MONETARY SYSTEM

§ The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

I beg to move, That this House takes note of the Report of the Committee on the Working of the Monetary System (Command Paper No. 827). The Report that we are considering today owes its origin to the decision of my predecessor, my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), who, about two-and-a-half years ago, announced the appointment of a Committee, under the chairmanship of Lord Radcliffe, to 'inquire into the working of the monetary credit system and to make recommendations. In doing so, he recalled that the last authoritative exposition of the system had been made by the Macmillan Committee, in 1931. As the result of the Committee's labours we now have an account of our monetary and financial system, in all its ramifications and complications, which is as thorough and comprehensive as could be wished, together with a lucid and masterly analysis of its working.

In addition, we have a penetrating commentary on monetary events as they have unfolded over the past seven or eight years, a thought-provoking contribution to monetary theory, a number of important signposts for our future guidance, and some specific recommendations on particular matters both great and small.

I am sure that I am expressing the views of the House as a whole in publicly thanking Lord Radcliffe and his distinguished colleagues for their comprehensive, massive and timely contribution to economic thought. The Report covers a vast field and I am sure that it must be clear to all of us that we cannot expect to reach a final judgment on much of it today.

The process of comment and counter-comment has already started in another place and elsewhere and it is right that the House should now make its contribution. At the same time, there are a number of specific matters on which we have felt that the Government should declare their attitude at once.

575 The first point that I should like to turn to is what I might call the broad approach of the Committee. It stated very clearly in its concluding chapter, paragraph 980, this broad approach: The aims of economic policy to which monetary action is related are complex: they can be directly in conflict with each other in the short term and only by adjustment can be held in balance in the long. In discussing these objectives earlier in the Report, the Committee acknowledged that the choice between them, where choice has to be made, is one that Governments have to face, and we entirely accept that.

I also agree with the Committee—and I think that this is very important—that all the instruments of economic policy must be co-ordinated in relation to our objectives. All of us in this House, I think, on whichever side we sit, are committed to the pursuit of a number of objectives which are not always easy to reconcile.

First and foremost, we are committed to the defence of the £ sterling, to a stable balance of payments and to seeing that the products of our export trade are available at prices that other countries are willing to pay. I think that that is the most important thing of all.

Secondly, we all want to achieve a high and stable level of employment without having to incur the risks and social injustices caused by a continual fall in the value of money.

Thirdly, we want to achieve a steady increase in the standard of living because, after all, that is the whole purpose for which trade and industry exist. In other words, we accept the broad definition of economic objectives as given by the Radcliffe Committee, and I believe that the whole House will broadly accept them, too.

There is always room, and always will be room, for argument about the relative weight that should be attached to different measures in the pursuit of these objectives. My own feeling is that the Committee has perhaps underestimated the part that can be played by monetary policy in helping to keep the balance between our total resources and the total claims on those resources.

576 As is well known, we on this side of the House are more sceptical than hon. Members opposite about the efficacy of direct controls. In fact, as our record shows, we have been flexible in adapting our policies, both fiscal and monetary, to changing circumstances, and we intend to continue in future to use whatever measures may be appropriate to maintain a proper balance in our economy.

Neither I nor my predecessors have ever ruled out the possibility of using more specific measures to encourage particular kinds of economic activity, notably capital investment in our productive industry, or to relieve some sector of our economy which seemed particularly hard-pressed. But the main point to remember, surely, is that our choice of what measures are required at any particular time must be determined by our judgment on how best to secure the objectives which I outlined a moment ago and on which, I think, we are all agreed.

I also find much to agree with in those parts of the Report which deal with external policy. It is gratifying, I think, that the Committee generally endorses the external economic policies which have been followed in recent years. In particular, I hope that we shall all wholeheartedly concur with what the Committee says about the position of sterling as an international currency and the importance of maintaining it and the sterling area arrangements. I agree in general with what the Committee has to say on international liquidity, and my hon. Friend the Economic Secretary will be dealing with a point or two on this matter later on in the debate.

The greater part of the Report is, naturally, devoted to the relation between monetary conditions and the general state of our internal economy. I have no intention today of trying to summarise the inevitably complex arguments here. In fact, I think that right hon. and hon. Members may well doubt my personal qualifications for pronouncing on these formidable issues, on which eminent economists hold passionately such divergent views. But as has been well said, if only those who were qualified spoke the world would be filled with a profound silence, and who are we politicians to hold back where so many other angels have no fear in treading?

577 I should like to suggest that there are three important strands of thought, as I see it, running through this section of the Report. The first is the statement that when monetary conditions affect the state of the economy they do so ultimately by their effects on the general level of demand. I think that few people have quarrelled with this element in the Committee's analysis, and I certainly do not quarrel with it.

The second important strand of thought has proved, I think, more controversial. To use its own terminology, the Committee suggests that what matters is the liquidity of the economy as a whole and this liquidity is affected by changes in the structure and level of interest rates. In other words, it lays great stress on the ease or the difficulty with which the volume of Government debt can be turned into money.

On this very important matter we shall, no doubt, hear a good deal more and we shall study the arguments with care. But I do not intend to comment on that today. In this matter, to a large extent, for reasons which, I think, will be understood, I must leave people to judge our policy by what we do rather than by what we say.

The third point to which I wish to draw attention is the distinction which the Committee has drawn between three types of economic situation. The first is what it calls the normal situation, when the authorities would rely on interest rates policy. The second is the situation of excessive liquidity, when some administrative restraint on lending might be necessary. The third is what the Committee calls an emergency, and for which it prescribes a package of emergency measures, consisting of the quantitative control of capital issues, a ceiling on bank advances and hire-purchase restrictions. I do not propose, this afternoon, to comment on the merits of the various measures referred to, but only on the way in which the Committee appears to have divided them up and appropriated them to different kinds of situations.

In practice, as doubtless the Committee realised, it is, I think, impossible to diagnose and analyse a complex and continually changing economic situation quite in this way. There could surely be dangerous consequences from 578 allowing ourselves, as it were, to label particular measures, or "packages" of measures, as being for use only in certain defined conditions. The first danger is that however good may be a Government's sources of information or their judgment, they might not recognise that the specific conditions had actually been established, or were immediately threatening, and, therefore, they might take action too late.

If that danger be avoided, and if action is taken in good time, there would be another danger, that because they had introduced measures out of the package marked, as it were, "for emergency use only," people at home and overseas would judge that the situation was more serious than in fact it was. The resulting loss of confidence could well induce or aggravate the condition which the measures were designed to prevent.

I am sure that no Government who wish to carry out effectively their responsibilities in the sphere of economic management could afford to have their hands fettered in that way. Surely a Government must be free to make any change in the economic circumstances with whichever of the available measures they judge likely to be most effective in those particular conditions without any implication that the situation which is being dealt with is of an emergency order. That is all I wish to say at this stage about the more theoretical side of the Committee's Report.

Now I turn to three sets of specific recommendations. The first of these concerns the relations between the Treasury and the Bank of England, and the Report rightly devotes close attention to this question. It finds that the relationship is detailed and continuous and that the allocation of functions which has been worked out since the war is generally satisfactory. The Report goes on to put forward certain proposals designed to make those relationships explicit rather than implicit, stressing that the proposals it puts forward are concerned with form rather than with substance.

I accept the view that there are advantages in making more explicit the understanding that monetary policy must fall within the orbit of general economic policy and that the Government must bear the ultimate responsibility. There 579 is no difference of view between the Government and the Bank on that fundamental matter. But I judge it of equal importance that the responsibility for current monetary operations within the limits of Government policy, and at all times in consultation with the Government, should continue to lie, and to be seen to lie, with the Bank of England.

As regards the internal direction of the Bank, both the Government and the Bank accept the Committee's general analysis of the respective functions and responsibilities of the Governors and of the part-time directors respectively. In the formation of the Bank's views on monetary policy the main responsibility must fall, as it does fall, on the Governors, while the function of the Bank's part-time directors must be mainly advisory. But the Committee expresses the view that it is to the advantage of the Bank to have part-time directors not merely as consultants, but as full members of the Court, and I agree wholeheartedly with that view.

At the same time, we attach the greatest importance, as does the Radcliffe Committee, to ensuring that the Bank's position should be maintained as a separate organisation with a life of its own and that its governing body—not only the part-time directors, but all the governing body—should not act merely as consultants, but should continue to take a corporate responsibility for the formation of the Bank's views. I conclude, therefore, that it is right that we should now take certain steps to make more formal and explicit what is now informal and implicit, without diminishing or appearing to diminish the present responsibilities of the Bank.

The Committee made two specific recommendations, one relating to decisions about the level of the Bank Rate and one proposing the creation of a monetary committee. On the Bank Rate it suggested that it would be better that all future decisions to raise or lower the Bank Rate should be made in the name of the Chancellor of the Exchequer and on his authority. I am sure that it is known to every hon. Member that for very many years no change in the Bank Rate has been made without the approval of the Chancellor.

