HC Deb 18 January 1979 vol 960 cc1936-40
7. Mr. Bulmer

asked the Chancellor of the Exchequer whether he will introduce further measures to control inflation.

8. Mr. Knox

asked the Chancellor of the Exchequer, whether he is satisfied that his economic policies will result in a further reduction in the rate of inflation.

Mr. Healey

I believe that the Government's current policies of encouraging pay settlements within the pay guidelines combined with monetary and fiscal restraint will stabilise and gradually reduce inflation. However, the Government will not hesitate to bring in further measures should they consider them necessary.

Mr. Bulmer

As the majority of union leaders are reasonable people, and as few employers wish to pay more than is justified by commercial considerations, why are the Government in such difficulty over their pay policy?

Mr. Healey

The Government are in difficulty for two reasons. First, a powerful argument has been deployed by the party opposite that free collective bargaining is consistent with holding the rate of inflation where it is. I do not believe that even the Conservative Party could maintain the truth of that proposition in the face of recent events and I gather that the hon. Gentleman does not do so. Secondly, the Government's ability to influence the level of settlements in the private sector was gravely damaged by the decision of parties opposite to remove pay sanctions. If the hon. Gentleman would like other explanations, I shall be glad to give them to him.

Mr. Knox

Does the right hon. Gentleman consider that the current level of wage and salary settlements will cause higher inflation, higher unemployment, or both?

Mr. Healey

As I said a moment ago, the great majority of settlements have been within the guidelines. Those that have been outside so far have been mainly in groups, or companies, which broke the guidelines last year. In all those cases—except that of the Ford Motor Company —the resulting settlement has been a great deal lower than last year. There is still time to recover control of the situation if the Government are assisted by all those with influence in the community to achieve the necessary control. For that reason, I hope that the Conservative Party will stop encouraging people to make use of their market bargaining power to produce excessive settlements which are totally inconsistent with keeping inflation down.

Mr. Watkinson

Will my right hon. Friend be wary of claims from the Conservative Party opposite that inflation can be kept under control by slashing further public expenditure? Does he not agree that his own White Paper shows that one of the principal problems relating to public expenditure is not excessive spending, but underspending, and are Departments taking measures to ensure that the sums are actually spent?

Mr. Healey

One of the problems that we face all the time is to persuade Departments—and this is not a problem unique to the present Government—to announce spending plans which they are satisfied they can carry out. There have been cases—some are displayed in the current White Paper—where individual Departments have failed to make use of the spending powers which were given to them. The House will have seen that there has been much less underspending in the past 12 months than there was in the previous 12 months. On the other hand, my hon. Friend will recognise that, if the White Paper does nothing else, it demonstrates the effects on growth, output and the possible level of public expenditure of the level of inflation and, therefore, the immense importance of keeping pay settlements to a level that is consistent with keeping down the rate of inflation.

Mr. Budgen

Does not the Chancellor of the Exchequer agree that, because of the difficult political situation in which he finds himself, it will be impossible for him to carry out his threats of stern fiscal measures in the near future and that therefore the only way that he can curb inflation will be to impose even higher interest rates?

Mr. Healey

No, I do not accept anything of the sort. I hope that if it became necessary, for the sake of keeping control of inflation, to ask the House to approve difficult and unpopular measures, there would be at least one or two Conservative Members who would be prepared to respond to a call for responsibility.

Mr. Heffer

Will my right hon. Friend and his right hon. Friends come off the cloud on which they have been sitting for some time and recognise the fact that the trade union movement was prepared to accept voluntary incomes policies for two and a half or three years but gave adequate notice to the Government that it was not prepared to accept a phase 4? Is it not clear that if we are to get out of the present situation we must recognise that reality, allow settlements to be reached on a free collective basis and face the fact that we shall have to deal with the resulting situation on the basis of those of us who pay rates having to pay more to meet the costs of wage settlements for people in the public services and elsewhere? We must not dodge the realities of the situation.

Mr. Healey

In this area, as so often in politics and government, Governments have to take account of a number of realities, and so do peoples. As the Conservative Party has occasionally had the courage to admit, if the average level of settlements this year is significantly above 5 per cent., it will not be possible to keep down the rate of inflation. That is a fact and there is no political argument that can get rid of it.

I have already explained that although we have had some excessive settlements they have so far been in areas where we had excessive settlements last year and their size has been significantly lower than last year's increases, except in the one case of the Ford Motor Company. It is the duty of myself and my right hon. Friends and, indeed, all my hon. Friends, as well as hon. Members opposite, to put these facts in front of the people continually until they finally recognise them.

The only alternative—and my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) was beginning to recognise it in the latter part of his supplementary question—is to allow wages to rip and to be compelled to take the sort of action that the Government had to take in 1975–76 in rigid control of further wage increases, cuts in public expenditure and rises in taxation. I do not think that that is a prospect which my hon. Friend would relish in practice, however much he may contemplate it in theory.

Sir Geoffrey Howe

Will the Chancellor recognise that it is high time that he stopped lecturing the Opposition on pay responsibility? Is he not aware that he should count himself profoundly lucky—and I mean this seriously—that in virtually every statement that I and my right hon. and hon. Friends make on this issue we impress upon those concerned with pay bargaining the need to achieve moderate settlements in line with moderate targets of monetary growth if we are to achieve a sensible solution without rising unemployment?

Will the right hon. Gentleman recognise that the threat to achieving sensible outcomes from responsible collective bargaining arises from the intolerable sanctions that are being imposed on employers who are trying to achieve sensible results by the increasingly disorganised bands of labour which represent the unacceptable face of what used to be called the trade union movement?

Mr. Healey

I never complain about having the right hon. and learned Gentleman as the Shadow Chancellor of the Exchequer. That is something which I welcome and I hope that it will continue for many years. On the substance of what the right hon. and learned Gentleman said, the speeches of Conservative Members would be more convincing if they had supported the Government's attempt to achieve settlements in line with what the Opposition say is necessary, had not tied our hands behind our back by robbing us of the sanctions weapon in the private sector, had not pressed consistently for policies that would increase prices, particularly in agriculture, and had not gone out of their way on every occa- sion—and this applies particularly to the right hon. and learned Gentleman—to insult the trade unionists whose support and responsibility they are canvassing.