Inflation: OECD Rates (Hansard, 11 June 1990)

§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, on the basis of the headline RPI figure, United Kingdom inflation was 9.4 per cent. in April, compared with an average of 6.2 per cent. in other OECD countries in March.

§ Lord Molloy
My Lords, I am grateful to the noble Lord for the admission that we have the highest rate of inflation in the OECD. However, an even more dangerous opinion has been expressed by OECD economists that if Britain carries on with her current policy, there will be no likelihood of a reduction in inflation for quite a long time. Can the noble Lord comment on that assertion by OECD economists?

§ Lord Henley
My Lords, I would be the first to admit that the rate of inflation is high—far too high. We believe that our policies will bring it down and 5 we expect to see it coming down towards the latter half of this year.

§ Lord Cockfield
My Lords, does my noble friend agree that there is a clear difference between the RPI and the rate of inflation? Does he further agree that the best measure of the rate of inflation is the GDP deflator? Is he in a position to state the figure for the United Kingdom compared with the corresponding figure for the OECD countries?

§ Lord Henley
My Lords, I cannot give my noble friend that figure immediately. Although the United Kingdom rate of inflation is higher than that of our competitors, all reputable commentators agree that our measure of inflation is seriously out of line with the consumer price indices of nearly all other countries because of the inclusion of mortgage interest payments. That obviously has a perverse effect in that measures intended to reduce inflation push it up in the short term. Despite those distortions, we are determined to get inflation down, but we must take a realistic view of how high inflation is in relation to other countries. We feel that our measure of inflation at the moment distorts that comparison.

§ Lord Stoddart of Swindon
My Lords, does the noble Lord understand that mortgage interest rates, which he says distort the RPI figure, are the result of the Government's own policy of having a single weapon against inflation—that is, interest rates? If the mortgage interest rate is so important, why do not the Government bring down interest rates?

§ Lord Henley
My Lords, as I and my colleagues have said before on various occasions, interest rates will remain as high as necessary for as long as necessary in order to bring down inflation.

§ Lord Hailsham of Saint Marylebone
My Lords, for the less instructed among us, can my noble friend explain what the GDP deflator is?

§ Lord Henley
My Lords, it might be easier if my noble and learned friend asked his noble friend sitting beside him on the Benches.

The Earl of Halsbury
My Lords, is there any point in bandying statistics about unless they are all placed on a comparable basis? Is it not high time that the European Economic Community reached a common agreement as to what the published figures ought to be? Did the noble Lord notice the article in The Sunday Times yesterday stating that the current rate of increase in this country is 3 percentage points too high?

§ Lord Henley
My Lords, I saw the article in The Sunday Times yesterday. We welcome the IFS initiative of that newspaper which recognises the crucial weakness in the current definition of RPI. Regarding all the EC countries producing the same definition of RPI, I am sure that the Community will take up that point and note what the noble Earl said.

§ Lord Clinton-Davis
My Lords, when the Treasury or the Chancellor of the Exchequer specifically calculates the average figure for European Community inflation, does the noble Lord not agree that the United Kingdom is included in that average figure? Therefore does not the situation appear to be a little awry?

§ Lord Henley
My Lords, I am afraid that I do not quite follow what the noble Lord suggests. Obviously if my right honourable friend calculates the average for the entire European Community it includes this country. As the noble Lord is well aware, we are a member of the European Community.

§ Lord Clinton-Davis
My Lords, if the United Kingdom were excluded, does the noble Lord agree that the European Community figure would average about 4 per cent. as against the 6.2 per cent. that the Chancellor alleges it is?

§ Lord Henley
My Lords, I shall not bandy statistics with the noble Lord. I said that the average for other OECD countries was 6.2 per cent. That obviously includes this country.

§ Lord Campbell of Alloway
My Lords, is the deflator included in the Community figures and, if so, does it make the position better or worse?

§ Lord Henley
My Lords, I refer my noble friend back to my noble friend Lord Cockfield, who first raised the matter of the GDP deflator.

Lord Bruce of Donington
My Lords, is the noble Lord aware of the sudden appearance in government answers to questions on inflation of the word "headline"? That is rather discouraging and makes one think that the Government do not know what they are talking about. Is it not the case that as regards the IMF the minimum figure that can be envisaged by G7 is 8.2 per cent. for 1990? Is the noble Lord further aware that as regards the Sunday Times article that has been referred to, although the country at large would welcome any decline in the rate of inflation, it would resent the Government resorting to the kind of statistical manipulation that has been adopted by the Department of Employment over the past four years?

§ Lord Henley
My Lords, the noble Lord knows full well that the Department of Employment, or for that matter the entire Government, do not indulge in statistical manipulation. I said that the headline figure for RPI was 9.4 per cent. but that that had serious weaknesses. I referred to the Sunday Times article and welcomed that initiative. However, I could add that the initiative is not perfect. We do not have a perfect measure, and the 9.4 per cent. figure does not necessarily represent inflation as compared with that in other OECD or EC countries.

§ Lord Dormand of Easington
My Lords, does the noble Lord accept that high interest rates have now been in operation for more than 12 months? As retail sales continue to increase, will the noble Lord say whether the Government are at least giving 7 consideration to any other method of bringing inflation down?

§ Lord Henley
My Lords, obviously the Government consider all possible ways of bringing inflation down, but I can only repeat what I said earlier, which is that interest rates will remain as high as is necessary for as long as is necessary to win the battle against inflation.

§ Lord Molloy
My Lords, is the noble Lord aware that recently the Institute of Economic Affairs conducted a poll among 1,000 economists who published a report condemning the Government's present economic policy particularly as regards deliberately creating high interest rates, higher mortgage rates and higher rents? Does not the Minister agree that 1,000 economists cannot be wrong and that the Institute of Economic Affairs is a responsible body? I hope he will agree that the findings of that report are a serious matter for all of us, including the Government.

§ Lord Henley
My Lords, the noble Lord will remember well a full page advertisement which I believe appeared in all the major newspapers and which was signed by some 365 economists. I believe that that advertisement appeared before the previous election or perhaps even a little earlier than that. All those economists were wrong and they were proved to be wrong.

§ Lord Elton
My Lords, would it be expanding statistics to point out that we have now used over 75 per cent. of the time that is normally allocated to Questions yet we have debated only 50 per cent. of the Questions on the Order Paper?

§ Lord Henley
My Lords, I believe my noble friend is wrong because we are on the third Question.