Roy Hattersley – 1985 Speech on Prices

Below is the text of the speech made by Roy Hattersley, the then Labour MP for Birmingham Sparkbrook, in the House of Commons on 19 June 1985.

I beg to move,

That this House condemns the Government’s policy of intentionally increasing public sector prices through rising tariffs for gas and electricity, increased rents, rates, water charges and bus fares, higher charges for school meals, meals on wheels, home helps and prescriptions, which will result in disadvantage for all but the richest sections of society; deplores the increases in private sector prices resulting from the Government’s extension and imposition of higher levels of value added tax; and strongly disapproves of the Government’s mismanagement of the economy which has produced record interest rates and a consequent level of mortgage repayments which for most families greatly exceeds any gains from changes in income tax.

Inflation is the area of the economy in which the Government most often proclaim victory, but an examination of the facts shows that boast to be largely bogus. For five years, the Prime Minister has claimed credit for a falling inflation rate, and has rejected all blame for increases in unemployment. In both cases, the truth is almost the exact opposite of what she asserts. That is a demonstrable fact, and it was so even before the increase in the retail price index over the past five months.

I simply draw the attention of the House to the statistics. During the past six years the British inflation rate has fluctuated between 9 per cent. above the OECD average—that was in the year in which the Government increased VAT from 8 to 15 per cent., and pushed up the RPI by four points at a stroke—and 1·8 per cent. below it. The latter figure came about immediately before the last general election.

But over the period as a whole, the average rate of inflation in the OECD has fallen from 9 to 5 per cent., whilst in the United Kingdom it has fallen from 10·1 to 7 per cent. That is a comparison of our inflation record with that of our competitors and partners in the developed world. We have certainly done no better—and, indeed, have probably done worse — than the average in the other OECD countries.

There can be no dispute about unemployment. It is a question not of perhaps having done worse but of certainly having done worse, continually having done worse and remorselessly having done worse. In 1969, United Kingdom unemployment stood at 0·5 per cent. above the OECD average. In 1980 it was 1·1 per cent. above; in 1981, 3·9 per cent. above; in 1982, 4·1 per cent. above; and in 1983, 4·4 per cent. above; and in 1984 it was 5 per cent. above the OECD average.

In the five years for which there are statistics and in the five years of this Conservative Government, our unemployment rate has continually and remorselessly increased as compared with unemployment in the OECD countries of our partners and competitors.

Mr. Patrick Nicholls (Teignbridge) rose—

​Mr. Hattersley

I shall give way to the hon. Gentleman in a moment. So far I have given only the official statistics, but perhaps he wishes to argue with them.

Mr. Nicholls

Was there one single month under the last Labour Government when the rate of inflation was lower than it is now?

Mr. Hattersley

As I develop my case, the hon. Gentleman will discover that the problem that he has to face—[HON. MEMBERS: “Answer the question.”]—is whether the present rate of inflation is the lowest that the Government could achieve, or whether, through their wilful policy and despite the advantages that they have enjoyed, they have behaved in such a way as to produce a rate of inflation that is worse than that in the countries of our competitors and collaborators in the OECD. The answer to that question is a categorical yes, and I am glad that the hon. Gentleman is wisely not prepared to argue with that contention.

The contention is that, as compared with other developed countries, our rate of inflation has continually and inexorably deteriorated. That has happened at a time when commodity prices have remained relatively stable and when almost all the external factors—I draw the hon. Gentleman’s attention to oil prices — have encouraged an improving inflation rate. The things that have pushed up inflation in this country during the past five months are domestic factors, just as they were in 1979 and 1981. The causes of inflation are VAT, rents, gas, electricity and, overwhelmingly, mortgages. Things that are the direct result of Government policy have escalated the inflation rate to the 7 per cent. figure at which it now stands. All the increases that I have listed have come about either directly as a result of Government edict or indirectly as a result of Government incompetence.

It is now accepted that the most immediate cause of the increase in the retail price index is the increase in mortgage rates. About that I want to ask the Chief Secretary an immediate question. If he cannot answer it now, I warn him that we expect the Secretary of State for the Environment to answer when he winds up in five hours’ time.

When official statistics prove the inadequacy of Government policy, it is the Government’s practice not to change the policy but to change the statistics. That happened when the retail price index was replaced by the tax and price index; that happened when the method of calculating the unemployment total was altered to give a better figure; that happened when the method of estimating the number of people in work was altered to improve the total.
Is the same about to happen with the retail price index? I understand that the retail prices index advisory committee has been asked by the Government to consider the removal of mortgage rates from the inflation calculations. That is a simple matter to which the Chief Secretary can answer yes or no. If he cannot, the Secretary of State for the Environment can answer later. Perhaps the answer is known already. I shall be pleased to give way to hear the answer to the question. Have the Government, or have they not, invited the retail prices index advisory committee to consider the removal of mortgage rates from the RPI? We look forward to the Chief Secretary enlightening us as the afternoon progresses.

