HC Deb 24 January 1980 vol 977 cc625-8
5. Mr. Winnick

asked the Chancellor of the Exchequer when he expects the rate of inflation to fall substantially.

Sir Geoffrey Howe

The Government's firm fiscal and monetary policies will, over time, bring about a progressive reduction—

Mr. Healey

When?

Sir G. Howe

The right hon. Member for Leeds, East (Mr. Healey) is easily amused in his non-responsible position.

I emphasise the words "over time". The policies will bring about a progressive reduction in the rate of inflation. Nobody was more willing to assert the necessity for time to elapse between the implementation of monetary policy and its impact on inflation than the right hon. Gentleman when he held a position of responsibility.

The sooner that is appreciated by wage bargainers, and the upward pressures on costs in the United Kingdom are relieved, the sooner we can look forward to a sustained reduction in inflation and a rising trend in United Kingdom output.

Mr. Winnick

Who is really in charge of the Treasury—the right hon. and learned Gentleman or the Chief Secretary? Is it not the case that it is the Government who are largely creating inflation by the constant and substantial increases in prices and charges as well as in the present minimum lending rate?

Sir G. Howe

I am sure that my right hon. Friend the Chief Secretary is happy to cede to me the ultimate responsibility for management of the Treasury. I am happy to say that, together with my other right hon. and hon. Friends, we make a happy and harmonious team. The House must understand that monetary policy, effectively pursued, is fundamental and crucial to the conquest of inflation. It must take time to take effect. This will happen more effectively and more easily once people understand the consequences for pay bargaining and unemployment of failing to heed such a message.

Mr. Dykes

Is the Chancellor aware that, according to my right hon. Friend the Chief Secretary, it is not only money supply that is important? Can my right hon. and learned Friend now say what other factors have become more important recently, and why?

Sir G. Howe

No factor has become more or less important recently. It has been central to the case that I have asserted that monetary policy is fundamental. It is not, by itself, sufficient if people do not understand the impact of monetary policy on the environment in which they are bargaining, and seek to press for pay increases that are beyond those which the employer can afford. That would introduce an element making it more difficult for prices to fall. That is one illustration of many. All inflationary expectations have to be effected down wards by the sustained application of monetary discipline, as the right hon. Member for Leeds, East (Mr. Healey) was often in the habit of telling the House. The facts have not changed. The fundamental economic principles have not changed. We shall continue to pursue those policies so long as it is necessary for them to prevail.

Mr. Denzil Davies

Is not the Chancellor aware that since the Government came into office they have put up prices by at least 8 per cent.?

Mr. Lawson

Rubbish.

Mr. Denzil Davies

It is no good the Financial Secretary saying "Rubbish". The Government have consciously put up prices by 8 per cent. If the Government are really concerned about inflation they would not have done so. What action will the Government take to stop prices rising to 20 per cent. or more?

Sir G. Howe

The figure advanced by the right hon. Gentleman, as he knows, is total and complete rubbish. If one looks at it as amatter of elementary statistics, the rate of price increases when we came into office was running just below 13 per cent. per year. The figure has not yet risen half-way beyond that to the figure suggested by the right hon. Gentleman.

The right hon. Gentleman might address his mind to the fact that a significant contribution to the retail price index increase will arise from the increase in minimum lending rate, as it manifests itself on mortgage interest rates. That is a consequence of the high size of public borrowing and public spending. I wel- come very much the prospect of the right hon. Gentleman's support in reducing excessive public spending and excessive public borrowing.