Inflation

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 27th June 1985.

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Photo of Robert Wareing Robert Wareing , Liverpool, West Derby 12:00 am, 27th June 1985

asked the Chancellor of the exchequer if he will make a statement on the present level of inflation.

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Over the 12 months to May 1985, the retail prices index increased by 7 per cent.

Photo of Robert Wareing Robert Wareing , Liverpool, West Derby

Does the Chancellor agree that his answer proves that the Government's only claimed achievement is purely ephemeral? Will he admit that his strategy is in jeopardy because of high interest rates and the pressure that they will put upon wage demands this autumn? Will he give a categorical assurance that, given the Government's track record in doctoring figures, he will not take mortgage interest payments out of the retail prices index?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

On the latter point, there is no question of the Government taking out mortgage interest payments. I imagine that the hon. Gentleman is referring to the announcement made to the House more than a year ago by my right hon. Friend the Secretary of State for Employment, who said that he was reconvening the independent Retail Prices Index Advisory Committee to re-examine the treatment of housing costs in the RPI. Obviously, we must await what that independent committee recommends. As it is, only the United Kingdom and Canada retain the mortgage interest rate in their indexes. However, we shall abide by what the independent committee suggests.

As for the figure of 7 per cent., the hon. Gentleman will be aware that the Labour Government did not manage in any month during their period of office to get a figure anything like as low as 7 per cent. The average monthly figure was 15½ per cent. Seven per cent. is not satisfactory. We shall be getting it down during the latter part of this year. I see that the independent London Business School forecasts that a year from now inflation will be 4¼ per cent.

Photo of Mr Michael Latham Mr Michael Latham , Rutland and Melton

In the interests of reducing inflation by cutting the mortgage rate, will my right hon. Friend assure us that he will not unduly resist benign market forces if they wish to push interest rates down?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I do not fix mortgage rates. They are fixed by the building societies. My hon. Friend may be assured that I shall not interfere in any way with their decisions. I have said on a number of occasions that the general level of interest rates will be maintained at whatever level is necessary to ensure monetary conditions that will bring inflation down.

Mr. J. Enoch Powell:

As the Government have been successful in funding their borrowing requirement without recourse to the banks, why is inflation going up again?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Inflation is affected by a number of things, and not least by the sharp rise in the value of the dollar against sterling during the latter part of last year. That has been reflected in prices this year. I am glad to say that since then the dollar exchange rate has improved in sterling's favour. That is why the right hon. Gentleman can be assured that inflation will continue to come down.

Photo of John Maples John Maples , Lewisham West

Is my right hon. Friend worried about the continued high level of personal borrowing and the effect that that might be having on interest rates and inflation?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

My hon. Friend is right to raise that issue. I believe that it lay behind the question by the right hon. Member for South Down (Mr. Powell). Bank lending is, of course, only a part of the total credit conditions in the economy that affect the inflation rate. I am not worried that monetary conditions at present are too lax. I do not believe that they are.

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Public Accounts Committee, Chair, Public Accounts Committee

Is it the Chancellor's intention as reported in an article by Sam Brittan in the FinancialTimes today, to keep the pound as high as can be got away with to bring pressure to bear on prices and wages? Does the right hon. Gentleman recall that the last time that that policy was pursued it had disastrous effects on the levels of imports and exports and caused problems for manufacturing industry?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

Mr. Speaker pointed out to me a moment ago that I must be careful to answer only on matters for which I am responsible. I am not responsible for the articles of Mr. Samuel Brittan.

Photo of Mr Alan Howarth Mr Alan Howarth , Stratford-on-Avon

Does my right hon. Friend agree with the elder statesmen of the Labour party, the right hon. Members for Cardiff, South and Penarth (Mr. Callaghan) and for Leeds, East (Mr. Healey) that inflation is the "father and mother of unemployment"? Does he further agree that the pre-condition for controlling inflation is to keep a tight grip on public expenditure and that those who care about unemployment are misguided if they urge him to adopt a more relaxed approach to public expenditure?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

My hon. Friend put the point well. That is the central truth. I am sure that he will be as glad as I am to note that during the two years or so since the last general elction the number of people in work has risen by about 600,000. That is more than in the whole of the rest of the European Economic Community.

Photo of Dr Oonagh McDonald Dr Oonagh McDonald , Thurrock

Will the Chancellor impose even higher rates of interest and even more cuts in public spending in an effort to squeeze inflation out of the system? Is he aware that such methods could force unemployment up nationally by 17 per cent., which is the current rate of increase in joblessness in Brecon and Radnor?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I am glad that the hon. Lady was able to mention Brecon and Radnor. I hope that it makes her feel a great deal better. The rest of what she said was absolute nonsense.

Photo of Mr Richard Wainwright Mr Richard Wainwright , Colne Valley

Does the Chancellor realise that his mismanagement of interest rates this year has so greatly increased inflationary expectations that the threatening warnings about higher pay settlements which he addressed to the CBI this week should have been addressed to himself?

Photo of Mr Nigel Lawson Mr Nigel Lawson The Chancellor of the Exchequer

I disagree. There has been no rise in inflationary expectations. The forecasts of every independent forecasting institution show that inflation will fall steadily in the second half of this year and into 1986.