Whether or not the Chief Secretary admits that what I say is true, the increase in mortgage rates played a major part in the April and May inflation increases. The May increase was described by the Secretary of State for Employment as a “blip” in a downward curve. When he made his usual statement on the unemployment figures, the Secretary of State did not say that there had been a blip in April, a blip in March, a blip in February, a blip in January — that is five blips in a row. Many commentators believe that if blips are the euphemism for upward movements, there will be another blip next month.

Five blips in a row — possibly six — requires a collective noun. The word of course is “trend”. The trend has been upwards since Christmas. The trend has been established not by external factors, because commodity prices are relatively stable and the pound has not significantly deteriorated since January. The cause is domestic Government policy and the principal cause is the increase in the mortgage rates, for which the Government are wholly and directly responsible.

The story of the mortgage rates increase is well known, but it bears repetition. For 18 months, the Chancellor of the Exchequer insisted that the pound must float free and find its natural value in world markets. While he was insisting upon that throughout 1984, commentators were saying that, since oil is priced in dollars, depreciation would increase oil revenues, the oil revenue increases would extend the fiscal adjustment, the extended fiscal adjustment would increase the Chancellor’s scope for tax cuts, and therefore the Chancellor was in positive favour of depreciation. Not once did the Chancellor do anything to contradict that view.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

Rubbish.

Mr. Hattersley

Will the Chancellor say when he contradicted the view that he welcomed depreciation? Will he give an example now? The Chancellor did nothing to contradict that judgment. As a result, on 10 January the pound seemed likely to depreciate to the value of a single dollar. As a result of that, the Chancellor stepped in on 11 January and manoeuvred an interest rates increase, which did not work.

The following day, not only the Chancellor, but all in Downing street, took a hand. At No. 10, The Observer newspaper was told that intervention to support the pound was imminent, while next door, at No. 11, The Sunday Times was being assured that intervention was out of the question. The result was chaos in the market and panic in the Government. On Monday 14 January, the Chancellor reintroduced minimum lending rates and began the process that ended with base rates at 14 per cent. and the highest real interest rates that this country has endured for 50 years.

The cause of those interest rates rising to that level was not the old theory of crowding out or the new excuse of international rates. It certainly was nothing to do with the money supply, even though the Government were not meeting their money supply targets. Interest rates in Britain are now 6 per cent. above those in Germany, America and Japan, for reasons that are special to the United Kingdom. Those reasons are and remain the incompetent management of sterling by the Chancellor and the panic that affected the Government thereafter. As a result of that unique increase in interest rates, mortgage ​ rates rose to 13·75 per cent. and 14 per cent.—4 per cent. higher than at the time of the last election and 2 per cent. above the level that the Government inherited in 1979. In fact, those mortgage interest rates have been surpassed only once in our history, and that was under the Tory Government in 1981.

On 1 April, mortgage interest rates rose by a full 1 per cent. That added £9·60 a month to the repayments on a £20,000 mortgage, which is the average new mortgage taken out. That increase in repayments on the average new mortgage more than swallowed the £7·50 tax relief provided in this year’s budget for a married couple. Thanks to the Government, during the past five years, that family with a £20,000 mortgage has faced a 4 per cent. increase in its mortgage repayments and an actual increase of £40 a month. The Conservative party, which claims to be the party of home ownership, has made home ownership more expensive than ever before.

For some families, especially young couples, the Government have made the price of home ownership prohibitive. Yet, if those same young couples want or have to live in rented accommodation, especially municipal rented accommodation, the cost has increased just as much. Thanks to the Government’s decision virtually to abolish housing subsidies, increases in rents have escalated at a speed that no hon. Member, whatever his persuasion, would have regarded as tolerable five or 10 years ago. In 1978–79 — the last year of the Labour Government — the average council rent was £5·90 a week; last year, it was £14·77. The estimate for 1985–86 is £15·50 a week—an increase over seven years of 163 per cent. gross and 41 per cent. in real terms. These are massive increases which ordinary families find it almost impossible to face and bear.

The increases in mortgage repayments and in rates are borne by home owners and house renters who are desperately affected by another item of policy for which the Government are generally and directly responsible—the continuing increase in rates. I know that it is the practice of the Government’s propaganda machine to blame the rates increases on individual councils. It may well be the whole absurd paraphernalia of rate capping and all that goes with it was not so much a device for holding rates down as a device for finding scapegoats on whom to blame the increasing rates.

