asked the Chancellor of the Exchequer what rate of growth in net fixed domestic capital formation by industrial companies he expects for 1973–74 and 1974–75.

Information about the investment intentions of industrial companies is available only in respect of their gross domestic fixed capital formation. On this basis the most recent investment intentions survey by the Department of Trade and Industry, taken in August/September, predicted a rise in the volume of manufacturing investment of 6 per cent. in 1973 and some 15 per cent. in 1974. No prediction is available for 1975, but the prospect of sustained growth should ensure that the rise in industrial investment will continue.

Since these figures were and are most encouraging, will my hon. Friend say to what extent he feels they may have been dented by the oil crisis and the miners' overtime ban? If they have been so dented, does he, in conjunction with the Department of Trade and Industry, intend to have discussions with industry and the CBI about maintaining confidence and investment intentions?

No, Sir. The latest figures which are available—and there have been recent events and particular factors of the kind mentioned by my hon. Friend—give no ground to suppose, taking the overall picture, that the level of investment will not increase. That is of vital importance if we are to raise the level of productive potential in this country.

But it was only last week that the Prime Minister said that the high interest rates would not discourage industrial investment. Will the Minister say what categories of investment high interest rates are likely to discourage?

I understand that there is a later Question on the Order Paper on that point. The hon. Gentleman will know from his experience, as I do from mine, that a crucial factor affecting the level of industrial investment is the prospect of expanding markets. That prospect has been in the forefront of the Government's policy, and the measures we have taken have led to that objective. I see no reason to suppose that the kind of measures the hon. Gentleman mentioned in regard to monetary policy will have a significant effect on the level of investment.

asked the Chancellor of the Exchequer if he will make a statement on decision to abolish the two-tier pricing system for gold.

The Central Bank Governor signatories to the 1968 Washington Agreement decided at their November meeting that the agreement should be terminated. This is clearly right since the agreement had for some time outlived its usefulness.

Why did the Chancellor agree to a decision which, at least in its timing, will give yet one more nudge to the inflationary upsurge throughout the world?

I do not agree with the hon. Gentleman. The decision was entirely consistent with all the possibilities for future treatment of official monetary gold which had figured in the discussions on international reform which we have been having for a long time. It has been common to everyone concerned in those discussions that the rôle of gold should be gradually reduced and that monetary authorities should be permitted to sell gold on the free market.

Does my right hon. Friend agree, in the light of that decision, that the foreign exchange value of the United Kingdom's reserves would have been many times what it is today if we had retained the proportion of gold in our reserves that we had 10 years ago? What purpose has been served by the running down by the Bank of England of that proportion over the years?

At the end of June 1970 the dollar value of the gold component of the reserve was £1,469 million. In June this year it was £901 million. We inherited considerable repayment obligations in June 1970, and that inheritance, broadly speaking, accounts for the difference between the two figures. It is certainly true that on the free market the price of gold has gone up ; that is a fact of life.

Will the right hon. Gentleman confirm that the central bank agreement relates only to sales of gold from central banks' stocks and not to purchases of gold at anything other than the official price? Will he undertake to resist any proposal that intra-EEC settlements be made at the commodity rather than the official price for gold?

The position is quite clear. Under Article IV of the IMF Agreement, monetary authorities are not permitted to buy gold at above the official price. That is the legal position, and we shall abide by it. Under the same article, sales have always been permitted in the free market above the official price.

asked the Chancellor of the Exchequer if he will make further financial support available to building societies, in view of increases in lending rates ; and if he will make a statement.

No, Sir.

Is the hon. Gentleman aware that thousands of owner-occupiers burdened by ever-increasing mortgage interest rates fail to understand why the Government were able to find £15 million to keep mortgage interest rates down to 10 per cent. but seem to remain completely impervious to the fact that interest rates are rising to 11–11½ per cent. and even higher? Will the non. Gentleman consider imposing a levy on bank profits to stabilise or lower mortgage interest payments?

