Economic Recession: Definition (Hansard, 14 November 1990)

§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, there is no unique definition of recession nor, for any significant operational reasons, do we need one. But the US definition of two successive quarters of falling output is widely used, though even that is not without its problems.

§ Lord Donoughue
My Lords, I thank the Minister for that reply. I presume that "recession", rather like a camel, does not need a definition but you know it when you have got it. What assumptions—and I do not say forecasts—about unemployment for 1991 are included in the Autumn Statement forecasts as regards social security expenditure on unemployment?

§ Lord Hesketh
My Lords, I am surprised that the noble Lord, Lord Donoughue, asks that question because with his knowledge of the Treasury 1 am sure that he is aware that the Treasury does not forecast unemployment. However, it is fair to say that with the desire to reduce inflation, the economy has slowed. Therefore, there must be an assumption that there is a possible increase in unemployment.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that the present recession is as a result of the crass incompetence of the previous Chancellor of the Exchequer in unleashing an unprecedented consumer and credit boom? Will the noble Lord tell the House whether he believes that our entry into the ERM will or will not cause a much deeper and longer recession with more unemployment than would have been the case had we not joined?

§ Lord Hesketh
My Lords, in answer to the noble Lord's first question, it is right to remember that interest rates were universally cut in many countries after the stock market crash of 1987. It is worth remembering that the Labour Party said that those rates had not been cut sufficiently quickly. It is worth remembering also that we now have an economy which, in the third quarter of 1990, has manufacturing output at a record level.

§ Lord Peston
My Lords, I congratulate the Minister on his Answer. He always says that he has had no 328 academic education but I thought that his Answer was a very good opening sentence to a standard examination question. He did not seem to feel the need to give us the rest of the essay.
If we are able to identify an economic recession, will the Minister tell your Lordships' House whether it is the Government's view that at present we are in a recession? Further, his right honourable friend the Chancellor of the Exchequer referred to us being in a "moderate recession". What is the difference between a "recession" and a "moderate recession'"?

§ Lord Hesketh
My Lords, in answer to the noble Lord's first point, I am sure that your Lordships' House will be very grateful that I did not complete the essay to which he referred, particularly at Question Time.
In response to his second point, one can define and re-define. As regards definitions, one can go from recession to downturn to upturn and boom and one could even sub-classify further. I am sure that later this afternoon there will be variations on the theme to which the noble Lord, Lord Peston, referred.

§ Lord Molloy
My Lords, can the noble Lord address his mind to the reality of the situation and not to all these hypothetical economic statements? With the present rate of inflation and because employment will probably fall, as he has already said, the people who will be hit hardest will be those buying their own homes. Those people have already suffered enormously at the hands of this Government. Can the noble Lord say that special consideration will be given to those people who are encouraged to buy their council houses and then find that they cannot pay the mortgage and those who are buying private houses and find themselves in difficulty? When unemployment increases, can something be done to help those people who are in that grievous situation?

§ Lord Hesketh
My Lords, the Government have always maintained that those who are weakest in society are those who are poorest and on fixed incomes. They are the greatest victims of inflation. The Government's policy is to curb inflation.

§ Lord Cledwyn of Penrhos
My Lords, perhaps I may ask the noble Lord to look for a moment beyond Offa's Dyke. Is he aware that the number of Welsh companies going into receivership has increased fourfold during the first nine months of this year, while at the same time the Government have cut aid to industry by 20 per cent.? Can the Minister explain that?

§ Lord Hesketh
My Lords, I must repeat to the noble Lord the Leader of the Opposition what I said earlier. We believe that the greatest evil of all is inflation, and that must be tackled. There is a price to be paid for tackling inflation, but inflation must be conquered.

§ Lord Hatch of Lusby
My Lords, if I heard the Minister correctly he said—to applause from the Benches behind—that manufacturing output had been at a record level in the third quarter of this year. Is it not the case that manufacturing output in the third quarter was down 1 per cent. on that for the second quarter of the year?

§ Lord Hesketh
My Lords, the tables before me show that the figures for the third quarter of 1990 were 7.5 per cent. higher than those for the previous peak year, which was 1973.

Lord Bruce of Donington
My Lords, is the noble Lord aware that the figures from the Financial Times show manufacturing output to have declined by 1.8 per cent.?

§ Lord Hesketh
My Lords, I am answering on behalf of the Government and not the Financial Times.

Viscount St. Davids
My Lords, I meant to make this point later in the debate this afternoon, but due to ill-health I shall not be able to attend. Is it not true that a limited amount of inflation and damage to the economy can be a good thing, but that like all medicines it has limitations? Like many medicines, it is good in limited doses, but beyond a certain point it becomes damaging.

§ Lord Hesketh
My Lords, on behalf of all Members of your Lordships' House I am sorry that the noble Viscount, Lord St. Davids, will not be attending the debate this afternoon. However, I cannot agree with his proposition.

§ Lord Donoughue
My Lords, in my supplementary question I did not ask for forecasts, knowing the Treasury; I asked for assumptions. Can the Minister helpfully explain what those assumptions are for unemployment next year?

§ Lord Hesketh
My Lords, we forecast that in our battle to control inflation there will be a slow-down in the economy. That leads to the assumption that there could possibly be an increase in unemployment.

§ Lord Hatch of Lusby
My Lords, the noble Lord said that he was answering on behalf of the Government. May I sincerely ask him to look again at his figures and come back to the House when he has confirmed them? As I understood the position, he admitted to me that manufacturing output has fallen by over 1 per cent. in the third quarter over the second quarter of this year. I understand that those are government figures, not dependent on the Financial Times.

§ Lord Hesketh
My Lords, I fear that there may be disagreement over which set of tables and figures is being used. However, if the noble Lord is correct I shall write to him. We could finish up in a complicated argument regarding which set of figures is being used by whom and for what.