Whatever the purpose of all these schemes introduced by the Chancellor and his many predecessors who escaped before he arrived, none has worked.

Between 1974–75 and 1978–79—that is the period of the Labour Government, for hon. Members who enjoy making such comparisons—rates rose by 73 per cent. In fact, the real cost fell by 5 per cent. Between 1978–79 and 1984–85 the rates rose by 146 per cent.—the real cost rose by 46 per cent. Between the first year that this Government were in office and the estimate for next year, the rates increase will be 169 per cent.—a real increase of 44 per cent. That is 44 per cent., to which an additional escalating payment must be made for water rates, which continue to grow at a speed that is inexplicable to most people who have examined the industry.

The Government blame all this—a 44 per cent. real increase in rates plus the increase in water charges—on spendthrift councils. They justify their blame and substantiate their accusations by giving examples of items ​ of spending which I freely admit are sometimes absurd, but which are almost always trivial in terms of a borough’s total rates bill.

If councils are to blame for escalating rates, then Conservative councils are at least as guilty as Labour in local administration. I ask the Chief Secretary to consider the average domestic rates precept this year in the shire counties, where the Conservative party believes itself to hold sway and in some areas exercises undisputed power. In the 10 shire counties where Labour sets the rates, the figure is £4·83; in the 19 shire counties where the Conservatives set the rates, the figure is £5·31; and in the 10 counties where there is no overall control the figure is £5·34. By dividing the shire counties into three groups—Labour, Conservative and others—one can see that, according to the Government’s criteria, the Labour party has a better record of thrift than the other parties.

I am not blaming the independents, the Social Democrats or the Liberals, who have increased the precept the most. I am not blaming the Tory councils which have increased the precept more than Labour councils. To blame them for the increase in rates would be as absurd as to blame all the other groups which have had the unpleasant task of imposing and passing on the price increases required by the Government. Those councils have increased their rates for two reasons — first, because the Government have increased councils’ costs by imposing extra duties on them, such as the administration of housing benefit, and, secondly, because the Government have neglected services, such as local transport, which councils rightly thought it their duty to rescue.

At the same time as this Government have increased councils’ costs, they have remorselessly and ruthlessly cut the rate support grant, which is central Government’s contribution to local authority spending. In 1978–79 which was the last year of the Labour Government-this is another comparison which will be noted by assiduous hon. Members who like to make these comparisons — the RSG was £12·226 billion; this year it has sunk in real terms to £8·489 billion. If this Government had kept RSG at the level they inherited, local authorities would have received a sum so much greater than the sum they now receive that none of the increases about which there have been so many complaints would have been necessary or imposed.

In such circumstances, it is dishonest and absurd to blame the rates rises on local councils. It is as dishonest and absurd as it would be to blame the chemists for the increases in prescription charges from 20p to £2, to blame the dentists for the increased patient costs which come from open-ended charges, or to blame the opticians for the increased prices which result from the abandonment of NHS glasses and lenses. The Government are responsible for all those items, just as they are responsible for the rates increases.

Mr. Tim Eggar (Enfield, North) rose—

Mr. Hattersley

I am always happy to give way to the hon. Gentleman.

Mr. Eggar

Before the right hon. Gentleman leaves the question of rates, may I ask him to recollect that the Government imposed a limit on the GLC? Does he remember that the GLC then voted voluntarily to go below that limit and announced that it was able to do that without ​ any reduction in the standard of services being offered to the people of London? Did the right hon. Gentleman welcome the move by the Government which forced the GLC to reduce the rate, or did he believe that his friends at county hall should have been allowed to raise the rates as high as they wished?

Mr. Hattersley

I will now demonstrate why I said that I am always happy to give way to the hon. Gentleman. Perhaps he will recall what happened when the GLC reduced the rate below the figure that the Government anticipated. That required the Government to give more money to county hall, and because that had to be done, they had to take money away from Lancashire and every one of the shire counties.

Mr. Eggar

No.

Mr. Hattersley

It is no good the hon. Gentleman saying, “No”, because that is exactly what happened. It is what I told the Prime Minister would happen and it is what the Prime Minister justified having happened. Because the GLC remained within the law, the shire counties, many of them Conservative-controlled, were penalised. If the hon. Member for Enfield, North (Mr. Eggar) regards that as a sensible way of distributing the rate fund, I shall give way to him frequently in the future.

Mr. Nicholas Soames (Crawley)

Get on with it.

