HC Deb 25 July 1985 vol 83 cc1289-91
1. Mrs. Virginia Bottomley

asked the Chancellor of the Exchequer what is the range of estimates he has received from major outside forecasters for the likely rate of inflation by the end of 1985.

8. Mrs. Rumbold

asked the Chancellor of the Exchequer what is the range of estimates by major outside forecasters available to him for the likely rate of inflation by the end of 1985.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

The main outside forecasters on average estimate that inflation as measured by the retail prices index will fall from 7 per cent. now to below 6 per cent. by the end of the year and to 4½ per cent. by the middle of next year.

Mrs. Bottomley

Is this not good news for pensioners, for those looking for work, and for the low-paid, remembering that inflation fuels panic in the elderly, disrupts our competitiveness and gives rise to disputes in pay bargaining? May we be told the average rate of inflation during the past six years compared with the previous five, which included the Lib-Lab pact? Can my right hon. Friend confirm that countries with low rates of inflation also achieve low rates of unemployment?

Mr. Lawson

I agree entirely with what my hon. Friend said—she put it exceptionally well. The answer to the question that my hon. Friend was kind enough to include in her supplementary is that since the Conservative Government took office in 1979 inflation has averaged 9½ per cent. as against 15½ per cent. during the lifetime of the previous Labour Government.

Mrs. Rumbold

In the light of my right hon. Friend's sensible response to the question put by my hon. Friend the Member for Surrey, South-West (Mrs. Bottomley), if he were to increase public sector expenditure by putting more money into capital expenditure and the infrastructure, what response would he get from the forecasters of the rate of inflation in the short-term, medium-term and long-term?

Mr. Lawson

There would be no problem if the increased expenditure on infrastructure were on projects which brought a satisfactory rate of return and were offset by reductions in current expenditure, but those who put forward such proposals seldom, if ever, specify which expenditure should be reduced.

As for the proposals of the Labour party to which my hon. Friend may have been referring, I recall that when the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was on the same radio programme as I was some time ago he said that if a Labour Government were to be returned inflation would rise. He did not say—this is an interesting omission—how much it would rise.

Mr. Wainwright

When will the Chancellor of the Exchequer respond to the CBI's request today to come out of his bunker and attack inflation by dynamic means rather than giving the country the worst of all worlds by sticking to negative and purely defensive measures?

Mr. Lawson

I note that the director general of the CBI has temporarily recovered the use of his bare-knuckle script writer. I assure the hon. Gentleman that, as I said in my answer, the rate of inflation is coming down, and coming down well. Whether or not that is dynamic, it is certainly not static.

Mr. Skinner

If the Chancellor of the Exchequer feels it necessary to brag about the rate of inflation being lower than previously, why is it necessary for the Government to give Sir Robert Armstrong an extra £24,000?

Mr. Lawson

That matter has been fully debated in the House and has nothing whatever to do with the rate of inflation.

Mr. Budgen

Will my right hon. Friend confirm that the Government's principal objective is still to reduce inflation by monetary means? Will he reassure the House that the Government have no intention of joining the fashionable cry for internationally co-ordinated reflation, justified by the desire to reduce the value of the dollar against other currencies?

Mr. Lawson

I am not quite sure about all the ins and outs of my hon. Friend's unusually convoluted question. He is normally direct and succinct. As for the question of the dollar, on which my hon. Friend ended, I think that it would be healthier for the world economy if the disequilibrium in the United States were to be corrected by some further fall in the Foreign exchange parity of the dollar. Indeed, that appears to be the view of the American Government also.

Dr. McDonald

Is the Chancellor aware that his knockabout replies are no answer to the serious questions put to him by the CBI? If he really thinks that inflation is falling, why does he not, in the words of Sir Terence Beckett, abandon economic policies which harm our exports and encourage imports"?

Mr. Lawson

Exports are at an all-time high. Indeed, the latest figures for non-oil exports are running at 10 per cent., in real terms, above a year ago. The hon. Lady should withdraw her ill-informed question.