Speeches, etc.

Margaret Thatcher

House of Commons PQs

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [957/1180-86]
Editorial comments: 1515-30.
Importance ranking: Major
Word count: 2319
Themes: Monetary policy, Public spending & borrowing
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TUC AND CBI

Q1. Mr. Gould

asked the Prime Minister when he intends next to meet the TUC and CBI.

The Prime Minister (Mr. James Callaghan)

I meet representatives of the TUC and CBI from time to time, at NEDC and on other occasions. Further meetings will be arranged as necessary.

Mr. Gould

Will my right hon. Friend discuss with the TUC and the CBI the severe misgivings which they have both expressed about the European monetary system—misgivings which must surely have been intensified by today's increase in the minimum lending rate, which is surely a foretaste of the sort of policies that would be necessary if we were to join an EMS or, indeed, pursue policies parallel to it?

The Prime Minister

We discussed with the TUC on 30th October the proposals for a European monetary system. It was a useful and valuable discussion. The TUC set out the kind of conditions that it thought would need to be observed if we were to join, and we shall continue to bear those and other representations in mind, including the evidence that the Expenditure Sub-Committee is now taking.

Mrs. Thatcher

Does James Callaghanthe Prime Minister recall that the last time the minimum lending rate went up, in June, to 10 per cent., Denis Healeythe Chancellor of the Exchequer told the House that he expected it to come down within—at most—a few weeks? What went wrong this time?

The Prime Minister

Yes, it certainly was our expectation at that time that MLR would come down within a matter of weeks, and I regret very much that world conditions have prevented it from doing so. [Hon. Members: “Oh.” ] It may have escaped the notice of Conservative hon. Members that there has been a certain turbulence in the position of the dollar, and a general rise in short-term interest rates. The increase in the MLR reflects that but goes a little further, because we are determined to keep inflation under control. I hope that we have the right hon. Lady's support in that.

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Mrs. Thatcher

As the American rate went up 1 per cent. to 9½ per cent., the Prime Minister can hardly claim that the cause of the increase to 12½ per cent. is what has happened to the dollar. Why does he not accept cause and effect—namely, that the reason that MLR has gone up to 12½ per cent. is that he is borrowing far too much and trying to take far too much out of the economy for Government spending, and that those who will bear the increase to 12½ per cent. are the home owners and the small businesses—the very businesses that are trying to expand and make more jobs, which he also wants?

The Prime Minister

I partly agree with the right hon. Lady—that it is our borrowing requirement that determines to some extent the level of interest rates. But the corollary of that, as the right hon. Lady has always said, is that we should cut down public expenditure—items such as education and the social services. As is well known, old age pensions and child benefit are going up next week. Perhaps the right hon. Lady would care to choose which of those she would like to reduce.

Mr. Kinnock

Given that the pound is rather too strong to suit our international trade convenience and that it is difficult to understand why a rise of 2½ per cent. in the MLR will assist in stabilising the turbulence of which my right hon. Friend speaks, will he tell us whether this change has anything to do with conformity to a possible European monetary system, or whether it is in order to enforce, by indirect means, the 5 per cent. wage policy?

The Prime Minister

The change does not enforce a 5 per cent. wage policy, because we are in a period of free collective bargaining. [Hon. Members: “Oh.” ] If we were not, I promise that some of the settlements would be a lot different from what they look likely to be. We cannot enforce anything there.

But I am sure that my hon. Friend will have studied what I have said consistently on many occasions. We have three legs to this tripod. We intend to use them all to keep inflation down. The country will have to make up its mind whether it prefers these short-term mea[column 1182]sures, as I trust they will be short-term, in order to keep inflation down to prevent unemployment from soaring, or whether it is ready to let inflation rip. The Government are not ready to do that. I have said more than once, and say again, that we shall take all the necessary measures.

Mr. David Steel

The Prime Minister told the House last week about the three-legged stool. He told us that if the leg of pay policy were weakened the other two legs would have to be strengthened. But surely his principle of carpentry is wrong. If that one leg is weak it is that one that should be strengthened. Otherwise, the stool will collapse. Therefore, in talking to the CBI and the TUC will the Prime Minister discuss with them, particularly in the context of the Ford pay claim, the fact that the Ford company in America has a very sophisticated profit-sharing scheme, whereas in Britain there is no way in which the Ford employees can share in the increased profitability of the company in the past year?

The Prime Minister

I am obliged to the right hon. Gentleman. I dare say that in logic he is right but, alas, logic does not always cover all political decisions. Let me add that when it is strictly applied one always comes a cropper.

I am still waiting to hear from Ford. I cannot really believe it when its spokesman says that it does not know what effect the impact of the proposed wage settlement would have on the price of its cars. It seems to me very unlikely that a company of that size should take decisions about pay without knowing in advance how they will feed through to its prices.

EUROPEAN COMMUNITY

HEADS OF GOVERNMENT

Q2. Mr. Ron Thomas

asked the Prime Minister when he intends next to meet the Prime Ministers of other EEC Governments.

The Prime Minister

I shall be meeting EEC Heads of Government at the European Council in Brussels on 4th and 5th December. I shall also be meeting Signor Andreotti in London on 22nd November and President Giscard d'Estaing in Paris on 24th November.