The £15 million temporary bridging grant was described as such right from the start. As my right hon. Friend the Chancellor has made clear, it has never been the Government's purpose to embark upon long-term subsidisation of mortgage rates. Other proposals have been put forward more recently. The second part of the hon. Gentleman's question raises much broader matters of economic management which are not directly related to the Question.

Will my hon. Friend ask my right hon. Friend the Chancellor to consider changing the fiscal regulations affecting building societies so that pension funds may be encouraged to invest in building societies? The trouble is that the societies are borrowing short and lending long. If we could get them into the pension funds, they would borrow long and lend long.

That raises much broader questions, but I take careful note of what my hon. Friend has said.

Is the hon. Gentleman aware that it is now authentically stated that one must earn £4,350 a year to afford a £10,000 mortgage? As £10,000 is quickly becoming the average price of a new house, does not the hon. Gentleman think that it would be better for the Government to give financial assistance to the building societies so that people could afford to buy houses?

I do not agree with the hon. Gentleman's figures, but I cannot helpfully add to what I have already said.

Will my hon. Friend try to recognise that there is a great deal of hardship for home buyers? Will he consider trying in some way to insulate the rate for first-time home buyers from world lending rates?

There is great difficulty in isolating mortgage rates from the effect of interest rates in general, including world interest rates. My right hon. Friend the Prime Minister referred to the position of first-time home buyers in a recent debate.

Does the hon. Gentleman think that the £15 million the Chancellor spent at the time of the council elections was money well invested? Does the Chancellor still intend to pursue the policy which the Prime Minister suggested, and which the building societies and young married couples do not like, of allowing those couples to pay less now and more just at the time when they want to pay less?

I had some difficulty in following the hon. Gentleman's last sentence, and therefore I have difficulty in answering it precisely. It was made clear on what basis the original temporary bridging grant was made. There have been further discussions about measures which, I hope, will stabilise the flow of mortgage funds. My right hon. Friend the Prime Minister set out the proposal concerning first-time home buyers in a speech some time ago.

asked the Chancellor of the Exchequer what is the present level of the Government's borrowing requirement.

The central Government's borrowing requirement in the first seven months of this financial year was about £1,000 million. Details are published in Financial Statistics.

How does that figure which is still running at an annual rate of well over £2,000 million, and more like £3,000 million, square with the commitment to fight inflation?

As I have pointed out before, the Government are running a substantial surplus on our current account. I do not believe that it is right as a principle or in present circumstances that all capital expenditure as well as current expenditure should be covered by taxation. In fact, nearly half of public expenditure capital expenditure is covered not by borrowing but by taxation.

Can the Chancellor confirm that the reason why the borrowing requirement appears to be running below the level he predicted in his Budget Statement this year is, first, that people who have enjoyed no increase in their real earnings have been compelled by inflation to pay at least £800 million more in tax and, secondly, that the Government's policies have led to shortages of manpower, materials and money, which have meant the collapse of the public building programme?

I am not sure whether the right hon. Gentleman is referring to the central Government's borrowing requirement, with which the Question is concerned, or to the public sector borrowing requirement. As to the financing of the borrowing requirement, so far this year we have had considerable success in selling debt outside the banking system.

asked the Chancellor of the Exchequer what has been the balance of payments deficit per head of the United Kingdom population for the years 1964 to 1973.

With permission, I will circulthe figures in the OFFICIAL REPORT.

Is the Minister aware that it is likely that the deficit per head in 1973 will be about £25 compared with a surplus of £25 in 1970, so that the Government have bequeathed to the nation an indebtedness of £50 per head?

As I am sure the hon. Gentleman recognises, it is not usual to give forecasts of balance of payments figures for the full year. I can tell him that the current balance is a £945 million deficit.

Does my right hon. Friend agree that the pound is currently undervalued and that much of the present deficit is due to that? Further, does he agree that exports would not be lost if sterling prices were to increase? Will he consider using the reserves to improve rather than to maintain, as has been done in the past, the exchange value of the pound?

