Retail Prices Index (Hansard, 30 June 1994)

§ 5. Mrs. Gillan
To ask the Chancellor of the Exchequer which were the last two calendar years in which the retail prices index remained below 2 per cent. for the entire year.

§ 16. Mr. Jenkin
To ask the Chancellor of the Exchequer in which last two years the retail prices index last remained below 2 per cent. for the entire calendar year.

§ Mr. Kenneth Clarke
Only two calendar years since the war have seen the headline inflation rate below 2 per cent. in every month; 1993 was one, and we have to go back almost 50 years to 1946 for the other.

§ Mrs. Gillan
Will my right hon. and learned Friend confirm that since 1990 the average family mortgage bill has fallen by £37 per week? Does he agree that new house buyers and the housing market in general are being severely hampered by high interest rates on long-term borrowing? When will the financial market wake up to our policy of low inflation and reduce interest rates on long-term borrowing?

§ Mr. Clarke
I agree with my hon. Friend. The main practical impact so far of higher long-term rates as a result of the fall in bonds has been a raising of the level of fixed-rate mortgages, which are becoming very popular, which has flattened off demand—temporarily, I am sure—in the housing market in this country. Obviously, we need to see stability in the financial markets for that reason and for many other reasons. Our best contribution to stability is to keep emphasising that the fundamentals are right in this country and that we are committed both to healthy public finances and to continuing to meet our low inflation target. I repeat our commitment to do that.

§ Mr. Jenkin
I congratulate my right hon. and learned Friend on his record on inflation. Inflation expectations are lower than they were at the time of the last Budget, and lower again than at the time when public expenditure totals were settled in last year's public spending round. At a time of such low inflation, how can we justify such large prospective increases in public expenditure as 4.6 per cent. next year and 6.2 per cent. the year after that? Should we not put the brakes on?

§ Mr. Clarke
My hon. Friend is right about the direction of inflation. Everyone has been revising downward their forecasts for inflation—not only the Treasury, but independent forecasters, my panel of advisers, and so on —as the year has gone on. Among other things, that offers beneficial prospects for the level of public spending. Last year's public spending round took £15 billion out of our then public spending plans, and the Cabinet has just agreed to confirm the figures that we have published as ceilings for the coming round. We are all determined to ensure that we deliver as tight a fiscal policy as is consistent with unavoidable expenditure and our policy commitments in the coming autumn round.

§ Mr. Sheldon
Will the Chancellor recall the evidence given by the Governor of the Bank of England to the 933 Treasury and Civil Service Committee when my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) called the Governor an "inflation nutter"? Without agreeing with the words used by my hon. Friend on that occasion, does the Chancellor agree that by publishing so fully the details of his discussions with the Governor he has put much of the weight on the Governor of the Bank of England, to his own discredit and disadvantage? Is it not clear that there are other matters, such as investment incentives for manufacturing industry, which should be playing a larger part in the Government's policies?

§ Mr. Clarke
We believe that low inflation is an essential prerequisite for growth, prosperity and jobs in this country. That is why we are aiming at sustained recovery, but with low inflation to underpin it and give it a better chance of permanence. I commend to the right hon. Gentleman the minutes of the exchanges that I have with the Governor, from which he will see how much we agree on the conditions that we have to balance and bear in mind. The right hon. Gentleman may then better understand why we have been so successful over the past 12 months in getting the balance so right that the rate of growth exceeded the rate of inflation last year, which has happened in only four years since 1970 and plainly will do so again in 1994.

§ Mrs. Anne Campbell
Does the Chancellor agree that there has been a huge rise in those items that could be termed the basic necessities of life, such as water rates, council house rents and, of course, energy costs as a result of the imposition of value added tax on fuel, which affect people on low incomes disproportionately and are not affected so much by the retail prices index?

§ Mr. Clarke
Within the retail prices index at any given stage, some items go up faster than others. In fact, energy prices have gone down compared with other prices in most of the past few years. The poorer sections of society and all retirement pensions have, of course, been cushioned against the effects of VAT on fuel by the compensation in the Budget.

§ Sir Teddy Taylor
Is not the Government's excellent record threatened by the ever-increasing and inflationary demands from Brussels? Has the Chancellor seen the paper put privately before the Select Committee this week which said that our gross contribution in 1995 will rise by £2,000 million—or £3 per week per family—and that it has been calculated that the agricultural budget will break through the legal limits imposed at Edinburgh by more than £1,000 million. Is there nothing that we can do to contain that extravagance and the inflation coming to us from Brussels?

§ Mr. Clarke
The Edinburgh ceilings are tight—much tighter than those that the Commission was demanding, and far below its minimum expectations—and they will be strictly adhered to. I say that not just on behalf of this Government, but on behalf of other Governments who are determined to ensure that we see those ceilings applied in practice.
The variations from year to year to which my hon. Friend refers are largely caused by fluctuations in the pattern of payments. Different payments come in different years, causing an up and down fluctuation. [Interruption.] I cannot possibly give the list of causes for that, but one of the key causes is that our partners' financial year—the calendar year—is not the same as ours. Payments therefore 934 fluctuate wildly from one year to other. [Interruption.] Some people can never be convinced. Anyone who knows the Edinburgh ceilings knows that the idea that they are responsible for a further £2 billion of contributions is palpable nonsense.

§ Mr. Andrew Smith
Given the interrelationship between European monetary policy and the rate of inflation, will the Chancellor now stop shuffling around and tell the House whether he agrees with the Chief Secretary, who said in a GMTV interview on the question of a single currency that for him, "That's impossible"? Does the Chancellor agree or not?

§ Mr. Clarke
I did not hear the interview, but my experience is that quotations from interviews by the hon. Gentleman and other Opposition Members are likely to be wildly misleading and are unlikely to be accurate.
When we discuss economic and monetary union in Europe—whichever Minister is involved—we point out how right we were to opt out of the timetable and that we must get on with convergence on low inflation and healthy public finances, and not fresh blueprints for union. We make it quite clear that if ever the issue comes back of going to stage 3 of economic and monetary union, it will come to the British Parliament of the day. I wholly agree with my right hon. Friend the Chief Secretary in that I do not remotely believe that that will be the Parliament of which we are currently all Members.

§ Mr. Batiste
Against the background of low inflation, is it not clear that inflationary pay demands in the public sector simply cannot be accepted? Would it not support the international perception of sterling as a strong currency if Opposition Front-Bench Members would condemn inflationary pay demands?

§ Mr. Clarke
The level of pay settlements in the public sector is consistent with our success in getting inflation under control, our control of public spending and our developing better quality services as private industry recovers with the same level of settlements also.
I find it absolutely incredible that the Labour party, which is posing as a responsible and modernised party, cannot bring itself even to say that an 11 per cent. interim claim based on alleged past improvements should be condemned. Quite plainly, as has been pointed out, the Labour Front-Bench spokesmen are openly supporting industrial action against the public in support of such a claim.