Inflation (Hansard, 1 May 1975)

§ 1. Mr. Norman Lamont
asked the Chancellor of the Exchequer whether he is satisfied with the progress of his anti-inflation policy.

§ 18. Mr. Skinner
asked the Chancellor of the Exchequer if he is now satisfied with the current level of inflation; and if he will make a statement.

§ The Chancellor of the Exchequer (Mr. Denis Healey)
I cannot be satisfied when our inflation is far above that of most of our foreign competitors. But I think we can make significant progress in reducing inflation this year if the rate of pay increases does not accelerate.

§ Mr. Lamont
I should like to ask the Chancellor a question about the arithmetic behind the social contract. Even if we made the assumption that the social contract limited wage increases to price increases, would that make any significant difference to the rate of inflation? Given the slow growth in productivity, and the fact that commodity prices will not fall indefinitely, is it not the reality that to make any significant impact wages will have to rise somewhat less than prices?

§ Mr. Healey
No, Sir. If the wage increases were about 9 per cent. less than the 29 per cent. at which they have been recently running, it would have a very significant effect on the rate of inflation, as it borne out by the report of the Price Commission published this week. We shall also be assisted this year, in any case, by the fall in commodity prices.

Mr. Tom Ellis
Does my right hon. Friend believe that, for all its weaknesses, the social contract still offers us the greatest hope for further progress in containing inflation? Is it not now appropriate for him to bring forth some proposals for widening the base of the social contract, for strengthening it, for making it more precise and for making it into a form of tripartite agreement?

§ Mr. Healey
My hon. Friend has posed several questions. It emerged very clearly from the Budget debate that nobody in the House has an alternative to the approach of the social contract as a means of dealing with inflation. On the question whether the social contract should be extended, I believe that there is a very strong case for considering whether, before the next wage round, some means should be sought of ensuring that the guidelines are more rigidly adhered to. Whether or not it would be desirable to include the CBI in talks about this—as I think my hon. Friend suggested—is a matter for consideration.

§ Mr. Pardoe
Will the right hon. Gentleman realise that both sides of the House hope that his forecasts of the deceleration in inflation will come about? How does he expect wage inflation to be reduced in the coming 12 months, especially bearing in mind that in the area over which the Government have the most direct influence—their own civil servants; both those on top salaries and the 500,000 at medium levels—they have given in to a scandalous increase?

§ Mr. Healey
Before the hon. Gentleman blows his top, he should he aware that in the case of the civil servants and of the higher salaries the settlements were governed by the judgment of independent review bodies, which any Government tamper with at their peril. Nevertheless, the Government did phase the increases at the higher levels of the top salaried bodies.

§ Sir G. Howe
In so far as the Chancellor is founding his approach to wage settlements on the social contract, I should like to follow up the point raised by his hon. Friend the Member for Wrexham (Mr. Ellis) about the need to make it more precise, because there is a danger that it may be misleading people into pressing for higher pay settlements now. I ask the Chancellor to clarify 701 whether his statement in the Budget speech, that settlements under the social contract should compensate only for rises in the cost of living, should be applied after or before account has been taken of increases in indirect taxation and increases in direct taxation, because it is clear that many trade unionists—

§ Mr. Speaker
Order. This is not debating time.

§ Mr. Healey
I am grateful for your protection, Mr. Speaker. I am fascinated to hear that the right hon. and learned Gentleman is at last beginning to think this problem through, but he should be aware that the social contract is an agreement between the Labour Government and the trade union movement. The wage guidelines are laid down independently by the TUC as its part of the social contract and provide for certain exceptions to the rule. I made it clear in a speech last week that if unions seek to recover the tax increases that I have been compelled to impose—due to past inflation and past settlements in excess of the norm—by even more excessive settlements, the only alternative I would have to tax increases on a further occasion would be cuts in public expenditure, which would be damaging to all the interests which we and the unions have at heart.