I take note of my hon. Friend's last remark. My right hon. Friend the Chancellor of the Exchequer has indicated on a number of occasions that in the Government's opinion sterling is at present undervalued. For those who seem to take such a delight—I refer to the Labour Party—in the difficulties

Is it not the case that the volume of our imports has increased very much faster than the volume of our exports? Does the right hon. Gentleman agree that we have a balance of trade deficit in Europe which is almost equivalent to the whole of our balance of payments deficit on current account? Does he accept that if the pound is undervalued it is because of the Government's total failure to control our balance of trade and because we have now by far the largest deficit in our balance of payments that has ever been imagined in British history?

The right hon. Gentleman is wrong about the volumes of exports and imports. Let me give the House the percentage change from January to September 1973 over the second half of 1972. During that time the import volume went up by 11½ per cent. and the export volume by 13 per cent. The right hon. Gentleman has made in debate the statement which he has made today, and perhaps he will now withdraw it.

The figures which the right hon. Gentleman has given were carefully chosen to refer to a period nine months earlier, for a period relating to the 18 months before January 1973.

The right hon. Gentleman is wrong again. I made it clear that the figures which I gave are the latest volume figures for January to September 1973, compared with the second half of last year. The right hon. Gentleman persists in error. I hope he will learn to get it right.

asked the Chancellor of the Exchequer what is his latest estimate of the balance of payments deficit for the current financial year.

It is not the practice to give forward estimates of the current account balance.

Is that because the figure will be so astronomical that the Minister cannot yet add it up? Has he seen the speech made by the right hon. Member for Wolverhampton, South-West (Mr. Powell) in which he says that he fears for the Government's and the Prime Minister's mental stability and comments on the way they transmute their disasters into success and then transfer the blame to their enemies? Does the Minister agree with that? If not, why will he not give the figures?

Without wanting to bore the House, I must tell the hon. Gentleman that it has never been the practice of any Government to give forward estimates of current account deficits. The reasons he has adduced have nothing whatever to do with it.

Without making a forward estimate, will the Minister say whether he agrees with Mr. Murray, the General Secretary of the TUC, that we need only to increase exports by 3 per cent. to 4 per cent. to solve our problems? Will the deficit this year at 1964 values be bigger or smaller than the 1964 deficit?

I agree with Mr. Len Murray when he said that he thoroughly supported the strategy of growth and with it the growth of exports. The General Secretary was talking sound sense.

asked the Chancellor of the Exchequer what are the rates of duty imposed on aviation turbine fuel and aviation gasoline.

Aviation turbine fuel is charged at lp per gallon and aviation gasoline at 22½p per gallon when used on internal flights in the United Kingdom. Both are free of duty when used on international flights.

Is that fair to the operators of small aircraft and to the relatively lightly used services? Does my hon. Friend agree that the aircraft used for such services are inevitably pistonengined? Why should the operators pay 22 times as much duty for their fuel than the duty paid for the thirstier paraffinburning jet aircraft?

I understand the point my hon. Friend is making. The matter cannot be considered in isolation. Relief from duty must be considered in relation to other claims for relief for light oil. Relief would have to be given to all users and would involve a significant loss of revenue. There are also real problems concerned with control regarding revenue matters.

asked the Chancellor of the Exchequer whether he will take steps to make Republic of Ireland currency legal tender in the United Kingdom.

No, Sir.

As British currency circulates freely throughout the Republic of Ireland and in Northern Ireland, would not it be a matter of convenience to have a mutual arrangement?

I understand my hon. Friend's interest in the matter, but I am bound to say that a change of the kind which he suggests would create problems much more troublesome than the relatively minor inconveniences which now occasionally arise. If we were to consider arrangements regarding legal tender, very broad questions would be involved. Therefore, I cannot accept the argument which my hon. Friend puts forward.

In reconsidering the matter, does the hon. Gentleman concede that we should consider making the currency of the joint stock banks of Scotland legal tender in the United Kingdom?

