The Inflation Rate (Hansard, 14 May 1990)

The Paymaster General (The Earl of Caithness)
My Lords, the all-items RPI annual inflation rate for April 1990 is 9.4 per cent. The comparable rate for April 1979 was 10.1 per cent.

§ Lord Donoughue
My Lords, I thank the Minister for that Answer. I note that after 11 years of the crusade against inflation the change is just a few decimal points. I again ask the Minister whether the Government will concede that the Chancellor's Budget forecast for end year inflation will once again be wrong and for the third year in succession be an underestimate.

The Earl of Caithness
My Lords, I am aware that the noble Lord is disappointed that the present inflation rate is not above 10.1 per cent. We stick by the Chancellor's forecast of what the inflation rate will be at the end of the year.

§ Lord Hailsham of Saint Marylebone
My Lords, does my noble friend agree that any change in economic policy takes between two and five years to work through to the economy and that therefore the precise date in the original Question totally lacks relevance to anything?

The Earl of Caithness
My Lords, I appreciate that economic policy takes a long time to work, but if one is asked a Question, one must answer it.

§ Lord Stoddart of Swindon
My Lords, is it not clear that the Government's policy of high interest rates is not working? Is the Minister aware that figures published today show that factory-gate prices rose by one whole point last month, and that the retail sales figures show that retail spending is still increasing? Is it not clear that high interest rates are not the right medicine? Will the Government do something more to control credit, which is causing the problem at present?

The Earl of Caithness
My Lords, no, interest rates are the right policy with which to deal with this problem. Consumer credit control does not work except in the short term, and then it leads to massive distortions, as every country has found. If the noble Lord looks at the key markets, such as the retail sales market, he will find —not on a monthly basis because that is the wrong way to look at such figures, but on a three-monthly basis—that in the last three months compared with the comparable three months a year ago, retail sales are up 1.5 per cent. The noble Lord will also be aware that car registrations are well down and the housing market is flat, which show that high interest rates are working.

§ Lord Boyd-Carpenter
My Lords, will my noble friend remind the noble Lord, Lord Donoughue, that when recently asked on radio how he would deal with inflation, the leader of his party said that, to cut a long story short, he did not know?

The Earl of Caithness
My Lords, my noble friend is correct, but we can appreciate the difficulties of those who have to operate in a thought-free zone.

§ Viscount Hanworth
My Lords, for a long time we have been told that the Government's priority was to reduce inflation. They have clearly not done so. One mus. wonder how much trust one can put in their other aspirations.

The Earl of Caithness
My Lords, we clearly have reduced inflation. The noble Viscount's memory must, alas, be extremely short. He does not have to think that: far back to the days when inflation was well into double figures and up into the 20s. As the noble Viscount will be aware, the recent monthly figures have been distorted by two items which are not taken into account in other European countries. One is the community charge. In that, no allowance is made for the generous government rebates which are not taken into account when calculating the RPI. Secondly, in the Community no country other than Ireland includes mortgage interest payments.

§ Lord Boardman
My Lords, will my noble friend put those figures in context? What has been the annual average rate of inflation in the United Kingdom since May 1979? How does that compare with the annual average rate of inflation of the 12 European Community countries during the same period? Secondly, how does it compare with the record of the previous Labour Government?

The Earl of Caithness
My Lords, the previous Labour Government's average increase in RPI was 15.5 per cent., whereas ours is 7.9 per cent. That may be slightly misleading because if one takes out mortgage interest payments, the matter becomes more relevant. On that basis, the Labour Government's average was 15.6 per cent. and ours is 7.4 per cent. One can see that the current inflation rate of 7.9 per cent., excluding mortgage interest payments, is about only 0.25 per cent. above the lowest that Labour ever achieved. In comparison to Europe, in the 10-year period betwen May 1979 and February 1990 our inflation rate—that is, our headline inflation rate—was 0.1 per cent. above the EC average. If one works that out on a comparable basis—I said earlier that one has to remove the community charge or the rates, as they were, and mortgage interest payments—one finds that our inflation rate was 0.7 per cent. lower than the Community average.

§ Lord Stallard
My Lords, does the Minister recall that in reply to a previous question he told us that it takes between five and 10 years for any change to work its way through? Yet a few moments ago he told us that the immediate effects resulted from the poll tax and other taxes. It did not take any time for the mortgage and poll tax increases to be seen in the 6 rise in the inflation rate. They showed up almost immediately, not within the five to 10 years mentioned.
Is the Minister aware that I am more concerned that the recent increases in the retirement pension were pitched at 7.6 per cent., as always a couple of per centage points below the current rate of inflation? Have the Government any plans to review the recent pension increases to bring them in line with inflation?

The Earl of Caithness
My Lords, the increase in the rate of inflation between September 1989 and April 1990, as the noble Lord well knows, will be reflected in the next uprating of benefits.

§ Lord Jay
My Lords, if the Minister believes that the mortgage rate should be taken out of the RPI, does he also believe that rents should be removed?

The Earl of Caithness
My Lords, the noble Lord will know that some countries charge nothing for owner-occupied or tenanted property costs. Some do. I was trying to give a truer comparison than using the headline rate.

§ Lord Orr-Ewing
My Lords, can my noble friend remind the House when it was under a Labour Government that inflation hit just over 27 per cent.? Is it not true that, as a result of that government going on bended knee to the IMF and making savage cuts in all the public services, they began to get the rate under better control? However, it was even then much higher than today.

The Earl of Caithness
My Lords, I think that the date for which my noble friend is looking is August 1975, when the rate reached 26.9 per cent. That shows just how high it went. I have explained on numerous occasions, not only today, how much better it is under our Government than under the Labour Government.

§ Lord Mayhew
My Lords, is the noble Earl aware that an important section of opinion in this House considers that the handling of inflation by both main parties has been grossly incompetent?

The Earl of Caithness
My Lords, I agree with the noble Lord that the current rate of inflation, both the headline and the underlying rate, is far too high. That is why we shall get it down.

Lord Bruce of Donington
My Lords, is the noble Earl aware that we welcome the fact that the rate of inflation today is marginally lower than it was when his Government took office? Nevertheless does he accept that after 11 years, the achievement of a balance of payments deficit of £22 billion in place of a surplus of £200 million when the Government took over is less than impressive? Bearing that in mind, is he prepared to say that the Government's battle against inflation is an economic miracle at this time?

The Earl of Caithness
My Lords, this Government's battle against inflation is never done.
7 It is top of my priorities. We shall continue to fight it and it would be quite nice to hear from noble Lords opposite whether the Labour Party has a policy on it.

§ Lord Donoughue
My Lords, I have listened to the Minister's sterling defence. Has he read the latest Bank of England Quarterly Bulletin? It states that inflation will remain at around 10 per cent. through to the end of the year. If he has read it, do the Government agree or disagree with the Bank of England?

The Earl of Caithness
My Lords, I agree with the statement of the Bank of England that economic policy is back on track.