Inflation (Hansard, 23 March 1978)

§ 14. Mr. Adley
asked the Chancellor of the Exchequer if he is satisfied that inflation is now under control.

§ Mr. Healey
Inflation is falling and in single figures, in sharp contrast to the situation we inherited from the previous Administration, when it was well into double figures and rising fast; but it would be wrong to be complacent.

§ Mr. Adley
Does the right hon. Gentleman stick to his claim that inflation was caused by the last Government, who left office in February 1974, but that he had it under control and reduced it to 8.4 per cent, by October 1974? If that claim at the last General Election is true, will he please reaffirm it today and therefore say what has happened since that was the fault of the previous Government rather than of this Government?

§ Mr. Healey
As the hon. Gentleman knows, when I referred to an inflation rate of 8.4 per cent. I was referring to the annual rate of the previous three months. Inflation on that calculation is now 7 per cent.

§ Mr. William Hamilton
Will my right hon. Friend tell us what the rate of inflation was in February 1974, after four years of Tory Government, and what it was in February 1978, after four years of Labour Government? Can he also say whether he still thinks that we shall be in single-figure inflation by the end of this year?

§ Mr. Healey
I cannot give the exact figures, but the inflation rate was 13 per cent, point something in February 1974. That was the situation I inherited from the Tories, along with threshold agreement arrangements which brought about 22 triggers of the threshold, increasing wages and prices by October of the same year. That was the first news to greet me when I arrived at the Treasury. The inflation rate in February this year was 9.5 per cent. It is still falling, and it will be well into single figures right through this year.

§ Mr. Biffen
In view of the significance of the public sector borrowing requirement in the whole question of inflation, is it the expectation of the Chancellor that during the year in prospect, 1978–79, the PSBR expressed as a percentage of gross domestic product will be lower than that experienced for the year just ending?

§ Mr. Healey
I shall give my assessments in my Budget Speech. But the hon. Gentleman exaggerates the importance of the public sector borrowing requirement, or the public sector deficit, in determining the rate of inflation. West Germany's inflation rate is well below ours at this time, yet her public sector deficit, as she defines it, is 5 per cent, of gross domestic product, which is well above our rate.

§ Mr. Peter Walker
Does the right hon. Gentleman recall that in his first Budget speech he stated that the biggest single problem left to him by the outgoing Government was a public sector borrowing requirement of £4 billion?

§ Mr. Healey
I recall that very well. I also recall that the right hon. Gentleman cuts a very much shabbier figure four years later.

§ Sir G. Howe
If the Chancellor is right in his insistence on the importance of monetary policy over the past four years, why is he determined that the next Tory 1734 Government shall inherit a rate of monetary growth far in excess of his own target of 9 to 13 per cent.? Or will he confirm what the Minister of State has said—that the Government intend to take action to bring the monetary growth rate up to next April below the desired limit of 13 per cent.? Does the Chancellor believe that the consequences of the failure to control monetary supply will not come through in inflation until the Government have left office?

§ Mr. Healey
The Tory Government left me with a money supply increase of 28 per cent, as against an increase in money GDP of well under half—indeed, almost one-third. At present, the increase in money supply is roughly the same as the increase in money GDP and will be back on trend by the end of this financial year. It is too soon to be certain whether it will be 13 per cent. or somewhat above. But in West Germany, which the right hon. and learned Gentleman always holds up as the paragon of monetary control, the money supply has been running at an annual rate of over 15 per cent, in the past few months over the general target of 1 per cent, last year. At some time over the next year it is likely to be 2 per cent, above the expected rate of money GDP.
One would expect, since the right hon. and learned Gentleman is obviously somewhat attracted by monetary theory, that he would take some trouble to understand it before uttering the sort of claptrap we heard from him a moment ago.

§ Mr. Norman Atkinson
For the purpose of educating both the Tory Party and the monetarists in the Labour Party, as well as the Governor of the Bank of England, will my right hon. Friend enunciate to the House that there is no evidence whatever in this country of a link between money supply and the rate of inflation, except perhaps in land values? Secondly, will he also enunciate to the House that there is no evidence of any link whatever between the borrowing requirement and the rate of inflation or any of the other significant economic factors to which he has just referred?

§ Mr. Healey
I am afraid that on this matter I cannot wholly agree with my hon. Friend. There is a link between money supply and the rate of inflation, although the arch-guru of monetarism. 1735 Mr. Milton Friedman, explained in a Nobel lecture recently that it was difficult to take a firm view as to how long are the lags in time between increases in money supply and increases in the rate of inflation. The one thing on which all economists of all persuasions are agreed is that the degree to which money supply was allowed to increase in the last two years of the Tory Government was a major factor in inflation over the past three years.

§ 19. Dr. Glyn
asked the Chancellor of the Exchequer what was the rate of inflation over the financial year 1973–74; and what was the analogous figure for 1976–77.

§ Mr. Joel Barnett
The date on which data are collected in order to compile the April retail price index does not coincide with the end of the financial year. The index increased by 15.2 per cent, in the 12 months up to April 1974 and 17.5 per cent, in the 12 months up to April 1977. The equivalent figure for April 1978 will, on present trends, be significantly below its level a year earlier.

§ Dr. Glyn
The Minister has not answered the Question. Does he agree that the average rate of inflation under the Conservative Government was considerably lower than under this Government? Does he also agree that it is very misleading to quote one month—as his hon. Friends have been attempting to do in the last two or three months—when the way to do it is over a complete year?

§ Mr. Barnett
If they look at the figures, the hon. Gentleman and the House will find that the position on inflation is improving dramatically, and will continue to do so, in comparison with the position in February 1974, when it was rising equally dramatically.

§ Mr. Budgen
Will the Minister comment upon the Chancellor's earlier reply to my hon. Friend the Member for Oswestry (Mr. Biffen) with regard to the public sector borrowing requirement? Will he confirm that the public sector borrowing requirement has a very important effect, since it poses a choice between the printing of money or the raising of interest rates, which has a 1736 severe effect on both investment and employment?

§ Mr. Barnett
With respect, the trouble with the hon. Gentleman is that he tends to take one single indicator and to look at it in isolation from everything else. That is not the way to judge the economy, inflation or anything else.