580 I do not know whether we should find it generally advantageous in our public life to write down and formalise all those habits and practices by which we have learned to work together, but I think not. However, in this case I see no disadvantage in it being made perfectly clear that a change in the Bank Rate is, in fact, made with the approval of the Chancellor of the Exchequer. Thus far, therefore, I agree with the Committee.

The Committee goes on to say that under the existing legislative scheme a statutory direction is needed to convey such an exercise of the authority of the Chancellor of the Exchequer, and though it does not make a formal recommendation it appears to favour the use of such a direction for each and every change in the Bank Rate. On this point, I do not go with the Committee. I believe it of great advantage that when the Bank Rate is changed there should be general knowledge here and throughout the world that the change is not only approved by the Chancellor of the day, but also advocated by the Bank of England. I fear that this advantage would be lost if all changes were made on the Chancellor's direction.

It is in the nature of things that if a Minister of the Crown exercises his statutory power to direct somebody to do something the natural assumption is that the person on whom the direction is served would not have done it of his own volition. I see the greatest possible disadvantage in all changes in the Bank Rate being made by a procedure which would obscure completely what were the views of the Bank of England, and would indeed suggest that the action could well be contrary to its views.

There are some who think it odd that the powers of direction given to Ministers of the Crown are very seldom used, and that the powers of direction given to the Treasury by the Bank of England Act have never been used. I, on the contrary, regard it as a tribute to our national good sense in working things out together. So while I agree that it is desirable to improve on the procedures as they exist at present, I should prefer to change them in a way rather different from that suggested. I have, therefore, made arrangements which, in my view, give effect to the general objectives which the Committee appears 581 to have had in mind in making its own proposals.

Broadly, the arrangements for the future—which I have, of course, agreed with the Governor of the Bank of England—will be on the following lines. The Court of Directors has delegated to the Governor standing authority to settle changes in the Bank Rate with the Chancellor of the Exchequer on behalf of the Bank. In framing the view of the Bank as to the level of the Bank Rate, the Governor will be free to have discussions with the Committee of the Treasury and with other part-time directors of the Bank. He will not, however, put specific proposals before the Committee of the Treasury or before the Court of Directors.

When, following the customary informal discussions between the Governor and myself, a change in the Bank Rate is agreed to be desirable, the Governor will make a formal written proposal to me on the day before the change is to be made and I shall convey my formal approval in writing on the same day. That approval will cover both the change itself and the continuance of the Bank Rate at the new level until such time as a further change takes place. On the day on which a change is to be made the Governor will report to the Court the action taken under the standing authority given to him. The final decision will be made in the name of the Bank and announced forthwith in the usual way.

The Bank will make a formal announcement to the Press, including a statement that the Bank's decisions have my approval. Until such time as a further change in the Bank Rate is to be made, the Governor will report to the Court at its normal weekly meetings that no further change is to be made and that decision will be announced forthwith in the same manner as when a change is made.

These arrangements are intended to lay down the normal procedure and may have to be varied in exceptional circumstances. Moreover, they do not, and could not, derogate in any way from the power of the Treasury to give a direction to the Bank under the Bank of England Act, 1946. That power remains for use in the last resort if ever, as I should not expect, we should fail to reach agreement 582 by the normal processes of consultation together. I hope that these arrangements, which in my view are in conformity with the objectives of the Radcliffe Committee both on the responsibilities for Bank Rate decisions and on the position of the part-time directors, will commend themselves to the House.

The second main proposal made by the Radcliffe Committee in this field was that a standing committee, deliberative and advisory in character, should be set up under the chairmanship of the Chancellor of the Exchequer to keep under review and advise the authorities on all matters relating to the co-ordination of monetary policy as a whole. The members would be drawn from the Bank, the Treasury and the Board of Trade.

The Committee's object in making this proposal was to ensure, in its own words. that the Bank's views and decisions on monetary policy are arrived at after full discussions of their implications for the Government's economic policy as a whole and that the Government in forming economic policy can regularly get the benefit of the advice and experience of those for whom the monetary policy is a special concern. With this general objective, as I have already made clear, I agree. I doubt, however, whether the best way of obtaining it is by means of this proposed committee. When the object is to knit the formulation of monetary policy closely in with the formulation of economic policy generally, and particularly with fiscal policy, it seems questionable whether the best way to go about it is to have another committee, especially a committee of a rather formal kind dealing with monetary policy alone, and especially as this would add to the rest of our machinery for consultation between Ministers and Departments.

My view, therefore—and on this I have the agreement of my right hon. Friend the President of the Board of Trade—is that a more continuous co-ordination of monetary policy with economic policy generally can best be achieved by arranging for the Bank to be permanently represented on the various official committees by which economic policy is already formulated and advice to Ministers on it is co-ordinated. With many of these the Bank has been informally associated from time to time in the past. I propose that 583 in future it should be associated all the time as full members.

We believe that these arrangements—right hon. Members opposite will understand me when I say that they are intended to go to the very heart of the matter—will make it even more certain than it is already that the expertise of the Bank is made available to all those who are engaged in advising Ministers on economic policy and that considerations additional to purely monetary ones are brought to the attention of the Bank of England. I believe these arrangements will forge an even stronger link and facilitate an even more two-way day-to-day co-operation between the Government and the Bank than the formation of an additional committee would do.

§ Mr. Douglas Jay (Battersea, North)

When the Chancellor refers to two-way consultation, does he mean that there will be Treasury representatives on the committee of the Bank?

§ Mr. Amory

No, I did not mean that. I meant that the advice of these committees is really two-way: on monetary policy from the Bank to the Government, and, as it were, on economic considerations from the Treasury to the Bank, which has an effect on monetary policy, also.

The second set of recommendations I want to refer to are those concerning the arrangements for provision of long-term finance for the nationalised industries and local authorities. On these matters I quote from the Report of the Committee which recommends, in paragraph 595: In the absence of any satisfactory alternative method of raising capital, we therefore recommend that the nationalised industries should continue to look to the Treasury to cover all their permanent requirements. In paragraph 596, the Committee says: we recommend that the Exchequer should stand ready to provide long-term capital through the Public Works Loan Board at the current gilt-edged rate (at the time of borrowing) for the relevant maturity, to any local authority that is not able or does not want to raise the money it requires in the market on its own credit at a comparable rate. It seems to me that the Committee has been influenced in its thinking by the analogy between the two cases and it is an analogy which has been drawn both 584 by those who, like the Committee, want local authority borrowing to be financed from the Exchequer and, in the reverse direction, by those who want the nationalised industries to be put on the market. I think that it would be convenient, therefore, to consider whether the two cases are really so similar.

First, I must remind the House of the history of these arrangements since the war. In the case of local authorities, the first stage was between 1945 and 1952. During that period local authorities were virtually obliged to draw all their capital from the Exchequer through the Public Works Loan Board. The second stage lasted from January, 1953, until October, 1955. During that period local authorities had the choice of borrowing either from the Public Works Loan Board at interest rates reflecting Government credit, or in the open market, where interest, naturally, was payable at rates reflecting the credit of the local authorities themselves.

The third period began in October, 1955, and has continued ever since. During this time the local authorities have been required to borrow in the market rather than from the Public Works Loan Board, if they can borrow in the open market. The Board has acted, therefore, as a lender of last resort. To create no artificial incentive to borrow from the Board, the interest rates on the Board's loans to local authorities have been fixed at rates to reflect the credit of local authorities generally in the market. The Radcliffe Committee, therefore, is recommending a reversion to the system which was in force in the second of the three periods which I have mentioned.

For the nationalised industries, the history has been rather different. Throughout its history the National Coal Board has been financed for its capital needs from the Exchequer. For the others, the original arrangement was that their long-term borrowing requirements should be met by the issue of stock in the market carrying a Treasury guarantee. This method was used until 1956, when my right hon. Friend the Prime Minister introduced the present arrangement, under which all the nationalised industries obtain their long-term finance by way of advances from the Exchequer.

585 Let us consider the two cases. Both the nationalised industries and the local authorities are part of what is called the public sector. Both have large programmes of capital expenditure which are controlled by the Government. There, however, I think that the similarities end. The nationalised industries are few in number, but their individual borrowing requirements are large, some of them very large indeed. Local authorities, on the other hand, are extremely numerous, and although, in total, their borrowing needs fall not far short of those of the nationalised industries, their individual requirements are in general very much smaller.

The fundamental difference, as I see it, is that while local authorities can pledge their revenues as security and have, in fact, a credit standing of their own, so that they can borrow in the market in their own names without the guarantee of the Treasury or anyone else, the nationalised industries were not, and are not, able to do so, but had to rely on the Treasury guarantee.

