ABSTRACT
At the end of 1973, the authorities had to devise a new regime of monetary control very quickly. Competition and credit control was now regarded as a failure. Monetary growth was 30 per cent p.a. The balance of payments deficit was £3 billion p.a. The political and economic pressures on the government were enormous and growing rapidly as the miners’ strike and OPEC price increases approached. It was impossible to have the long-drawn-out consultations that preceded changes of regime of monetary control in 1971 and 1980. It was also undesirable to the government as they wished to save face. Hence, the authorities replaced the new approach with a totally different method of monetary control, usually known as the new ‘new approach’. Other even less elegant terms are sometimes applied to the new regime such as ‘the son of the new approach’. There were various new features about this new regime which were to emerge during 1974. These were also a number of volte-face which meant the total abandonment of the principles of competition and credit control. These included
the reintroduction of ceilings. This time the authorities were to put a ceiling on bank liabilities not on bank assets as in the 1960s, but the effect was the same. This new ceiling, the IBELs ceiling, is discussed in section 8.1. It meant the abandonment of the arguments against ceilings presented by the authorities in 1971.
the development by the authorities of a new method of selling gilt-edged – the Duke of York strategy. This meant that the authorities once more sought to manipulate the gilts market. This new modus operandi is discussed in section 8.2.
the alteration of the PSBR for monetary purposes. From June 1975, all major changes in taxation and public spending were for monetary reasons. By 1977, the idea of an independent fiscal policy was dead. This is discussed in section 8.3.
the authorities, in 1976, accepting the idea of monetary targets; this was of obvious importance in moving towards an explicit and avowed monetary policy. The difference between monetary and credit or other types of financial policy is often a mere matter of semantics. In 1976 it was far more significant. This issue is discussed in section 8.4.
