§ 4. Mr. Skinner
asked the Chancellor of the Exchequer if he is satisfied with the current rate of inflation, and if he will make a statement.
§ Mr. Healey
The retail price index rose at an annual rate of 8.4 per cent. in the 12 months to December. The rate should remain around this level for the next few months ; thereafter the rate will depend crucially on the level of pay settlements.
§ Mr. Skinner
Will the Chancellor give lie to the oft-repeated claim by many people in this House and outside that a 15 per cent. increase in wages equals 15 per cent. inflation? Will he explain that last year wages went up about 15 per cent. in total while inflation was down to 8 per cent.? Were there not some other important factors involved, such as a strong pound, terms of trade in our favour, and currency reserves relatively high, which helped to ensure that inflation was kept down to 8 per cent.? Will not these factors together assist this year just as they did last year?
§ Mr. Healey
It is certainly true that our rate of inflation last year was assisted by the strnegth of sterling, which in itself improved our terms of trade. I am glad that my hon. Friend supports this element in the Government's policy and presumably also the measures such as those that I took in June and November to ensure that the money supply was kept under control and that sterling remained strong.
1931 It is the Government's policy in the current year, as I have already made clear, to conduct our affairs in such a way that we keep sterling strong. The strength of sterling is bound to be affected by the rate of inflation which will depend this year very largely on pay settlements. Some of the factors that helped us last year, such as a fall in world prices, are unlikely to be so favourable this year. Already, for example, there is likely to be a substantial increase in oil prices where there was no increase last year.
§ Mr. Temple-Morris
Does the Chancellor agree that there is no hope whatsoever of continuing with the present rate of inflation while his Government are quite unable to reach any agreement with the trade unions of this country? Does he agree that that possible agreement represents the only claim that his party has to remain the Government of this country?
§ Mr. Healey
I do not entirely agree with the hon. Member, and certainly his neighbour but one on his right, the right hon. Member for Down, South (Mr. Powell), disagrees very profoundly. I am glad to see that the right hon. Member dissociates himself totally from what has just been said by the hon. Member for Leominster (Mr. Temple-Morris).
It is very important for the House to recognise that, as the Secretary of State for Employment confirmed yesterday, the great majority of settlements have been within the Government guidelines. Those that have been outside have been mainly settlements by groups which exceeded the guidelines last year, and in all cases except that of the Ford Motor Company the resulting settlement has been well below the level of last year.
§ Mr. Rooker
Now that we have the retail price index for the calender year 1978, namely, 8.4 per cent., will the Chancellor of the Exchequer allow the provisions of section 22 of the Finance Act 1977 to carry through, thereby giving the low-paid a rise in personal tax allowances in line with the rate of inflation? He knows as I do that this benefits the low paid proportionately more than the well off.
§ Mr. Healey
I hope that that will be possible, but I have made it clear, and 1932 so has the Prime Minister, that if we had anything like the wage explosion that we had in 1975 the Government would be required to take fiscal or monetary measures in order to correct the situation.
§ Mr. Wigley
The Chancellor mentioned the strength of sterling. Does he accept that there is a real possibility that sterling is over-valued, and whereas that may help with the inflation battle it does encourage imports from overseas, thereby losing jobs in this country?
§ Mr. Healey
I do not accept that view, although I know it is widely held on both sides of the House. In fact one or two of my hon. Friends not a thousand miles from where I am standing now agree with the hon. Member. But, in spite of the fact that sterling remained strong throughout last year and that, as a result of increases in wage costs that were higher than those in other countries, we lost some of the competitiveness we had earlier in the year, our non-oil exports rose in volume by almost as much as they had the previous year. In fact, we maintained the increased share of world trade which many people thought we achieved in 1977 entirely from the depreciation of sterling in the previous year. The lesson of experience is that the advantages of depreciation as a cure for competitiveness have been grossly exaggerated.
§ Mr. George Rodgers
Does my right hon. Friend accept that his incomes policy might be received with greater enthusiasm by working people if it were seen to apply equally to those in the upper income brackets? Is it not so that a company director in possession of a dozen or so company directorships can always accumulate another dozen directorships with a fat fee to go with them? What will he do to remedy this situation?
§ Mr. Healey
It is true that some people in the higher income brackets have, by various devices, been able to increase their incomes by more than the Government would wish. This has also been true of many self-employed people at very much lower levels of income. Inevitably there is some leakage there, but a study of the general distribution of incomes in recent years shows that as a result of inflation and tax changes the better off have suffered a greater erosion 1933 of their purchasing power than those lower down the scale.
§ Sir Geoffrey Howe
Does the Chancellor remember telling the country—indeed, boasting to the country—at the time of the last election that he had succeeded in getting the rate of inflation down to 8.4 per cent.? Has he noted that the figures announced last week take the figure of inflation back up to 8.4 per cent. and that it is universally expected to rise above that? Does he also accept that the figures announced last week mean that since this Government came into office the value of the pound has been exactly halved? Is that not a fitting epitaph on the Chancellor's tenure of the Treasury?
§ Mr. Healey
No, I do not think that that is a fitting epitaph. I well remember sitting where the right hon. and learned Gentleman now sits and hearing the then Conservative Chancellor trying to justify a 20 per cent. depreciation in one day in the value of the £ sterling. The fact is that we have succeeded, after many years, in stabilising the value of our currency—something which previous Governments did not succeed in doing. When the right hon. and learned Gentleman refers to the current rate of inflation, he should pay some tribute to the efforts of all those who contributed to that—not least those in the trade union movement. He should be ashamed to make the remarks he has made as he and his right hon. Friends are consistently pressing policies on us which would raise prices—a very good example being their approach to agricultural policy in the European Community.