Inflation (Hansard, 21 June 1979)

§ 1. Mr. Greville Janner
asked the Chancellor of the Exchequer what is his estimate of the likely rate of inflation for the next six months.

§ 16. Mr. Winnick
asked the Chancellor of the Exchequer what is the estimated annual rate of inflation from May 1979 to the following May.

§ The Chancellor of the Exchequer (Sir Geoffrey Howe)
I expect the annual rate of inflation to increase to above 17½ per cent. by the year end before falling to about 13½ per cent. by the third quarter of 1980.

§ Mr. Janner
Is it not right that, when coming to any such estimate, one must allow for a margin of error of at least 2 per cent., so that it is quite possible that inflation by the end of this year will reach 20 per cent?

§ Sir G. Howe
There are always margins of error in any forecasts, but the hon. and learned Gentleman would be ill advised to make his presumption in that direction in this case. The House must recognise that the kind of change I have described in my expectation is the kind of change which would have followed from a Budget introduced by the right hon. Member for Leeds, East (Mr. Healey).

§ Mr. Winnick
Is it not clear that over the next 12 months the rate of inflation will be well above 20 per cent? What possible moral authority have the Government to ask for restraint from working people when the Budget has well rewarded the rich and the privileged, and all forms of price restraint have been abolished by the Government?

§ Sir G. Howe
The hon. Gentleman should not continue enthusiastically to expect and hope for and, indeed, encourage the worst expectations. He should recognise, as most people in the country do, that the Budget produces very substantial reductions in direct taxation for taxpayers at every level, that it releases 1475 1,300,000 people from the obligation to pay tax, and that for those dependent on social benefits it produces very substantial increases—the largest in money and real terms ever given.

§ Mr. Bruce-Gardyne
Does not my right hon. and learned Friend agree that the rate of inflation this winter will reflect to a considerable extent the rate of growth in the money supply 18 months previously and changes in the exchange rate up to six months previously? If that is the case, does it not follow that the figures in the Red Book are really worth very little more than the estimates of Old Moore's Almanack, a cheap production of private enterprise? In those circumstances, what in God's name is the point of publishing it?

§ Sir G. Howe
My hon. Friend is right to draw attention to the impact of the money supply on the likely outlook for inflation. It is right to underline the qualification plainly set out in the Red Book about the very wide margin of error contained in that document.

§ Mr. Alfred Morris
Even before this further shocking increase in inflation, is the right hon. and learned Gentleman aware that already there have been some tragic victims of his increases in value added tax and the minimum lending rate? Is he aware that Motability, the organisation which exists to help disabled people have cars, has now ceased to trade? Is this not disgraceful and scandalous? What does he intend to do to save an enterprise of which the Prime Minister herself is a patron?

§ Sir G. Howe
The right hon. Gentleman must understand that the prospect for inflation in the light of what was happening to the money supply and the control of the money supply when this Government came into office was set on a bad course anyway. We inherited a very substantial difficulty. The House knows that Motability was supported by my right hon. Friend the Prime Minister and, indeed, by right hon. and hon. Members on both sides of the House. Certainly, the hazards referred to by the right hon. Gentleman are under examination, and we want to examine the prospects as sympathetically as we can.

§ Mr. Latham
Will my right hon. and learned Friend confirm that in 1476 August 1975, after 16 months of Labour Government, the inflation rate was 26.9 per cent.? Why should any housewife listen to grumbles from the Labour Party in this matter?

§ Sir G. Howe
My hon. Friend is entirely right to underline the disastrous record of the last Administration. I remind the House yet again of the extent to which this incoming Government inherited substantial difficulties created by the last Administration.

§ Mr. Healey
Does not the right hon. and learned Gentleman agree that he told us himself last Tuesday that his Budget measures—the increases in indirect taxation, the increase in mortgage rate and the increase in rents, rates and public sector charges as a direct result of the Budget—would increase the retail price index by 5 per cent.? Was it not insane, if he believes that inflation is set on a rising course, to produce a Budget of this nature to finance tax cuts which benefit mainly the better off?

§ Sir G. Howe
The right hon. Gentleman protests too much and protests in vain. He knows that the direct effects of the Budget did not produce price changes on anything like that scale. More important, he knows that if he was to achieve his own target for the public sector borrowing requirement he would have had to introduce increases in indirect taxation and increases in nationalised industry prices that would have produced at least equivalent increases in prices without any offsetting advantage in the form of lower taxes.

