Inflation (Hansard, 17 June 1976)

§ 8. 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.

§ 11. Mr. Arnold
asked the Chancellor of the Exchequer if he is satisfied with his progress in achieving his target for reducing the rate of inflation.

§ 14. Mr. Teddy Taylor
asked the Chancellor of the Exchequer if he is satisfied with the progress being made in tackling inflation.

§ Mr. Healey
The retail price index rose by 18.9 per cent. over the 12 months to April—the eighth successive monthly fall in the year-on-year rate of inflation, which now stands at its lowest level since November 1974. Continued observance of the current £6 pay limit and the new lower pay limit for the next round should enable us to achieve our objective 721 of halving the inflation rate again by the end of next year, so as to get it down to the level of our main international competitors.
The Government warmly welcome the overwhelming support for the new pay agreement at yesterday's TUC special congress. The whole country should applaud the statesmanship and patriotism shown by the trade union movement. The Government will be publishing a White Paper early in the week beginning 28th June setting out the details of the new pay limit and of other aspects of their counter-inflation policy. Meanwhile, the way is now also clear for me to ask the House to amend the Finance Bill so as to implement the conditional tax reliefs outlined in my Budget; the necessary Ways and Means Resolutions will be put before the House early next month.

§ Mr. Skinner
Does my right hon. Friend agree that notwithstanding the figures that he gave in the early part of his answer, his attempt to shave off minute proportions in the forthcoming months will be much more difficult than in the past few months, when the rate of inflation has been falling?
Will he give a guarantee that, based on what happened yesterday at the special TUC congress, where the wages policy was accepted, there will be no cuts in public expenditure and no serious relaxation of the Price Code, so that it can be clearly seen that the Government are honouring their side of the contract with the TUC? This did not happen last year. If my right hon. Friend fails on that account, the decision and the ballot yesterday will be meaningless before the end of the year.

§ Mr. Speaker
Order. Several hon. Members this afternoon have been asking very long supplementary questions. There was a long reply from the Chancellor on this Question. I hope that everyone will bear in mind the danger of falling into sin.

§ Mr. Healey
I am suitably abashed and terrified by your warning, Mr. Speaker. I would take my hon. Friend's remarks much more seriously if he allied himself with the overwhelming majority of trade unionists who have supported both the £6 pay deal and the 4½ per 722 cent., and were responsible for the triumphant success at yesterday's congress.
On public expenditure, we have made it absolutely clear that we give priority to the needs of manufacturing industry, and this has been accepted by the TUC. My attitude is governed by the needs of manufacturing industry. As for the Price Code, the trade unions do not want to see it operating in such a way that there is a reduction in jobs or in investment, and my attitude on this is governed by that consideration.

§ Mr. McCrindle
Will the Chancellor now deal with the truly important aspect of this matter? How does our prospective rate of inflation this year compare with the rate of inflation of our main industrial competitors?

§ Mr. Healey
The rate of inflation in the OECD as a whole in the 12 months to March was 8.9 per cent. and our rate was substantially above that. However, in the last six months the annual rate of inflation in this country has been 13.6 per cent. We have more than halved the gap between our inflation rate and that of our main industrial competitors over the last nine months, and we shall halve it again by the end of next year. By that time, some of our competitors will have higher rates of inflation than we have. This is the view of at least one other country—indeed, it was put forward by Dr. Jelle Zijlstra, Head of the Dutch Central Bank, and Chairman of the Bank for International Settlements.

§ Mrs. Castle
Is the Chancellor aware that the £3 billion cuts in public expenditure in the White Paper in February were specifically designed to secure a shift in resources to the exports and manufacturing investment to which he referred? Therefore, may we have an assurance that the Chancellor is not contemplating any further cuts above that figure?

