I was not concerned with labels—though I am glad to note that the Chancellor is a self-confessed monetarist, whatever adjectives he puts in front of that description.
I am trying to get at the strategy that he is following. He appears to believe that we can hold the rate of increase in the money supply at a fixed level in order to contain inflation and, at the same time, increase the budget deficit in order to stimulate demand and growth and to reduce unemployment. This seems to be his policy. I note that he does not deny it.
If this is his policy, it is a policy based on sheer confusion. A higher Budget deficit means either higher borrowing at home—which would push up interest rates and cancel any fiscal boost to home demand—or more borrowing overseas, which in that case means a smaller current account surplus on the balance of payments. That is another way of saying fewer exports or more imports.
Either way, it cancels out the effect of the fiscal boost at home. There is no way in which the right hon. Gentleman's fiscal boost can be a boost if he is holding, the money supply constant. I think that he is right to hold the money supply constant because of the overriding importance of the battle against inflation and the fact that this has to come down. Moreover there are other ways in which growth is generated in the economy than by Government action, although one would not think so listening to Labour Members.
There is similar confusion over the exchange rate. There has been a lot of abstract argument, which my hon. Friend the Member for Hitchin properly put in its place. What will happen to the exchange rate? The direction in which it moves will be determined primarily by the balance of market forces. The fact that the exchange rate went down as much as it did in the early years of this Government was nothing to do with the Chancellor sitting in his ivory tower in the Treasury weighing up the argument and saying "On balance it would be beneficial if it were to come down ". In the same way, the future movement of the exchange rates will be determined by factors other than the elegant theories put forward by the hon. Member for Southampton, Test (Mr. Gould) and others.
There is also confusion over exchange control. Let me briefly try to put that confusion clearly so that the Chancellor will see what it is and perhaps abandon it. The Treasury is clearly afraid that rising North Sea oil revenues will be balanced by a worsening of exports of manufactures—the so-called Dutch disease spoken of by the hon. Member for Gloucestershire, West. It is, of course, true that this could happen if the capital account is unchanged—irrespective of the exchange rate. If the capital account is unchanged, because the whole thing has to balance an improvement on oil account must be balanced by a deterioration on the other part of the current account.
The only way in which one can get an improvement on the oil account coupled with no deterioration on the rest of the current account is if one has at the same time a worsening of the capital account, and that means a substantial relaxation of exchange control—irrespective of the exchange rate. This has nothing to do with the inflows of hot money. It is a case for relaxing exchange control because of the genuine current account surplus. Indeed, I very much suspect that that is what is going to happen. The Chancellor rather resembles an ageing Humpty-Dumpty sitting on a wall waiting to be pushed either one way by the TUC or the other way by market forces, whichever happens to be the stronger at the time. Perhaps fortunately for him, the restorative powers of the IMF are rather greater than those of all the king's horses and all the king's men.
The danger in all this is that, if the right hon. Gentleman insists on continuing to speak in neo-Keynesian demand management terms, when it becomes clear that the relaxation that he has undertaken in this Budget, fails to have the expected effect because monetary policy remains unchanged, there will be a relaxation of the monetary guidelines and a loss of monetary control, which will lead to a very serious inflationary danger in the years ahead.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was right to point out that M3 is now above the 13 per cent. guideline. That is a danger signal, an amber light, as is the fact that the six-month rate of annualised increase of M1 is 25 per cent. higher than ever before in our history.
Of course, there are real world problems from which we suffer. However, my right hon. and learned Friend demonstrated clearly that these do not give the Chancellor any excuse, because as a nation—I have all the figures here and I should be happy to let the Chancellor have them if he wishes—our performance is far worse in the last three or four years—