Inflation

Treasury – in the House of Commons on 28th June 2022.

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Photo of Clive Efford Clive Efford Labour, Eltham

What recent assessment he has made of the effect of trends in the level of inflation on the UK economy.

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

We are not immune to the global inflationary shocks that many countries are experiencing. Indeed, eurozone inflation is north of 8%, and inflation in the United States is closer to 9%. We have the determination we need to combat inflation and reduce prices, and we have the tools at our disposal, namely strong and forceful monetary policy, responsible fiscal policy and supply-side reforms.

Photo of Mark Harper Mark Harper Conservative, Forest of Dean

One of the really insidious effects of inflation is that it imposes more costs on the poorest in society. What steps will the Chancellor take to make sure not just that we protect people today, but that inflation expectations are not locked in, locking in high inflation for the future, which would be the worst thing we could do for the poorest in our society?

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

As ever, my right hon. Friend makes an excellent and thoughtful point. He is right about the regressive nature of inflation, which is why our recent announcements have been specifically targeted at those on the lowest incomes—the most vulnerable in our society—to help them manage through the challenging months ahead. He is also right that inflation expectations are critical, and I know that the Bank of England will act forcefully, in its words, to restrain inflation and inflation expectations, because the quicker we get through this the better for everyone, particularly the most vulnerable.

Photo of Pat McFadden Pat McFadden Shadow Chief Secretary to the Treasury

It is true that inflation is affecting a number of countries, but why does the Chancellor think that the UK has the highest inflation in the G7, and why is UK economic growth forecast to be lower than in any country in the G20 next year, with the sole exception of Russia?

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

When it comes to inflation, there is a variety of reasons. [Interruption.] I was very clear with the House at the time of the recent announcement that we are experiencing not only the energy shock that Europe is experiencing, but the tight labour market that the United States is experiencing. The fact that we have very many people in work and low unemployment is something to celebrate, but, obviously, that contributes to inflationary forces. Beyond that, there are smaller technical things, such as the timing of how the price cap works here and the degree of interventions in energy being upstream or downstream. When it comes to growth—we have had this debate multiple times—the Opposition seem to cherry-pick the figure that they like. Let us look at the period since the pandemic and at our growth performance. Indeed, on the OECD’s most recent figures, which the right hon. Gentleman cherry-picked, where were we in that table? We were the second highest in the G7.

Photo of Pat McFadden Pat McFadden Shadow Chief Secretary to the Treasury

The Chancellor said “celebrate”. I am not sure that there is much to celebrate in the figures that I quoted to him. Does he accept that the weakness of the pound, which increases the prices of our imports, is a major contributory factor to the inflation being experienced by our constituents, along with a continuation of the trade frictions caused by the Government’s Brexit deal? Does he have any plans to address that? I am not talking about rerunning the Brexit argument. He could take one step, which is to reach an agrifood agreement with the EU, as New Zealand has. That would reduce costs and bureaucracy for our farmers, for our businesses and, most of all, for our constituents.

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

What the right hon. Gentleman said was very telling. We on the Conservative Benches do celebrate people being in work. It is critically the most important thing that we can do to help manage the cost of living, so every week in this place, we will champion those who are working and we will get others into work and support them. When it comes to the EU and our trading relationship—it is nice to hear from the Labour party that it does not want to rerun the Brexit arguments—it is very clear that there is now a growing faction on the Labour Benches that wants to do one thing and one thing only, which is to take us back into the single market.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

Both Labour and the Tories are Brexit parties now—a Brexit that Scotland did not vote for and wants nothing of. This year, the Scottish Government have faced more than a 5% real-terms cut in resource funding compared with last year’s Budget, and the spending review took place when inflation was at only 3.1%. It has now tripled and continues to rise. That increase will impact on Scotland’s recovery from the pandemic and place severe pressures on public services and public sector wages. Will the Chancellor increase funding to the devolved Governments in recognition of this record inflation over which he presides?

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

I am so pleased to have a chance to answer Treasury orals for the first time since we saw the Scottish Government’s spending review, which was a couple weeks ago. It was interesting to read through that, because in spite of the largest increase in public spending in the United Kingdom for some decades—record increases in public spending—it is clear that the Scottish Government are now imposing austerity in local government, in education, in justice, and in the environment. All budgets are growing slower than inflation, and that is not happening elsewhere in the United Kingdom. The health budget, the people’s No. 1 priority, is now growing in England two or three times faster than it is in Scotland. Scotland is not passing on the income tax cut. We might ask: why is this? Why are these choices being made? It is because, in Scotland, the welfare budget is being increased by 50%. That is why.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

The Chancellor knows fine well that the Scottish Parliament, along with the other devolved Administrations, operates on a fixed budget. We do not have the levers that he has to increase budgets, yet we operate on that incredibly well. [Interruption.] We have a balanced budget in Scotland every year, which says a lot about the Scottish Government than his Government.

Inflation is a global problem, but individual Governments can make it easier for people to make ends meet. Ireland, for example, has cut public transport fares to allow people to save money on ticket and petrol prices, while those have soared under this Chancellor’s Administration. That is an independent country using its powers to ease the burden on commuters. The Scottish Government have already made bus travel free for under-22s, but we are at the limits of what we can do, because of that fixed budget and because of those real-term cuts to the block grant. If the Chancellor will not provide more money to the Scottish Government, will he give us the full powers so that we can do that?

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

We all have to operate with fixed budgets—that is news to the hon. Lady—but there have been record Barnett settlements for Scotland of £4.5 billion a year. Beneath that, however, are the choices that Governments make. On the Conservative side of the House, we choose to support the NHS and public services; in Scotland, they are choosing to impose austerity on public services. That is the difference between us and the SNP.

Photo of Richard Bacon Richard Bacon Conservative, South Norfolk

Following the welcome launch of Help to Build yesterday, fulfilling a commitment that the Chancellor made to me when he was still Chief Secretary to the Treasury in the early part of 2020, does he agree that making it easier for more people to commission their own houses will result in more, better, greener and cheaper houses that cost less to run, thus making a significant contribution to battling inflation?

Photo of Rishi Sunak Rishi Sunak The Chancellor of the Exchequer

My hon. Friend is without doubt the House’s expert on that matter. I am pleased that the Government have listened to him. I still have the brochure he first gave me with the marvellous pictures of the custom self-build—in Switzerland, I think. There is a £1.8 billion fund, I believe, within the home building programme, and a good chunk of that will go to support exactly what he said: more homes, quicker homes and cheaper homes for all our citizens.