§ Mr. Healey
I am grateful for my right hon. Friend's support for the White Paper and her recognition that it was necessary to make these cuts in order to make room for exports and industrial investment. Industrial investment forecasts by the CBI and industry indicate that this should rise at a rate of about 15 per cent. over the next 12 months. It seems possible that exports will rise in 723 volume faster than I anticipated at the time of the Budget. My judgment about the desirable level of public expenditure next year is bound to be governed by the likely rate at which our economy recovers. If it recovers rather faster than we expected, there will be some implications for the public sector borrowing requirement.

§ Mr. Arnold
Does the Chancellor agree that the recent 14 per cent. decline in sterling will give price inflation a further push? The push, which will come from imports, will be as much as 65 per cent., and will take some time to work its way through the economy. Given that, the original target of 10 per cent. inflation at the end of this year will not be reached. In fact, is it not the case that the level is likely to be 15 per cent. or 16 per cent., or perhaps even higher?

§ Mr. Healey
If, in fact, the level of parity remains as it is now, the total increase in the retail price index by the end of this year resulting from that is likely to be some 3 per cent. But we did expect, when I negotiated with the TUC and made my Budget speech, that the external value of the pound would decline at least in line with the difference between our inflation rate and that of other countries.
The recent depreciation of the pound in total may add 1 per cent. or 2 per cent. to the level of inflation at the end of this year. That is why the Prime Minister and I have made it clear that we are unlikely to reach our original target of under 10 per cent. by the end of the year. It may be delayed until the spring.

§ Dr. Bray
Yesterday's vote at the TUC congress and the recent speeches of Mr. David Basnett and Mr. Jack Jones should convince the Government that they need to prepare in plenty of time for a return to free collective bargaining next year. Does my right hon. Friend accept that the understanding that will then be necessary will be more complicated and will require selling not only to the trade union executive, but to members throughout the movement?

§ Mr. Healey
Personally I welcome the statements of Mr. Basnett and Mr. Jones. After the next pay round, we need an orderly return to free collective bargain- 724 ing in order to make certain that we do not have an explosion of wages of the kind that followed the collapse of the last Government's pay policy. I welcome the suggestion that we should begin discussing with the trade unions and industry the requirements of a pay policy to meet these objectives.

§ Mr. Teddy Taylor
Does the Chancellor accept that food prices are still rising to an alarming level and are making shopping a nightmare for ordinary families? Will he give us an outlook for food prices?

§ Mr. Healey
The hon. Member is somewhat of an expert in these matters. The outlook for food prices depends on the weather over the next 12 months. If the hon. Member can give me accurate forecasts for weather conditions in that period, I shall tell him what food prices will derive from that.

§ Mr. Heffer
Since Mr. Hugh Scanlon said at the conference yesterday—in support, incidentally, of the wages policy—that there would be a reduction in the living standards of the workers, will my right hon. Friend give an assurance that a wealth tax will be introduced early next year in order that there can be some measure of equality of sacrifice?

§ Mr. Healey
I welcome the fact that my hon. Friend associates himself with the remarks of Mr. Hugh Scanlon yesterday. It is, indeed, the case that a further small fall in real take-home pay is likely over the next 12 months, though it will be a smaller fall than has been seen in the last 12 months. There is a Question on the Order Paper about the wealth tax and it would be quite improper of me to attempt to anticipate an answer to it.

§ Sir G. Howe
We welcome the continued recognition of the need for restraint in pay bargaining as a means of checking unemployment and checking the size of public spending, but we regret very much the time wasted in the first year of the Chancellor's term of office when he personally presided over the explosion of public pay to which he has referred, with the explosion of all other forms of public spending. Will he accept from us that the only way to ensure that the sacrifices now being demanded of people are not demanded in vain is for the Government to take the time to put 725 their own policies in order by getting public spending under control?

§ Mr. Healey
I welcome with an open heart the fact that the right hon. and learned Gentleman is now in favour of the agreement reached by the Government with the TUC. May I take it that he no longer regards the leaders of the working-class movement as being ageing, doctrinaire, prejudiced Socialist trade union leaders, as he disgracefully described them in the House the other day, confirming that that was still his opinion in a television programme last Friday?