HC Deb 16 December 1976 vol 922 cc1713-5
10. Mr. Neubert

asked the Chancellor of the Exchequer when he now expects a single-figure annual rate of inflation to be reached.

11. Mr. Ashley

asked the Chancellor of the Exchequer what is the current level of inflation; and if he will make a statement.

Mr. Healey

The retail price index rose by 14.7 per cent. over the 12 months to October. Given continuing moderation in the increase in wage costs, the rate of price inflation should start falling again next summer.

Mr. Neubert

Is that not a scandalous evasion of the truth? Is it not clear that, although the original social contract in July 1975 was based on reaching single-figure inflation by this month, the latest Treasury forecast shows that there is no hope of that being reached within the best part of the next two years? How can the Chancellor command credibility when he so miserably fails to fulfil his own forecasts?

Mr. Healey

The hon. Gentleman will know when he calms down for a moment that there has been a large increase in import prices throughout the industrial world this year. The increase has been greater than expected in all countries. There has been depreciation of the £ sterling, which we hope to stop through the measures announced yesterday. There has also been a large increase in food prices all over Europe, which was reflected in a rapid increase in recent months—for example, in the rate of inflation in our neighbouring country, France. It is not possible for any British Government to take control of all external factors that affect inflation. On the other hand, the pay policy has made a major contribution towards the reduction in prices in this country and has been a total success over the 18 months that it has now been in operation.

Mr. Ashley

Is my right hon. Friend aware that I do not like his new package any more than it is liked by him or anybody else but that I realise that the alter- natives of savage deflation suggested by the Opposition and a siege economy suggested by some of my hon. Friends are bogus and potentially disastrous? If my right hon. Friend is talking of sacrifices, will he bear in mind that massive tax reliefs are given to wealthy people buying expensive houses and those with high-level pension schemes? My right hon. Friend should think of those people and ask them to make sacrifices rather than ask for sacrifices to be made by the poor.

Mr. Healey

I fully agree with my hon. Friend that there is no sensible alternative to the Government's current policy. That was endorsed in the words that I quoted from the Economic Committee of the TUC, which met this morning. As for tax relief that is given to wealthy house-owners, my hon. Friend will know that we have set a limit to the size of mortgage on which tax relief is given. This aspect of the problem is under continuous review.

Mr. Cormack

Will the right hon. Gentleman tell us which of his forecasts have been accurate during the past three years?

Mr. Healey

I doubt whether I could complete the answer to that question by half-past three. However, I shall give one important answer in relation to inflation. I was absolutely bang on in respect of the reduction in the rate of inflation by half between July 1975 and July 1976. I know that I shall be congratulated by the hon. Gentleman, possibly privately behind the Chair, for that achievement.

Mr. Cronin

Does my right hon. Friend agree that the present period of continuous inflation was precipitated by the inflation caused by the reckless monetary policy of the Conservative Government in 1972 and 1973?

Mr. Healey

I know that that is the view of at least two Members of the Opposition Front Bench—namely, the hon. Member for Oswestry (Mr. Biffen) and the right hon. Member for Leeds, North-East (Sir K. Joseph). I have never yet succeeded in discovering whether that is the view of the right hon. and learned Member for Surrey, East (Sir G. Howe).

Sir G. Howe

Will the Chancellor of the Exchequer and his hon. Friend recognise that the tune just offered to the Chancellor of the Exchequer is the tune of the year before last and has nothing whatsoever to do with reality? The Chancellor has now been responsible for the economy for three years and cannot use the alibi offered by his hon. Friend.

Will the Chancellor please answer the question originally posed and say whether it is the case that inflation will start falling from the middle of next year and whether it is also the case, as the Treasury forecast says, that inflation at the end of next year will be 15 per cent. year on year?

I have three questions. What is the peak rate that the Chancellor expects inflation to reach before it comes down to 15 per cent.? When does he expect single-figure rates of inflation to be reached? When does he expect inflation to come down to the level of that of our main industrial competitors? These are all specific questions to which we are entitled to an answer.

Mr. Healey

They are all specific questions but there is nobody on earth who could give an accurate answer, for the reason that I have already explained. The right hon. and learned Gentleman, for example, asks me to predict the inflation rates in the countries which compete with us. That is absolutely impossible. The predictions that I have seen for the United States, Germany and France have been varying even over the last few weeks. Again, it is quite impossible to predict precisely what will happen to world food prices over the coming year. We do not even know whether there will be an increase in oil prices over the next week or two and, if there is, how much it will be. That is why it is impossible to give accurate predictions at this time.