That is a matter which has been raised on previous occasions. Again, there are real problems.

asked the Chancellor of the Exchequer how many London boroughs, including the Greater London Council, are participating in the Treasury scheme to obtain foreign currency loans ; and what amount he estimates will be borrowed by them over the net two years.

Most London boroughs participate in the arrangements whereby the GLC borrows on behalf of London as a whole and offers part of the proceeds to individual boroughs. It is not possible to forecast how much will be borrowed in future.

I am grateful to the right hon. Gentleman for his reply. In view of the large capital programme of the Greater London Council and the London boroughs, especially relating to housing, will he give an undertaking that he will extend the scheme further?

My right hon. Friend feels that the present arrangements, whereby the GLC borrows and then passes on some of the proceeds to the boroughs, is working fairly well. It is primarily a matter of negotiation between the boroughs and the GLC.

What is the total sum borrowed by the public corporations and the local authorities overseas under the scheme? Has it yet reached £1,000 million?

Yes, it is of that order of magnitude

Is the right hon. Gentleman aware that the borough of Islington is grateful for the new capacity to borrow abroad at interest rates ½ per cent. below those which would otherwise apply? It will be of great assistance. Is he aware that this facility conceals the even worse balance of payments situation which would have existed under the old arrangement?

I am aware that an application has been received from Islington for borrowing. The application is being considered in the normal way. On the hon. Gentleman's second point, I disagree with him entirely. The scheme offers a sensible way of financing a temporary balance of payments deficit. I explained during the debate last week that we are borrowing in this way through the public sector on normal commercial terms and that the repayment schedule stretches over a good many years ahead. It is, in the circumstances, a sensible thing to do.

asked the Chancellor of the Exchequer what is the total amount borrowed by public industries and public and local authorities overseas since June 1970.

The total amount borrowed in foreign currencies by nationalised industries and local authorities for domestic purposes between June 1970 and 31st October 1973 amounted to approximately £1,100 million at current rates of exchange.

Will my right hon. Friend say what is the point in borrowing long in currencies which are appreciating steadily against us when we have a floating exchange rate and could perfectly well attract the necessary funds in our own currency on short term?

With respect to my hon. Friend, I think it is a reasonable and proper way to finance a temporary deficit. If one can borrow on these terms in the Eurodollar and other markets at favourable rates compared with rates for borrowing from domestic sources, it is thoroughly sensible for the industries to do so. I hope that my hon. Friend might be able to agree with that.

Is it not true that, whereas the figure was about £1.100 million, it is now nearer £2,000 million?

There is some confusion between pounds and dollars. I have been quoting figures in pounds, as did my hon. Friend the Member for Banbury (Mr. Marten) in an earlier supplementary question. The figure is something over 2,000 million dollars.

Is my right hon. Friend satisfied that he is receiving full co-operation from local authorities in restraining their spending during this time of stringency?

I hope that the local authorities will take note of what I said last Thursday to the Society of County Treasurers. It is of the utmost importance that all parts of the public sector should contribute to the slowing-down of the rate of public expenditure if we are to be able to steer our resources into the balance of payments and the investment that we need.

If the right hon. Gentleman really believes that, would it not be much more sensible for him to borrow direct from the IMF short-term at interest rates only one-third of those at which local authorities and others are borrowing from the Euro currency market? By smothering our balance of payments deficit, is he not inflicting a loss of £70 million a year by his own account on our balance of payments?

Nobody is trying to smother anything. What we are doing, and doing successfully, by borrowing on normal commercial terms through the public sector, through the Euro market and other overseas markets, is obtaining enough to finance our deficit. That is a sensible thing to do. In the meantime rights with IMF remain intact and can be drawn upon if occasion arises.

asked the Chancellor of the Exchequer what he estimates will be the amount of VAT payable in an average year by charitable organisations in respect of equipment purchased specifically for the purposes of medical research ; and how this figure compares with their liability to tax in respect of such purchases before the introduction of VAT.

No estimates have been made.