The consequence of this was that since the issues of stock for the nationalised industries were the equivalent of Government stock, both because of the guarantee and because of their size, it was necessary to apply to them exactly the same techniques as are used for the Government's own borrowing. Their stock had to be largely purchased on the day of issue by the authorities and to be sold later as opportunity offered in the market alongside the Government's own stock. The only difference between this and the Government's own borrowing was that the Government could not fully control either the timing of these issues or their maturities, since both had to be fitted into the needs of the particular nationalised industry.

It was to avoid that loss of control that the present system was introduced and has been continued ever since, and it has been endorsed by the Radcliffe Committee. For the comfort of my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke), I would say that since the present powers to make Exchequer advances expire at the end of next August, the House will have an opportunity before long of addressing its mind to this question, and perhaps I need say no more about it now.

§ Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I remember Sir John Anderson introducing the Act which brought the local authorities into the orbit of the Public Works Loan Board. Its purpose was to exercise a close control over their borrowing and also to eliminate the considerable confusion which exists where a multitude of local authorities are all clamouring for loans on the open market. What has occurred which makes it advantageous for all these local authorities to compete with each other for money?

§ Mr. Amory

I have not quite finished what I have to say about local authority borrowing, and I will try to cover that question.

Local authorities, on the other hand, borrowing on their own credit without a Treasury guarantee, and in relatively small amounts, as most of them do, have been able, since 1955, to finance a very large and increasing part of their requirements without recourse to the Exchequer at all. Indirectly, their activities have no doubt had an effect on the Government's own borrowing operations in that they have attracted to themselves some money which otherwise would have gone into the Government's own securities.

Equally, I am sure, they have found a great deal of money, particularly local money, which would never have come our way at all. This is very important and has been, I am convinced, a real and substantial help to the Exchequer and to the national finances generally in growing measure since the present system was introduced.

The right hon. Member for East Stirlingshire (Mr. Woodburn) raised the question of the queue for borrowing in the market. There is a queue at the present time, but the market authorities control that queue to ensure that it comes forward in an orderly fashion in tune with the demand for securities from the market. For these reasons, I think that a perfectly valid and real distinction can be drawn between the nationalised industries, on the one hand, and the local authorities, on the other.

I have, therefore, come to the conclusion that no change should be made in the present system in respect of local authorities. The local authorities will 587 continue to be encouraged to borrow in the market on their own credit and the Public Works Loan Board will lend to them only if it is satisfied that they cannot borrow in the market.

§ Mr. Harold Wilson (Huyton)

The Chancellor has quoted many facts which were already known to the House. No one has suggested that local authorities and the nationalised industries are exactly on a par in all respects. Would he give us some reasons why he disagrees with the very strongly argued recommendation of the Radcliffe Committee about this? He gave the impression that he had made up his mind on the question and then produced a number of reasons, which were not very convincing, to support him. What were the arguments of the Radcliffe Committee and how does he refute them?

§ Mr. Amory

I have given the reasons why I believe that our present system is best. They seem to be stronger reasons than those adduced by the Committee for treating local authorities in the same way as the nationalised industries. I recognise that there is a difference of opinion between right hon. Gentlemen and ourselves on that point. This has come out in previous debates, and we shall no doubt debate the subject further.

It is no light argument if we can substantiate, as I believe we can, that, in practice, the present system enables local authorities to obtain finance additional to that which we should be able to obtain if we had to carry their burden in addition to the other burdens carried by the central Government.

It is well known that for the greater part of this year the opportunities for the issue of long-term stock have been limited and that there has, therefore, been a queue of potential borrowers. In recent weeks, however, there has been a notable movement in the queue. Two substantial issues have been successfully made and we hope to see others follow them. In any case, the existence of a queue has not meant that the local authorities have ben unable to find other sources of funds while waiting for their turn to come in the market. On the contrary, they have been notably and markedly successful in doing just that.

It is true that a part of what they have borrowed has been short-term borrow- 588 ing, and I agree with the Committee that excessive short-term borrowing could have its dangers. We have, therefore, been endeavouring recently to obtain more information on this matter. We hope to make arrangements, in consultation with the associations of local authorities, to obtain and publish regular up-to-date information on the extent and nature on their borrowing.

This reference to statistics brings me to the third set of the Committee's recommendations with which I want to deal. Throughout the Report the Committee lays great stress on the need for a better supply of statistical information on the working of the monetary system, both to help the authorities and to improve public understanding. With this in view, the Committee has made about 50 detailed recommendations as a contribution to the general programme of making monetary and financial statistics progressively more comparable, comprehensive and systematic.

The Government warmly welcome the Committee's most valuable advice on this. Immediately I received the Report I arranged for these recommendations to be studied urgently. The proposals for the extraction and publication of information from Government and Bank of England records will be implemented whenever this will not be contrary to the national interest. The Treasury has already begun to publish quarterly figures on the financing of the Exchequer.

I must make one reservation on this point. Immediate publication of operational figures could, in some cases, be damaging to the national interest. For example, the Committee criticised as undignified the usual form of announcement of new issues of Government stock. I am prepared to find a more dignified form of announcement, but I doubt whether it would be right to announce the sales of the stock to the public to the first day of issue.

The process of improvement in statistics must, as the Committee recognises, be gradual. We propose to begin on those parts of the front where the value of the information will be of the clearest utility. Our immediate aims are: first, to provide a comprehensive and consistent system of statistics on the assets and liabilities of the whole 589 banking system; secondly, to obtain information on holdings of, and transfers in the various types of financial assets including Government floating debt, gilt-edged securities and the various forms of local authority borrowing; and, thirdly, to obtain fuller and more up-to-date information on the financial position and transactions of companies and persons.

We propose, therefore, to invite the representative organisations of local authorities and the main groups of financial institutions to discuss with us how best this information can be collected and what practical difficulties they may encounter in doing so. In due course it will be necessary to approach non-financial companies for up-to-date information which will throw more light on the financial transactions of industry and on the relationship between industry and the capital and money markets.

I am very conscious of the great help we are already receiving from business concerns in all these matters, and we shall certainly do our best to minimise the trouble and cost thrown on those concerned. In particular, I am very anxious to ease the burden on smaller businesses for this kind of information. For instance, we shall not want absolutely precise audited figures. Some degree of approximation will be acceptable, especially if it means that the figures will be available more quickly. We shall also hope to reduce the work and obtain quicker results by using sampling procedures whenever possible.

§ Mr. J. T. Price (Westhoughton)

I quite agree with the right hon. Gentleman's desire to relieve the burden on smaller businesses in the provision of such information. Would he not be entitled, in that vein of thought, to apply the same process of reasoning to the smaller local authorities which are now having a much greater burden placed upon them by the requirement of his Department for them to raise money in the open market, with all the attendant advertising, wastage of rates and uncertainty about when they will get the money they require?

§ Mr. Amory

The hon. Gentleman has certainly raised a point. We must ensure that we do not throw unnecessary 590 burden on the small local authorities beyond what is necessary to secure the objectives. The hon. Gentleman can well imagine, after what I have said, that I cannot agree with him on the second part of the point that he has raised.

The Radcliffe Committee expressed the hope that such figures as would be required would be furnished voluntarily by the institutions concerned. That is certainly my hope and belief, and I am sure that voluntary co-operation is the best basis on which to obtain such statistics, as, indeed, it is in most matters.

That brings me to the end of what I want to say on the Report this afternoon. Although on one or two specific matters I have not been able to go with the Committee, and on the very important but more theoretical aspects I have suggested that a final judgment would be premature, I have said enough to show how very considerable is the debt that we owe to Lord Radcliffe and his colleagues. They have given us an impressive and unanimous Report which will be of the greatest value not only to us, but to those who come after us.

It must be a cause for satisfaction to all of us that, despite the profound changes in the techniques of financial monetary and economic management since the Macmillan Report nearly thirty years ago, such a searching inquiry has resulted in such a wide measure of approval of the working of our financial system.

§ Mr. Harold Wilson (Huyton)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: welcomes the Report of the Radcliffe Committee, thanks the Committee for its thorough and authoritative survey, and calls on Her Majesty's Government to implement, in particular, those recommendations of the Committee which relate to the supremacy of the Chancellor of the Exchequer in financial policy, the relations between the Treasury and the Bank of England, local authority borrowing, capital needs of publicly owned industries, and the position of part-time directors of the Bank of England". The Chancellor's speech was profoundly disappointing. Although he did make some perfunctory remarks of gratitude to the Radcliffe Committee, it was quite clear that he has virtually rejected every recommendation in the Report. 591 Apart from one or two slightly fussy alterations in the mechanism by which changes in the Bank Rate will be announced, and a general promise to look at the statistical position, he has not accepted any of the fundamental recommendations of the Committee. It was quite clear from the right hon. Gentleman's speech that the Report is to gather dust in the Government's already overcrowded pigeon-holes.

The Chancellor came to bury Radcliffe, not praise him. It is yet another case of the Government appointing a high-level committee to look into these questions, to spend quite a long time, in this case two-and-a-half years, saying, "No. We cannot talk about monetary policy because we have this Committee", and then, when the Committee produces its report, the Government say a few well-chosen words about it, reject its main conclusions and go on as before. There have been even more spectacular illustrations of that in the course of this year's history.

