Inflation (Hansard, 24 January 1985)

§ 1. Mr. Foulkes
asked the Chancellor of the Exchequer if, in the light of the recent falls in the level of the pound sterling, he intends to revise his forecast for inflation this year.

§ The Chancellor of the Exchequer (Mr. Nigel Lawson)
Inflation in the fourth quarter 1984 was 4¾ per cent., as forecast in the Autumn Statement. A forecast for inflation in 1985 will be given in the Budget.

§ Mr. Foulkes
Will that forecast of inflation include the effects of the recently published White Paper on public expenditure, which will put up rents, rates, bus and rail fares, prescription charges, school meal prices and gas and electricity prices? Is the right hon. Gentleman aware that those increases are worrying the people whom the Prime Minister and Chancellor never seem to meet?

§ Mr. Lawson
There is no solution to the problem of inflation by providing subsidies for any of the items to which the hon. Gentleman referred. Gas and electricity prices are scheduled to rise broadly in line with inflation, and not any higher—in other words, there will be no increase in real terms—in the coming year. The White Paper on public expenditure will be fully incorporated in any forecast figure that is given.

§ Mr. Forman
Will my right hon. Friend confirm that not only his forecast of inflation but his best hopes for unemployment coming down are critically dependent on real pay restraint?

§ Mr. Lawson
My hon. Friend is absolutely right in pointing to the importance of real pay restraint. Its importance lies not so much in the sphere of inflation, but in reducing the level of unemployment, which we all want to see.

Mr. J. Enoch Powell
Will the right hon. Gentleman confirm that a fall in the rate of exchange of the pound cannot by itself cause inflation?

§ Mr. Lawson
The right hon. Gentleman is right in the main. Indeed, it is striking that the fall in the sterling-dollar exchange rate through the surge in the dollar against all currencies in the last year has been accompanied by a fall, not a rise, in inflation. However, it affects monetary conditions, and those conditions as a whole must be taken firmly into account in pursuing a sound anti-inflationary policy, to which we are committed.

§ Mr. Phillip Oppenheim
Does my right hon. Friend agree that we would be talking, not about a one dollar pound, but about a 50 cent pound if, in the last five years, we had experienced the debts and inflation that Britain suffered under the last Labour Government?

§ Mr. Lawson
My hon. Friend is absolutely right. As I said, we have been seeing in the last year, and even further back, an extraordinary surge in the dollar, to a grossly over-valued level, against all other currencies. However, if one looks at the pound in terms of the weighted index of non-dollar currencies, one sees that under the Conservatives, since 1979, the pound has fallen by 7 per cent., whereas during the last Labour Administration it fell by 23 per cent.

§ Mr. Robert Sheldon
The Chancellor's policy used to be that the market should decide the level of the pound, even when it went as high as $2.40. As he has intervened in the most direct manner possible through the minimum lending rate and the setting of that rate, may I ask him to explain just what is his policy, because, heaven knows, none of us understands it?

§ Mr. Lawson
The Government's policy is to maintain firm downward pressure on inflation, and it was in that context that the rate of interest was increased recently. As for letting the markets decide, the markets do decide, but the decision taken at the meeting of Finance Ministers and central bank governors of the five leading industrialised countries in Washington last week was that perhaps occasionally it was time for us to be in the market as well.

§ Mr. Kenneth Carlisle
Is it not true that even if inflation remains at 5 per cent, prices will still double every 14 years and that that is unacceptable for a country which seeks stability, so we must try to reduce the rate of inflation further?

§ Mr. Lawson
My hon. Friend is right. We are determined to pursue the policy of getting inflation down still further. I am sure that we shall succeed in doing so by the same policies that have got inflation down from the rising and double figures that we inherited from the Opposition to the 5 per cent, that it is today—indeed, it is rather below 5 per cent.

§ Mr. Blair
Why does the Chancellor of the Exchequer persist in the ludicrous dogma that Government intervention is always wrong and market forces are always right, which he does not believe himself? It was not market forces that intervened to put up interest rates; it was not market forces that set the oil price above the market rate to increase Government oil revenues; and it was not market forces that propped up Johnson Matthey Bankers Ltd. When will the Government intervene positively in the economy to create jobs, and not just to mop up the consequences of their own incompetence?

§ Mr. Lawson
Nobody is always right, not even the hon. Gentleman. I have to tell him two things. Experience shows that, on the whole, it is easier for markets to correct mistakes, even though they make them, than it is for interventionist Governments to do so. The level of employment in this country over the past 12 months has been rising, whereas in our main European competitor countries it has been falling.