Inflation: Policy (Hansard, 12 June 1990)

The Earl of Caithness
My Lords, the Government remain firmly committed to the defeat of inflation. Tight monetary and fiscal policies will ensure that inflation falls from its current level.

§ Lord Dormand of Easington
My Lords, will the Minister accept that we on this side of the House appreciate that the Government have reduced inflation? They have reduced it from 10.3 per cent. in 1979 to 9.4 per cent. in May 1990. It has taken only 11 years to reduce it by 0.9 per cent.! As high interest rates have now been in operation since 1988 and are affecting inflation at the same rapid rate, will the Government stop talking nonsense about zero inflation and look at the way in which other countries are successfully tackling inflation without relying solely on high interest rates?

The Earl of Caithness
My Lords, I know that the noble Lord will be keen to know that for much of the 1980s the UK inflation rate was below that of 153 the Community average. The noble Lord will also be pleased to know that at ECOFIN yesterday everybody said that tight monetary policy—meaning high interest rates—to counteract inflation and a tight fiscal policy were the two ways of improving the s[...]tuation.

§ Lord Grimond
My Lords, would it not help if, by way of example, some of those who are exceedingly well paid stopped taking enormous increases in salary every year?

The Earl of Caithness
My Lords, there is indeed a link between unearned wage costs and inflation. However, there is a much greater and longer link between unemployment and higher wage costs.

§ Lord Williams of Elvel
My Lords, did the noble Earl imply that some of the increases which chairmen and directors of public companies have awarded themselves are unearned?

The Earl of Caithness
No, my Lords. I did not imply that at all, as the noble Lord knows full well.

§ Lord Donoughue
My Lords, is the Minister aware of, or if he is not will he promise to read, the recent publication by Kleinwort Benson Securities, one of the Government's most loyal supporters in the City, which shows that the largest single element producing an increase in inflation in the past year—a third of the total—is induced by the Government's own actions in raising prices? Will he tell the House how he reconciles the Government's actions in raising prices with their rhetoric about reducing inflation?

The Earl of Caithness
My Lords, I have not read the docuent to which the noble Lord referred. Therefore it is difficult for me to answer the question because it was rather general. However, I shall be happy to try to do so when I have a moment.

Lord Bruce of Donington
My Lords, is the noble Earl aware that it lies in the Government's own hands to bring a substantial and immediate reduction in the annual rate of inflation, at least to the extent of 3.2 per cent. which is by no means negligible? Is he aware that they could do so if they decided to reduce value added tax from its current 15 per cent. to the rate of 8 per cent. which applied when they took office?

The Earl of Caithness
My Lords, it would be possible to reduce inflation by the means that the noble Lord suggested. It is the first time that I have heard anybody on those Benches suggest a tax cut.

Lord Bruce of Donington
My Lords, the noble Earl should be aware that this subject was dealt with by the Minister for the Department of Trade and Industry on 9th June 1988 when he confirmed the reduction of the figure by 3.2 per cent. Does the Minister agree that that is not negligible?

The Earl of Caithness
My Lords, I have never said that it was negligible. As the noble Lord's party 154 is, always has been and will continue to be intent on raising taxes and therefore raising inflation—

Noble Lords
Oh!

The Earl of Caithness
—it is interesting to hear the noble Lord put forward a proposition for reducing it.

§ Lord Harmar-Nicholls
My Lords, bearing in mind the last question which came from the Front Bench opposite, does my noble friend understand that the official policy of the Opposition now is to reduce VAT from 15 per cent. to 8 per cent.? Ought he not to ask them to explain how they will make up the leeway to finance all the other measures that have been promised?

The Earl of Caithness
My Lords, my noble friend certainly has a very valid point and some very valid questions if one is to believe that that is the policy of noble Lords opposite. I do not believe that.

Lord Bruce of Donington
My Lords, if the noble Earl wishes to carry that logic to its extreme, is he aware that we on this side of the House would be happy to replace him on that side of the House in order that Questions may be put to us?

The Earl of Caithness
My Lords, it is clear from the way that the Labour Party presents its policies that it will do anything to try to sit on this side of the House.

§ Lord Stoddart of Swindon
My Lords, is the noble Earl aware that, far from reducing taxation for the many, the Government have increased taxation for the many while reducing it for the few?

The Earl of Caithness
My Lords, the noble Lord is wrong on those figures. Taxation has been dramatically reduced under this Government. The one factor that he does not take into account is the consequences of the high borrowing which the noble Lord's party instigated.

§ Lord Cledwyn of Penrhos
My Lords, when the noble Earl and his noble friends turn to this side of the House and ask about our policy, is it not the case, and will he not face up to the fact, that we have the worst inflation of all our competitors in Europe, the highest interest rates, the lowest growth rate and the largest trade deficit? When will the noble Earl and his noble friends get out of cloud-cuckoo-land and deal wih those problems properly?

The Earl of Caithness
My Lords, the answer to the first four questions of the noble Lord the Leader of the Opposition is, no. I believe his figures to be wrong and not justified by those that were given to me by the Commission yesterday at ECOFIN. With regard to the fifth question, the situation is being remedied by a tight monetary and fiscal policy.

§ Lord Monkswell
My Lords, are the Government aware that, over 10 years ago, they were elected on a promise of cutting taxes and that the average 155 person in this country currently pays more in taxation now through income tax, VAT, poll tax and national insurance than he paid 11 years ago? When will the Government fulfil their promise of over 11 years ago?

The Earl of Caithness
My Lords, the noble Lord is wrong. He includes various assumptions which are not taxes. They are not and have not been classified as such. We have dramatically reduced the tax burden for people in this country because, what we have paid for, we have paid for out of taxes, not by high borrowing.

§ Lord Marsh
My Lords, does the noble Earl agree that there is some danger of the next general election campaign peaking too early?

The Earl of Caithness
My Lords, the noble Lord is right to bring us back to the Question on the Order Paper.

§ Lord Dormand of Easington
My Lords, does the Minister accept that there is at least considerable evidence that the high interest rate policy is not working as satisfactorily as the Government think it is? In those circumstances, will he give the House an assurance that the Government are at least thinking about the possibility of other ways of restraining inflation?

The Earl of Caithness
My Lords, we use a tight monetary policy to reduce inflation. That has been the proven way and the way accepted by everyone in the Community. That is backed by a tight fiscal policy which buttresses a tight monetary policy.