Our approach is that this is a most valuable Report. We are certainly not committed to all its details or lines of reasoning. [HON. MEMBERS: "Oh."] Why should we be? Is there any reason? We do not agree with every detail or all its lines of reasoning, but it must be regarded as an important and abiding study of the working of our monetary system and institutions. No one would regard the Committee as composed of revolutionaries. All its members are men of the highest distinction. Most of them would have been regarded as safe and orthodox, men who might be expected, wherever possible, to endorse the existing system.

What has happened? They have produced a unanimous Report. There are different kinds of unanimous reports, but this one is not based on the lowest common multiple of committee harmony. It is a Report which is positive and stringent. While the Committee treated established doctrines and institutions with due courtesy and respect, it has been effective and at times devastating in tearing away the veils of obscurantism and mystique with which so much of our monetary system is surrounded.

The Committee has been equally frank in exposing the arguments which have 592 sometimes masqueraded as sound economic theory, arguments with which we have become familiar week by week in the financial journals, arguments which we have heard so often from right hon. and hon. Members opposite when they have sought to rationalise or to provide some kind of rationalisation for policies that were proving so costly to this country and its place in the world.

Above all, I would characterise the Radcliffe Report as belonging not to 1914 or to 1939, but to 1959 and the 1960s, and being animated by neither mystique nor intellectual dishonesty, but by plain and informed commonsense. It is inevitable that comparison will be made with the Report of the Macmillan Committee, which, with all its faults, remained for so many years the classical analysis of the City in the early 'thirties. If that comparison is to be made, Lord Radcliffe and his colleagues need not fear it.

We all recognise that in this debate we are dealing with part of a much wider subject: the conduct of the economic policy of the country and of the responsibilities that we bear in a much wider sense, both in relation to the sterling area and as a nation which has a decisive pan to play in world trade and finance.

In this House, we differ greatly about methods, techniques and ideologies in these questions about economic and social priorities, but there can be no disagreement on either side about the fundamental objectives of our economic policy. We have to play our part in expanding world trade and in creating a system dedicated to economic growth, and particularly to the advancement of the underdeveloped countries. At home, we have to secure full employment without causing the social distortions and hardships that are inseparable from inflation and rising prices. At the same time, and by al; the means open to us, we have to secure a degree of economic growth which both quantitatively and qualitatively measures up to the needs of our position in the world. We have to do all this while securing equally for all our people a fair and equitable share in the fruits of our national production. These are our aims and there would be no disagreement on either side of the House about them. To achieve them, we need—and I hope that we are all agreed about this—not one 593 policy, but an armoury of policies, budgetary, monetary and social, as well as more direct controls influencing both public and private industry.

I am sure that Lord Radcliffe and his colleagues would agree that their Report can be studied only as part of a much wider setting in which all these instruments play their full part. They would agree that their Report discusses only one aspect of the kind of policy—an informed and positive policy—carried out by Ministers, whatever their political views, impelled by a sense of purpose. Without that, the Report does not make sense.

If the Report does one thing, it is to discredit the notion of monetary policy as a single panacea which is adequate in itself to deal with the problem. Although we shall, naturally, devote most of this debate to monetary matters, it will be meaningful only if we regard monetary policy, important though it is, as having a strictly limited role to play in attaining the economic objectives that we have set ourselves.

I do not intend to spend much time on the Committee's useful analysis of the big changes which have occurred since the time of the Macmillan Report. We should all agree that the Radcliffe Committee is right in emphasising such things as the acceptance of the need for full employment, the structural changes in British industry which have taken place, especially in our export trade, the tendency here and abroad to persistently rising prices, the steady and virtually insatiable pressure from overseas demand, particularly for capital goods, and the striving for economic advancement, and the resulting world-wide shortage of capital from which the country, in terms of both economic and social capital, has not been immune

In listing all these changes, the Committee is right in drawing attention to the vast technological developments, particularly since the war, requiring a high capital ratio in investment and, particularly in this country, also the growth of hire purchase, the development of new financial institutions, the problems presented for monetary management by high taxation and the growth of the National Debt and the new problem presented by the nationalised industries and the size of the national Budget, not to 594 mention the problem of the local authorities.

The Committee is right, too, in emphasising, as the Chancellor has said, the importance of external considerations, the problem of reserves and external indebtedness. All of these present revolutionary changes from the days when monetary techniques were first originated and developed in this country.

It is not possible for anyone today to do justice to all the descriptive sections of the Report—for example, Chapter III, "The financing of the public sector", and Chapter IV, the authoritative description of the financial institutions in the private sector. I would, however, draw attention on Chapter IV to the virtual omission of any description, almost of any reference, to the Stock Exchange. It may be that hon. Members think that it defies description or analysis of the kind that the Radcliffe Committee has applied to other sections of our financial institutions, but since it is always held out as an essential mechanism in providing funds for investment, it is difficult to justify its exclusion from this survey.

I hope that the Chancellor will consider this matter and will consider whether we do not need in the modern world, at present, an independent inquiry into the Stock Exchange parallel to that which the Radcliffe Committee has done with great thoroughness and even ruthlessness into other financial institutions such as the joint stock banks, the acceptance houses, the discount houses, and all the rest. I put it to the Chancellor that he should consider this.

Looking at all of these descriptive chapters, including, for example, the one on the Bank of England, we can only regard this as an interim debate. We shall all be much more fully informed on both the descriptive and the analytical sections of the Report when we have the volumes of the written and oral evidence before us. That will show us in great detail not only what is happening, but, no less revealing, what those who are at the centre of things think is happening, which is just as much a fact as what is actually happening.

Undoubtedly, the central chanter of the Report is Chanter VI, called "The influence of monetary measures," which provides a fresh and, some would say, 595 devastating analysis of the use of monetary measures in the eight years since they were revived with such a flourish of trumpets from 1951 onwards. This chapter also gives us the Committee's view about the scope and relevance of such measures in the years immediately ahead of us.

The classical picture of monetary techniques with which we have been so often presented is that of a beautifully sensitive instrument, delicately calibrated and adjusted, capable of bringing into play powerful forces at the mere touch of a lever here or the application of pressure there, all this working in a way that is somehow supposed to be neutral—that is, innocent of all the distortions of production and trade which are said to be inherent in physical controls or even budgetary policies.

I shall not weary the House with quotations of all the moving speeches that we have had on this theme from four successive Chancellors of the Exchequer, not to mention such apostles of the classical thesis as Sir Oscar Hobson, Lord Robbins, Sir Roy Harrod, and others on whom these Chancellors have relied so greatly for publicly or privately-expressed views.

We were given to understand that this delicate instrument—the rate of interest—supported with all the other monetary levers, would bring savings into equilibrium with investment, and, in particular, would regulate in the national interest capital investment in stocks of materials and in work in progress, and, ultimately, through the supply of money, the rate of interest would control the total volume of demand in the country, not to mention its powerful effect on foreign exchanges, both by altering the interest differential between countries and also by creating confidence in financial centres abroad.

We were also told that, with all these monetary techniques, we should be able to see an advancement and not a retardation of industrial progress and capital growth. This theory, I do not think the Chancellor will disagree, has been the central inspiration of the entire economic policy of the Government for eight years, and the effect of the Radcliffe Committee's commentary on it, after a full investigation of the history of those eight years, is utterly to destroy this theory.

596 First, let us look at the Committee's analysis of the effect on capital investment in plant, machinery and stocks. We all remember the classical exposition of this thesis in the imperishable words of the present Viscount Chandos, speaking from this Box on 2nd November, 1950: If the industrialist thinks that a 5 per cent. interest rate for borrowing his money will still leave him with a profit, the plants will be built, but the marginal capital investments will be discarded."—[OFFICIAL REPORT. 2nd November, 1950; Vol. 480, c. 332.] With all respect to the noble Lord, everything he said on that occasion has been proved by the Radcliffe Committee to be nonsense. I think the Chancellor feels moved on this subject. At least, I thought he was getting up.

§ Mr. Amory

I was moved because the right hon. Gentleman has referred to my earlier moving speech, and this is the first time he has ever described one of my speeches as a moving one. I should like to put this to the right hon. Gentleman. Surely, he is doing what he always enjoys doing, putting up some fictional situation and knocking it down. Neither our policies nor our actions, surely, give any grounds for saying that we have ever thought that monetary policy alone and in isolation can keep the economy in balance.