Mr. Hattersley

I long for the hon. Member for Crawley (Mr. Soames) to intervene.

Mr. Soames

Just wait.

Mr. Hattersley

The people whom I have described — those who are paying higher mortgage rates and higher rents, both of whom are paying additional rates bills—are also the people who are now faced with massive increases in the cost of gas and electricity.

I have no doubt that, when the Chief Secretary makes his valedictory speech, he will say that gas and electricity prices rose between 1974 and 1979. I congratulate him on his perception in discovering that. During the lifetime of the Labour Government, gas prices, although they increased by 73 per cent. in nominal terms, fell by 39 per cent. in real terms. Between May 1979 and August 1985, gas prices rose by 128 per cent. in nominal terms and 56 per cent. in real terms.

Electricity prices rose much more quickly under Labour than they have under the Conservatives. However, I hope that, as the Chief Secretary entertains us with a detailed recital of the figures that I have offered him, he will also give the history of those price increases.

The Labour Government of 1974 inherited from their predecessor annual losses on gas of £41 million and on electricity of £176 million. I know that it is not fashionable for the present Government to defend their lineal predecessor, and the Chief Secretary may say that many of the problems that the Labour Government faced with gas and electricity prices were the direct result of the Heath Administration. He must make his own judgment on whether he wants to offer that condemnation.

The facts are beyond dispute—a £41 million deficit on gas and a £176 million deficit on electricity—and the Labour Government moved slowly towards a break-even point. As one of the Ministers who was responsible for this area of policy, I vividly recall that the criticism of the ​ Labour Government was not that we were putting gas and electricity prices up too quickly but that we were increasing them too slowly—that we were subsidising the gas and electricity consumer.

Mr. Eggar rose—

Mr. Hattersley

No, I must get on.

Mr. Robert Atkins (South Ribble)

The right hon. Gentleman said that he always gave way to my hon. Friend the Member for Enfield, North (Mr. Eggar).

Mr. Hattersley

While I could not lose by giving way, I am motivated solely by compassion. Therefore, I will not give way again to the hon. Gentleman.

The Government’s attitude towards the gas and electricity industries has been diametrically different from that of a Government who struggled—not completely successfully — to make the industry break even. The Conservatives have used gas and electricity to raise revenue and collect taxes, and I will quote two authorities for saying that.

I remind the Chief Secretary of what the National Gas Consumer Council said about the gas tariff:

“We strongly opposed and fought vigorously against the suggestion that the tariff should rise higher than the commercial needs of the industry in order to provide a convenient source of revenue to the Treasury.”

It went on to say that its opposition to the gas industry being used

“to provide a convenient source of revenue to the Treasury”

failed and that the fight to stop the gas tax was lost. It added that the

“three-year Government imposed programme of rapid gas price rises was…a programme that more than doubled the price of gas.”

The same rule applies to electricity. I have quoted the report of the Select Committee on Energy in the House before. When I last raised it in debate, the Chief Secretary did not comment on the issue. I invite him to comment on it today. That Select Committee said:

“the proposed electricity price increase…is not justified on the grounds either of the Financial Target or the Government’s economic pricing policy. The only possible reason for it is the Government’s desire to raise additional revenue.”

Mr. Andrew MacKay (Berkshire, East) rose—

Mr. Hattersley

I had better not give way to the hon. Gentleman, or his hon. Friend the Member for Enfield, North will feel cheated

The Select Committee added:

“the industry has been required by the Government…to make payments to the Treasury in 1984–85 of some £360 million over and above the figure of £380 million which would be consistent with Financial Targets.”

The Government now impose a purchase tax on gas and electricity. It is a surreptitious tax, but it is a tax nevertheless on electricity and gas.

Mr. Andrew MacKay

The right hon. Gentleman is rightly concerned about price rises. I am sure that he is keen to enlighten the House and the country on his party’s policy. Do he and his party believe in a statutory prices and incomes policy, or would he have some sort of fudge or compact with the trade unions?

Mr. Hattersley

My answer to the alternatives that the hon. Gentleman offers me is that I do not believe in a statutory incomes policy. I do, however, believe, as I have always believed, that an agreement must be forged between unions and Government — [Interruption.] I ​ know how concerned the Government are by the increase in wages reported today. I hope that they will understand, if they are concerned about wage increases, that they should not be surprised by today’s news. If the Prime Minister preaches the doctrine of every man and woman for himself and herself, she must expect the trade unions to do exactly the same. As Mr. Sid Weighell once said:

“If we live in a pigsty economy, everybody will try to get their snouts in the trough.”

