HC Deb 14 July 1988 vol 137 cc544-6
7. Mr. Greg Knight

To ask the Chancellor of the Exchequer what is his latest estimate of future inflation.

17. Mr. Andrew MacKay

To ask the Chancellor of the Exchequer if he will make a statement on the current level of inflation.

Mr. Lawson

The rate of inflation in May stood at 4.2 per cent.

Mr. Knight

Despite some signs that the economy may be starting to overheat, is my right hon. Friend aware that Conservative Members, and most of the country, have absolute confidence in his ability to keep our economic progress on course? But will he give the House an unequivocal undertaking that in no circumstances will he accept advice from the Labour party, bearing in mind that in August 1975 inflation hit a 20th century peak of 26.9 per cent. under a Labour Government?

Mr. Lawson

I am grateful to my hon. Friend for his earlier remarks. The annual rate of inflation under Labour in August 1975 of 26.9 per cent. is an interesting figure, because in that one year inflation was more than in the past five years put together. However, I can assure my hon. Friend that I am still not satisfied with the rate of inflation in Britain and, despite the fact that it is only a fraction of what it was under the Labour Government, I am determined that we shall get it down, and our policy will be directed to that end.

Mr. MacKay

As we have been told that today's Cabinet meeting has reached a decision on total public expenditure for the coming years, can my right hon. Friend confirm that the rate of inflation will influence the next expenditure round?

Mr. Lawson

Yes, indeed. My hon. Friend is right. One of the fundamental reasons for Britain's economic success has been our firm control of public expenditure, which has fallen steadily as a share of GDP since 1982–83. In the Cabinet this morning we reaffirmed that strategy and agreed that public expenditure should continue to fall as a share of GDP throughout the next three years.

Mr. Alton

Despite what the Chancellor says about economic success, does he agree that today's Trustee Savings Bank report on the economic indicators in Northern Ireland demonstrates just how patchy that recovery is? For instance, in Northern Ireland last year employment in manufacturing industry fell by 1.3 per cent. and output is only now reaching 1979 limits. Does he agree that the overheated economy in the south-east of England contrasts with those less prosperous regions of the United Kingdom, where unemployment is still the major problem facing the people living there?

Mr. Lawson

I must confess that I have not read the latest TSB report, but the hon. Gentleman is somewhat mistaken. First, on the question of Northern Ireland, as he is well aware, that unhappy Province has particular problems of its own which are not purely economic—indeed, not economic in origin at all—but obviously have a great bearing on the economic performance of the Northern Ireland economy. However, the figures that have been published hitherto for Northern Ireland may have understated the growth of output in the Province. The hon. Gentleman will welcome today's excellent unemployment figures, which show not only a further massive fall for the 23rd month in succession, but that the biggest fall of all has been in the west midlands, the north-west and the north of England.

Mr. Robert Sheldon

Will the Chancellor of the Exchequer explain something that is puzzling many people: why, whenever inflation in goods and services is low he takes credit for it, but when we have a historically high level of inflation in house prices he says that it is due to something else?

Mr. Lawson

I did not know that there had been any discussion today about inflation in house prices. House price inflation is a different matter from general price inflation. [Laughter] If Opposition Members laugh, that only shows their ignorance. Let them explain how it is that, while inflation in Japan is very close to zero, property prices in Tokyo and Osaka have risen far faster than in London.

Mr. John Townend

Further to my right hon. Friend's reply to my hon. Friend the Member for Berkshire, East (Mr. MacKay) about the current danger of overheating in the economy, will he confirm that the Cabinet today decided not to exceed in 1989–90 the amount laid down for public expenditure in the medium-term financial strategy? Will he confirm that it would be dangerous if public sector wage settlements for the coming year exceeded inflation?

Mr. Lawson

What we agreed was wholly consistent with the pledge in our election manifesto last year. Public expenditure for the coming three years should be kept as close as possible to the planning totals, and public expenditure should continue to fall as a share of GDP throughout the next three years. My hon. Friend is right in saying that that pay settlements, both in the public and the private sector, have a very important bearing on the public expenditure totals, and, indeed, on the performance of the economy.

Mr. Nicholas Brown

May I drag the Chancellor away from the problems of the Japanese housing market and his reminiscences of the last Labour Government to discuss inflation? Does he agree that the largest single pressure on the retail prices index is the 11 per cent. price rise in electricity, the 10 per cent. price rise in water charges, the 12 per cent. price rise in rates and the 6 per cent. overall rise in gas prices? Those are all in the public sector and the Government should take responsibility for them. What will the Government do to curb that sort of inflation?

Mr. Lawson

All the matters that the hon. Gentleman has mentioned are taken into account in the retail price index, which has gone up by 4.2 per cent., according to the latest figure. However, rate increases are the responsibility, not of the Government, but of Socialist councils up and down the country.