§ 1. Mr. John Evans
To ask the Chancellor of the Exchequer when he expects inflation to fall below 5 per cent.
§ The Chancellor of the Exchequer (Mr. Norman Lamont)
The all-items RPI inflation is expected to fall to 5½ per cent. by the fourth quarter of 1991. The Government's firm financial framework will ensure that inflation continues on a downward path.
§ Mr. Evans
I congratulate the right hon. Gentleman on having been elevated to one of the highest offices in the land and I suppose that we must hope that his economic forecasts will prove more successful than those of his two predecessors, who generally got it wrong. More seriously, does the Chancellor agree that if he succeeds in reducing the rate of inflation, he will do so through a policy of punishing interest rates which will deepen the current recession and create further unemployment? Will he give my constituents an assurance that unemployment will not rise above 2 million next year?
§ Mr. Lamont
I thank the hon. Gentleman for the first part of that supplementary question. The answer to the second part is that there is no painless or easy way to reduce inflation, although that is an illusion peddled by the Labour party. The costs and pain of reducing inflation 434 now will be as nothing compared with the pain and costs that we had in reducing the inflation that we inherited in 1980–81.
§ Sir William Clark
Is my right hon. Friend aware that Conservative Members join in congratulating him on his promotion to Chancellor of the Exchequer and we are absolutely certain that he will continue with the same economic policy as his predecessor? If public expenditure were increased to implement the various promises that Labour Members are putting forward, what effect does he think that that would have not only on the inflation rate but on the budget deficit?
§ Mr. Lamont
I thank my right hon. Friend for his kind remarks and I assure him that economic policy continues to be the same. I also assure him that I shall take no risks either with inflation or with the exchange rate. Bearing down on inflation is, and will remain, the Government's top priority. My right hon. Friend is right to point to the extravagant plans for public expenditure put forward by the Labour party, which could have only two consequences—even higher interest rates and accelerating inflation.
Mr. John Smith
May I add my congratulations to the right hon. Gentleman on his appointment as Chancellor of the Exchequer? Will he now answer the question put to him by my hon. Friend the Member for St. Helens, North (Mr. Evans) about unemployment? If the recession continues, as it is clearly doing, causing a downturn in economic activity, the collapse of companies and a rise in unemployment, what action will the Government take to combat those deplorable results?
§ Mr. Lamont
I thank the right hon. and learned Gentleman for his first remarks. There are many pleasures in holding my present office, one of which is having the right hon. and learned Gentleman opposite me. We intend to make the reduction of inflation our top priority. We do not intend to boost output by adjusting fiscal policy. In the past that has been a counter-productive policy and has brought no benefits in terms of reducing inflation. The benefits to output will come when inflation is reduced. The experience of previous cycles has been that once we make marked progress in reducing inflation, output begins to recover.
§ Mr. Butterfill
Does my right hon. Friend agree that our present predicament stems largely from the mistaken decision to relax monetary policy at the end of 1987? That is clear with the benefit of hindsight. Will my right hon. Friend confirm, however, that Labour Members were urging us to go still further and that what they advocate today shows that they have learnt nothing since then?
§ Mr. Lamont
My hon. Friend is absolutely right. I am confident that we shall make progress in lowering inflation as a result of the tough and difficult decisions taken by my predecessor. The success that we shall have owes nothing to any encouragement from Labour Members, who have done nothing but oppose every policy designed to lower inflation.