HC Deb 24 May 1976 vol 912 cc12-6
10. Mr. Rathbone

asked the Secretary of State for Prices and Consumer Protection what has been the increase in the Retail Price Index over the past 12 months to date.

20. Mr. Canavan

asked the Secretary of State for Prices and Consumer Protection what is the latest rise in the Retail Price Index; and if she will make causes of inflation instead of simply a statement.

28. Mr. Mike Thomas

asked the Secretary of State for Prices and Consumer Protection what is the latest Government estimate of the current rate of inflation.

31. Mr. Moonman

asked the Secretary of State for Prices and Consumer Protection what is her estimate of the current rate of inflation.

Mrs. Shirley Williams

Over the 12 months to April 1976, the Retail Price Index increased by 18.9 per cent.

Mr. Rathbone

Is the right hon. Lady aware that there is a certain superficial attraction in that answer but that many of the steps taken or not taken by the Chancellor of the Exchequer have led to a devaluation of the pound which will inevitably contribute dramatically to increased retail prices in the coming year? Has she instituted conversations with her right hon. Friend to help upvalue the pound and to take any necessary steps to do so?

Mrs. Williams

I do not deny that the recent unexpectedly sharp decline in the exchange rate may mean some delay in the achievement of the single-figure target that the Government have set for the winter of this year. Indeed, I said as much in the last Parliamentary Questions that I answered, in reply to a Question by the hon. Member for Gloucester (Mrs. Oppenheim): I do not deny…that the decline in the value of the pound in recent months will rather slow down the achievement of the target."—[Official Report, 12th April 1976; Vol. 909, c. 887–8.] I am sure that the hon. Gentleman and other hon. Members will appreciate that there is now a widely-held view, especially in some parts of the OECD, that the decline in sterling has been exaggerated and that no action which has been taken in our economy would justify the way in which it has slipped in the past few weeks.

Mr. Canavan

Does not the fact that prices are still rising considerably faster than wages disprove the theory that wage increases are the major cause of price inflation? What steps are the Government taking to identify and attack other expecting workers to make all the sacrifices?

Mrs. Williams

Although it is true that in some past months prices have run ahead of earnings, my hon. Friend will be glad to know that in April the paths crossed the other way and earnings are now ahead of prices. But one factor over which none of us has any direct control is what is happening to import prices. There is no doubt that there is a hardening of raw material and food prices in the rest of the world because of the greater recovery of the world economy.

Mr. Newton

Would the right hon. Lady agree that these protestations that the pound has fallen too far simply show how little confidence there is abroad in this Administration? What estimate has she made of the effect on the Retail Price Index of the fall this year in the value of the pound?

Mrs. Williams

The fall in the value of the pound over the last month would add about two and a half points to the Retail Price Index. The hon. Gentleman appears to be rather less devoted to this country than the Deputy-Chairman of the German Bundesbank, who took the view that the pound was heavily undervalued.

Mr. Thomas

Will my right hon. Friend ignore the gloating by Conservative Members at the fall in the exchange rate and tell the workers why she is currently negotiating for a productivity criterion to be extended to the Price Code, whereas productivity criteria are excluded from pay settlements?

Mrs. Williams

I do not think that my hon. Friend has got it quite right. At present, any increase in the volume and any fall in the unit costs of industry is penalised, in the sense that it has to be directly reflected in prices. We are seeking to give industry some incentive to improve the turnover and reduce the margin, which in the current Price Code is a very difficult thing to do. But I appreciate that such incentives must go across the board.

Mr. Rathbone

I thank you, Mr. Speaker, for allowing me to catch your eye again. May I ask the right hon. Lady once more what conversations she has instituted with the Chancellor of the Exchequer to make him take steps to reduce Government borrowing and Government expenditure so that the fall in the value of the pound is not reflected in an addition of two and a half points to the Retail Price Index next year?

Mrs. Williams

The hon. Gentleman has again made the point which is frequently made by the Opposition: they want an immediate cut this year in public expenditure regardless of the effect on employment. That is not the view of the Government or of the Trades Union Congress.

Mr. Moonman

While appreciating the work done by the Chancellor of the Exchequer, may I ask my right hon. Friend to comment on the feasibility of keeping to the Chancellor's targets and to say whether they are likely to be reached within the time scale envisaged? To many of us, that is the most critical thing of all.

Mrs. Williams

It is very critical. As I said to the hon. Member for Lewes (Mr. Rathbone), we expect there to be a slippage of about two months in achieving our earlier target owing to the unexpectedly sharp decline in the exchange rate, but it is possible that the exchange rate will recover when the news about the levels of inflation, which are beginning to decline, gets across.

Mrs. Sally Oppenheim

Will the right hon. Lady confirm or deny that prices have risen by 50.9 per cent. since February 1974, when the Government came to power, that this is a horrifying indictment of the Government's record on prices, and that, as this is largely a result of a combination of profligacy on the part of the Government and past excesses on the part of certain trade unionists, a certain amount of humility and repentance rather than arrogant boasting would be more appropriate? Will she also confirm that the fall in the value of the pound is a vote of no confidence not in this country but in the Government's policies?

Mrs. Williams

We have now had the hon. Lady's much-heralded attack.

Although she has anticipated a later Question tabled by one of her hon. Friends, I confirm that there has been an increase of 50.9 per cent. in the past two years. However, I remind her—she seems liable to forget this—that the import index increased by 64 per cent. between the second quarter of 1973 and the second quarter of 1974. The Conservative Party, in Opposition, conveniently forgets that. An estimated increase of 8 per cent. in earnings flowed from the triggering of thresholds in May 1974—the policy of the Conservative Administration.

It is not helpful to the hon. Lady to cast doubt on the fact that in the past year there has been a halving of the rate of inflation, a fact which she perpetually denies. If she will not take it from me, will she take it from the leader in the Financial Times today, which states: The domestic inflation rate which is now down to about 13½ per cent…

Mr. Speaker

Order. The Minister is not quoting from a newspaper, is she?

Mrs. Williams

I am referring to a leader in the Financial Times today, Mr. Speaker, which indicated that, in that newspaper's view, the current inflation rate, correctly estimated, was down to 131½per cent. compared with 35 per cent. in the first half of 1975. It serves nobody's interests, including the interests of this country, continually to underestimate the Government's massive achievement in fighting inflation.