HC Deb 08 April 1982 vol 21 cc1079-81
11. Mr. Richard Wainwright

asked the Chancellor of the Exchequer what is the basis for his assumption stated in the Financial Statement and Budget Report 1982–83 that real output will grow by an average of 2½ per cent. a year in 1983–84 and 1984–85.

Sir Geoffrey Howe

The basis for the assumption is the substantial moderation in the forecast rate of inflation to mid-1983, which is assumed to continue thereafter, together with the prospect of a gradual recovery in the world economy.

Mr. Wainwright

Is the Chancellor not aware now, even if he was unaware when he read the Budget Report in which these assumptions were published, that so far as reducing inflation is concerned, all the other four major forecasting units, on whose work he relied in an answer that he has just given, forecast a different trend of inflation—one that would start rising again in 1983–84? As to the right hon. and learned Gentleman's second basis for his assumption, a gradual recovery in world trade, does he not consider that that is very much under the shadow of the present trend of the economy in the United States, not to mention some other parts of the world?

Sir Geoffrey Howe

It is true that in the past the more buoyant output that is in prospect has often been associated with a re-acceleration of inflation, but I am confident that further control of monetary growth, a responsible fiscal stance and continued moderation in pay settlements—which I know the hon. Gentleman regards as important—will enable progress against inflation to be sustained. Of course, as I said in answer to a previous question, the United States economy is one component that may affect the prospects of the world economy. On the other hand, to place on the favourable side of the balance there are the consequences that will follow from a fall in oil prices around the world.

Mr. Cook

Does the right hon. and learned Gentleman agree with the conclusion of the Select Committee on the Treasury and Civil Service that half of his forecast increase in GDP is attributable to a remarkably convenient drop in the statistical adjustments? Even if that happy windfall materialises, the Select Committee, as the Chancellor will accept, concluded that unemployment will remain constant at over 3 million over the forthcoming three years. The Select Committee had the grace to be disturbed by that. Is the Chancellor also disturbed by that likely outcome over the next three years?

Sir Geoffrey Howe

As the hon. Member knows, in all these matters statistical adjustments have to be made on a pattern compatible with previous analyses. As I have already said, other forecasts, quite apart from that made by the Treasury, also support the conclusion that output is likely to grow along the path suggested in the Financial Statement and Budget Report.

I am sure that the whole House shares the concern of the hon. Gentleman about the prospects of unemployment and the difficulty of the task of securing a sustained reduction, but the key to higher employment is, above all, improvement in industrial competitiveness, profitability and sustained moderation in pay bargaining. I hope to have the support of the Labour Party for all those three propositions.

Mr. Horam

Is not the real worry about these output assumptions over the next two years that they imply only a levelling-off of the present high level of unemployment around 3 million for the United Kingdom, school leavers excluded? That is during a period of recovery. Does not this mean that at the next downturn in the economy we shall move to unemployment higher than 3 million, which implies that we are in a treadmill of ever higher unemployment as a result of the Government's policies?

Sir Geoffrey Howe

The hon. Gentleman has studied this matter too carefully to believe the appendage to his last sentence. The problem of sustaining growth in employment in this country has been with us for a long time under successive Governments. The answer must lie with the improvement in the actual performance of those who create wealth in the economy—those who manage British industry and those who represent the work force in pay bargaining. The prospects of improvement are likely to be fulfilled because we are already seeing substantial changes in their behaviour. Output and exports have been holding up much better than previous evidence might have suggested. It was common ground in the discussions of the National Economic Development Council yesterday that we need to go on securing those changes of behaviour if we are to secure the prospects for improved employment to which the hon. Member referred.