Monty Norman rides again
Nicholas Davenport
The great war in the City was won, I regret to say, by the Old Boys Brigade, the storm Ltroops of the City institutions who stubucirnly refused to buy the old `tap' stocks Offered by the Government in the giltedged market. They brought defeat and Rumination on the Chancellor. They had told him, in effect, that they were not satisfied with his financial policy — his estimated 4„8,500 million Public Sector Borrowing t‘equirement, which they said was too high, his monetary targets and money supply figures, which they regarded as incompatible With the PSBR, and they bluntly warned Run that they were officially on strike — that they would not buy his 'tap' stocks until he had mended his ways and produced a much stricter financial package. Their strike Would mean, of course, that the money supPIY would shoot up as sales of gilt-edged to the non-bank public would drop down. The Treasury was trapped. The poor Chancellor finally capitulated last Friday. He raised Bank rate by 1 per cent to 10 percent, he restricted the amount °f money the banks can lend by reinLtrodueing the 'corset' and — to spite the kuusinessmen lurking behind the rebellion made good the lost revenue the Opposition had exacted in the Finance Bill by Putting a 24 per cent surcharge on the ern. Ployers' national insurance contributions.
, The Chancellor's surrender was rap
ously received in the gilt-edged market. r flees at the long end immediately rose by one to one and a half points. What remained of the 8fifl million of the old long-tap (Exchequer 12 per cent 1998) was quickly snapped up and the market jumped on the announceMent of a new long tap of £1,000 million )c.chequer 12 per cent 2013-17 at 96. As !ma was to be partly paid (£15) at the opening. this week it was a splendid jumping-off ?Pint for the speculator who is now convinced that the gilt-edged market will go up and not down. The cynicism of the rebels May be measured by their huge profits. Apart from humiliatine„tftc ChanteHor, What has the market gained froth a national Po.int of view? The income tax cut of £450 Million scored in the Finance Bill debate has !IOW been offset by the £500 million (increase in the employers contributions k1,S00 million in a full financial year). The
claims that this extra impost will cost 000 jobs and worsen the balance of PaYments by £300 million a year. Dearer
oney with a 10 per cent Bank rate will put (it I? the whole cost of manufacturing and r ading — the banks following with higher cates .on overdrafts. The extra employers' ontributions will, of course, be passed on in due course in higher prices. The rise of 1/ per cent in the mortgage rate of 9t per cent will increase the burden of mortgage payments on a £10,000 house by £60 to £100 a year. Everyone will pay the moneylenders more. The final result of all these heavy money charges will be a worse inflation. The immediate outcome, as the economics editor of the Sunday Times put it, will be to cut the recovery short and bring on a further rise in unemployment. The consumer trade revival may be short-lived.
The lively exchange in the Commons between the Minister of Trade and Mrs Oppenheim on the inflationary results of this new package was worth reading. The retail price index has risen by 91 per cent since February 1974 and the Government's forecasts of a continuing fall in the inflation rate to single figures were, according to Mrs Oppenheim, fraudulent. The new rise in interest rates, the fall in the pound, the increased national insurance contributions, were bound, she said, to affect the inflation rate by the end of the year. She predicted that the rate will be back into double figures by the second half of next year.
The mad Hattersley was not impressed but he did speak the truth when he said that with a reasonable wage round inflation could remain under control, This was the point! was making last week. The control of inflation does not depend upon the proliferation of financial packages from the Treasury. We have had seven changes upwards in Bank rate since last October and umpteen budgets and financial packages. But if the trade unions demand increases in wages ahead of the rise in prices — and this is what they are doing today — there will be more wage-cost inflation.-The British disease is not cured by monetary pills dished out by the doctors in Whitehall. It will be cured only when the British working man gets interested in producing more goods.
Looking back on the extraordinary strike in the gilt-edged market I cannot help thinking that the Chancellor would never have been defeated if the Governor of the Bank had not sympathised with the strikers. 1 would have thought that when the strike began Mr Gordon Richardson would have called the heads of the great life and pension funds into his parlour and advised them not to press the Chancellor too hard. He should have said that they were asking for trouble in the next manifesto of the Labour Party on which the election will be fought. That manifesto will surely demand the nationalisation of the banks and insurance companies if these institutions refuse to play ball with the Chancellor in the gilt-edged market. He might have added that he himself
was pressing the Chancellor hard to reduce the size of his borrowing requirement and that there was a good chance that the £8,500 million figure will be lessened by the strict application of cash limits and the cutting out of waste and bureaucratic extravagance. He might also have confessed that although he was a monetarist he did not envisage the withholding of bank credits from companies so that they could not pay their higher weekly wage bills. That would only provoke demonstrations in the City with crowds of militant socialist workers marching on the Bank of England, the joint stock banks, the merchant banks and Rea Brothers and all. But I have no information to suggest that Mr Gordon Richardson ever contemplated such an act of appeasement. It looks as if he gave sympathy, if not support, to the City institutional strikers and advised the Chancellor to concede their deflationary demands. It may be that old Montagu Norman rides again.
Previous page
