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Inflation

Volume 961: debated on Monday 22 January 1979

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2.

asked the Secretary of State for Prices and Consumer Protection what is the cumulative increase in the rate of inflation since February 1974.

3.

asked the Secretary of State for Prices and Consumer Protection what is the cumulative increase in inflation since February 1974.

11.

asked the Secretary of State for Prices and Consumer Protection what is the cumulative increase in inflation since February 1974.

12.

asked the Secretary of State for Prices and Consumer Protection what is the cumulative increase in inflation since February 1974.

18.

asked the Secretary of State for Prices and Consumer Protection what has been the cumulative increase in inflation since February 1974.

19.

asked the Secretary of State for Prices and Consumer Protection what has been the cumulative rate of inflation since February 1974.

There has been no cumulative increase in the rate of inflation since February 1974. In that period the rate of inflation fell from 13·2 per cent. to 8·4 per cent.

Order. I propose to call first the hon. Members whose Questions are being answered together and then to give a run to hon. Members on the Government side.

Will the right hon. Gentleman tell us how he intends to explain away to the nation's housewives the fact that the value of their 1974 pound is now less than 50p?

I am delighted to say that the Opposition are giving the Government an opportunity to discuss that on Thursday. One of the things concerning inflation over the past five years that I shall then describe is our inheritance of February 1974 and the fact that in the past five years we have brought inflation down to 5 per cent. lower than the figure we inherited when we came to power. I propose to suggest on Thursday ways in which the Opposition can help us in our continuing campaign and to see whether they respond to those suggestions.

Does not this doubling of prices indicate that the effect of the Price Commission on prices has been minimal, and would it not be more honest, and, perhaps, more helpful to the country, to abandon the Price Commission now and, if there is a role for investigating monopolies, to strengthen the Monopolies Commission as a quid pro quo?

As the hon. Gentleman implies, the Price Commission has two functions. One concerns the sectors where there is less than perfect competition; the other is to hold down specific price increases. I share his view that the Price Commission does not possess sufficient powers to enable it to hold down prices where that is justified, which is why I propose to bring in a Bill to make that possible.

Does the right hon. Gentleman agree that the cumulative increase since February 1974 now totals 100·8 per cent.? Will he now accept that figure? Does he realise the effect that that disgraceful rise has had on groups like the disabled, in particular the blind, whose fixed allowances have been eroded seriously, causing misery and hardship to many?

The figure that the hon. Gentleman hoped to elicit from my answer is the appropriate figure for giving in answer to a later question by the hon. Member for Leek (Mr. Knox). Since the hon. Member for Leek put down the right question, I prefer to give him the right answer rather than answer the question that the hon. Gentleman thought he was asking.

Will the right hon. Gentleman tell me, with his usual refreshing candour, where in the Labour Party's manifesto of February 1974 a pledge to the British people that a Labour Government would more than double prices in five years?

That is a typical question from the hon. Gentleman. What we promised to do in that manifesto was to bring inflation under control, and that we have clearly done. I repeat, and propose to go on repeating in the next three, six or nine months, that we have done it with very little help from the Opposition.

Is the right hon. Gentleman aware that food prices have gone up by 108 per cent. since the Government came to power? What percentage is due to the common agricultural policy, and what to the devaluation of the pound?

I think that the increase in prices would have been about 10 per cent. less had it not been for the CAP. While I do not regard that as massive, it is clearly a figure that we could well have done without. It is because of the inadequacy of the CAP that my right hon. Friend the Minister of Agriculture, Fisheries and Food is making successful attempts to limit price increases on commodities in surplus. Again, he has done that with no assistance from the Opposition. An example on which the hon. Member for Gloucester (Mrs. Oppenheim) might comment when she has recovered from her snort was the damage which the Opposition parties inflicted on the Government in respect of the green pound. By their behaviour on that occasion, as on others, the Opposition have rendered the situation more difficult rather than better.

Does my right hon. Friend agree that the important thing about inflation is the rate at which it is changing? Does he agree that in February 1974 the trend of inflation was upwards? It was high and positive, whereas at the present time the trend is fairly horizontal, and therefore the situation has improved enormously compared with February 1974.

I should have thought that even the less numerate members of the Opposition would have acknowledged the statistics, because in February 1974 inflation was over 13 per cent., and rising, whereas now it is 8 per cent. and more or less static. Not only does my hon. Friend make the point that the important thing is the trend, but so did the Opposition a year and a half ago. When the retail price index was rising month by month, that was an important indication to the Opposition. Now that it has become stable in the last nine months, it has ceased to mean anything to them.

Will my right hon. Friend confirm that if wages rise by 15 per cent. it does not follow that prices will rise by 15 per cent. as well? Perhaps he could convey that to some of his Cabinet colleagues. Will he also accept that other factors go into the making up of the rate of inflation, such as the terms of trade, the state of our currency reserves, and so on? Does he accept that more emphasis must be placed on controlling prices and, if necessary, if we cannot transform the Common Market, on getting out of it?

I do not agree with that final suggestion, but I agree with almost everything else that my hon. Friend has said. Many factors determine prices. Wages alone are not the only determinant, although they may well be the major one. If we had overall earnings increases of 15 per cent., the prospects of further improving the inflation rate would be very severely handicapped, and while I share my hon. Friend's view that wages are not the only cause, I hope that he shares mine that they are an important cause and have to be planned in the way that the other elements in prices are planned.