§ 5. Mr. Rooker
asked the Chancellor of the Exchequer what is the latest rate of inflation as measured by the retail price index.

§ 8. Mr. Neubert
asked the Chancellor of the Exchequer what is the latest annual rate of inflation.

§ 18. Mr. Knox
asked the Chancellor of the Exchequer what is the annual rate of inflation.

§ Sir Geoffrey Howe
The retail price index rose by 10.3 per cent. over the 12 months to May 1979.

§ Mr. Rooker
Does the Chancellor realise that if the increase continues, as forecast, to 17 per cent. or 18 per cent., the cost of indexing personal allowances, when he comes to draw up his Budget next April, will be more than £2 billion, which exactly matches the extra VAT, or will he adopt, as an excuse, the fact that the Government raised personal allowances more than required this year and use the Lawson part of the Rooker-Wise amendment to get out of their obligations, so imposing a worse burden on working people?

§ Sir G. Howe
The hon. Gentleman should not make the worst assumptions about the way in which the rate is likely to move. The rest of the Government's policies are designed to secure a reduction in the rate of inflation. I have already indicated the expectation that one can have for a year beyond that. The success of that policy in securing a reduction in inflation, together with a sensible outcome in terms of employment, depends to a considerable extent on the way in which people are prepared to bargain pay responsibly during the year which lies ahead.

§ Mr. Neubert
While I commend my right hon. and learned Friend for his evident intention not to be deterred from taking the right decisions for the economy by the prospect of a rise in the RPI, may I point out that there remains a serious problem of presentation to the public? Will he consider publishing, in addition to the cost of living index, a standard of living index which would, for example, present the increases in VAT in the perspective of reductions of tax at all levels?

§ Sir G. Howe
My hon. Friend's point is of course important. It is important for people to understand the offsetting effect of the substantial reductions in personal taxation and the extent to which the change in the retail price index is a change once for all, while those income tax cuts are taking place. We shall give consideration—indeed, we are already doing so—to the suggestion my hon. Friend makes.

§ Mr. Knox
Does my right hon. and learned Friend agree that the figure that he has given shows how false were the 1478 claims made in the election campaign by the Labour Party that the then Government had inflation under control? By how much does he expect prices to rise in the next 12 months as a direct consequence of the policies of the former Chancellor of the Exchequer?

§ Sir G. Howe
My hon. Friend is right to remind the House of that. The former Chancellor had forecast that price inflation could be rising by 13 per cent. now as a result of what had happened so far, and that that could be increased by changes in the price of oil. As I have already said, the plans which would inevitably have been contained in the Budget which, to his relief no doubt, the right hon. Gentleman never had to introduce would have involved an increase in the RPI at least comparable to that which I announced last week.

§ Mr. Healey
The right hon. and learned Gentleman really cannot get away with that. The fact is that he will spend £2,000 million in the coming year in cutting the standard rate of tax and giving £600 million worth of relief to those on the higher rates. It is because he has to finance that £10,000 million—[HON. MEMBERS: "Ask a question."] Is it not the case that this is the reason why he is increasing the RPI at a stroke by 5 per cent. in his Budget?

§ Sir G. Howe
The right hon. Gentleman, characteristically, underlines the folly of his own position. The reality about the Budget that he would have had to introduce is that he would have been making increases in indirect taxation to produce these increases in the RPI, without any reductions in the burden of income tax corresponding to those that I have made. The greater part of the reductions go in the improvement of thresholds and the reduction of the basic rate.

§ Mr. Hordern
Since the most important part of the Financial Statement is that dealing with economic forecasts, and since the forecasts say that past errors should not be treated as a guide for future errors, what is the purpose of publishing these inflation forecasts anyway?

§ Sir G. Howe
My hon. Friend will recollect that there is a legal obligation to publish the document and those forecasts 1479 in this way. However, I agree with him that the increasing experience about the margin of error of forecasts of that kind casts some doubt on the value of making them.

§ Mr. Ashley
Since the poor suffer most from inflation, has the right hon. and learned Gentleman's attention been drawn to the statement of the chairman of the Supplementary Benefits Commission, in which he said that people living in poverty will have their standards reduced unless £200 million is found for them? Will he comment on that statement please?

§ Sir G. Howe
It is for my right hon. Friend the Secretary of State for Social Services to comment on that specific matter, but I remind the right hon. Member that, as a result of the changes announced last week, benefits are being increased by substantial sums and a large number of the poorer lower paid are being taken out of the tax system altogether. No doubt my right hon. Friend will give further consideration in due course to the report produced by the SBC.