Inflation

HC Deb 27 March 1975 vol 889 cc667-73

1. Mr. Molloy

asked the Chancellor of the Exchequer if he is satisfied with his existing policies for combating inflation.

17. Mr. Teddy Taylor

asked the Chancellor of the Exchequer if he is satisfied with the progress of his policies designed to reduce the rate of inflation.

The Chancellor of the Exchequer (Mr. Denis Healey)

Inflation is too high at present. The social contract remains the basis of our policy for curbing inflation and safeguarding employment. The Government have acted on their side of the contract, but it is vital that the whole working population sees its responsibilities too. We must achieve strict adherence to the TUC guidelines on pay if our counter-inflation policy is to succeed and if employment is to be maintained.

Mr. Molloy

Does not my right hon. Friend agree that, in view of today's OECD report, rising inflation and the awful threat of more unemployment, there needs now to be much more co-operation from trade unionists with this Government, who have co-operated with them? Is there not now an urgent need for the unions to adopt the form of co-operation which has been shown by the Trades Union Congress? Does my right hon. Friend agree that a massive endeavour is now required if we are to combat the evil threat of mass unemployment, which can hit trade unionists more than anybody else?

Mr. Healey

Yes. I welcome my hon. Friend's views. I am glad to know that he agrees with me that the Government's policy to carry out the programme they agreed with the TUC will depend critically on stricter adherence to the TUC guidelines on pay than has previously been achieved.

Mr. Brittan

Does not the right hon. Gentleman agree that it is no use continuing to mouth the old policies when it is clear that the guidelines are being broken again and again and that the social contract in its present form is absolutely dead? Surely the Chancellor will agree that if the social contract, in any form, is to be retained there will have to be a serious negotiation with the TUC on ways of monitoring the policy and tightening up of the guidelines?

Mr. Healey

The hon. Gentleman may be glad to know that the representative of OECD who was responsible for the report said on a Radio 4 programme this morning that he believed that the social contract was far from dead. However. I agree with the hon. Gentleman that some way of achieving stricter adherence to the guidelines is required.

Sir G. Howe

The Chancellor will no doubt agree, though, that the comments by the anonymous gentleman from OECD were somewhat guarded. Does he not agree also with the main observation of the OECD report that the present and prospective rate of inflation is still highly disturbing, and underlines again and again and again the point made by the hon. Member for Ealing, North (Mr. Molloy) that the very real and serious threat to employment in Britain arises from the risk of continuing inflation at the present rate, and it is of the highest degree of urgency for all wage settlements to take far greater account of this point than is currently happening under the social contract?

Mr. Healey

I do not think that the right hon. and learned Gentleman can lecture me on that point, because I have spoken—possibly to the boredom of many hon. Members—continually on this matter for the past six to nine months. Perhaps our discussions would be a little more worth while if the right hon. and learned Gentleman would tell us, as he has strictly refrained from doing so far, whether he is in favour of a statutory pay policy and, if not, what sort of alternative to the social contract he would propose.

9. Mr. Rost

asked the Chancellor of the Exchequer what is the current rate of inflation.

19. Mr. Peter Morrison

asked the Chancellor of the Exchequer what is the present rate of inflation.

Mr. Healey

The increase in the retail prices index in the 12 months to February 1975 was 19.9 per cent. Over the last 12 months, overseas borrowing by public sector bodies has totalled some $2.9 billion. In addition, the total amount of the $2.5 billion Government loan with the clearing banks has now been drawn down.

Mr. Rost

Is it not alarmingly clear that after 18 months the Chancellor still has no effective policy to curb inflation? May I ask which half of the divided Cabinet is responsible for the nation's economic management?

Mr. Healey

I do not know which half of the whole Cabinet is responsible for the Government's policy, but I can assure the hon. Gentleman that my own influence is not unsubstantial.

Mr. Morrison

Can the right hon. Gentleman tell the House what effect withdrawal from the Common Market will have on the rate of inflation?

Mr. Healey

No, Sir.

Mr. Dykes

Since prevailing wage increases are higher than prevailing price increases, and will therefore pull up prices in the coming months, is it not essential to get a new norm in the social contract, to the effect that wage increases should be lower than the prevailing rate of price increases to reduce the rate of inflation?

Mr. Healey

I do not think that is required. I can tell the House that wage increases in the last six months are bound to continue pushing up the retail price index for some months to come. On the other hand, the levelling-off in world prices will allow a steady decline in the retail price index towards the end of this year. That decline will be faster to the extent that the existing guidelines are observed.

