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Pay Increases

Volume 129: debated on Thursday 10 March 1988

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To ask the Chancellor of the Exchequer what level of pay rise would be required by the average employee paying tax in order to compensate for price increases over the past year.

Given the tax cuts in the last Budget and the low rate of inflation, the pay rise needed to compensate fully the average tax-paying employee for the rise in prices over the past year is about 1½ per cent.

Does my right hon. Friend therefore agree that claims for pay increases of 8, 9 and 10 per cent. can only be damaging to the economy and possibly lead to increased inflation and the loss of jobs?

My hon. Friend is correct in much of what he says. Unlike the previous Labour Government, we do not believe in a prices and incomes policy, but there is no doubt whatever, and the country should be aware of this, that excessive of pay increases, which are certainly not warranted by the figure that I quoted, are liable to lead to a loss of competitiveness and a loss of jobs.

Does the Chancellor agree that other aspects of Government policy, particularly the large increase in electricity prices and the way in which rates are being forced up in the shire counties into double figure increases through the Government's reduction of rate support grant, have put added burdens on people in employment? Should not those facts be taken into consideration in determining the average increases that those people need to maintain their living standards?

The figure that I quoted at the beginning took all those factors fully into account. The plain fact is that under the last Labour Government the real take-home pay of a married man with two children who was on average male earnings rose by less than 1 per cent., but under the present Government the take-home pay of a married man on average earnings with two children has gone up in real terms by 23 per cent.

I think it right that the House should be more concerned about the number of jobs, which, although rising fast, would rise even faster if there were greater moderation in pay claims.

Does my right hon. Friend agree that the average employee has benefited from reduced rates of taxes and that there is some evidence that his own receipts have gone up since the reduction of rates of tax and duty? Why does he suppose that he is opposed in these matters by the Opposition Benches? Could it be that the Opposition's taxation policies owe more to spite than to reason?

My hon. Friend is right that, although, under Labour Governments, taxes go up, the tax revenues have not risen nearly as much as they have under the Conservative Government, who have been able to reduce rates of income tax. There will be one occasion on which the Labour party can show more clearly its attitude towards reductions in taxation, and that will be next week.