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Volume 978: debated on Monday 4 February 1980

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asked the Secretary of State for Trade when he expects the price inflation rate to return to single figures.

No one can predict this. Inflation depends on many factors, but, above all, on the Government's success in bringing down the rate of growth in the money supply and the wisdom of wage bargainers in avoiding pay settlements that cannot be financed.

Is not part of this strategy, if strategy it be, that the Government are asking every worker in the public sector to take a real cut in their standard of living?

The only time that Governments of this country have shown signs, in the past five years, of getting control of inflation is when they have followed a policy of controlling their own expenditure and controlling the money supply. The previous Government were forced to do so by the IMF—and it worked. We are determined to follow that policy as the only long-term strategy that will work.

How does a pay settlement that cannot be financed contribute to inflation?

The Government can do two things. They can either inflate the money supply to accommodate the pay settlement, in which case, the right hon. Gentleman will agree, it would contribute to inflation, or they can hold the money supply, in which case unemployment will increase. In either case, unearned wage increases not covered by productivity will produce no benefit to anyone.

Is it not the case that inflation will be kept down if workers accept the fact that they must not continue to ask for increases in wages without increases in productivity? Is it not the case that they must put their full effort into production?

I have already said that wage increases that are not brought about by increases in productivity will eventually result—if the Government maintain a strong monetary policy, as they mean to—in increased unemployment. Wage negotiators asking for unearned increases must take that into account.

Will the Minister now answer the question that he has been asked repeatedly at this and other Question Times? What contribution have recent Government policies, namely the doubling of VAT, the increase in MLR and the increase in gas prices, made to counter-inflation?

The right hon. Gentleman does not listen to the answers. It is, therefore, hardly worth giving them. I repeat that the move to increased indirect taxes—so that reductions in direct taxation could take place—was voted on by the people of this country. They voted in favour of it. The Government's long-term policies of not holding down prices artificially in areas where they can only hold them down for a short time, but of allowing the market to find its own level—a sound monetary and fiscal policy—is the only way to control inflation.