While my hon. Friend cannot make an estimate, does he agree that the liability to VAT on medical research equipment can be substantial? For instance, an electron microscope would be about £4,500. Will he confirm that it is not the Government's intention to impose the tax on medical research equipment? Will he consider the matter again before the next Budget?

I understand my hon. Friend's feelings. This is a matter which we debated at considerable length in the context of charities during the passage of the 1972 Finance Bill. I do not believe that discriminatory relief from VAT is a suitable means of promoting my hon. Friend's aims, no matter how desirable they may be in their own right. It is important, when considering the position of charities, to take into account not only the changeover from purchase tax and SET to VAT but the substantial changes which my right hon. Friend made in the treatment of charities in 1972 and 1973, at a cost to the Exchequer which is estimated to be of the order of £20 million for 1973–74. We must consider the overall picture and we must not single out individual items or the effect of individual fiscal measures.

Will the hon. Gentleman take it from me that that is a most unsatisfactory answer? Is he saying that the Treasury cannot find a way of giving tax relief to charitable organisations which are financing research? Is he aware that I sit on research committees which lack funds because the Treasury is so miserly? Will he reconsider this matter and apply a bit of common sense and practicality?

The hon. Gentleman does not appear to have listened to what I said. I said that the Chancellor has already made very substantial concessions towards charities, amounting to £20 million in 1973–74.

In our debates on this subject, were there not considerable misgivings that the Government had not been able to make exactly the kind of estimates for which my hon. Friend asked? Is it not possible to look again at the whole question of VAT and charities, as many people feel that the Government have been a little unyielding when they could have been more helpful?

We debated this subject at considerable length. Discriminatory relief of the kind suggested would have the effect of reproducing many of the anomalies and distortions which occurred with purchase tax. Therefore, my right hon. Friend thought it appropriate to give help to charities in other ways on a very substantial scale.

Will the Minister re consider what he has said? He has effectively misled the House by saying that the Chancellor gave concessions to charities. Those are concessions on the tax that he himself first imposed—

indicated dissent.

We on this side did not introduce VAT.

Selective employment tax.

The Minister spoke of not being discriminatory, but he has been discriminatory in giving help for hearing aids. Surely he can reconsider this matter in the light of giving increased assistance to medical research.

The expression of support which the hon. Gentleman is getting from behind him is more an expression of sympathy than of encouragement. If he is seriously suggesting that the overall tax record and the concessions given by the Labour Government are better than those of the Conservative Government, no one could have more disregard for the facts. I repeat that it is important to look at the picture as a whole. The Chancellor has made considerable concessions in other ways which will have a dynamic effect inasmuch as they will encourage contributions to charitable bodies in the future.

asked the Chancellor of the Exchequer what was the increase in the money supply, at an annual rate, in the latest quarter for which figures are available, according to the M3 definition, and according to the Government's preferred definition, respectively ; and if, in the light of these figures, he will redefine the objectives of monetary policy for the remainder 18. Mr. William Hamilton asked f the current financial year.

As to the first part of the Question, figures for the third calendar quarter of this year are not yet available. On a seasonally-adjusted basis, in the three months to mid-October M3 rose by 6½ per cent., or an annual rate of 28·5 per cent., whereas Ml fell by 2¼ per cent. The figures for M3 are inflated by special factors, such as the changeover to VAT and the arbitraging activities of some of the banks' large customers, while the Ml figures have probably been reduced by switching from current accounts to interest-bearing deposits at the banks. As to the second part, the objective is to secure rates of growth of money and credit compatible with the sustainable growth in the economy and our counter-inflation policies.

I am grateful to my right hon. Friend for that reply. Will he confirm that it remains the Gov ernments' view that to suspend competition and credit control would have highly undesirable side effects without in any way contributing to the solution of the problem of financing perhaps a very large borrowing requirement in a non-inflationary manner?

I have already expressed my views at some length on the Bank of England's competition and credit control arrangements. If there is any way in which those arrangements—which are new ones—can be improved, I shall be happy to consider it.