As the Conservatives have encouraged the belief that every man and woman should fight for himself and herself and damn the consequences, they should not be surprised if trade unionists take them at their word.

Several Hon. Members rose—

Mr. Speaker

Order. I do not think that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is giving way. There will be ample time for other hon. Members to contribute to the debate.

Mr. Hattersley

I return to the subject on which—[HON. MEMBERS: “Keep to the point.”] I have not left the point. If Conservative Members will concentrate, when I say that I am returning to the point, it means that I have not left it. I am on exactly the same point.

The surpluses in the gas and electricity industries which the Government have arranged and have imposed—they would be called profits in private industry, and I suppose that they will be called profits if those industries are privatised — are used to reduce the public sector borrowing requirement. They are taxes, and they are intended to assist in the achievement of the massive tax cuts which the Chancellor pursues so frenziedly but never actually achieves.
I suspect that this frenzy will increase as the election approaches — not surprisingly from a party which promised to cut taxes but has in fact increased the annual tax bill by £29 billion. That means, I suspect and fear, that there will be additional assaults on public services such as the assault mounted by the Secretary of State for Transport in his direction to the London Regional Transport Board to reduce its level of revenue support. The assault resulted in fares being increased on average by 9 per cent., short journey fares being increased by 25 per cent. and children’s bus fares being increased by 50 per cent. Those are the sort of prices that real families pay for the Chancellor’s frenzied and vain pursuit of a surplus big enough to provide the tax cuts which he once promised and has failed to provide.

There will be the pathetic pretence that the problems of the economy, while all this is going on, can be solved by the belief and the pursuit of the superstitions which have so failed the economy for the last six years. I have absolutely no doubt that when the Chief Secretary speaks we will hear a repetition of all the old shibboleths that we have heard from him week in, week out, since he first became a member of the Government. He will announce that the policy which has visibly failed is really an invisible success and he will urge us to be patient, telling us that in the end the policy which has so damaged the economy will save the economy. To most people the absurdity of that blind faith is now obvious.

We were once told that, if the Government held down inflation, every other aspect of the economy would improve. What they have done is to attempt to hold down inflation by damaging every other aspect of the economy. ​ The 2 million extra unemployed, the record level of company liquidations, the deficit on manufacturing trade, the net decline in investment and the negative net investment in manufacturing, construction and transport, are all the prices that we pay for the Government’s belief that, if they hold down inflation, everything will come right. Not even in that particular have the Government succeeded. Not even in that promise have the Government managed to do what they asserted would be done.

The most recent of these promises was made by the Prime Minister somewhere in south-east Asia. I cannot recall the exact country—that does not matter; the right hon. Lady cannot either — but I do remember the promise. The promise was a 3 per cent. inflation rate by polling day. Therefore, I ask the Chief Secretary whether the Government are still committed to that figure or are now edging away from the Prime Minister’s indiscretion. If the Government still believe that 3 per cent. is possible by polling day, let me remind them what they have to do. They have to cut inflation by 4 per cent. in the next two years. What the Government have achieved in six years is a reduction of 3·1 per cent. What they have achieved since the last election is an increase of 3·3 per cent.

Notwithstanding that, I make my position clear about what I fear most—that the Prime Minister will cynically attempt to keep her promise by further collapsing the economy, by adding to record unemployment, by adding to the number of company liquidations, by increasing the deficit on manufacturing trade and by worsening the position in transport, manufacturing and construction, where net investment is already negative. My fear is that the Prime Minister will cynically deepen the damage in the vain hope of having a least one semi-plausible claim to make about her economic record. I do not think that it will do her reputation very much good. The country no longer believes her economic prescription—how could it when so many promises have been broken and when so many forecasts have proved risibly wrong?
I conclude with one recent example. On 21 March the Chancellor spoke to the House about inflation which he said

“will stay low and will get lower.”

Since then, the retail prices index has risen twice. What is more, even when the Chancellor gave his assurance on 21 March, he must have known that it was going to rise in April, but what he said to the House was that inflation

“will stay low and will get lower.”—[Official Report, 21 March 1985; Vol. 75, c. 973.]

It is conduct such as that and words such as those—

Mr. Lawson

That is not what I said in the Budget speech.

Mr. Hattersley

The Chancellor is assuring the House that he said something different in the Budget speech. It is a sort of defence to say that one said one thing on one day and another on another day, but I do not think that it is a defence that will take him very far. I believe that it is defences like that and statements of the sort that I have just described which make the comment that the Chancellor offered the House on 21 March wholly apposite—apposite not to the inflation rate, but to the Government’s reputation—that it will stay low and will get lower.

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