HC Deb 20 March 1980 vol 981 cc632-4
13. Mr. Parry

asked the Chancellor of the Exchequer what is the current rate of inflation.

Sir Geoffrey Howe

The year-on-year increase in the retail prices index up to February 1980 was 19.1 per cent. That figure overstates the underlying rate of inflation, since it includes the once-and-for-all impact of the shift from direct to indirect taxation in last year's Budget. A better guide to changes in taxpayers' costs is the tax and price index, which rose by 16.9 per cent. in the same 12 months.

Mr. Parry

Is the Chancellor of the Exchequer proud of his achievement of almost doubling inflation in less than a year? Has he any positive plan to control inflation during the next 12 months? If not. will he do us all a favour, and resign before next week's Budget?

Sir G. Howe

Surely the hon. Gentleman understands the extent to which the rise in inflation is caused partly by the accelerating growth rate in the money supply which we inherited from the previous Labour Government. It is caused partly by the rise in energy costs that has taken place throughout the world. That is demonstrated by the fact that the average level of inflation in all OECD countries has risen by 4½ per cent. in the same 12 months. I assure the hon. Gentleman that he may have more confidence in the policies of this Government than in those of the preceding one.

Mr. Tapsell

Is it a cause of satisfaction or concern to my right hon. and learned Friend that the latest figure on the savings ratio shows that it has increased yet further to the unprecedentedly high level of over 20 per cent?

Sir G. Howe

It is not a factor that in itself causes me either great concern or exhilaration.

Mr. Healey

Surely the Chancellor of the Exchequer is aware that the 6 per cent. increase that has taken place in the savings ratio since the June Budget is equivalent to a £12 billion fiscal deflation? If that does not concern him, it should. As he believes that Government increases in indirect tax, or increases in public sector charges have no effect on what he comically calls, "the underlying rate of inflation" are we to understand that we are to get another dose of the same in next week's Budget? Will there be a further increase in indirect taxation and further increases in public sector charges?

Sir G. Howe

Even at the request of the right hon. Gentleman, I shall not anticipate next week's Budget Statement. There has been no change in the underlying savings ratio. Any temporary increase has been largely created by the increased savings that resulted from cuts in income tax, made in last year's Budget.

Mr. Healey

Does the right hon. and learned Gentleman recall that the Government published an increase of 4 per cent., from 13 per cent. to 17 per cent., for the third quarter, before increases in tax had taken effect? We now hear that there is to be a further increase, to 20 per cent. If the Chancellor of the Exchequer is not prepared to take the question seriously, will be consult his hon. Friend the Financial Secretary to the Treasury who argued that in such a situation we should allow the public sector borrowing requirement to rise, at least in money terms?

Sir G. Howe

I do not know where the right hon. Gentleman gets his facts. In the first three quarters of last year, the savings ratio was 15.1 per cent.; about the same as that in the preceding year. It has now risen to about 16 per cent.

Mr. Jessel

If the retail price index is supposed to be a measure of inflation, why does it contain items such as tomatoes? Such items are highly seasonal. They are particularly expensive at this time of year. Does my right hon. and learned Friend agree that many people choose substitutes and that the retail price index is, therefore, not an accurate reflection of ordinary household expenditure?

Sir G. Howe

There are many components to the retail price index. Many of them can be escaped by a skilful buyer as they move from one level to another. I am glad that my hon. Friend is so adept at observing such factors and will refrain from eating tomatoes in the near future.