Inflation (Hansard, 28 November 1991)

§ 4. Mr. Harry Greenway
To ask the Chancellor of the Exchequer what is the current level of retail price inflation in the United Kingdom; and what is the average within the European Community.

§ 13. Sir Michael Neubert
To ask the Chancellor of the Exchequer what is the latest annual rate of inflation.

§ The Chancellor of the Exchequer (Mr. Norman Lamont)
Headline retail prices index inflation in the United Kingdom was 3.7 per cent. in the year to October—the lowest for three and a half years. The latest available average for the European Community is 4.6 per cent. in the year to September.

§ Mr. Greenway
Are not those figures very encouraging? Does not the fact that our inflation rate is lower than the European Community average offer a real opportunity to British industry to improve its competitiveness? Does my right hon. Friend by any chance recollect the average inflation rate under the last Labour Government? What does he think about that?

§ Mr. Lamont
Just by chance, I do remember it. The average inflation rate under the last Labour Government was no less than the astonishing figure of 15½ per cent. What is so interesting is that despite that disastrous performance, Labour's policies have hardly altered—and they would have the same effect again.

§ Sir Michael Neubert
While the reduction in price rises is very welcome—taking us back to where we were three and a half years ago—does my right hon. Friend recognise the irony that, as a result, current interest rates—the price of money—are, in real terms, at an all-time high? Can he defy what may appear to be a paradox by both easing the burden of excessive interest rates and pressing on relentlessly until inflation is completely eradicated from the economy?

§ Mr. Lamont
My hon. Friend asks me to do several things that might not be so easy to do at once. Our first priority must be to maintain the pound's position within the exchange rate mechanism. That is our policy for interest rates. At the same time, we have been able to achieve a dramatic reduction in inflation—which, because it is better than the European Community average, means that there are better prospects for exporting firms and for the jobs in them. There is no way that we can sustain high employment unless we are competitive in inflation levels.

§ Dr. Bray
Is the Chancellor worried that we are not sustaining high employment? Is he worried that it has taken such a deep and prolonged recession to reduce inflation to its current level? Does he think that he is doing a good job in alerting the country to the rapid rate of convergence at which he is aiming in the exchange rate mechanism and the possible move towards European monetary union?

§ Mr. Lamont
I am astonished at the hon. Gentleman's last point. If I understood him correctly, he seemed to be saying that our inflation rate was converging too quickly, and that that was imposing costs on the economy. That is an extraordinary contrast with the uncritical support for monetary union expressed by his right hon. and hon. Friends, who want to leap in with no conditions and to throw away the conditions that we have negotiated—[Laughter.] Labour Members scoff, but that is precisely what the Leader of the Opposition said in the debate the other day.

§ Mr. Higgins
My right hon. Friend is to be congratulated on the dramatic reduction in the inflation rate. Is he aware that in setting standard spending assessments for prudent local authorities, my right hon. Friend the Secretary of State for the Environment expects them to achieve an even greater reduction in costs and prices? In the light of that, will my right hon. Friend the Chancellor consider consulting the Secretary of State to establish whether the SSAs for prudent authorities, which demand such remarkable reductions in costs and prices, are really justified?

§ Mr. Lamont
That is an extremely ingenious question. I know that my right hon. Friend has already made those points to my right hon. Friend the Secretary of State for the Environment. We believe, however, that the settlement that my right hon. Friend the Secretary of State announced to the House the other day is realistic and generous and that all responsible local authorities should be able to cope with it.

§ Mr. James Lamond
The reduction in inflation is to be welcomed; it will greatly assist in increasing the number of job opportunities. However, does not every reduction in the inflation rate leave the real interest rate a little higher? Surely the Chancellor now has the opportunity to announce a further cut in interest rates. That would help every company in the country, including the small companies that were the subject of an earlier question.

§ Mr. Lamont
As I have already said, our first priority will be to maintain the external value of the currency—that is, to maintain its position in the exchange rate mechanism. I dread to think where the pound would have been in the past few days if I had followed the advice of Opposition Members.

§ Mr. Chris Smith
The Chancellor will probably recall that his right hon. Friend the Prime Minister, when he was Chancellor, told the House on 15 February 1990 that the retail prices index was an inaccurate measure of the real rate of inflation. He reiterated that point in June and again in July.
Is not it the case that the present underlying rate of inflation in the United Kingdom is 5.5 per cent. if mortgage interest rates are excluded, and 7.3 per cent. if both mortgage interest rates and poll tax are excluded? Is it not also the case that the underlying rate was 5.9 per cent. when the right hon. Member for Huntingdon (Mr. Major) became Chancellor, and that it is now 7.3 per cent? A little more humility would not go amiss.

§ Mr. Lamont
I touched on those points yesterday when I appeared before the Treasury Select Committee. Whether we take the retail prices index minus mortgage interest payments or producer prices, the rate of inflation has declined sharply in the past year and I suspect that the underlying measures of inflation will continue to decline in the next year—[Interruption.] I can tell the right hon. and learned Member for Monklands, East (Mr. Smith), who is interrupting from a sedentary position, that the underlying rate of inflation compares extremely well with the position under the Labour Government of which he was a member.