§ Mr. Wilson

The Chancellor will be surprised, and perhaps even flattered, to know that I study his speeches with more care than perhaps he does himself. We know how modest he is. Only two or three weeks ago, I quoted one of his Budget speeches, with which he immediately disagreed, not realising the source from which I was quoting. I can assure him that his speeches are my favourite bedtime reading, and that is why I never get enough sleep. I also assure him that I was not misrepresenting the view which he put across. I do not say that he has ever said that this monetary policy alone would solve all problems. Of course, I have not said that, but what the Chancellor has done, though in not quite so picturesque a fashion as his predecessor, is to suggest that the rate of interest and control over the supply of money were at the root of this problem. I will give some quotations to bear this out. First, perhaps the right hon. Gentleman will not mind this somewhat long quotation 597 from paragraph 451 of the Radcliffe Committee's Report: When we confined our questions strictly to the direct effect of interest rate changes in making business men alter their decisions to buy or sell goods and services, we were met by general scepticism. The insignificance of interest changes in relation to other costs and to the risks involved was emphasised to us again and again, in relation not only to fixed investment but also to stocks of commodities. We were told also how taxation in effect halves the interest cost; this belief has evidently bitten so deeply into business consciousness that it may well weaken the force of interest rate changes even when it is not strictly applicable. We heard from the executive heads or financial directors of several great industrial firms which are themselves responsible for about one-eighth of the gross fixed investment within manufacturing industry in the United Kingdom that in their plans for capital development they assume a more or less steady interest charge and would not alter their existing plans even if they thought somewhat higher rates had come to stay. The Committee went on to say that, even when they took evidence about smaller firms, and from experienced bank managers about the position of smaller firms, 'Here also we were met with general scepticism.

§ Mr. T. L. Iremonger (Ilford, North)

The right hon. Gentleman has already had my right hon. Friend correct him on the point that he—my right hon. Friend—had never claimed that monetary policy alone would be sufficient, and the right hon. Gentleman opposite has conceded that my right hon. Friend was not claiming that monetary policy alone would do it. Would he now concede that this paragraph is not a claim that interest rates alone will do it, but that what, in fact, the Government policy has relied upon has been the whole of monetary policy, of which interest rates are, in fact, only a part?

§ Mr. Wilson

I am going to deal with the question of what the Committee calls the package deal, and perhaps the hon. Gentleman will agree with what I have to say on that point. I do not accept that I was corrected by the Chancellor, but I shall presently quote some famous Cancellarian passages which may bear out what I have been saying.

What was true of interest rates was true also of the credit squeeze policy of making money hard to obtain. Here I think the Radcliffe Committee, echoing what has frequently been said from 598 this Box, fairly emphasised that the credit squeeze had borne more hardly on the smaller firms than the large firms. The Government's financial policy has been based on a wider claim than the effectiveness of rates of interest. They have claimed that high interest rates and the credit squeeze were a powerful influence via the supply of money on total internal demand in this country.

Here, again, I could quote from all the four Chancellors of the past five years, but I will spare the House that. I will, however, quote one or two passages from the speeches of the right hon. Member for Monmouth (Mr. Thorneycroft), the arch-apostle of this school. On 19th September, 1957—the day of the 7 per cent. Bank Rate—referring to his financial measures, he said: Their object is to ensure that the supply of money and the consequent pressure of demand do not exceed the manpower and resources which are in fact available. Five days later, in Washington, he said: The purpose of the measures which I announced before leaving London has been to go to what I concede to be the root of any inflation—namely, the supply of money … Again, a few sentences later: Our purpose then is to limit the money supply. Again, at the annual Bankers' Dinner at the Mansion House on 9th October, he said: There is, however, no doubt about one thing, and that is what enables inflation to go on. What enables it to go on is the supply of money, whether it be new money, or existing money travelling rather faster. Our policy is to halt the increase in the supply of money. On the next day, at the Conservative Party Conference, he said: We are not prepared to finance inflation. We do not intend to provide the cash for an upward spiral of costs and prices. We have planned to put a limit on the supply of money. Our policy goes to the root of the problem. It tackles the main source of inflation which is the supply of money. And much more in the same vein, though I will not weary the House with any more of these quotations.

We remember—and this is the more serious point—that this crude theory that we could limit the total volume of internal demand by attacking the supply of money was pushed to the point where 599 right hon. Gentlemen opposite were prepared to see unemployment develop in this attempt to hold down the supply of money. Indeed, the unemployment which did develop last year was a direct result of these policies, and that unemployment would have risen further this year but for the fact that a windfall gain in import prices enabled the Government to reverse these policies.

§ Mr. Denzil Freeth (Basingstoke)

If, in his own words, the right hon. Gentleman admits that the reduction in demand last year, which alone can cause unemployment, was a result of the measures taken by my right hon. Friend the Member for Monmouth (Mr. Thorneycroft), surely he is conceding automatically that they worked? The right hon. Gentleman cannot have it both ways.

§ Mr. Wilson

The point of the right hon. Gentleman's policy—and I take the point about a "package deal"—was that it made deliberate cuts in the capital investment programmes of British Industry. They created the unemployment, and indeed, as one of my hon. Friends reminds me, capital investment in this boom period has not picked up. We have now reached a point where the Governor of the Bank of England is beginning to warn about the boom getting out of hand, yet we are still in the position that capital investment has barely begun to pick up.

Let us see what the Committee had to say, after taking evidence from all who could help them on this question of the supply of money, including the right hon. Gentleman the Member for Monmouth, the Governor and Lord Robbins. In the first place, the Committee rightly pointed out, as we have done once or twice, that the supply of money was not so rigidly controlled as the Government intended. Hire-purchase finance and the independent finance houses, including mushroom banking companies, fill a very large part of the gap. The Committee points out, too, the grave harm done to the economy by the harsh and unilateral cuts in the investment programmes of the nationalised industries. The Committee calls them the residuary legatees of Government financial policy. It points to the effect of these cuts in investment programmes on certain important sectors of the engineering industry.

600 The Committee concludes with these words: It does not seem that changes in interest rates or interference with sources of funds for hire purchase companies have had much ultimate effect on the total pressure of demand for goods. Again, says the Committee, Our broad conclusions on the effects of these measures during the 1950's are that (1) the obstructions to particular channels of finance have had no effect on the pressure of total demand, but have made for much inefficiency in financial organisation; (2) that the controls of hire purchase terms have had sizeable impact, of a once-for-all kind, on each major change; and (3) that these sizeable effects on total demand have implied major directional effects which, though sometimes deliberately sought, have in general been detrimental to industrial efficiency So, according to the Committee, monetary measures were ineffective, detrimental, and they were not even neutral, for they had "major directional effects" harmful to industrial efficiency.

Indeed, the Committee goes on to say that if a Government are seeking to limit total demand, as every Government must at some time, the manipulation of interest rates is not to be compared, for its total impact on demand, with either hire-purchase restrictions or, of course, with the possibilities of Budget policy. Then comes the most unkindest cut of all in the Committee's final judgment on monetary policy in the 1950s: It is far removed from the smooth and widespread adjustment sometimes claimed as the virtue of monetary action; this is no gentle hand on the steering wheel that keeps a well-driven car in its right place on the road. The only concession the Committee makes is that, in an emergency, a sharp rise in interest rates combined with other measures, in what the Committee calls a "package deal", can have an effect both at home and abroad. We all agree about that. But this, again, is not the gentle hand on the steering wheel". It is a shuddering and screeching of brakes, a scorching of tyres, deliberately intended to produce shock and abrasions. But the whole classical theory of monetary management tells us that the purpose of monetary policy is to avoid such emergencies and disasters.

The Committee clearly feels that hire-purchase controls, not to mention such direct controls as building licences, have 601 their part to play, especially in critical conditions. "But", says the Committee—and here I quote from paragraph 514— when all has been said on the possibility of monetary action and of its likely efficacy, our conclusion is that monetary measures cannot alone be relied upon to keep in nice balance an economy subject to major strains from both without and within. Monetary measures can help, but that is all. So the emperor had no clothes after all. As in the Hans Anderson story, the Establishment was wrong and the less sophisticated onlooker was right.

I turn now from that rather central chapter of the Report to the analysis of the monetary institutions, especially the joint stock banks and the discount market. Here, I think—I believe the Chancellor will agree—the Committee is clearly right in showing how ineffective control based on the old 8 per cent. cash ratio concept has become, and the Committee rightly stresses the greater importance of the liquidity ratio. But, as we are all aware, control of this ratio in modern conditions is very far from being automatic, and the Committee once again stresses the ineffectiveness even of interest rate changes for this purpose.

We all know that higher interest rates can force losses on the banks if they are forced to sell some of their short bonds before maturity, although, even there, as a result of higher interest rates, the banks are, of course, able to charge higher rates on their advances and so compensate themselves, in whole or in part, for any loss they make on realising their bonds. It is for this reason—the relative ineffectiveness either of cash ratio or liquidity ratio control—that other methods have been advocated, from compulsory liquidity ratios to special deposits from Treasury deposit receipts to a compulsory advances-deposits ratio. I am sorry that the Chancellor did not deal with any of these questions this afternoon.

