HC Deb 27 January 1983 vol 35 cc1044-5
7. Mr. Foster

asked the Chancellor of the Exchequer what prospects he sees for the recovery of the economy.

Sir Geoffrey Howe

Although developments in the world economy have continued to hold back recovery at home, average GDP was 0.75 per cent. higher in the first three quarters of 1982 than a year earlier. Lower inflation and better productivity are providing a basis for a strengthening and sustainable recovery. The forecast published in the autumn statement was for growth of 1.5 per cent. in GDP in 1983.

Mr. Foster

Is the Chancellor aware that his absurd wild goose chase after sound money has imposed the lowest level of industrial production for 17 years? Why does he not now abandon his three-year mirage hopping predictions of recovery and argue for a co-ordinated boost for demand in the Western world and give some hope of jobs to my constituents in the northern region?

Sir Geoffrey Howe

I understand, and the House understands, the emphasis that the hon. Gentleman places on the prospects for sustainable growth in employment. However, I remind him that during the first two years of his Government, which the right hon. Gentleman the Leader of the Opposition described as a period of signal success, unemployment doubled, while inflation rose by 27 per cent. and earnings rose by 30 per cent., and it was only after reference to the IMF that the policies could be put back to a sensible form. This is the first Government since the war to pass on a lower average rate of inflation than they received from their predecessors. We do not intend to change that.

Mr. Roy Jenkins

If the right hon. and learned Gentleman persists in regarding the lower rate of inflation as almost the only factor necessary for recovery for this and other economies, will he explain why the inter-wars period, which was a period of low, sometimes zero, inflation, and sometimes negative inflation, was so markedly less successful economically than the 25 years from 1948 to 1973?

Sir Geoffrey Howe

The right hon. Gentleman could draw a number of different conclusions from that analysis. He must recollect that inflation was falling at the beginning of the 1930s. The 1930s was, in fact, a period of little, or zero, inflation. We have experienced one of our most substantial growth periods during this decade. I must remind the right hon. Gentleman that since the spring of 1981 growth in this country has been moving forward, in contrast to that in almost every country in the summit seven. It is by laying the foundation to bring down inflation and by continuing to improve other supply conditions in the market, including emphasis on the need for pay moderation, that we shall secure both growth and sustainable employment.

Mr. Rippon

My right hon. and learned Friend referred to the state of the world economy. Can he say what action the Government are taking to follow up the suggestion of the United States Secretary of the Treasury that there should be a new Bretton Woods-style conference to bring about greater monetary stability and to stimulate world trade?

Sir Geoffrey Howe

The suggestion of the United States Treasury Secretary for a new Bretton Woods-style conference is not to be taken literally, for very sensible and practical reasons. There is no purpose in our trying to reassemble a conference of the kind which, at the end of the war, established the present international financial institutions, when they are already in place. We need, of course, to improve and strengthen them. It is that among other things to which I shall be devoting my attention as chairman of the interim committee. One objective—it was among those set out at Bretton Woods—is to move towards a world of greater stability of exchange rates. That, again, is something that I shall have in mind.

Mr. Shore

The right hon. and learned Gentleman must be aware that in talking of the international trade prospect, which is undoubtedly very gloomy, the pursuit of his own policies in the last three-and-a-half years, and the active advocacy of those policies to other countries, means that he has contributed in a marked degree to the world recession about which he now complains. In recalling what he sees as the record of his Government, is he not aware that GDP in this country has fallen by 5½ per cent. since the second quarter of 1979? Can he think of any other country in the world, let alone a country that has become an oil exporter, that has suffered anything like a comparable disaster in the same period?

Sir Geoffrey Howe

The right hon. Gentleman knows that the growth performance of this country over many years has been significantly below that of other countries. It is therefore inevitable that, at a time when growth throughout the world is falling, we should suffer initially more seriously because of our history. I come back to the fact that our growth performance now shows the prospect of moving ahead of other countries. It is virtually universally agreed that until the world succeeds in establishing success against inflation it will not be possible to lay the conditions in which growth can begin to be resumed. It is on that basis that the world outlook is now beginning to improve.