Inflation: Effect of Earnings (Hansard, 12 December 1990)

§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, earnings growth is expected to moderate in 1991. But in line with long established practice, precise forecasts of earnings are not published.

§ Lord Dean of Beswick
My Lords, I am grateful to the Minister for that Answer. However, is it not true that settlements being made are considerably above what is required if a substantial impact is to be made on the cost of living or inflation figures? Is the Minister aware of recent reports from responsible sources suggesting that senior civil servants are trying to negotiate substantial increases in order to match their salaries with those in the private sector? If conceded will those increases not have an adverse effect on inflation as a whole?

§ Lord Hesketh
My Lords, we clearly expect wage demands to fall. That is why we are predicting 5.5 per cent. inflation at the end of next year. There are already indicators that M0, retail sales, and surveys of consumer and business attitudes should encourage the Government to believe that the battle against inflation is going to be won.

Lord Bruce of Donington
My Lords, in view of the importance that is attached to the inflation figures month by month, will the noble Lord give the House an undertaking that the Government will review the method by which the various prices of goods and services are obtained for incorporation in the index? Is the noble Lord aware that, in the 34th report of the 497 Public Accounts Committee following an earlier document by the Comptroller and Auditor General, there is evidence of serious defects in the way in which data are collected by representatives from local employment offices who regard that task as having a lower priority than that for which they were primarily engaged? Will the noble Lord give this matter serious attention so that one can rely on the RPI, which at the moment lacks all contact with reality on certain points?

§ Lord Hesketh
My Lords, I am sure that it will be a very disappointing day not only for myself but for your Lordships' House when the noble Lord, Lord Bruce of Donington, is satisfied with the statistics that the Government or the Treasury collect. However, I assure him that constant efforts are being made to improve what is done. Examples of those efforts are the work of the Pilkington Committee and the Chancellor's initiative last year. The desire is constantly to improve the collation of instruments of financial fact and to prevent those of fiction existing.

§ Lord Hatch of Lusby
My Lords, if the Government are improving their statistics, can the noble Lord say how the estimate given by the Government for inflation this year was only half of the actual figure? Why should this House or anyone else believe that the estimate of 5.5 per cent. inflation for next year is any more accurate than the wildly underestimated figure that the Government last year predicted for the present year?

§ Lord Hesketh
My Lords, as the noble Lord, Lord Hatch, will be well aware, it is historically exceptional for high interest rates to take so long to dampen down demand. However, I am entirely confident that the figure for inflation of 5.5 per cent. will be achieved. The figures that I mentioned in my earlier reply are among the indicators which I believe will ensure that that will happen.

§ Lord Molloy
My Lords, does the noble Lord not agree that this is an extremely serious subject? We are discussing the data provided by Her Majesty's Government which are used by thousands of those whom they employ. In answer to my noble friend Lord Bruce of Donington, the Minister said that efforts were being made to improve the data. Does he not agree, therefore, that the Government must know that the data are not up to scratch? May the House be informed from time to time of the improvements that are being made?

§ Lord Hesketh
My Lords, this Government are particularly aware that the victims of inflation are the weakest in society. The Government are committed to reducing inflation. Between 1974 and 1979 inflation ran at an average rate of 15.5 per cent. We desire to reduce that rate to a manageable level. The fact that we have never exceeded half that rate throughout this Government's term of office shows that we are doing a far better job.

§ Lord Stoddart of Swindon
My Lords, does not the fact that it has taken so long to reduce inflation through the use of high interest rates reveal that this 498 single measure is not enough and indeed that it is wrong? Does the Minister not agree that it would have been better if the noble Lord and the Government had listened to this side of the House and used other more direct measures to bring down inflation?

§ Lord Hesketh
My Lords, if we had listened to the other side of the House we would have taken advantage of this advice: "This is a time for judgment and that judgment decrees that there should be a big cut in interest rates". That statement was made after the stock market crash by the Leader of the Opposition in another place.

§ Lord Jenkins of Hillhead
My Lords, can the noble Lord say what he meant when he said that this Government never exceeded half of the 15 per cent. rate of inflation which he quoted? Would he like to give us the figures, for example, for the years 1979 and 1980 or amplify the very recent figure for inflation, which is 10 per cent. or a little more? That figure is well over half of 15.5 per cent. That casts a little doubt on the confidence that we can place in the Minister's absolute confidence—which struck me as a rash remark—that inflation will be 5.5 per cent. by the end of next year.

§ Lord Hesketh
My Lords, the noble Lord, Lord Jenkins, is absolutely right to pull me up by the traces. I was referring to the average and not the individual year.

§ Lord Williams of Elvel
My Lords, is the noble Lord aware that the House will be grateful for his clarification of what he really meant in his earlier answer? Will he also accept that the House will be equally grateful for the assurance of his confidence as to the attainment of a rate of inflation of 5.5 per cent. by the end of 1991? In itself that figure goes much further than that given by the Treasury. The appendix to the Autumn Statement put out by the Treasury dealing with the inflation forecast shows a variation which allows the Treasury a certain leeway. However, we are extremely grateful to the noble Lord for his absolute assurance that inflation will be at 5.5 per cent. by 1991. Will the Minister accept our thanks?

§ Lord Hesketh
My Lords, I am grateful for the commitment of the noble Lord, Lord Williams of Elvel, to my confidence.

§ Baroness Seear
My Lords, does the noble Lord not agree that part of the trouble, though by no means all of it, is the unreliability of the statistics on which the Government now work? Is he aware that a previous head of the Central Statistical Office, Sir Claus Moser, at a meeting held last week in a committee room upstairs, said that it was not the inaccuracy of the Central Statistical Office, but the Government's insistence on staff cuts which was leading to inaccurate figures on which bad judgments were inevitably made?

§ Lord Hesketh
My Lords, two events in the past 12 months—the Pilkington Report and the Chancellor's initiative—were generally accepted on both sides of the House as contributing towards an improvement in the statistics.
Lord Dean of Beswick: My Lords, as regards my first supplementary question, is the Minister aware 499 that his answer that prices are beginning to be contained is very welcome? Is he further aware that on Friday morning of last week when shopping in Stockport at Marks and Spencer I noticed that tinned food was already being marked down by 30 per cent.? If that shop can afford to do that now, is it not an indication of the rip-off that was taking place previously?

§ Lord Hesketh
My Lords, I was not in a position to go shopping with the noble Lord last Friday. However, I have to assume that he was witnessing a change in the policy of a particular store.

§ Lord Leatherland
My Lords, can the Minister tell the House whether, in view of inflation, the salaries or allowances paid to Members of another place have recently been increased or are about to be increased?

§ Lord Hesketh
My Lords, if the noble Lord cares to put down a Question on that subject and it falls within my remit, I shall be more than happy to answer it.

§ Lord Leatherland
My Lords, is the Minister confessing that he is ignorant of matters of that kind?

§ Lord Hesketh
My Lords, the Minister is confessing that the question is very wide of that which exists on the Order Paper.