Does the Chancellor intend to take steps to limit the activities of the large industrial companies which take money on loan from banks and re-lend it, in view of the point he made in his statement that those activities had contributed to the growth of M3?

In view of the later steps which the Government took about a fortnight ago, I think I am right in saying, although I should, naturally, like to check it, that those arbitraging activities are not now occurring.

Will the Chancellor assure the House that he will abandon competition and credit control before January?

No, Sir.

Does my right hon. Friend agree that there is a great distinction, and has been for many months past, between the figures for Ml and M3? Is he prepared to look again at the definitions of Ml and M3 to see whether there might not be a more reliable method of tracing monetary progression? Perhaps he might think of devising M2.

As I explained in my answer, M3 is inflated by certain special factors, and the Ml figures have been reduced by the switching to which I referred. Neither measure of money supply by itself gives a good indication of the recent underlying trend. Obviously both should be taken into account, but together with other indicators, in assessing monetary conditions. I have a great deal of sympathy with my hon. Friend—I am not alone in this—in doubting these definitions and the conclusions which are often drawn from them.

asked the Chancellor of the Exchequer if he will take steps to reduce and eliminate the amount by which the United Kingdom's foreign currency obligations exceed its foreign currency reserves.

No. The two are not related in the way which the hon. Member implies.

Is not the right hon. Gentleman aware that, taking account of our obligations in terms of sterling balances, our foreign obligations exceed our so-called reserves by at least £4,000 million? Does he not agree that if any commercial organisation were to try to operate in that way, its directors would be put behind bars?

If a commercial organisation left assets out of the balance sheet, its directors would deserve to go to gaol. The hon. Gentleman takes no account of long-term assets. If we take the total value of external assets of £50·2 billion and deduct the total value of external liabilities of £44·3 billion in 1972, it will be seen that we have a healthy surplus of £5·9 billion.

Does my right hon. Friend agree that it makes exceedingly good sense to borrow now in the certain knowledge that we shall have large amounts of revenue coming in from the North Sea resources from 1978 onwards?

My hon. Friend makes a very sound point indeed.

Does not the Chief Secretary agree that we also need to take account of the fact that, in terms of sterling guarantees, the dollar rate in terms of the pound is running at a figure of 2·43 and that the pound in relation to the dollar is being floated at a rate of 2·34? Does he not agree that we are now in debt in relation to sterling guarantees to the tune of around £100 million? Should not this matter be taken into account along with our liabilities?

I am sure the hon. Gentleman knows the terms on which the guarantees to the overseas sterling area were renewed. It would be wrong to draw any conclusion at this point in time. The time for this to be judged is next March.

Does my right hon. Friend agree that a credit balance of about 10 per cent. on overseas commitments and liabilities is a narrow one, which may easily disappear if we continue to borrow overseas as we have been borrowing? Is he not afraid of a general relaxation of discipline in both central and local government following the habit of overseas borrowing? Is he not also afraid that a dangerous precedent will be created if the Government establish a new distinction between current and capital expenditure—a distinction which British Governments have never observed in the past?

No, Sir, I have none of those fears. I believe that the policy we are pursuing in borrowing overseas is entirely justified in present circumstances.

asked the Chancellor of the Exchequer if he will make a further statement on the Page Report on National Savings.

I have nothing further to add to my reply to the hon. Member for Gateshead, West (Mr. Horam) on 25th October.—[Vol. 861, c. 1459.]

Is the Chancellor aware that that is a disgracefully complacent reply? Why has this report been swept under the carpet when the small, unsophisticated investor is being swindled week by week and the Government are doing nothing about it? Is he also aware that the Government are doing nothing about the property speculator who can make millions in a day simply by purchasing property with one hand and selling it with the other?

The hon. Gentleman will realise that major questions are involved in the report's recommendations. We are at present consulting with the Trustee Savings Banks Association, the national savings movement and others concerned. The hon. Gentleman will recognise that the terms of all national savings facilities have been improved by the Government, and in the last three years, in money terms and real terms, national savings have increased by about six times the amount raised in the six years of the Labour Government.