HC Deb 01 April 1976 vol 908 cc1551-4
2. Mr. Skinner

asked the Chancellor of the Exchequer if he is satisfied with the current rate of inflation; and if he will make a statement.

8. Mr. Canavan

asked the Chancellor of the Exchequer what is his latest estimate of the rate of inflation; and if he will make a statement.

Mr. Healey

The retail price index rose by 22.9 per cent. over the 12 months to February, the sixth successive month in which the year-on-year rate of inflation has fallen. The annual rate of increase, excluding seasonal food, in the six months to February, was 13.3 per cent. This represents substantial progress towards the target of single figures by the end of the year. But I shall not be satisfied until inflation is reduced to a level at least no higher than that of our competitors.

Mr. Skinner

Yes, it is still very high. Does my right hon. Friend accept that the recent handling of the difficulties of sterling will to some extent undermine his problems when dealing with the trade union leaders in the next round of the incomes policy? Does he accept that a widening of the depreciation of sterling by about 4 per cent. against the other major currencies reduces real disposable income by about £800 million? Does that mean that any possible £800 million worth of tax cuts in the Budget next week have already been cancelled out and cannot become part of the incomes policy that my right hon. Friend is trying to arrange?

Mr. Healey

I think that my hon. Friend will understand, as my right hon. Friend the Member for Battersea, North (Mr. Jay) said a moment ago, that in a world of floating exchange rates it is inevitable that such rates over a period will reflect comparative inflation rates in various countries. The recent fall in the international value of the pound sterling reflects excessive inflation in our own system over the past 12 to 18 months, but inflation is now being reduced very rapidly, thanks to the £6 pay limit.

My hon. Friend will be aware of the argument in the recent National Institute Review that a depreciation of 5 per cent. would lead to an increase of 200,000 jobs by the end of next year. I am sure that that consequence, at least, is one which my hon. Friend would welcome.

Mr. Watt

Does the right hon. Gentleman recognise that he will not get inflation under control until we have a basic change in economic policy? Does he not realise that until we stop importing food which we could provide from our own land and resources this country will never get back on its feet?

Mr. Healey

The House knows that there was a fundamental change in our policy, introduced as a result of the initiative of the TUC in July. That has already led to a dramatic fall in our rate of inflation. I cannot see how controlling inflation will be assisted if we buy more expensive food at home, rather than cheaper food from abroad, though I recognise that for balance of payments' reasons it is important to maximise the output of home-grown food.

Mr. Canavan

Bearing in mind that the Scottish conference of the Labour Party condemned the Treasury's counter-inflation policy, will my right hon. Friend give an assurance that when the City and the CBI start twisting his arm for even more wage restraint and less price restraint, he will tell them where to get off, in his own inimitable language?

Mr. Healey

I am glad to see that my hon. Friend is none the worse for the amenities that we recently exchanged. If I feel it necessary to tell anybody to get off anything, I shall make it clear that that is my view.

Sir G. Howe

Will the right hon. Gentleman bear in mind and ram home more than he has so far the fact that if the downward floating of sterling is, as he says, an inevitable consequence of a higher rate of inflation in this country, there can be no escape from a fall in real living standards if our economic policies are to prosper? If we are not to lose whatever advantage there may be from the downward float, will he underline that fact and appreciate that his policies for getting inflation under control will come increasingly under threat and into danger if he fails to recognise the need to embark on public expenditure cuts now, because otherwise he will find it extremely difficult to maintain a policy to control inflation?

Mr. Healey

I think the right hon. and learned Gentleman is confusing quite discrete issues. Certainly the advantages of competitivity, which derive from a lowering of the external value of the currency, will be lost if the consequent increase in inflationary pressures lead to an increase in wage costs at home. Whether, in the situation in which Britain now finds itself, depreciation may lead to an overall fall in real disposable income is an entirely different question.

Mr. Speaker

Before calling the next Question, I urge hon. Members to ask supplementary questions and not to argue a case.

28. Mr. William Hamilton

asked the Chancellor of the Exchequer if he will make a statement on the progress made towards his target of reducing the rate of inflation to single figures before the end of 1976.

Mr. Healey

I would refer my hon. Friend to the answer I gave earlier to my hon. Friend the Member for Bolsover (Mr. Skinner).

Mr. Hamilton

I assume that my right hon. Friend was not using obscene language. Will he say whether or not he has the assent of the trade unions to the next phase of the incomes policy? Will he have it by Tuesday, and will he be announcing it in the Budget? Did he not say a few months ago that his Budget judgment would depend on whether he secured that kind of agreement?

Mr. Healey

It is not appropriate for the TUC at this stage of the current wage round to reach a final conclusion on the policy for the next wage round, which begins on 1st August next. However, I have been in continual contact with leaders of the TUC and I shall be framing my Budget in the light of what I know of their intentions.