upon interest rates. There is no need, especially at this point of proximity to the Budget, for one of those measures to carry the entire burden.

Does the Chancellor agree that there is a fundamental difference between a policy which seeks to control money supply by reducing the PSBR and one which seeks to finance that borrowing requirement by borrowing on behalf of the Government at high rates of interest? Is it not the first policy that we should be pursuing and not the dangerous second policy?

I agree entirely with my right hon. Friend. That is why we have applied our endeavours to achieve a reduction in the Government's borrowing requirement by a progressive reduction of that requirement and Government spending. That is at the heart of Government policy and I am grateful for my right hon. Friend's support.

Will the right hon. and learned Gentleman answer the question that was asked by my right hon. Friend the Member for Llanelli (Mr. Davies), namely, why have the Government printed £500 million to lend to the private banks in order to stop interest rates rising under market pressures which, if the monetary-based system that the Chancellor has endorsed is adopted, would, in any case, take place automatically?

The monetary-based system is not yet ripe for adoption. It will shortly be ripe for discussion and consideration. I look forward to hearing the views of the right hon. Member for Leeds, East (Mr. Healey) on it at that time. Meanwhile, I shall re-answer the question that I have already answered once. Monetary policy does not depend exclusively on interest rate policy but on fiscal policy as well. We shall shortly have an opportunity to reconsider that at the time of the Budget. There is no need, in the circumstances that the right hon. Gentleman refers to, to allow the entire burden of monetary policy to be carried on interest rates.

Further to the question of my right hon. Friend the Member for Worthing (Mr. Higgins), is my right hon. and learned Friend aware that the best news in months for some of us has been the reports carried widely in the press in recent days that the Treasury is determined to achieve a PSBR next year that will be substantially lower in money terms than the out-turn in the current financial year?

I am glad that my hon. Friend is so encouraged by his reading of the popular press. I hope that he looks forward with as much anticipation as I do to the Budget.

When the Chancellor meets the Governor of the Bank of England, will he discuss with him the right hon. and learned Gentleman's view that the foreign exchange rate cannot be controlled and must be left to market forces? Will he insist upon the common sense and industry view that the exchange rate must be brought down, otherwise the market forces that he appears to welcome will destroy our industry on the basis of the hoped-for value of North Sea oil?

The hon. Gentleman should understand that, on the occasions in the past when determined attempts have been made to lower the exchange rate, it has not been a conspicuously successful prescription for economic triumph. It is not possible for the exchange rate to be determined in a way that disregards market prices.