Inflation

HC Deb 06 November 1980 vol 991 cc1450-2

12. Mr. Norman Atkinson

asked the Chancellor of the Exchequer if he is satisfied that the rate of inflation is now responding to the change in the money supply; and if he will make a statement.

Mr. Biffen

The Government are satisfied that there is a broad and fundamental connection between the growth of monetary aggregates and the rate of inflation; but the variable time lags involved make any correlation imprecise.

Mr. Atkinson

The correlation may be imprecise, but does the Minister agree that since he became Chief Secretary almost 18 months ago the retail price index has increased by exactly 25 per cent., of which no less than 12 per cent. has been the result of policies that he and the Chancellor of the Exchequer have announced to the House? How can the right hon. Gentleman have the hard-necked boldness to say that imprecise calculations of his sort depend upon money supply. the borrowing requirement and the like when his right hon. and learned Friend is already making a meal of the success which he claims in reducing living standards as a result of wage agreements that produce less in percentage terms than the retail price index?

Mr. Biffen

The hon. Gentleman's observations vindicate my having emphasised how imprecise were the relationships.

Mr. Marlow

Will my right hon. Friend say in which industrialised economy inflation is now increasing and in which industrialised economies inflation is now decreasing?

Mr. Biffen

Alas, not without notice. I am sure that that is a very helpful supplementary question.

Mr. Healey

May I help the right hon. Gentleman and tell him that inflation is falling in Switzerland, a country which the Prime Minister purports to admire? Switzerland totally abandoned monetary policy when it found that it was putting Swiss citizens out of work. Will the right hon. Gentleman confirm the view expressed by the director of ICI, Mr. Harvey-Jones, that every cost for which the Government are responsible is rising faster in Britain than in any of the countries which compete with us?

Mr. Biffen

I am grateful for the confirmation that the Swiss economy is still in stout shape. As my hon. Friend the Financial Secretary said to the right hon. Gentleman, there is still a monetary policy in that country. We have Dr. Brunner to remind us how effectively it can be executed. I am not in a position to comment upon the costs of ICI and to what extent they have related to Government policy.

Mr. Healey

May I refresh the right hon. Gentleman's lack of memory? Mr. Harvey-Jones said that every cost upon which the Government can have an effect is rising faster in Britain than in any of the countries that compete with us.

Mr. Biffen

One of the major factors that must be implicit in that calculation is the exchange rate. As the exchange rate, at least in substance, is deriving from the physical presence of North Sea oil, about which the Government can do nothing, I think that it was not a fair or balanced judgment.

Mr. Bruce-Gardyne

Does my right hon. Friend agree that during the last 12 months of the previous Labour Government, when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor of the Exchequer, the rate of growth of real money supply accelerated over the going rate of inflation, and that since that period, as far as we can judge, it has persistently stayed below the going rate of inflation? Is he aware that that explains the present very sharp deceleration of inflation? In the light of that sharp deceleration, is it not essential that the going rate of growth of money supply should contract sharply to remain in consonance with the going rate of inflation?"

Mr. Biffen

I am fascinated by my hon. Friend's analysis of the policy of the right hon. Member for Leeds, East (Mr. Healey). I am aware that the right hon. Gentleman said on 20 July 1977 when he was Chancellor we cannot master inflation unless we have control of the money supply."—Official Report, 20 July 1977; Vol. 935, c. 172–6.]

Mr. Woolmer

Is it not clear that the Government are fighting inflation not by monetarism but by the deliberate creation of massive unemployment? Is he aware that in the Yorkshire region unemployment has increased by 70 per cent. and that West Riding textile towns are collapsing? Does he know that unemployment in Huddersfield has increased by 144 per cent? Is this not the destruction of our manufacturing base? When will the Chancellor stop being complacent and look after the interests of the British industrial worker?

Mr. Biffen

I cannot accept that the Government are pursuing a conscious policy of unemployment. I suggest that the hon. Gentleman does no service to himself or his party by blinding himself with that sort of partisanship. One of the major factors behind present unemployment is the severe constraint operating in the manufacturing sector of the economy, which in turn is partly related to the exchange rate, which in turn is related to the problems of the North Sea, which are not the consequence of Government-designed policies. We are seeing an economy being transformed by the North Sea. That is the signal of the exchange rate. The hon. Gentleman can acknowledge that or retreat into an ostrich hole.