On many occasions, we have pressed Government to adopt a system of mandatory liquidity ratios, with power to vary the percentage as circumstances change. It is interesting to note that this view has been supported by the Radcliffe Committee. It supports the principle of mandatory liquidity ratios. We would support, also, its proposal for a manda- 602 tory ratio between advances and deposits, again, leaving room for flexibility on the percentage, with power also—I think that this will be necessary—to extend control to competing financial institutions. Certainly, in periods of potential danger, this kind of control would be effective in preventing the banks from strengthening or reinforcing their liquid assets through sales to the discount market of longer term securities in exchange for Treasury Bills or other short-term assets and thus getting round or circumventing the liquidity ratio control.

The Chancellor, eighteen months ago, when he announced the end of the credit squeeze, went so far as to institute a system of special deposits, a system designed to freeze or sterilise a proportion of the banks' liquid resources. I am sure that the right hon. Gentleman will not mind if I remind him that we had proposed such a system as long ago as the 9th May, 1956, as an alternative to the credit squeeze which we then opposed. I am glad that, in the end, he came to accept this proposal. He will recall that, when we first proposed it, we based it not so much on the Treasury deposit receipts system but on the Australian model which, I am sure, was very much in his mind when he made his announcement eighteen months ago.

Although this is actually beyond the ambit of the Radcliffe Report itself, Mr. Deputy-Speaker, I should like, once again, to press on the Government the suggestion we made that special deposits or a revived system of Treasury deposit receipts, if one likes, could be used, just as Budget surpluses could be used, to enable the Government to operate the system we have advocated for two-tier interest rates—one rate, the higher rate, for the general purpose of the market and the lower of the two interest rates for such essential purposes as local authority housing, colonial development, and farm credit. I am sorry that the Committee did not consider this proposal together with its recommendation about local authority borrowing through the Public Works Loan Board to which the Chancellor referred and to which I shall turn in a few minutes.

I have not time to comment on the Committee's examination of most of the other financial institutions to which it 603 referred. I think that we shall be debating some of them quite soon. I want, however, to say a word about the discount market. Here again, I was surprised that the Chancellor had so little to say. There are many people who have questioned whether the discount market has any real function to perform in the modern world, whether it is anything more than just a survival from the age of the Forsytes.

Certainly, the Committee, in its examination of the problem, has stripped the subject of much of its mystique. The discount houses are not needed to ensure that the Treasury bill tender is fully taken up, and no one, incidentally, has ever satisfactorily explained to me why the joint stock banks should not tender direct for Treasury bills. Perhaps the Chancellor will tell us at some time. Again—I know that this has caused concern in high places—the Committee, on balance, condemns the discount markets' syndicate or cartel system in bidding for bills. I think that the Committee is probably right in saying that this syndicate system inhibits lending by other concerns. Indeed, the Committee says that the discount houses have deliberately manipulated their bids up and down in order to discourage outside tenderers. To this extent, the practice is putting up the cost to the Treasury and is causing instability in short-term money rates.

Thus, the justification for the continued existence of the discount houses lies not on their alleged indispensibility to the Treasury in covering the bill tender but in the much humbler role of providing a useful market for short-term Government securities. I think that no one will disagree with that.

§ Sir Henry d'Avigdor Goldsmid (Walsall, South)

The right hon. Gentleman is always fair-minded. I should like to bring to his attention that there are five particular virtues or qualities of the discount market which are mentioned in the Report, of which the most important, I suggest, is the last, that the discount houses are doing work at a trifling cost in labour and real resources, and the work they are doing is saving the banking system the inconveniences which would arise from fluctuations in their liquidity, apart also from producing 604 the market in bills and bonds to which I think the right hon. Gentleman has referred.

Moreover, it is not, I think, correct for the right hon. Gentleman to say that the discount market makes profits from manipulation of the rates because, as is also pointed out in the Report, the banks are very quick indeed to adjust their buying rate for bills to that established at the last tender.

§ Mr. Wilson

I hope that the hon. Gentleman will have the opportunity of developing this point at greater length. I would just say that I stressed the importance of the discount market in relation to providing a market for the short-term assets.

The last point which he mentioned was in relation to their inability to exploit their monopoly profit. In fact, I was just coming to that when the hon. Gentleman interrupted me, because I think one ought to draw attention to a significant paragraph in the Report, paragraph 168, where it states that the safeguard against the discount market exploiting its quasi-monopoly position by increasing its profit margin on bills is the fact that the joint stock banks can always, in turn, squeeze the discount houses by altering the terms on which they lend money to the market, so that the monopoly profit is merged into the total profit position of the clearing banks.

Unfortunately, the Committee says that this is a subject into which it has made no inquiry. One wonders why not. One accepts the position of the discount market, but surely there should have been an inquiry into what the banks do with the profit. Surely the taxpayer is entitled to know how much the whole operation is costing the country, and I hope that matter will be investigated.

The Amendment which I have moved calls upon the Government to implement, in particular, certain recommendations of the Report. First, there are the statistical improvements, to which the Chancellor referred. We all remember that the Prime Minister, when he was Chancellor, promised us three years ago a fundamental improvement in monetary statistics. We remember his elegant remarks about looking up trains in last year's Bradshaw. The Report shows that we are still doing it: indeed, for some 605 trains, the statistics are three years old and for others there are no statistics at all. Worse than that, the Committee confirms the impression which many of us get from reading the evidence given to the Parker Tribunal that so many of the major decisions on monetary and economic policy in recent years have been taken in the most amateurish fashion, on the basis of hunches, guesswork and contacts from the "old boy" network. We have never known until years afterwards—which is a criticism of the Labour Government equally as of the present Government—whether a fall in the gold reserves, as happened in 1951, was not associated primarily with changes in stocks. We did not know the facts about that for many y ears afterwards. Even last year's much vaunted balance of payments surplus of £450 million turned out to be over-estimated by over £100 million when the Chancellor came to do his figures again this autumn.

Again, referring to the central problem of debt management, the Committee says: The authorities themselves, in assessing the demand for debts, rely mainly on their personal contacts in financial and commercial circles. In its demand for what the Committee called "cleaner statistics"—and there is no immoralilty in the use of this word; we know what it means—and for figures on such things as the holding of bonds of different maturities, in particular. I hope the authorities and the Chancellor will really implement the Report in full and not be put off with any obscurantism on the part of any of these financial institutions, however powerful.

Equally important is the recommendation about publication of more information by the Bank of England which it already possesses but has not made public. I think in this respect we lag behind almost every other reputable central bank in the world. Only the Gosbank tells us less than the Bank of England about the monetary state of the country.

The second recommendation to which I turn deals with relations between the Chancellor and the Bank of England, to which the right hon. Gentleman referred. I do not think there should be any need to stress the primacy of position which the Chancellor should 606 occupy in this matter and no one will suggest, after reading the Report, that to stress it will mean that the Bank will lose in either authority or influence as an institution. But we really cannot have vital economic decisions, such as, for example, the biggest Bank Rate increase for forty years, discussed with part-time directors nearly three weeks before the Chancellor hears about them.

I think I can claim that in this section the Radcliffe Report closely follows the line which we took in the Bank Rate debate in 1958. On that occasion, we advised against the proposal that the Bank of England should become a Government Department, but we stressed that the initiative and control should lie in the Treasury, and any doubt about where the power of decision lies should be removed."—[OFFICIAL REPORT, 3rd February, 1958; Vol. 581. c. 856.] We also stressed the idea of a joint committee very similar to that proposed by Lord Radcliffe and his colleagues and the need for a more systematic exchange of staffs at all levels between the Bank and the Treasury. The two institutions are only three miles apart, but sometimes they could appear to be 3,000 miles apart.

I suspect that the Bank and the Treasury have adopted more intimate association in discussing how they could best put the Radcliffe Report into cold storage than on any other major issue in the past five years. I think that the Joint Committee of both institutions has been functioning over the last five months. Perhaps, over-simplifying, one can say that Bank officials have great expertise without much political insight or responsibility, while Treasury officials, responsible as they are to a political head, have a sense of political responsibility but inevitably less expertise. I want more of both qualities and I think that an exchange of staff would help to promote that.

On the question of part-time directors, too, the Report underlines the warning which we gave in February, 1958. We advised against confining the board to full-time directors. I think, here again, that both sides are in complete agreement. We do not want to see a full-time executive board on the lines of the Federal Reserve Board in the United States, for 607 example. We supported, and this may surprise some hon. Members, the system of part-time directors of standing and experience, but suggested two things: first, that they should be drawn from a more representative circle; and, secondly, we also said that there was no need at all for part-time directors to be involved in major and secret policy decisions.

Referring to the crisis of September, 1957—and the circumstances of that time are rather special—the Radcliffe Committee has expressed itself with great frankness and realism. I ask the House to consider the implications of the following paragraph. I apologise for so many quotations, but I think that it is important. It states: In such a case the embarrassment to which a director can be subjected is a reality. If he is actively participating in the conduct of any such business as that of a merchant bank or issuing house which operates in the City's markets for money or capital he may be called upon to discuss or decide upon questions to which his knowledge of the authorities' impending action is very relevant. He cannot, of course, take advantage of that knowledge; on the other hand it is not always easy for him to adopt an attitude of silence or neutrality without giving just that warning of some action to come which it is his whole concern to avoid. That very frank and fair comment by the Committee is exactly what we said was the danger in the debate of 1957.

