§ 4. Mr. David Mitchell
asked the Chancellor of the Exchequer what he regards as the five most important causes of inflation over the last two years; and if he will indicate the estimated percentage of inflation which each has caused.
Mr. Joel Burnett
It is impossible to give precise figures. But I estimate that two-fifths might be attributable to higher labour costs; one-fifth to higher world prices; and one-fifth to depreciation. Of the remaining fifth, about half is due to increased taxes and the rest to an assortment of minor factors, none of which predominates.
§ Mr. Mitchell
Is the Minister aware that the figures that he has just given show a remarkable increase in the labour element of inflation during the last year compared with the answer he gave to this question 12 months ago? Which of these items does he expect to go down, and by how much, if inflation is to go into single figures by the end of the year, as promised?
One thing I can say today when the hon. Gentleman asks which of these elements I expect to go down is that if there were a Government of which he and his party were members —[HON. MEMBERS: "Answer."]—I think that I should tell the House this —any one of these items that caused this rate of inflation would be considerably worse.
§ Mr. George Rodgers
Is my right hon. Friend seriously suggesting that a massive increase in profits, particularly by major food retailers, during the last 12 months has not had its impact on inflation?
Actually, I am saying that. I know that my hon. Friend may find it hard to believe, but in fact, over the last two years profits have had a negative effect on prices generally, so I am afraid that, as pleasant as it might be to find one simple answer to our problems of inflation, by way of excessive profits, that is not the case.
§ Mr. Powell
Does the Chief Secretary recognise that when the temperature rises it is registered by the rise in a column of mercury, but the rise in temperature is not caused by the rise in the column of mercury?
I am not sure whether that is a philosophical argument or a practical one, but either way, if the right hon. Gentleman were to have his way and deal with this problem wholly through money supply I fear that there might be other consequences that would be equally damaging to our society.
§ Mr. Pavitt
Although my right hon. Friend finds no difference of profits in terms of prices in generality, will he have a special look at the pharmaceutical industry, in view of the bumper profits made by Beecham, most of which are paid for by the taxpayer?
I am always happy to look at all kinds of things. I shall certainly be looking at pharmaceutical profits and prices. As much as I seem to be responsible for many things, that is not one of my direct responsibilities, but I shall see that it is brought to the attention of my appropriate colleague.
§ Mr. David Howell
Will the right hon. Gentleman tell us about the Treasury's official inflation target now? Is it still single figures by the second quarter of next year, by the second half of next year, or not next year at all?
I am not sure whether the hon. Gentleman should have been smiling then. He seemed to be taking some pleasure from the thought that we might not achieve single-figure inflation. I hope that that is not his view. It is still our view that, given the right sort of policies, which we are pursuing, we can have single-figure inflation in the middle of next year.
§ Mr. David Mitchell
On a point of order, Mr. Speaker. In view of the unsatisfactory non-answer to that Question, I beg to give notice that I shall seek an early opportunity to raise the matter on the Adjournment.
§ 14. Mr. Neubert
asked the Chancellor of the Exchequer what is the latest annual rate of inflation.
§ 17. Mr. Watkinson
asked the Chancellor of the Exchequer whether he remains satisfied with progress towards reducing the rate of inflation.
§ Mr. Joel Barnett
Over the 12 months to May, the retail price index rose by 17.1 per cent. By the fourth quarter of this year I expect the annual rate of inflation to be reduced to 12.13 per cent. But I shall not be satisfied until we have brought inflation down to the levels of our main international competitors.
§ Mr. Canavan
Will the Government now take urgent measures to introduce a selective price freeze and reject any demands from the Liberals and others for a statutory incomes policy? Do not the decisions taken this week by the National Union of Mineworkers and the Transport and General Workers' Union show clearly that their members are fed up with having to make all the sacrifices, while exorbitant price increases are imposed by profiteers whom the Chancellor of the Exchequer once wanted to squeeze until the pips speak?
§ Mr. Barnett
As my right hon. Friend made clear a moment ago, we are opposed to the idea of a statutory incomes policy. I agree with my hon. Friend that price increases were of great concern to those voting in the two recent trade union conferences. But there is also the question of real living standards, and it is interesting that even with rates of inflation rather higher than the present one there was not the same feeling as there is today. The main reason for that is that the cut has had to be in real living standards. That should not continue from now on. For the rest of this year that should remain stable, and from there on we should see increases in real living standards and falls in the rate of price inflation.
§ Mr. Neubert
As the Chancellor of Exchequer has reaffimed his support for public expenditure limits this afternoon as part of his counter-inflation policy, why are there persistent reports of stopping the school meals increase, of freezing nationalised industry prices, and of re-introducing food subsidies? Do the 1402 Government intend to do any of those things?
§ Mr. Barnett
I really cannot comment on all the persistent reports in the Press about the matters that the hon. Gentleman has raised, and many others. I can only repeat that we shall stick to our public expenditure limits.
§ Mr. Kinnock
Is my right hon. Friend aware that the decision to maintain cash limits in the public sector, against the background of the figures that he gave, is very worrying indeed, and is either a directive by the Government to subsidise the remainder of the economy through low wages or a formula for industrial warfare in the public sector in the coming year? Will my right hon. Friend reconsider the decision?
§ Mr. Barnett
There is no question of the Government seeking industrial warfare in the public sector, or indeed in any other sector. I ask my hon. Friend to understand that the maintenance of cash limits is not worrying in the sense that he would have us believe. I believe that the maintenance of cash limits has done much for confidence in the financial system of this country, and therefore also for interest rates and the maintenance of jobs. That is why we intend to stick by it.
Will the Chief Secretary please answer the question that the Chancellor of the Exchequer did not answer about the sterling exchange rate? Will he tell the House whether it is the policy of the Government to hold down the rate? If it is the Government's policy, how long do they intend to persist in it?
§ Mr. Barnett
The hon. Gentleman cannot have been listening. I think that my right hon. Friend the Chancellor of the Exchequer answered the question perfectly, and I could not add anything to it.
§ Mr. Watt
Will the Minister acknowledge that one of the main reasons for the current rate of inflation continuing is that we import far too many manufactured goods and raw materials and far too much food, which our producers could supply, when we should have a positive policy of import substitution? Does he agree that that would not only help the balance of payments and the rate of inflation but would provide more jobs 1403 for the many thousands who are out of work?
§ Mr. Barnett
I agree with the hon. Gentleman in the sense that the answer to the problem is to improve our output and our productivity, and increase the amount of goods that we produce in substitution for imports. That is our policy.