HC Deb 19 June 1986 vol 99 cc1184-5
5. Mr. Proctor

asked the Chancellor of the Exchequer when he expects the economy to achieve a negative rate of inflation; and if he will make a statement.

Mr. Lawson

The Government's objective is stable prices.

Mr. Proctor

My right hon. Friend will be aware of the negative rate of inflation in West Germany, one of our major international industrial competitors. Will he give a commitment that the rate of inflation in this country will remain in low single figures? Does he agree that only if that inflation rate remains in low single figures for a considerable period will the real benefits of low inflation bear fruit?

Mr. Lawson

My hon. Friend points to the fact that in Germany inflation is currently slightly less than zero. It is a negative figure. I think that that is likely to be a temporary phenomenon. The plain fact is that throughout the world the same sort of economic policies have been pursued. Therefore, it is not that surprising that inflation has come down worldwide. Our inflation has come down even faster than in other countries. It is now under 3 per cent. for the first time in over 18 years. I am confident that it will stay low as long as these policies remain in force.

Mr. J. Enoch Powell

Will the Chancellor of the Exchequer confirm that there is no merit whatsoever in negative inflation, commonly known as deflation?

Mr. Lawson

Yes, indeed. If the right hon. Gentleman had been paying attention, as I am sure he was, to my answer, he would have heard me say that the Government's objective is stable prices, not falling prices.

Mr. Robert B. Jones

Notwithstanding my right hon. Friend's answers to the last two questions, is it not the case that one of the pressures in the pipeline to increase inflation is the excessive level of wage settlements? Will my right hon. Friend take every opportunity to hammer home to the Confederation of British Industry and others that their spinelessness in the face of excessive wage demands will affect their own competitiveness and is likely to cause worse inflation and more unemployment?

Mr. Lawson

It is certainly a major cause of the present high level of unemployment. Inflation is now down to 2.8 per cent. at the most recent count, and if the tax reductions in the Budget are taken into account, the best approximation that we have of the growth in the cost of living over the past year is less than 1 per cent. Yet average earnings, according to officially recorded figures, have gone up by about 7½ per cent. This is inevitably damaging to Britain's competitiveness in world markets, damaging to orders, damaging to the amount of business that can be done by British firms, and therefore damaging to jobs. It is management's responsibility to take a far firmer grip on their costs, especially their pay costs, than they have been doing hitherto.

Mr. Bell

What does the Chancellor of the Exchequer say to newspapers such as The Economist which say that the inflation rate will go up between 4 and 5 per cent. next year as a consequence of the oil price reductions working through the economy?

Mr. Lawson

We shall publish a forecast at the normal time and in the normal way, and I think it will be found that the track record of forecasts published by the Treasury is rather better than that of forecasts published outside bodies, including The Economist.The plain fact is that inflation is now under 3 per cent. Although at the moment it is flattered to some extent by the mortgage rate element in the index, even if one takes that out inflation is still around 3.1 per cent.

Mr. Higgins

Is my right hon. Friend aware that many members of the public do not understand the wide scope of the retail prices index, as it covers things such as electricity and gas prices, rates and so on? Will he publish a clear explanation to the public showing exactly what the RPI represents and the fact that it is based on real surveys of expenditure?

Mr. Lawson

My right hon. Friend is correct in saying that it is based on those factors. Sometimes there are people who find it difficult to believe that inflation is as low as it is when they consider one particular price which is only a small proportion of total consumer expenditure. The responsibility for the RPI and its publication lies not with me but with my right hon. and noble Friend the Secretary of State for Employment, and I shall draw his attention to what my right hon. Friend has suggested.