Inflation (Hansard, 8 December 1977)

§ 9. Mr. Neubert
asked the Chancellor of the Exchequer in how many months since the inception of the Government's counter-inflation policy in August 1975 the annual rate of inflation has been as little as half what it was 12 months previously.

§ Mr. Healey
Once, Sir.

§ Mr. Neubert
Putting aside the doubtful accuracy of the Government's past claims to have halved inflation, does the Chancellor recognise that our annual rate of inflation is still double the rate in Japan and the United States and four times that of West Germany? When shall we get it down to the level of our major competitors?

§ Mr. Healey
I hope that inflation will be down to the level of our major competitors in about a year's time. The hon. Member will have noticed that all the indicators that are now accepted by observers inside and outside the House show that we shall be at 12 per cent. by the end of the year and in single figures around Easter. How much progress we make after that will depend on the level of pay settlements for the rest of the round.

§ 13. Mr. Skinner
asked the Chancellor of the Exchequer if he remains satisfied with the current rate of inflation; and if he will make a statement.

§ 17. Mr. Michael Latham
asked the Chancellor of the Exchequer whether he will make a statement on the progress to date of the Government's policy for controlling inflation during the current pay round.

§ 21. Mr. McCrindle
asked the Chancellor of the Exchequer if he will estimate 1628 at what period of 1978 inflation will have reached single figure percentage.

§ Mr. Healey
Inflation is falling steadily, and is on course for single figures next spring. I shall not be satisfied until we get inflation down to the level of our international competitors and keep it there. This means that the level of earnings must be within the Government's guidelines.

§ Mr. Skinner
Does my right hon. Friend appreciate that we all want to get inflation down, but will he also turn his attention away a little from the wages aspect and accept that there are many other factors that cause inflation and cause prices to rise, such as multinational pricing policies, Common Market levies and payments, some of which we have had to submit to quite recently, the question of Civil Service blunders that cost a tremendous amount of money, and another escalating property boom? Will he concentrate his gaze upon those items too?

§ Mr. Healey
I cannot concentrate my gaze on every aspect of policy to which my hon. Friend refers, but I am certainly very conscious of the contribution which they can make. I have never claimed, nor has any of my right hon. Friends, that pay is the only factor that determines prices. That, of course, is not the case. An irresponsible monetary policy, such as was followed by the previous Administration, can also have a major impact, although we have not followed an irresponsible monetary policy. Of course, international movements of prices, such as the dramatic increase in oil prices that took place in 1973, can also have a major effect. At the moment, however, world prices look like being stable for a time, short of some international catastrophe, our monetary policy is a responsible one and is recognised as such, and over the next 12 months the level of pay settlements is likely to be the major determinant of prices.

§ Mr. Latham
Regarding pay settlements, if the Government intend to continue with their secret and discretionary sanctions policy, is it not about time they came to the House to get some legal basis for it?

§ Mr. Healey
I think that the Government have not only a right but a duty, 1629 when they have been allowed by the House either to withhold or to grant certain types of discretionary aid, to take into account—as they were intended to do—the national interest. I do not think that it is in the national interest that the Government should use taxpayers' money to finance inflationary wage increases.

§ Mr. McCrindle
With at least the possibility of a rise in commodity prices in the early part of 1978 and the possibility that when the winter round of wage settlements is over it will come out at about 15 per cent. rather than 10 per cent., over how many months of 1978 does the Chancellor confidently expect that he will be able to boast a single-figure rate of inflation?

§ Mr. Healey
I have already said this afternoon that we expect inflation to reach single figures in the spring. How long it remains in single figures and how far it falls below the level it reaches in the spring will depend critically upon the level of pay settlements. The hon. Gentleman will, no doubt, have seen the forecast of the Henley Centre, for example, on this matter today. But of course, no Government can predict with any certainty the course of international prices over the period. It can be influenced not only by natural catastrophes but also by political ones.

§ Mr. Hooley
Will my right hon. Friend explain what contribution is made in the battle against inflation by pushing up interest rates and encouraging the most massive flow of hot money that has ever occurred in the history of this country?

§ Mr. Healey
My hon. Friend is well aware that the period when we had these massive inflows was the period when interest rates were falling very fast indeed. Even after the movement back to the normal rate of 7 per cent. which took place in MLR after we changed our intervention policy, interest rates are now a great deal lower than they were in February 1973 and bank base rates have not been as low as they are now for over five years. I believe that this has made a major contribution to reducing the rate of inflation.

§ Sir G. Howe
Does the Chancellor accept that, of course, we underline the importance, if unemployment is to be 1630 kept down, of moderation in pay settlements? But does he not also agree that it is becoming increasingly necessary to restore flexibility to pay bargaining in the labour market, and has not that prospect been damaged by the extent to which the average 10 per cent. increase in earnings of which he spoke last summer has been allowed to become a rigid 10 per cent. guideline for settlements? In other words, will he now answer the question originally put to him by my hon. Friend the Member for Blaby (Mr. Lawson)?

§ Mr. Healey
The Government made it clear in the summer—this is a mathematical point and not a point of policy—that we cannot guarantee to keep inflation rates under 10 per cent. through next year if the level of earnings increase nationwide is above 10 per cent. I do not think that anybody in the House need disagree about that. I certainly should have hoped that we would have had a greater variety of settlements than we have had. But, with respect to the right hon. and learned Gentleman, it is no good his asking for flexibility below 10 per cent. unless he is prepared to identify the bargaining groups which would make settlements well below that level.