Inflation (Hansard, 30 April 1981)

§ 17. Mr. Dykes
asked the Chancellor of the Exchequer if he is satisfied with the latest figures for the rate of inflation.

§ Sir Geoffrey Howe
I refer my hon. Friend to the reply that I gave earlier to the questions from my hon. Friend the Member for Leek (Mr. Knox) and the hon. Member for Sheffield, Hillsborough (Mr. Flannery).

§ Mr. Dykes
My right hon. and learned Friend has said that he hopes from now on to see a revival in the economy. As most of the increase in the deficit is made up of unemployment payments, and as the margin of spare resources is now so large, does he agree that the revival should come as soon as possible? My right hon. and learned Friend cannot, however, rely simply on the private sector and the "hidden hand". There will be need for Government action and intelligent new public investment.

§ Sir Geoffrey Howe
There is a case for intelligent public investment, but it must always be undertaken in the context of maintaining proper and effective control of the totality of public spending and borrowing.

§ Mr. Joel Barnett
When the Chancellor planned his policies to deal with inflation, did he know that they would also increase unemployment to 3 million and beyond? Did he plan that also?

§ Sir Geoffrey Howe
No, but I recollect that 12 months ago the right hon. Gentleman forecast that inflation today would be running at a rate of 20 per cent. It is running at substantially less than that.

§ Mr. David Atkinson
Does my right hon. and learned Friend accept that further devaluation of the pound will lead to an increase in the cost of living? Does he agree that there is no reason why British manufacturers should not now successfully compete abroad with the Germans and the Japanese, despite a high interest rate?

§ Sir Geoffrey Howe
There is, clearly, a connection between the exchange rate of the pound and the level of domestic inflation. My hon. Friend is right to draw attention to that. The exchange rate is now about 7 per cent. down in its effective rate from its peak at the beginning of the year. Undoubtedly that factor contributes to the improving outlook of British industry.

§ Dr. Bray
Has the Chancellor considered his response to Professor Meade's suggestion of a measure of reflation, conditional upon some agreement about incomes with other interests in the nation?

§ Sir Geoffrey Howe
I agree that that is Professor Meade's suggestion. It is dependent upon agreement between the Government and a rather massive collection described as the Labour Party and the trade union movement. As that set of organisations, both in Government and in Opposition, have the utmost difficulty in agreeing among themselves, it would be hazardous for the Government to embark upon that course.