§ Lord Donoughue asked Her Majesty's Government:
§ What is the latest announced increase in the annual rate of inflation; and what are the equivalent increases in Germany, France and the Netherlands.
The Paymaster General (The Earl of Caithness)My Lords, excluding mortage interest payments and the community charge, UK inflation was 7 per cent. in May. The latest more comparable figures are 2.1 per cent. for Germany, 3.2 per cent. for France and 2 per cent. for the Netherlands.
§ Lord DonoughueMy Lords, I thank the Minister for that: reply. Perhaps I may begin by congratulating him on his appearance in the honours list. That, I am sure, gives pleasure on all sides.
§ Lord DonoughueMy Lords, the headline inflation rate for the UK is 9.7 per cent., and the noble Earl said that the underlying rate is 7 per cent. Noting even the underlying rate of 7 per cent., which is almost treble the rates in the main competitor countries which he mentioned and double the average rate for other members of the European monetary mechanism, does the Minister not agree that there is little hope this year of meeting the Prime Minister's prime Madrid condition for entry into the ERN; namely, that there should be a convergence of inflation rates?
The Earl of CaithnessMy Lords, I am very grateful to the noble Lord for his first remarks. Regarding the question which he put to me, I shall not forecast the monthly inflation figure between now an 3 the end of the year. The forecast remains the same as in my right honourable friend's Budget.
Lord Bruce of DoningtonMy Lords, is the noble Earl aware that we reiterate the congratulations given to the noble Earl on the honour recently awarded to him? It is a reflection not only of his personal qualities, but also of the importance that the Government evidently still attach to the extensive discussion of Treasury affairs in your Lordships' House.
In connection with the Question on the Order Paper and the noble Earl's response, is he aware that entry into the ERM has already been largely discounted by the market? Is he also aware that in the event of exchange rates remaining at their current very high levels, it is extremely unlikely that the Government will be able to reduce interest rates substantially below the current rate?
The Earl of CaithnessMy Lords, I am grateful for the noble Lord's first remarks. I believe that his question is slightly wide of the Question on the Order Paper. The Government are seeking to tackle inflation, which we all agree is too high even though the underlying rate is still 0.5 per cent. below the lowest ever achieved by the Labour Party in the 1970s. We are seeking to reduce that by tight monetary and fiscal policy.
§ The Earl of OnslowMy Lords, in view of the fact that the Bundesbank advised Chancellor Kohl against giving a one-for-one deutschmark-ostmark conversion, even at the limited level at which it occurred, I should like to ask this question. Is my noble friend not aware that there will now be severe inflationary pressures on the deutschmark because of the reunification of Germany? Will that not place extra pressures on our interest rates if we join the ERM which would not arise if we did not join the ERM?
The Earl of CaithnessMy Lords, that is a most interesting question, but it is rather wide of that on the Order Paper.
§ Lord Dormand of EasingtonMy Lords, as the Government have failed completely to control inflation, and the Minister frequently makes a comparison with the record of the last Labour Government, does he deny that the average rate of inflation for the last 12 months of the Labour Government was 8.5 per cent., which compares very favourably with the present runaway inflation of 9.7 per cent?
The Earl of CaithnessMy Lords, I disagree entirely with the noble Lord's suggestion that we have lost control of inflation. Inflation is a great deal higher than we would like it to be. We have set about reducing it; but, as the noble Lord will realise, it is nowhere near the 26.9 per cent. that his Government achieved.
§ Lord Stoddart of SwindonMy Lords, does the Minister not agree that the present rate of inflation has nothing to do with whether we are inside or outside the ERM, but is due to the failed policies of this Government—policies of high interest rates and allowing credit to expand beyond what is reasonable 595 for the economy and what the economy can stand? When will the Government do something about reducing interest rates instead of trying to fool the City that early entry into the ERM is imminent?
The Earl of CaithnessMy Lords, one of the reasons why inflation is at its present level is the addition of the community charge. I hope that the noble Lord will take this opportunity to condemn the substantial increase of rates equivalent in the community charge imposed by local authorities.
§ Lord DonoughueMy Lords, perhaps the Minister will help the House on the question of early entry into the ERM. All noble Lords probably read in the Financial Times last week that the Treasury has decided upon entry in August whereas No. 10 Downing Street announced that there was no acceleration in the timetable. Will the noble Earl help the House by telling us who conducts financial policy—Downing Street or the Treasury—and whether the Prime Minister is about to fall out with another Chancellor?