Whilst any other accusations made against the right hon. Gentleman and the Government about inflation may be correct, one accusation that is incorrect is that the right hon. Gentleman has never made an accurate forecast. Does he remember forecasting with absolute accuracy in Cambridge, on 27th May 1972, that

"We shall be an expensive Government"?
Do not the people now know exactly what he meant, as they have seen prices double and the purchasing power of the pound cut to below half? The only forecast—

Order. We must not develop arguments now. We must confine ourselves to questions.

Will the Secretary of State accept that the only forecast that will put people out of their misery is when we can expect a General Election?

I plead guilty to the hon. Lady's initial charge. I regularly make speeches in which I say that our public expenditure plans—for housing, hospitals, education, and so on—cost more than Conservative plans, so that in that sense we are an expensive Government. I shall send her some of the texts in which I have made that point, which is always preceded by the phrase

"Let weak-minded Conservatives make what they want of that point."

Is my right hon. Friend aware that the Financial Times has conducted a comparative survey in 60 capital cities and found that prices in London compare very favourably with those abroad? Can he explain how the Opposition, if they believe in no Government interference in wages and prices, can blame the Government on these matters?

I have seen many indications of price prospects and price achievements and have been heartened by most of them. The Government have brought inflaton down to the level of about 8 per cent., and I think there is a general acknowledgement that we have made progress along the lines that we hoped. Proof of that he in The Daily Telegraph, which, in the end, had to publish its shopping clock, even though it showed an improvement in the price level, and even more in The Sun, which gave up its shopping clock altogether.

5.

asked the Secretary of State for Prices and Consumer Protection what is the current year-on-year rate of inflation.

14.

asked the Secretary of State for Prices and Consumer Protection by how much the retail price index has risen since February 1974.

The retail price index rose by 8·4 per cent. in the 12 months to December 1978, and by 100·8 per cent. between February 1974 and December 1978.

As, unfortunately, it appears that the rate of inflation is now starting to rise again—

I said "unfortunately". The housewives in my constituency have to pay the bills, like everyone else. As, unfortunately, it appears that the rate of inflation is now starting to rise again, can the Secretary of State tell us what the Treasury estimates are for the rate by the end of this year?

The Treasury estimates were published in the document known as "the Bray forecast", which was submitted to the House in November last year. I tried to give a rather more accurate forecast, which is possible over a shorter period, when I said that for the next three or four months there would be a slight, though not substantial, increase in the inflation rate. Instead of it fluctuating around 8 per cent., I thought that it would probably fluctuate around 9 per cent.

The right hon. Gentleman usually blames this 100 per cent. inflation on the increase in the money supply. Is he seriously suggesting that the abandonment of the Conservative Government's incomes policy and the consequent wage and salary explosion during the first 16 months of this Government had nothing to do with inflation? If so, why did the Government introduce an incomes policy in 1975?

I am not suggesting that for a moment, and I am glad that the hon. Gentleman, unlike his less objective colleagues, refers to the difficulties during the first year or 18 months of the Labour Government. Those were difficulties which we inherited. I do not believe that the Conservative Party's incomes policy—which has been disowned not only by me but by the Conservative Party—was a help in these matters. It contained the threshold agreements, and threshold agreements are institutionalised inflation in pay bargaining. I therefore think that the Conservatives handicapped the Government rather than helping them during their first year.

Will my hon. Friend give an indication of the implications for inflation if the going rate in the present wage round were to become 15, 20 or 25 per cent. respectively? Will the Secretary of State publish in the Official Report some calculations based on the same assumptions as those of the public expenditure White Paper and can he say whether, at the end of such a free-for-all, anyone will be better off respective to anyone else?

I very much agree with the implication of my hon. Friend's question, which is that if we had a wages round which produced increased earnings of 20 or 25 per cent., that would not result in people having more purchasing power, but rather in their having less. On the other hand, I do not want to produce the figures that he suggests, even though his general thesis is right. I do not believe that we shall get a 15 or 20 per cent. earnings round, nor do I believe that producing figures based on those percentages would encourage people to understand that the interests of this country are in getting a wages round substantially lower than that, thus improving their purchasing power in real terms.

Does the Secretary of State agree that the current rising rate of inflation is still too high by comparison with our major trading competitors? It is three times as high as that of Germany and twice as high as that of Japan. Can he say what the prospects are for an improvement on that situation?

Of course I agree, and the Government have always said that our objective has to be to get our rate of inflation down to the level of our most successful competitors. We have a long way to go before we achieve that—a very long way indeed. The prospects depend on a number of elements. One is that the Government maintain their present financial policies of stringency in the money supply and the public sector borrowing requirement. It also depends, as my hon. Friend has mentioned, on a reasonable pay round. Nobody can be sure about the outcome of that second factor. What we can be sure of is that the whole country has a vested interest in producing that result, and the Government will go on working very hard for that result.

Will the Minister tell the House how much of the Government's gross overspending during the past five years—as reflected by the public sector borrowing requirement which has been financed by printing the money—has been responsible for the doubling of prices during that period?

I am sure the hon. Gentleman will be amused when I tell him—though he ought to know—that that sort of calculation is not possible. What I hope will amuse him less is that the Government's record of financial stringency is a great deal more respectable than that of the Government that he supported. I am always astonished to discover how Conservative Members can advocate one policy in Opposition and carry out another when they are in Government.