HC Deb 02 July 1981 vol 7 cc995-6
8. Mr. Dormand

asked the Chancellor of the Exchequer when he now expects to see a substantial improvement in the economy.

Sir Geoffrey Howe

There is now increasing evidence that output has stopped falling. The prospect is for some recovery over the next year or so. Progress will largely depend on the extent to which we continue to improve United Kingdom competitiveness through more effective control of domestic costs.

Mr. Dormand

Does not the Chancellor of the Exchequer realise that the further round of public expenditure cuts which he proposes could be self-defeating, even for the crazy economics of this Government? Will he comment on the reports that that is also the view of the Treasury? In view of recent developments, will he say whether he is revising monetary targets and at the same time proposing a return to high interest rates?

Sir Geoffrey Howe

I do not know why the hon. Gentleman should imagine that I should want to do the last thing to which he referred. Announcements about monetary targets were made at the ordinary time and in the ordinary way. There is no truth in the suggestion that the case for reducing public expenditure is doubted in my Department. It is overwhelmingly clear from what is being done in other countries besides ours—for example, in Western Germany or Denmark—that there is clear recognition that unduly high public expenditure means unduly high interest rates, unduly high inflation and unduly high unemployment.

Mr. Forman

Since it is vital that the chances of substantial economic recovery are not vitiated by lack of competitiveness and excessive pay settlements, will my right hon. and learned Friend look again at the imaginative proposal for a wider economic forum which was contained in our manifesto at the last election? Can he say something today to give me and the House hope that we may act upon it?

Sir Geoffrey Howe

I hope that my hon. Friend will appreciate that, for example, the discussions which we have regularly with the National Economic Development Council are directed to such an end. I am anxious to find every opportunity of extending discussion about the link between unduly high pay settlements and unduly high unemployment and to take every opportunity of extending the case for improving our productivity and competitiveness.

Mr. Norman Atkinson

Will the Chancellor of the Exchequer reconsider the claim which he has just made, that the most successful part of his policy has been the reduction in prices and the bringing down of inflation? Does he not agree with the Treasury's figures, which show that he was responsible for pushing up the index by 11 per cent. in his first year of office and by 6½ per cent. in the second year? Therefore, is he not now saying that the most succesful part of his policy is reducing the damage in price increases which he has imposed?

Sir Geoffrey Howe

The hon. Gentleman has got it precisely wrong. When we came into office the rate of inflation was rising fast and at the same time we were going through the consequences of the collapse of the last Government's pay policy, contributing to an explosion in pay settlements in the public and private sectors. It has taken us two years to overcome those handicaps, which we inherited from the last Administration.