Sir G. Howe

Since the Chancellor was yesterday making some kind of confessional and asserting two of the lessons he has learned in his first 12 months, will he acknowledge a third lesson he ought to learn, namely, the folly of his giving currency during the last election campaign to the inflation figure of 8.4 per cent., which has been wholly belied by his recent answer? Does he also acknowledge that one of the factors still contributing to the substantial rate of inflation is the high level of public expenditure, the commitment of the Government to expanding Government activities by the appointment of organisations like the National Enterprise Board and the land nationalisation agencies, all of which will contribute to the difficulty of keeping down wages in the public sector and so keeping down the rate of inflation?

Mr. Healey

The right hon. and learned Gentleman could perhaps learn a lesson now, which is that the figure of 8.4 per cent. as given as the rate of inflation for the three months to September of last year was used by the Common Market Commission, so often quoted by Conservative Members. The same determinate was used by the Price Commission, under the leadership of Sir Arthur Cockfield, the late tax adviser to the former Conservative Government.

23. Mr. Mike Thomas

asked the Chancellor of the Exchequer whether he is now able to announce his co-ordinated poverty programme to protect the poor from the effect of inflation.

Mr. Healey

I am constantly in discussion with my colleagues on the co-ordination of our policies which affect the poor. The results are reflected in separate announcements of Government policy, a number of which I mentioned in my reply to my hon. Friend on 27th February.

Mr. Thomas

My hon. Friends and I welcome his acceptance of that responsibility for co-ordination, but will my right hon. Friend take it that it seems at the moment to be, shall I say, passive? Many of us would like him to take an active role in this respect. If he accepts responsibility, will he take some steps now to exercise it?

Mr. Healey

I am not sure to what I should attribute my hon. Friend's vehemence, but he will know that a good many measures which I have taken in taxation matters have been calculated towards and have been effective in protecting the poor against the effect of inflation. A large number of other measures have been agreed by the Cabinet, with my consent, within the purview of other Ministers, such as the Secretary of State for Social Services and the Secretary of State for Prices and Consumer Protection. I assure my hon. Friend that, so far as my own departmental responsibilities go, I shall keep this requirement in the forefront of my mind.

Mr. David Howell

In reply to an earlier question, the Chancellor said that he did not intend the deficit of nationalised industries to fall upon the taxpayer—a very proper view to take—but he will recognise that the consequence is that it will fall upon individual consumers, whether poor or less poor, and upon the company consumer as well. Therefore, in the light of the almost certain increase in the cost of nationalised industries' products—even more certain if he is unable to do anything to curb the vast wage increases now being sought in the nationalised industries—will the right hon. Gentleman set out in detail the way in which he will protect the poor and those companies which are in a dangerously illiquid position from the large increases in prices which will inevitably follow from the very proper undertaking which he has now given?

Mr. Healey

I have set those out in detail in various statements, several of which were mentioned in my reply to my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Thomas) on 27th February and most of which, I imagine, the hon. Gentleman heard in the House. I must, however, remind the hon. Gentleman of one fact, which, since his right hon. and learned Friend referred yesterday to my speech at the Mansion House, may be worth stating again. I think that there is now general agreement on both sides of the House that the major cause of the inflation now racking Britain is the excessive increase in the money supply which took place in the last year of the previous Conservative Government. I was glad to see that the right hon. Member for Leeds, North-East (Sir K. Joseph) nodded his head vigorously when I said that yesterday, and I am sure that the Leader of the Opposition will now concur, although she was a member of the Government who were responsible for that large increase in the money supply.

Mr. Horam

May I press my right hon. Friend further on the matter raised by my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Thomas), which causes great anxiety on the Government side of the House? We want to know what kind of interdepartmental machinery has been or will be established to co-ordinate these efforts. Interdepartmental co-ordination is what we are interested in. Secondly, will my right hon. Friend consider publishing an annual report examining all aspects of poverty right across the board, as it is affected by the work of several different Departments?

Mr. Healey

It has never been the practice of any Government to give details of the composition and functions of various Cabinet committees, but I assure my hon. Friend that there is a Cabinet committee, of which I am chairman, which keeps continued supervision over the effect of various Government measures on the worse-off in our community. I shall consider my hon. Friend's suggestion that there might be some regular publication covering this ground, but I cannot commit myself at the moment.

Mr. Nott

As the Chancellor has referred to the money supply. I remind him that in the current period public expenditure is running at about 10 per cent. higher, in real terms, than the figures proposed on 17th December 1973. How will that help him control the money supply and keep it down to the level which he proposes?

Mr. Healey

I am glad to pay tribute to the savage attacks which the hon. Gentleman launched, before he joined the Opposition Front Bench, on the monetary policy of the Government of which he was a member, and I am sure that he will be aware that over the past 12 months we have succeeded in keeping the rate of increase in the money supply, whether M1 or M3, far below the rate of increase in the GNP, in money terms.