To ask Her Majesty’s Government to what extent they intend to fund the Government’s borrowing requirement.

My Lords, since the formation of the Debt Management Office in 1998, the Government have fully funded their net financing requirement and will continue to do so. The Government’s financing framework is set out in paragraph 4.1 of the Debt and Reserves Management Report 2008-09 which states:

“The Government aims to finance its net cash requirement plus maturing debt and financing required for additional net foreign currency reserves through the issuance of debt”.

My Lords, I thank the Minister for that interesting reply. Does he agree that funding policy is the crucial link between monetary and fiscal policy and that underfunding of the borrowing requirement has a similar effect on the money supply to buying back government debt? Given the enormous size of the borrowing requirement, is there not a danger that underfunding will result in huge increases in the money supply and inflation? Even if last week’s failure to sell government debt was a miscalculation, does he agree that there is no prospect of continuing to fund the enormous borrowing requirement at present interest rates?

My Lords, the noble Lord asked several questions. To cease to follow the policy of fully funding the Government's net cash requirement, the policy adopted in 1985 under the noble Lord, Lord Lawson, would be to conflate fiscal policy and monetary policy. We are clear from the initiatives taken in 1997 to give the Bank of England responsibility for monetary policy that we should not allow those two factors to combine. The management of fiscal funding is entirely separate from monetary policy. If we were to conflate the two, we would undermine the independence of the Bank of England in monetary management.

The uncovered gilt auction of last week, an auction of a security that has been on auction four times this year and has been fully covered on three of those occasions, was the third such uncovered auction since the DMO was launched. It represented the circumstances of a single day. The capacity to fund the public sector borrowing requirement was clearly evidenced by the confidence of the chief executive of the Debt Management Office, and the fact that we are borrowing at record long-term low interest rates, 3.3 per cent for 40-year gilts, is evidence of how popular UK government securities are with investors.

My Lords, does the noble Lord accept that at 86, I find it extremely difficult to understand the present situation? Why not hold a seminar with the noble Lord, Lord Barnett, and my noble friend Lord Higgins?

My Lords, I have previously recorded, and am happy to record again, my inestimable praise and admiration for the adroitness and knowledge of the noble Lord, Lord Higgins, and my noble friend Lord Barnett, who I see is even now poised like a greyhound in the trap. Whether I need a seminar is for others to judge. I am confident that our funding strategy for the Government's requirements is in very strong health and will be admirably managed by the DMO.

My Lords, I would never have any intention of lecturing my noble friend, or anyone else for that matter, but does he accept that a 93 per cent take-up of the gilts that were issued last week was a perfectly reasonable response, given that I did not take any because 40 years’ maturity seems a little beyond me—slightly, anyway? Does he further accept that what really matters is how we are going to get through the current situation economically and financially? Will he confirm that those policies are in the hands of the Government and not those of the Governor of the Bank of England and that he will ignore everything that the governor said recently and concentrate in the Budget on helping at least some of the poorest members of the community? Will he at least confirm that that will not be ruled out?

My Lords, it seems to have fallen to me to answer questions with multiple subquestions within them. The fact that £1.4 billion of a 40-year gilt was sold at 4.41 per cent annual interest was an admirable step forward by the DMO. Seven per cent of the auction was not covered, but, as I said, that should not be totally surprising. If all auctions are fully covered every time, it could be that we are paying too much.

I took the advice from the governor to be quite sensible. He said that we should be careful in fiscal management, and that is precisely what my right honourable friends the Prime Minister and the Chancellor of the Exchequer are doing. I certainly did not think that his remarks were anything like as stark as those of Lord Cromer to Harold Macmillan in the early 1950s.

My Lords, the Minister raised the question of fiscal stimulus. Will he clear up exactly what the Prime Minister is hoping to achieve at the G20 this weekend? We had understood that he was seeking a massive global, concerted fiscal stimulus. Yet the Australian Prime Minister stated yesterday that that was never the intention. Will the Minister say what the intention was?

My Lords, there is absolute alignment between the views of Mr Kevin Rudd and the Prime Minister; fiscal stimulus by individual countries, in an environment in which the IMF is forecasting for the first time in 60 years a decline in global economic activity, carries a significant risk. If all countries broadly increase public sector demand at a time when private sector demand is falling short, we will have a concerted move forward. Otherwise, there is a real risk of leakage from one economy to another. That is the primary intention of the G20: to ensure that we never again experience what we saw in the early 1980s and early 1990s—the damage done to business and to people’s lives by an economic recession.

My Lords, does my noble friend agree, and will he convey this view to the Chancellor, that when unemployment is rising—so far as I can see, it will go on rising for at least another 18 months—this is not the time for people to bellyache about the dangers of inflation? If they really believe that the Governor of the Bank of England wants to pursue a disinflationary policy, they are certainly not going to engage in the investment that this country requires to get the economy moving again.

My Lords, I shall convey my noble friend’s sentiments to the Chancellor of the Exchequer, and I remind the House that the policy of quantitative easing is being introduced at the request of the Bank of England and that the Governor of the Bank of England and the members of the Monetary Policy Committee continue to have the overriding objective of achieving a 2 per cent inflation target.