Levering up the Stock Exchange
Nicholas Davenport
As Nigel Lawson remarked in his elegant maiden speech in the budget debate, if we are to have an autumn budget most of us would prefer it to be delivered by the Chancellor of the Duchy of Lancaster rather than by Mr Healey. The latter remarked in his most sinister vein that, "I intend to go a great deal further [in the redistribution of wealth] before I have finished." The former, Mr Harold Lever, charmed the House With his assurance that the government was committing itself to a policy of sustained growth in a mixed economy which would leave a profitable role for private enterprise, especially in the area of the export trade. He even mentioned the Stock Exchange Without disapprobation. This was certainly what the majority of the House wanted to hear. And not only the House in Westminster, but the House in Throgmorton Street. This magical Chancellor of a magical Duchy sparked off the best technical rally we have seen on the Stock Exchange for a long time. It pushed up the FT index by nearly 20 points to 283 and started a bull market in gilt-edged.
How sensitive the Stock Exchange is to respond so warmly to the mere mentioning of its name by a kind socialist minister. But the truth is that while Mr Lever may honestly believe in a mixed economy and a profitable role for private enterprise the left wing of his party has never done so. Ever since the new Statement of Aims was promulgated in 1960, when Hugh Gaitskell was defeated in his valiant attempt to get the Marxist Clause 4 of the constitution removed, the Labour Party has never honestly attempted to make the private sector expand and flourish. Indeed, it has taken every opportunity that came to encroach on the private sector and enlarge the public sector. As we all know, the left wing forced the Labour Party to come out for a huge extension of public enterprise at its last conference. The wise Mr Wilson managed, of course, to omit the nationalisation of the top 100 companies from his election manifesto, for there is no one outside the Marxist camp who would vote for such a nonsensical and retrograde step. Nationalisation not only makes the expropriated shareholders more liquid, and potentially more rich, but alas, it has the disastrous ef
fect of making production more expensive, less efficient and more vulnerable to labour hold-ups. • No one knows this better than Mr Lever but it must be remarked that in order to reassure the business world that his government was not attempting to destroy private enterprise and theaten private property he had to quote at length not from Mr Healey but from the late lamented Aneurin Bevan. Times have changed since then. The Marxists for the first time are now in control of Labour Party policy and there is no doubt that they do threaten private enterprise and property. It therefore behoves us all to draw attention to dangerous anti-private-sector proposals when they are embodied in a Finance Bill and to welcome the sound monetary and expansionary policies of Mr Lever, hoping that one day the public will be sufficiently well-informed to choose a mixed economy team to govern them — with Mr Lever as Chancellor.
We all agree with Mr Lever that present interest rates are "outrageous, dangerous and destructive" — that has been the theme of this column for a long time — and we are all delighted with his determination to bring them down, although he did not tell the House exactly how he was going to do it. A first small step was taken last week when the Bank of England released a further tranche (£300,000) of the special deposits to the banking system and reduced the minimum lending rate from 124 per cent to 121 per cent. These special deposits had been raised last November to 5 per cent when the Bank's minimum lending rate was hoisted to the fantastic level of 13 per cent. A cut of per cent was made in January and last week's 1 per cent cut will bring them down 34 per cent. The clearing banks remain subject to the new form of penal, noninterest-bearing special deposits if their interest-bearing deposits expand by over 8 per cent between the average for the fourth quarter of 1973 and the second quarter of 1974, but I would not be surprised to see Mr Lever in due course revising the whole complicated system of clearing bank supervision and reverting to the more direct Labour policy of ceiling and quality control of advances.
It was not clear to me what Mr Lever meant when he accused the last government of mismanagement "of our international position" and "luring" to this country "£6 billion at extortionate rates of interest, namely 15 per cent, 16 per cent, 18 per cent and 20 per cent."(Did Hansard misprint pounds for dollars?) Last year the Government financed its balance of payments deficit by borrowing overseas for the public sector £1,003 million and securing capital inflows of £759 million. At the end of 1973 our external sterling were £2,111 million for the central banks and £2,261 million for other holders. We have now guaranteed to compensate up to end-1974 most of the central banks if the £ falls by more than 18.35 per cent from the Smithsonian settlement levels. At the moment the £ has recovered to about 164 per cent depreciation. It was a little unkind of Mr Lever to blame the previous Chancellor for paying some £140 million under the previous guarantee seeing that he himself was responsible for the negotiations of the original Basle agreement. If we count in the $2.4 thousand million Mr Lever has just raised in the Euro-dollar market the Government has borrowed abroad in the 1973/74 financial year no less than $6,000 million and the reserves in March rose to $6,444 million — the highest level for six months. It is all largely paper window-dressing. The amount of gold in the figure was only £306 million.
While the gilt-edged market has been quick to anticipate an easing of short-term money rates it is still doubtful whether Mr Lever will succeed in bringing down the domestic long-term rate of interest. But he is a determined man and I am sure he would have government backing if he wanted to direct a proportion of the national savings collected by the life and pension funds either into the gilt-edged market or into a public agency fund which would recycle the money into building societies. It is essential to stop the building societies raising their mortgage rates, now 11 per cent, to 12 per cent or 13 per cent as they threaten to do. The Duchy Chancellor must hasten his fund work to keep the boom in the gilt edged market simmering.
Previous page