I hope that one result of the Report will be that the Government will accept the views that we have more than once stated, that the joint stock banks should be more fully represented in the counsels of the Bank of England. I once referred to the merchant bankers going in by the gentlemen's gate to the pavilion and the joint stock bankers going in by the players' gate. But we cannot afford any of these Edwardian notions in the modern world.

In this connection, I welcome the innovation by one of the Chancellor's predecessors when he himself met the joint stock banks' directors. I think that until that time strict protocol demanded that all contacts between the Chancellor and the joint stock banks had to be made through the Governor. I hope that the Chancellor will tell us that he will make a regular practice of such meetings as that started by one of his predecessors.

608 I now turn to the last two points highlighted in the Amendment—borrowing by local authorities and publicly-owned industries. The Chancellor, very fairly, described the history of these particular problems. The House will remember how right hon. Gentlemen ended the system of direct borrowing through the P.W.L.B. and drove local authorities to make their terms with the market. When that happened and ever since we bitterly condemned their action. It has been costly, and I would go further than the Committee and say that it has put up house rents and has discriminated between larger and smaller local authorities.

In this matter, local authorities and the citizens they serve—ratepayers, tenants and consumers of local authority services—have been notably sacrificed to private gain. The Committee drew attention to the problem of monetary management, saying: For all these reasons we recommend that the Exchequer should stand ready to provide long-term capital through the Public Works Loan Board, at the current gilt-edged rate (at time of borrowing) for the relevant maturity, to any local authority that is not able, or does not want, to raise the money it requires in the market on its own credit at a comparable rate. As the House knows, we would go further and propose a two-tier interest rate system to benefit local authorities.

Similarly, we have the problem of financing the nationalised industries. Again, the Chancellor gave us the history. The present Prime Minister, then Chancellor of the Exchequer, took powers in the 1956 Finance Bill, in the interests of monetary management, to arrange for all the investment needs of publicly-owned industries to be supplied direct from the Treasury. These powers were limited in time, and the present Chancellor, not showing great courage, has twice renewed those powers for one year only. We can understand the difficulties of the Chancellor and of successive Tory Chancellors on this question. They have to deal with a number of active back benchers whose support for the Government's maintenance of public ownership in these industries falls somewhat short of enthusiasm.

Only this summer we moved an Amendment to the Finance Bill to make this system permanent. We pressed the 609 Amendment to a Division. The Chancellor and his supporters voted against it. Once again, the Radcliffe Committee has endorsed our line and I hope that this time the Chancellor will take his courage in both hands—he knows that this is right both for the publicly-owned industries and for the Treasury—and will legislate on a more permanent basis.

There are one or two things with which I should like to deal briefly. I hope that the Chancellor will study again the part of the Report dealing with the Post Office Giro system, which is only lightly, but encouragingly, touched on. I suggest that the Chancellor joins with the Postmaster-General in setting up an objective and factual committee of inquiry to see whether such a system could be introduced. We know that it is in great vogue on the Continent and is very useful. I hope to suggest that the Chancellor should have this matter considered technically by a separate committee. I have a perfectly open mind on it.

§ Mr. Amory

I hope that the right hon. Gentleman will go on to deal with these points. Naturally, I am extremely interested to know his views. I do not want to convey the impression that we think that many of the points to which I have not referred are not important, or that we have no views on them. We are thinking about all of them. I selected only a few to speak about.

§ Mr. Wilson

Obviously, when dealing with a Report of this length and complexity, we can only pick out certain things. I have picked out the points which I thought were of fundamental importance, in view of our past debates.

I should have liked time to deal with some other important issues, including farm credit, but I must say a word about the key subject of export finance. Both sides of the House would be ready to pay great tribute to the Export Credits Guarantee Department, a publicly-owned body which has been highly successful in a sphere where private insurance could not have been expected to tread. I am not making a party point, but the Report confirms what many exporters know, namely, that present facilities are inadequate. The E.C.G.D., probably rightly, maintains its limit at five years, and through the Berne Club 610 it is instrumental in stopping an international rivalry in Government credit terms.

I do not think that we want an international competition to see how long we can offer credit to particular exporters, but, especially for capital goods with a long life and exports to under-developed areas, better terms are needed than those it is possible to obtain through the E.C.G.D. Perhaps private enterprise, with the help of the insurance companies and the banking system, can co-operate to provide this help as they do, for example, in tanker finance.

If this is not possible I seriously put to the Chancellor the proposition that he should consider the establishment for this country of something on the lines of an export-import bank. I would not want him to follow all the precedents set by the Export-Import Bank in the United States, but this point is worth considering. In the era of keen competition which we must expect in world markets, most of all in heavy capital goods, we must not allow our industries to be handicapped by deficiencies in the financial system.

As the Report makes clear, as we look ahead to the future of world trade and payments, one thing stands out clearly—the shortage of world liquidity and the danger this represents not only to the stability of individual currencies but to the future of world trade itself. During the past twenty years, the value of world trade has increased about fourfold, whereas the volume of the currency reserves of the world has increased by only 50 per cent. Even the recent measures to expand the resources of the International Monetary Fund, which we all welcome, will make only a small contribution to the problem. I should, therefore, like the Chancellor to consider this matter. I have given him notice of it only today, but I hope that we shall hear from him on a later occasion.

There have been times under both Governments when the £ has been weak, our reserves consistently inadequate and the future of trade in danger. Today, for as long as it lasts and for reasons which we all understand, the dollar is in a relatively weak position. All of us realise, I think, what would happen if the U.S. were to feel itself driven into protection or, for that matter, deflation, 611 which might have just as serious an effect.

Now is the time, I suggest, when the £ is not under attack by financial gossipmongers, for this country to take the initiative in proposing a world monetary conference to examine the whole problem of world liquidity and, whatever we may or may not succeed in achieving about the international price of gold—we know the difficulties there—to suggest that at the very least the lending powers of the International Monetary Fund be expanded, for instance, by increasing the first tranche of lending to 40 per cent. of the quota, and to propose—this is a more fundamental suggestion which I should like the Chancellor to consider at his leisure—that member countries should legislate to provide that deposits with the International Monetary Fund should be regarded as equivalent to gold. I hope that the right hon. Gentleman will consider this matter and will put it forward on an international basis.

In the nineteenth century, private banks began to regard their fundamental reserves as being not only their gold, but any money that they were holding at the Bank of England and they could settle debts by cheques drawn on the reserves they had at the Bank of England. Why should not we do this on an international scale? Why should we be tied to gold reserves as the only acceptable international currency? Why should not our quotas with the International Monetary Fund be added to the gold reserves, to increase fundamentally the volume of world liquidity? I would hope to see the I.M.F. in time, with suitable safeguards and changes, transformed into something more approaching an international central bank to deal with problems of world deflation, not excluding the use of open market operations. I hope that the Government will look at this proposal with an open mind and will take the initiative now, when we are relatively strong—the initiative for which, I believe in this respect, the whole world is waiting.

To sum up, we on this side regard the Report as very useful. It sets in proper perspective the role of monetary policy and shows how limited that rôle must essentially be. It does not set out to solve the central problem of our age—how to expand production and promote 612 lasting economic growth without sliding into inflation. It is interesting to note that even the Cohen Council, which is not usually quoted with approval from this side of the House, states in its third Report that we have not solved the problem that all the monetary squeezes of the past few years have involved—a very heavy cost, in terms of figures, to expand and invest enough. When we get the Cohen Council saying that—taking the line that we have taken so often ourselves—there is obviously need for some new thinking on the subject.

The solutions of that problem—whether by measures of public or private investment or by radical changes in taxation affecting investment, and so on—all lie outside the field of this debate. What is relevant is how we are to prevent the expansion we need—which, for the moment, we are getting—leading to inflation and here, especially in relation to a cost-push inflation and rising incomes and costs, the Committee has little to contribute.

We have certainly never had a clear statement from the Government on this from the days when the right hon. Gentleman the Member for Monmouth was Chancellor of the Exchequer, because the Government have always thought that all problems of inflation, wherever they come from, can be dealt with by attacking total demand.

That is why, throughout the past few years, we on this side have always emphasised that this problem cannot be solved in a democratic society without a purposive policy involving budgetary needs, monetary policy and physical controls, and, above all, the creation of a social climate which will enable a Government of whatever party to appeal for, and to deserve, co-operation from every section of the community.

