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Public Expenditure

Volume 978: debated on Monday 4 February 1980

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asked the Chancellor of the Exchequer whether he will publish in the Official Report a statement describing the transmission mechanism by means of which the saving of £3·5 billion in Government expenditure will reduce inflation and lead to a sustained growth of private sector output; whether this is expected to operate during the forthcoming recession; and what is his estimate of the likely timetable.

The reduction in public expenditure plans below those of the previous Administration will, over the medium term, allow a lower rate of monetary growth than would otherwise have been the case. This will be reflected in a lower rate of inflation, for a number of reasons, especially that the exchange rate will be higher than otherwise and pressure of demand lower. Any loss of output will be temporary. Both the lower level of interest rates that should accompany this process and the slower rate of inflation itself will increase private sector demand and output. As to the length of time over which this process might be expected to operate, I refer the hon. Member to the answer given to a previous question of his on 18 January 1980.—[Vol. 976, c. 894.]