HC Deb 28 November 1985 vol 87 c1008
13. Mr. Andrew MacKay

asked the Chancellor of the Exchequer if he will make a statement about the current level of inflation.

Mr. Lawson

During the 12 months to October 1985, the retail prices index increased by 5.4 per cent.

Mr. MacKay

Does my right hon. Friend agree that some pay increases in the private sector, which have been excessive and not linked to productivity, will not only increase inflation but will affect our efficiency and productivity and the drive for jobs?

Mr. Lawson

I agree with my hon. Friend that if private employers had a firmer grip on their costs, especially wage costs, it would benefit their companies, the ecomony, and, above all, the creation of employment. I was glad to hear the CBI preach that message loud and clear.

Mr. Skinner

Is not one of the most worrying aspects of inflation the fact that, according to the Government's figures, inflation is running at 5.4 per cent., yet interest rates remain in double figures? In some markets, 13 and 14 per cent. rates are obtainable. Is not the real inflation rate the difference between the Government's figure and real interest rates? That is the problem that the Government must handle. During their tenure of office that gap has been twice as large as it was under the Labour Government.

Mr. Lawson

It is perfectly true that although the Government have succeeded in reducing inflation to a low rate, which is coming down even further, under the Labour Government inflation went up so high that real interest rates were negative. That is nothing to be proud of.

Mr. Freeman

Does my right hon. Friend agree that under SDP policies—the SDP is not represented in the Chamber this afternoon—the current rate of inflation would increase significantly? If we reflated, we would not reach a maximum rate of inflation of 7½ per cent., as the SDP forecasts, but a rate substantially greater than that.

Mr. Lawson

My hon. Friend is right. The chief economic spokesman for the SDP said recently that an increase in inflation to 7½ per cent. would be a good idea. My hon. Friend is right to say that it would not stop there, but would go much higher. The only question that I cannot answer is: where are SDP Members today?

Mr. Ron Brown

It is abundantly clear that the Government have not solved the inflation problem. Is the Chancellor aware that his 1979 pound is now worth 53p? He seems to believe in mini-Budgets, mini-wages and mini-money.

Mr. Lawson

Inflation has not yet been reduced to zero, but I am glad to say that we are heading gradually in that direction.