Inflation (Hansard, 30 April 2003)

§ Lord McIntosh of Haringey
My Lords, because of the difficulties in measuring public sector output, the implied government consumption deflator from the national accounts may not necessarily give a good guide to genuine inflation in the public sector.

§ Baroness Noakes
My Lords, in thanking the noble Lord for that reply, I would like to wish him a very happy birthday.

Noble Lords
Hear, hear!

§ Baroness Noakes
My Lords, I would not like to spoil his birthday, but …
I ask the noble Lord to consider the charts on page 224 of the Red Book, as I know that he will be familiar with them. The charts show that public sector employment is rising sharply but private sector employment is flat-lining. They show that private sector pay increases are rising at a much slower rate than public sector pay increases. Does the Minister agree that that is a classic recipe for yet more tax increases?

§ Lord McIntosh of Haringey
My Lords, if the noble Baroness, Lady Noakes, wishes to say to the 9,400 additional teachers who have been employed since 1997, the 26,000 additional school support staff, the 39,000 additional nurses, the 10,000 additional doctors, and the 5,000 additional consultants, all of whom contribute to the quality of our public services, that their services are not wanted—that is what she is implying by criticising the increase in public sector employment—she is at liberty to do so. I would rather not be in her shoes.

§ Lord Barnett
My Lords, leaving aside the solution to the world's inflation problems that the noble Baroness gave us, is the Minister aware—I am sure that he is—that, in his Budget speech, the Chancellor referred to the advantages of switching from the RPIX measure of inflation to the HICP measure used in Europe and in most, if not all, of the G7 countries, other than Japan? The Chancellor said that he would, continue to examine the detailed implications".—[Official Report, Commons, 9/4/03; col. 273.] 690 Can the Minister say when the implications will be reported?

§ Lord McIntosh of Haringey
My Lords, this is a rather theoretical debate that has gone on for many years, and I do not think that it will come to a rapid conclusion.
With regard to the Question on the Order Paper, my noble friend Lord Barnett will know, as the Opposition appear not to know, that, for more than 20 years, public expenditure has been calculated at current prices and then deflated by a common deflator across the public and private sector.

§ Lord Newby
My Lords, does the Minister agree that one way to bring public sector wage levels into line with local market conditions is to introduce regional pay bargaining, which was mentioned by the Chancellor in the Budget speech? When will the Office for National Statistics publish the first regional inflation figures to enable such regional pay bargaining to be undertaken?

§ Lord McIntosh of Haringey
My Lords, that is an extremely constructive suggestion. The noble Lord, Lord Newby, is right to say that the Chancellor has raised the issue. There are difficulties, as well as possibilities. Some people will lose out.
I do not know the answer to the noble Lord's question about the ONS, and I will have to write to him on that point.

§ Lord Campbell of Alloway
My Lords, does the noble Lord agree that his Answer to my noble friend was less than generous? The figures and information that he gave about expenditure in the public sector represent only half an explanation; the other half is the state that public services are in.

§ Lord McIntosh of Haringey
My Lords, I was encouraged by my noble friends to go on with the list, but I will not go on for as long as I could. I shall give an example of the achievement of 11 year-olds in our schools since 1997. The expected level of achievement in English has gone up from 63 per cent to 75 per cent since 1997; in maths, it has gone up from 67 per cent to 73 per cent since 1997. I could, at great length, give comparable results for the National Health Service.

§ Lord Saatchi
My Lords, I also wish the Minister many happy returns. Will he imagine, as his birthday treat, having the opportunity to listen in on a class being given by the Chancellor of the Exchequer, perhaps to the 11 year-olds he mentioned? The Chancellor would be saying something like, "My income is rising by 1.5 per cent a year; my spending is rising by 8 per cent a year; I will borrow the money to fill the hole; what will I get for my 8 per cent extra spending?" The answer would have to be, "Not much". As I am sure the Minister knows, three-quarters of the extra spending—the 8 per cent—is disappearing in public sector inflation, which is running at a level three times higher than inflation in the rest of the economy.

§ Lord McIntosh of Haringey
My Lords, my imagination is fertile, but it is not fertile enough to allow 691 me to imagine the Chancellor uttering a farrago like that. I have already made it clear that the supposed distinction between public sector and private sector inflation is phoney—totally phoney. It has not been seriously used by any government, including governments of the noble Lord's persuasion, for more than 20 years.
As to the question of what we get out of increased expenditure in the public services and the accusation that it is based on wage growth, since 1997 wage growth in the public sector has been, on average, 3.8 per cent a year, and, in the private sector, it has been 4.6 per cent a year. That gives no credibility to the suggestion that the money going on public services goes on wage inflation.
The point is that these measures of inflation do not reflect quality. The same amount of extra spending on education could be achieved by doubling the incomes of teachers or by halving class sizes. In fact, it is achieved by the latter. They both give the same effect on so-called public sector inflation, but they do not reflect quality.

§ Baroness O'Cathain
My Lords, instead of trading statistics, as both sides have been doing across the Chamber, would not everyone be satisfied if the Minister were to say that he considered that the amount of money going into public services during the past 12 months had been properly spent and that we are obtaining value for money?

§ Lord McIntosh of Haringey
My Lords, I should have thought that subjective judgments of that sort ought to be based on statistics and facts. I do not prefer subjective judgments or perceptions to the facts.