HC Deb 24 January 1980 vol 977 cc621-3
2. Mr John Evans

asked the Chancellor of the Exchequer if he is satisfied with the average level of wage increases.

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I shall not be satisfied until wage and price inflation has been successfully countered. That is why I am determined to continue with firm fiscal and monetary policies.

Mr. Evans

Does the Chancellor realise that the Government in general, and the right hon. and learned Gentleman especially, have been responsible for creating a rate of inflation in excess of 17 per cent.? Surely the right hon. and learned Gentleman has no right to protest about working people attempting to protect themselves by wage increases against the current level of inflation.

Sir G. Howe

The level of inflation is due to many causes including, not insignificantly, the high rate of monetary growth that we inherited from the previous Labour Government. One of the central propositions that must be understood in present circumstances is that no Government can guarantee any worker, or group of workers, the right to pay increases that protect them from the consequences of increases in the retail price index. No automatic linkage has been established. The pay increases that may reasonably be expected depend upon the terms that may sensibly be bargained in the context of the resources of the employing company or the resources of the public sector that is concerned.

Mr. Kenneth Carlisle

Does my right hon. and learned Friend agree that greater incentives for profit-sharing schemes would lead to responsible wage settlements, because the work force would know that it would benefit from the success of the firm and would therefore be likely to show greater restraint in hard times?

Sir G. Howe

I agree with my hon. Friend that anything that helps employees to understand the extent to which their real reward is linked to the success of the organisation employing them must be helpful. On the other hand, pay settlements that companies cannot afford must lead inevitably to higher prices, redundancies or bankruptcies.

Mr. Richard Wainwright

Does the right hon. and learned Gentleman accept that the Government have a prime role to check the disastrously high average rise in earnings in their capacity as the largest employer in the United Kingdom? To that end does the Chancellor agree that the Government should not be led astray by any findings of the Pay Research Unit indicating pay rises for civil servants that go beyond what the country can afford?

Sir G. Howe

The activities and reports of the Pay Research Unit are designed to illustrate, so far as may be done, the facts that are relevant on one side of the equation. I agree with the hon. Gentleman that the other relevant issue is the amount of cash available to the public sector, in whole or in part. As those employed in the private sector must recognise the balance between the security of their employment and the scale of wage increases that they can obtain, so those in the public sector must understand that beyond a certain point higher pay must mean higher rates and taxes or fewer jobs.

Mr. Denzil Davies

Is it still the Government's view that, provided the money supply is kept under control, high wage settlements do not cause high inflation?

Sir G. Howe

That is not and never has been the Government's view. It is a matter of elementary analysis that in the short run a firm monetary policy does not prevent high pay settlements which lead to higher price increases as organisations struggle to recover the cost of high wages. In the aggregate, and over the medium and long run, the ultimate penalty is the reduction of employment and the reduction of jobs.