§ Q3. Mr. Pattieasked the Prime Minister whether he will place in the Library a manuscript of his remarks on inflation made in Tunbridge Wells on 30th April 1977.
§ The Prime MinisterI did so on 2nd May.
§ Mr. PattieDoes the Prime Minister recall that in that speech he said: 230
We are now winning the battle against inflation"?As inflation, on the Chancellor's formula, was 8.4 per cent. in September 1974 and after two and a half years this Government had got inflation up to 19.9 per cent., why should anyone believe him?
§ The Prime MinisterI do not know whether that question is worth answering. Any question which ends "Why should anyone believe him" hardly deserves an answer, because no one would believe it anyway. Therefore, I wonder why I should bother to reply. The answer I have given regularly is that the forecasts and the policies that have been carried through show that there will be a turndown in the rate of inflation, which will continue during the second half of this year and the first quarter of next year. That is a forecast that I accept because it is genuinely based. I invite the hon. Gentleman to believe it, too.
§ Mr. Ron ThomasDoes my right hon. Friend agree that two of the major factors in inflation are Britain's membership of the Common Market and the devaluation of sterling? Will he therefore issue an ultimatum to the Common Market that unless it scraps the CAP Britain will get out? Will he comment on the Bank of England's handling of sterling, because it is refusing to allow it to reach a higher level than it is at the moment?
§ The Prime MinisterNo, I do not think that I can comment on the last part of the question. I believe that that would take too long. We cannot deal with an important issue of policy of that sort in answer to a supplementary question. The answer to the second part is "No", because I do not believe that delivering an ultimatum to the Common Market in that sense would serve any particular purpose.
§ Mr. Michael LathamWas not my hon. Friend's point about not believing the Prime Minister a perfectly fair one, since the performance of the Chancellor of the Exchequer and other Ministers on inflation has been a long series of terminological inexactitudes?
§ The Prime MinisterInflation is declining and will continue to decline. Since the period of the pay policy—and I take it that, whatever they may think about the future, the Conservatives accept these 231 figures, which I have explained on a number of occasions—[Interruption.] It makes me wonder whether the Conservatives ever listen. Because of the events last autumn, we are in a period of a temporary bump—
§ The Prime MinisterA bump can go both ways. If I were to hit the hon. Gentleman, he would quickly become concave, but he could equally become convex. There is no reason to doubt that if the forecasts are borne out—and no one has cast doubt on them yet—inflation will turn down. We should not discourage the people, nor should we discourage the negotiations which are going on about the future of pay policy. The future of all the country is bound up in winning this battle. The Government have taken some tough decisions on it which have resulted in considerable loss of popularity. That we have to with-stand. But I see no reason why the Opposition should not admit that these policies are necessary if the country is to avoid hyper-inflation, and I should be glad if they were to do that once in a while.
§ Mr. AndersonDoes my right hon. Friend agree that the large number of frenetic attacks recently by the Opposition suggest that they at least accept that the turn-round is coming?
§ The Prime MinisterIt is worth noting that last Friday there was published news of record trade figures, although it did not receive too much space in some portions of the Press. The whole House will welcome the surplus of £111 million on current account. That turn has come sooner than was anticipated and it follows a surplus and a small deficit in the previous two months. In the last quarter, therefore, this country has been running a surplus on its balance of payments. This is associated with considerable strength of sterling and follows a fall in interest rates which was followed by a reduction in mortgage interest rates. Let us acknowledge some of the things that are going right.
§ Sir David RentonIs the Prime Minister aware that in each of the last three years the Prime Minister of the day or the 232 Chancellor of the Exchequer—or both—has given the House and the country an indication that inflation would fall, but that it did not fall in any of those three years? Why should the right hon. Gentleman's statement today be accepted more readily than the statements made previously?
§ The Prime MinisterI think that the right hon. and learned Gentleman is incorrect in his recollection. The rate of inflation was halved between 1975 and 1976 and I would hope that it might be halved again. I am not sure whether it will be. If the right hon. and learned Gentleman does not wish to believe the forecasts, that is his right, but let us wait and see what happens.
§ Mr. PardoeDoes the Prime Minister accept that, even for those of us who hope that the rate of inflation is falling, forecasts of the rate of inflation are an extraordinarily chancy business? Is he aware that a fall is by no means as certain as he indicated this afternoon? Would he say that unless the Government are successful in obtaining a severe and stringent pay policy his forecasts will inevitably be proved wrong? Are the Government doing anything like enough to obtain that pay policy?
§ The Prime MinisterI would put it the other way round and say that a further round of pay policy will help us to get inflation down. I would not put it the way the hon. Gentleman does, namely, that if we do not get it, everything has failed.
§ Mr. SkinnerThat is nearer the correct line.
§ The Prime MinisterI am very happy to find myself in agreement with my hon. Friend. I described what I believe to be the real position. The impact of the current pay policy under phase 2 will be felt during the second half of this year and the first part of 1978, because agreements are only now being entered into and these will last until May 1978. If sterling maintains its strength with the policies we are following, I can say with a reasonable degree of confidence that the forecasts are acceptable. I do not rely on them, but it is fair to say that I hope they will come true.