Inflation

HC Deb 22 May 1980 vol 985 cc702-5

14. Mr. Robert Hughes

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

21. Mr. Canavan

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

Sir Geoffrey Howe

The retail price index rose by 21.8 per cent. over the 12 months up to April 1980. A better indication of the underlying rate will appear when the once-and-for-all effects of last year's VAT increase drops out of the arithmetic in July.

Mr. Hughes

Will the Chancellor of the Exchequer say how public services such as the National Health Service and local government can possibly be expected to meet the cash limits set by the Government on a basis of 14 per cent. inflation since, to average that figure over the year, inflation at this time next year will have to be as low as 7 per cent.? Does the right hon. and learned Gentleman believe that there will be a 7 per cent. inflation rate at this time next year? If not, will he guarantee to protect these public services against the ravages of inflation created deliberately by the Government?

Sir G. Howe

It is not possible to guarantee protection for this, that or any other sector of the economy, or the community, against the ravages of inflation. It is crucial to continue to achieve a reduction in the cash expansion of public expenditure. It is worth noting that one of the contributory factors to the substantial cost of the Health Service is the very substantial increase in salaries payable in that service.

Mr. Canavan

Now that the Government's insane monetarist policies have succeeded in doubling inflation over the past 12 months, why do they not do the logical thing and try a prices freeze? Does the Chancellor seriously expect public sector workers to accept wage rises less than the rate of inflation, especially after Government attempts and press attempts to disparage the trade union movement?

Sir G. Howe

The hon. Gentleman should notice that we are almost the only industrial country that has not accepted a rate of pay increase several percentage points below the rate of price increase. It is inevitable that there should be that relationship between prices and earnings growth, particularly in this country where, over the past three years, pay has risen 12 per cent. more than prices at a time when output has grown by only 5 per cent. One has to face the realities of economic life.

Mr. Tapsell

Has my right hon. and learned Friend given consideration to the possibility of strengthening the purely qualitative advice to banks and other institutions on their lending decisions?

Sir G. Howe

I have given consideration to that. The lesson of places where it has been tried and of times when it has been tried in this country is that it tends, in due course, to produce distortions and lead to alterations in the pattern of bank lending that are not sustained. There is, in the end, no escape from the discipline of price in controlling the availability of money.

Mr. Healey

Does not the Chancellor agree that it argues disgraceful incompetence that a Minister who has made his main purpose the bringing down of the rate of inflation should have seen it more than double in his first 12 months in office to the highest level in the industrial world, higher than Italy? Does he not agree that it would be 3 per cent. or 4 per cent. higher still were it not for the 18 per cent. increase in the real value of the pound that is crippling British business?

Sir G. Howe

One of the misfortunes of the right hon. Gentleman is that while holding his present shadow office, he has to live down his record in real office. I cannot understand how he is able to make that kind of assertion. He knows better than anyone the extent to which monetary policies over the 12 months before we came to office are the main cause of our problems.

Mr. Richard Wainwright

Will the Chancellor accept that further persistence of this rate of inflation will consolidate public expectations of continuing inflation? It is, therefore, of urgent importance to introduce an incomes policy with the authority of this House.

Sir G. Howe

I accept fully that it is important to secure, as steadily and swiftly as possibly, a reduction in the rate of inflation and a reduction in such expectations. I have pointed out previously that the first step in that direction is likely to take place between July and August. I am afraid that the hon. Gentleman will find only a modest degree of support on both sides of the House for the proposition that an incomes policy is likely to be a long-lasting step in that direction.

Mr. Latham

Is it the collective view of Treasury Ministers that in the next wage round in the public sector a good example must be set by the Government.

Sir G. Howe

It is the collective view of everyone who has given serious consideration to the subject that, as an essential part of reducing inflation, the public sector must play a role in securing progressively lower rates of pay settlements. It is most important, as my hon. Friend says, that this should be achieved.

Mr. Heffer

In view of rising inflation, rising unemployment, the fact that the balance of payments is as bad as ever and that interest rates are as high as ever and not likely to go down, will not the right hon. and learned Gentleman consider that the monetarist policies of the Government might be wrong?

Sir G. Howe

I will consider any suggestion made by the hon. Gentleman with the respect to which it is entitled. It must be clear by now that the impact of monetary policies on inflation and the state of the economy is bound, as the right hon. Member for Leeds, East (Mr. Healey) has frequently pointed out, to take time.