§ Mr. Austin Mitchell
asked the Chancellor of the Exchequer (1) what according to the Treasury model would be the effect on the money supply in terms of M3 and domestic credit expension, respectively, over the next 12 quarters of (a) a reduction of 10 per cent. and (b) an 67W increase of 10 per cent. in the effective exchange rate;
(2) what according to the Treasury model would be the effect on output, employment and the trade balance in real terms over the next 12 quarters if the rate of exchange were immediately reduced to the level required to maintain the United Kingdom's relative export prices and the terms of trade for manufacturers at the same level as in 1973;
(3) what effect an immediate reduction in the real exchange rate to the level attained in the fourth quarter of 1976 would have on the public sector borrowing requirement in each of the six succeeding half years, using the data in the Treasury model;
(4) what effect an immediate reduction in the real exchange rate to the level attained in the fourth quarter of 1976 would have on company profits in each of the next six succeeding half years, using the data in the Treasury model; how these would be distributed between dividends, additional investment in the United Kingdom, additional investment overseas and profits remitted overseas; and what would be the effect on the savings ratio.
§ Sir Geoffrey Howe
I regret that I am unable to give the information which the hon. Member requests. It would require simulation studies using the Treasury model, which would involve very substantial costs. The results would depend on a number of assumptions including monetary and fiscal policy and the way in which the exchange rate change was brought about. The hon. Member may wish to pursue his inquiries with the
Real Net Income at 1970–71 prices Lower quartile Average manual earnings Upper quartile 1970–71 16.00 20.00 23.10 1971–72 16.30 20.40 23.70 1972–73 17.90 22.30 25.60 1973–74 18.50 22.90 26.20 1974–75 18.30 22.50 25.70 1975–76 17.40 21.30 24.30 1976–77 16.90 20.70 23.50 1977–78 17.00 20.80 23.60 1978–79 17.80 21.90 24.90 1979–80 (July) 18.20 22.50 25.60
The dispersion or spread of earnings is the Department of Employment estimates of the dispersion of gross weekly earnings68W
Library of the House of Commons, which has access to the Treasury model. He may also wish to consult Treasury working paper No. 2 "Some Effects of Exchange Rate Changes" and Treasury working paper No. 8 which describes the financial sector of the Treasury model.