HC Deb 13 December 1984 vol 69 cc1196-7
6. Mr. Norman Atkinson

asked the Chancellor of the Exchequer how many jobs he estimates would be created by an across-the-board 10 per cent. reduction in wages; and if he will indicate those sections of the economy which would respond most to such a policy.

Mr. Lawson

Each 1 per cent. reduction in the rate of increase of real pay would be likely, in time, to add between 150,000 and 200,000 new jobs.

Mr. Atkinson

Does the Chancellor recollect that on 30 November he proposed the idea that a 1 per cent. reduction in wages would produce 200,000 jobs? Since then, most industrial analysts have said that it is deceitful gibberish to present such ideas when there is not one scrap of evidence to associate reduced wages with job creation? Will the right hon. Gentleman now stop this deceitful performance and tell the nation the truth? The fact is that many of the jobs created since the end of the war have come from firms which pay far above the national average.

Mr. Lawson

Every reputable economist is aware of the straightforward proposition that, just as people can price themselves out of work, so they can price themselves into work. The figures which I have cited are based on an examination of all the available evidence, which I shall publish in due course.

Mr. Maples

Does my right hon. Friend agree that, to the extent that reductions in real wages encourage employers to employ more people, a similar effect could be created by reducing the employers' national insurance contributions, and that that would be a good deal easier to achieve?

Mr. Lawson

I am not too sure about my hon. Friend's last point about it being easier to achieve that effect. I should have thought that it was also a straightforward matter for employers, particularly those in the private sector, to be concerned about the level of pay settlements for which they are responsible.

Mr. Wrigglesworth

Does the Chancellor accept that there is no short-term solution in pay cuts to beat the market leaders of the world in Japan, Germany, and similar economies, where high pay, high productivity and competitiveness are the rules of the day?

Mr. Lawson

As the hon. Gentleman must know, wage costs per unit of output have been going down in Germany and Japan. If we do not achieve the same type of performance, we shall find things increasingly difficult. One of the elements in the equation is an improvement in productivity. That is something that we have been achieving to a remarkable extent. The other side of the equation—moderation in wage settlements—has so far eluded us.

Mr. John Townend

My right hon. Friend tells the House that it is up to private employers to have wage levels that encourage employment. Is it not therefore important that, without any further delay, the Government should announce that they will abolish wages councils.

Mr. Lawson

I understand my hon. Friend's point. As I said earlier, that is a factor that the Government must take seriously.

Mr. Hattersley

Is the Chancellor advocating a reduction in real wages as a serious way of reducing unemployment, or is it simply a debating point? Will he confirm that a return to the unemployment level which the Conservative Government inherited from their predecessors—on his formula— would require a real wage reduction of 13 per cent.? That is very unlikely.

Mr. Lawson

I do not accept the right hon. Gentleman's figures on this or anything else. I am not calling for a cut in real wages. I am calling for real wages to go up less rapidly than they have hitherto. That is what I have made clear time and again.