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Mr. Thomas

Apart from telling the Prime Ministers of the other EEC countries by what recondite reasoning putting up interest rates brings inflation down, will my right hon. Friend tell them that the majority on the Labour Benches and the party we represent are opposed to joining a European monetary system that will mean an erosion of our economic sovereignty? Will he ensure that we have a free vote on this matter, and that all relevant documents that will assist us to make the decision are made available in the interests of open government?

The Prime Minister

I take it that my hon. Friend will want a free vote even if the Government come down against joining.

I think that the subject of erosion of sovereignty is getting a little moth-eaten. The power of Governments to control their rates of exchange has been severely eroded in recent years. I should not have thought we had much control over the rate of sterling in the autumn of 1976, and I have not noticed that the American authorities have had much control over the value of the dollar during recent weeks. I beg my hon. Friend and others who think like him to consider whether a zone of monetary stability, irrespective of the merits of any particular scheme, would not have advantages that are denied when the speculators have a free run.

Mr. Maurice Macmillan

Regardless of what may be happening over the German pressures for the system of EMS, will the Prime Minister undertake to discuss with his colleagues the whole question of managed exchanges, as it is becoming clearer and clearer that since the breakdown of Bretton Woods the world may be facing monetary chaos by the middle of next year?

The Prime Minister

I agree with the right hon. Gentleman in every respect. Indeed, it seems to me that when the EMS was conceived the dollar was not in the difficulties that it has recently passed through. I hope that this will give us an opportunity of beginning discussions for a new world monetary system, although I would not want to advance that if my colleagues in Europe thought that it was merely a means of ditching their [column 1184]EMS which we may or may not decide to join.

Sir G. de Freitas

Will my right hon. Friend also take the opportunity of discussing with his fellow Prime Ministers the fact that it is very inefficient and expensive for the Nine to insist that the European Parliament meets in rotation in different cities? Surely it is time that the Nine Governments reached agreement on one city whether Brussels, Strasbourg or Luxembourg.

The Prime Minister

That matter has been discussed in the past, but the powers of the European Ministers are limited in deciding the issue.

TUC

Q3. Mr. Skinner

asked the Prime Minister when he expects next to meet the TUC.

The Prime Minister

I meet representatives of the TUC from time to time, at NEDC and on other occasions. Further meetings will be arranged as necessary.

Mr. Skinner

I wonder whether the Prime Minister will tell the TUC that his pay policy will be kept in respect of those who proliferate on the housing market—estate agents, property solicitors and the rest of the speculators who have just made a killing out of the 25 per cent. increase in house prices in a year. Instead of supplying us with this rickety three-legged stool that he keeps talking about, why does not he add another stave and call it controlling prices?

The Prime Minister

Talks are going on between the TUC and the Chancellor, and I should like to thank my colleagues who are conducting them and the representatives of the TUC for those thorough discussions. The question of prices will be covered in their debates. My hon. Friend will recognise that the elements about which we have been talking today all from constituents of prices. We shall certainly be ready to strengthen price controls if it seems likely that they would have the effect that my hon. Friend described. But if I may say so—indeed, my hon. Friend has said it himself on many occasions—we have had considerable success in keeping prices down as a result of our policies over the past 12 months.

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Mr. Budgen

When the Prime Minister next meets members of the TUC, will he tell them that the massive increase in MLR announced this morning is the beginning of the end of the preelection boom which was so conveniently arranged in anticipation of the October election which did not take place?

The Prime Minister

No. I would not tell them that because I would not want to rub salt into the wounds of those who really thought that there was a preelection boom. The simple fact is, and I hope that some day the hon. Gentleman will recognise it, that this country's position is such that the Government ought, whether there is an election ahead or not, to take the appropriate decision that will keep inflation down and prevent unemployment from soaring. Nothing will deter us from those objectives.

Mr. Swain

Does my right hon. Friend remember the answer of the Secretary of State for Economic Affairs in 1968 that it was impossible to control prices and that the Government must retain control over the part of the economy which they already controlled? Is that the policy of this Government?

The Prime Minister

I do not recall the exact occasion on which that was said, but certainly it is not impossible to control prices. The work of the Price Commission has reduced price increases, that would otherwise have taken place, to the tune of well over £100 million a year. A control is taking place and my hon. Friend may take it for granted that we shall use every means to prevent unwarranted price increases. What we cannot prevent, if industry is to remain healthy, are price increases that arise out of cost increases. Therefore, costs must also be kept down.

Mr. Higgins

Will the Prime Minister tell us what the increase in American interest rates has been, what the increase in British interest rates has been and, in the light of what my right hon. Friend the Leader of the Opposition has said, what has changed since the Chancellor made his statement some time ago?

The Prime Minister

I cannot answer about the American rates off-hand, but if the hon. Gentleman puts a Question down to the Chancellor I am sure he will receive a detailed reply. But it is [column 1186]known, even to the hon. Gentleman, that American rates have gone up during the past few months, which is the general point that I was making. What has changed are the fears of the market about certain consequences that might arise during the winter. Those fears arise out of a number of different considerations. They do not know which way to go. If we enter the EMS, will it make sterling weaker? [Interruption.] We know where we are going. The point is that the market do not know where they are going. Let us see the result of the vote tonight, and then see what the country has to say if it goes the wrong way.

There are, as I think the hon. Member knows in his more rational moments, a number of uncertainties. The Government do not intend to be caught by those uncertainties and we are therefore taking steps in anticipation of them, in order to prevent their developing into reality.