asked the Chancellor of the Exchequer if he will take action, in the light of the January banking figures, to control the growth in the money supply.
It is important not to place too much emphasis on any one month's figures. The action that has already been taken to restrain monetary growth will have effect only over a period of time.
I am grateful to my right hon. Friend. While accepting that monetary policy is a medium-term policy, may I ask if he does not agree that the recent action of the Bank of England over the last make-up day interferes with the short-term efficiency of the money supply? Does he feel that a change to monetary-based control would be of assistance in using the monetary supply as a short-term method of control?
The recent action by the Bank of England in relation to the money supply made no fundamental change to the operation of the policy. It was an adjustment to a temporary shortage of liquidity. The long-term objectives and policy methods remain the same. As my hon. Friend knows, we shall shortly be publishing a consultative document on monetary policy dealing with monetary-based control and the possibility of some movements in that direction. If any such movements finally commend themselves to opinion, they will not be a fundamental change nor a substitute for the essentials of monetary policy.
But is it not right that money supply since October has been running at roughly twice the target level of 7½ per cent. which the Government set themselves for the year to next October? One reason for that is that the Bank of England has been intervening to try to keep the exchange rate from destroying British manufacturing industry, which is the inevitable result of the interest rates presently adopted by the Government. Can the right hon. and learned Gentleman answer the question that I think was being put by his hon. Friend? Would it not have been absolutely impossible if the Government had adopted monetary-based control, for the Bank of England to lend £500 million to the clearing banks to prevent interest rates from rising even further?
The point the right hon. Gentleman makes about monetary-based control is one of the factors that will he considered and canvassed in the consultative document when it is forthcoming and one of the factors that will have to be considered before we come to any conclusion about it. He should certainly not conclude that intervention by the Bank of England has been a significant factor in causing changes in the money supply in recent months.
In order to reduce public confusion about the Government's monetary aims, will the Chancellor of the Exchequer now publish long-term targets for the growth of money supply?
This again is an interesting point that the hon. Gentleman knows we have under consideration. There is no room for confusion whatever about the Government's monetary aims. It is our intention progressively to reduce the rate of growth of the money supply as the foundation of our policy for the conquest of inflation, but I am glad to know that I have hon. Gentleman's support.
While nobody would underrate the importance of the proper management of the money supply, is it not a disquieting aspect that we have had such difficulty in accurately controlling it? Has my right hon. and learned Friend noted the growing opinion in banking circles that much more speedy and effcetive results could be achieved by a directive to banks and other lending institutions to bring their lending within the guidelines laid down by the Government? Should we not also emulate the example of our industrial competitors overseas and take direct action to discourage the over-large inflow of foreign funds which is increasing our money supply and damagingly affecting the exchange rate of sterling internationally?
I know that my hon. Friend takes a close and informed interest in these matters, but it would be wrong to conclude that inflows from overseas have been a significant factor affecting monetary control recently. I know also the way in which the case can be argued for more direct controls than those operated at present. But experience has shown increasingly that each such control is all the more likely to be evaded by subsequent sophistication. There is no fundamental substitute for reassessing the discipline of price through interest rates which follows the reduction of public borrowing and public spending.
After nine months in office, does the Chancellor feel that his policies are succeeding?
I am confident that they are succeeding, yes. I am grateful to the right hon. Gentleman for giving me the opportunity to point out that we have another four and a quarter years in office. All sensible economic policies and attempts to restore economic discipline are bound to take a substantial period of time. The Government will wish to be judged, not by their record of 100 or even 400 days, but at the end of the remaining four and a quarter years.