§ Mr. William Clark (Nottingham, South)

This is a frightening but very important moment for me in that it is my first speech in this Chamber. I hope that hon. Members on both sides will extend to me the indulgence and tolerance that, I understand, is given to all new speakers. As a new Member I have had a variety of advice as to the timing of my maiden speech, but whether I have been told that the 613 speech should be sooner or later, my advisers have been unanimous in saying that in any case it should be brief.

I have not been able to ascertain whether the purpose of that brevity is to avoid causing boredom to other hon. Members, to avoid exhausting their patience, or is, in fact, an act of mercy to a new Member. I shall do my best to maintain the practice of remaining non-controversial in my maiden speech, but if I do err in that regard I hope that the House will forgive me.

In the time available to me it is obviously quite impossible to deal with a Report of some 360 pages, so I would like to deal with only one aspect. First, I would add my tribute to the work of Lord Radcliffe and his Committee and to say that, in general, I welcome the Committee's exhaustive deliberations and recommendations. In one respect, however, I think that the Report is a little contradictory in recommending that local authorities should have immediate access to the Public Works Loan Board.

I cannot see why local authorities should get this preferential treatment. In the main, the capital wants of local authorities are for housing—and here I exclude such housing as welfare housing, old people's dwellings and certain slum clearance. Since the war this country has had a magnificent record in house building, but we must remember that a great proportion of it has been council house building. If the slum-clearance programme is to continue, as I am sure it will, then, in the normal efflux of time, all rented property will become council property. That means that the habitable house of today is the slum of 15 or 20 years' time. If this recommendation is accepted, these council houses will all be built on advantageous terms.

I was very interested to hear the difference—and I agree—between the financing of nationalised industries and that of local authorities. The nationalised industries belong to the taxpayer, who eventually foots the bill, while the local authorities are autonomous and have a certain amount of credit-worthiness. It would be better if that local authority credit-worthiness were increased.

It will be remembered that in 1952 the Government gave a permissive right to 614 all local authorities to sell council houses. Under the Small Dwellings Acquisition Acts, and the Housing Acts the same local authorities had the permissive right to advance money to would-be applicants for any sort of house purchase. Not many council houses have been sold, and it is as well to remember that many local authorities have not exercised this permissive right.

What we have to do is to try to get true freedom. I am sure that we all agree with freedom for the individual, but the transfer of this permissive right from the central Government to local government is not, in fact, giving freedom to the individual, and I would respectfully suggest that we should consider whether these permissive rights, either to buy a council house or to apply to one's local authority for the necessary finance to purchase one' house, should be permissive not to the local authority but to the tenant. We would then have a much truer picture of whether or not council house tenants wish to buy their houses.

Quite obviously, these houses will have to be sold at valuation, but in the sale of any property there are two valuations, there is the vacant-possession valuation and there is the sitting-tenant valuation, and, obviously, council tenants would buy on the sitting-tenant valuation.

My experience as vice-chairman of the finance committee of the Wandsworth Borough Council some years ago leads me to believe that the sale of council houses could easily mean that local authorities would make a profit on the sale. Even if a profit were not made, the council would be spared the burden of the 60-year loan charge. That, in itself, would make local authorities more credit-worthy, and the more creditworthy local authorities are the easier it is, and will be, for them to take their loans on the normal money market.

Owning one's house is the aim of most people, and it is an ambition that the Government should encourage. If that were done it would break this continuous build-up of council house estates. That is a very burning question in my own constituency where in one council estate alone I have nearly 15,000 voters. That problem is growing daily in Nottingham, South, as it is throughout the country. Somehow, we have to encourage property owning so that we do, in fact, 615 get a property-owning democracy. And we must also remember that this would encourage saving.

I apologise to the House if my argument has been either too complicated or too lengthy, and I hope that hon. Members will appreciate that that results from my inexperience and consequent incoherence. I thank hon. Members for not having violently disagreed with me—at least, while I have been speaking—and would only add that the thoughts I have expressed are sincerely held by me.

§ Mr. A. Woodburn (Clackmannan and East Stirlingshire)

It is always a pleasure for one who has been a Member of this House for some time to congratulate a new Member who has made his maiden speech. I think the hon. Member for Nottingham, South (Mr. W. Clark) has at least convinced us that he has an easy approach to addressing the House, and with his pleasant manner and pleasant voice I am quite sure that he has a good vehicle for the ready acceptance of his arguments.

It is not, perhaps, our business today to say whether or not we agree with the arguments of the hon. Gentleman, although I think there are some things which we should take into consideration among those he has put forward. First of all, he said that the local authorities are agents of the Government and that they very largely spend Government money as well as their own. Therefore, the Government have a very important duty to see that local authorities are not borrowing at excessive rates and so wastefully.

There is one point I want to put to the hon. Gentleman. He was arguing that everyone wants to own his own house. The important question of the mobility of labour is involved. Houses tend to tie people down to a district. That is dangerous when there is a closing of mines and a shifting of people to other areas, for it can involve heavy loss which ordinary people cannot afford. Moreover, the management of a 15,000-house council estate would be greatly complicated, I think the hon. Gentleman will agree, if we were to have a hotchpotch of publicly-owned and privately- 616 owned houses on the estate. However, those are matters which, I am quite sure, he will find an opportunity for discussing. A good many of our colleagues in the House, like himself, have local government experience, and there is never any loss of argument when we debate housing.

I crave the indulgence of the House for what is almost a maiden speech of my own, for not since 1947 have I had the privilege of speaking freely as a private Member and not officially on behalf of my colleagues. There is a certain freedom on the back benches to express individual views, a freedom which is not possible when one sits on the Front Bench. I should also like to crave the indulgence of the House because it is a good many years since I was dealing with this subject, and it may be that hon. Members think that I should talk only of Scotland. Like the hon. Member for Nottingham, South, I made my maiden speech on a Budget, and for a good many years such matters were the principal theme on which I chose to address the House. I also had the privilege, which is perhaps unique in the House, of having some personal connection with the Macmillan Committee, as I was privileged and honoured to be asked to give evidence before it and to be cross-examined. I did, and I was.

At the time of the Macmillan Committee we were facing a vastly different problem. We were facing the problem of creating work and dealing with mass unemployment and of what was the purpose of credit and finance in dealing with this problem. A slight criticism of the Macmillan Committee has crept in. I suggest that, like the Chancellor today, the Macmillan Committee felt that when it was depending on experts it had considerable difficulty in finding out what the facts were. For instance, the Macmillan Committee, after all its investigations, had to confess that The economic experts have evolved a highly technical vocabulary of their own.

§ Mr. Ede (South Shields)

Hear, hear.

§ Mr. Woodburn

It went on to say: Agreement among the professors of the science is, as we have experienced, even harder to find than it is among experts, and in their anxiety to avoid controversy they tend to avoid committing themselves to any definite conclusion. 617 In other words, the Macmillan Committee found, after hearing economic experts, that they had said nothing it could understand, and, like the Chancellor, it had a little difficulty in being sure what expert opinion was.

Montagu Norman was the great panjandrum of British finance, and everything he said about financial mutters was supposed to be almost like the word of God. Yet after the Macmillan Committee, and after the crisis which followed the Macmillan Committee occurred, Montagu Norman humbly explained that he did not understand much about this. He just saw those things through a glass darkly. During all those years we had the blind leading the blind, and millions of people in this country were suffering misery and starvation because we did not understand the system which we wanted or the system which we were working.

The reason for the origin of the Socialist movement was that people in this country saw themselves victimised by an economic system which worked of its own momentum without any intelligent control. Therefore, it was the purpose of this movement that we should control our economics and that they should not control us.

My claim to speak today arises just because I was a student of this subject for many years, because I had something to do with it in earlier days and because some of my evidence, at least, was the first authoritative statement of principles which were later, I understand, the basis of J. M. Keynes's book, The Theory of Prices and Money, and certainly formed the basis of the activities of Governments in Scandinavia and elsewhere. They are principles which we work today. It may be that other people thought of those things at the same time, but I think I can say that the first authoritative statement then was in my evidence to the Macmillan Committee.

The problem, as I say, was mass unemployment and the use of the money system. I think that Scandinavia was the first to tackle this problem of using money and credit to see that unemployment was avoided and activity created, and the first to introduce a planned economy into the system. The first great 618 principle we set for this Labour movement in the early days has been realised, since all Governments now accept responsibility for the planning of our economy. As somebody once said, "We are all Socialists now".

There are two elements in planning. The first is what to do? That is a question of policy. The second is how to do it? That is a question largely of administration. If I were to give my own opinion I would say that I think that Government policy is a little too narrow and a little too passive.

The Government are pledged to foster conditions in which the nation, if it so wills, realises its full potentialities for growth in terms of production and living standards. Those are the Chancellor's words, and we agree with the purpose at the end of them, but when is the nation ever likely not to will the realisation of its full potentialities in the growth of production and living standards? Surely we can all agree that that can be taken for granted. The nation wants to exercise and develop its full resources for production and for improving living standards, and the Government cannot just be passive and merely want to foster something which is developing.

It must be the duty of the