Economy: Inflation and Unemployment

Lord Sassoon Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Barnett]

My Lords, I beg leave to ask the Question standing in my name—rather than the previous Question—on the Order Paper.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Government’s economic policy objective is to achieve strong, sustainable and balanced growth. Budget 2011 reaffirmed the independent Monetary Policy Committee’s remit to target 2 per cent inflation, as defined by the 12-month increase in the consumer prices index. The Government have introduced a range of measures to reduce unemployment and support the unemployed into work, including get Britain working, the work programme and modernisation of Jobcentre Plus.

[Lord Barnett]

My Lords, I hope that the modest attempts that the Treasury is making to help the unemployment situation are successful. However, does not the Minister accept, if he wants to be honest with the House, the plain fact that the deficit reduction plan overshadows all those minor measures, and unemployment continues to rise? I do not expect him to be able to announce what the Chancellor is going to do in the near future. However, given the change of circumstances around the economy, will he at least tell us that the Chancellor is considering, without changing the plan, at the very least putting off some of those measures to later years and bringing forward some of the infrastructure and capital expenditure plans, which would help to reduce the terrible unemployment that is blighting so much of the country?

--- Later in debate ---

[Lord Sassoon]

My Lords, the first clear objective of the Government is to stick to the fiscal reduction plan that we have set to make sure that the UK’s interest rates remain low, so that we are not in the position in which countries like Italy find themselves today. It is absolutely fundamental to growth that we keep interest rates low and stick to our fiscal discipline. Secondly, we must have monetary activism and credit easing, a combination of measures that the Bank of England has taken by extending the asset purchase scheme by £75 billion. The Chancellor has said that we will come forward with further credit easing measures in the autumn Statement. The third issue, which will further be addressed in the November Statement, is, critically, to press on with supply-side reforms that will underpin medium-term balanced growth. Those are the three clear strands of the Government’s policy to which we will stick.

[Lord Ryder of Wensum]

My Lords, if my noble friend is in favour of keeping an inflation target, why does the Governor of the Bank of England fail to match it year after year? If my noble friend is in favour of keeping that target—which there is no purpose in having if it is never matched—what are the advantages of inflation?

[Lord Sassoon]

My Lords, the critical point is that, as my noble friend knows, the target for the Bank of England is a medium-term target. The Bank of England is wholly transparent about the situation in its quarterly inflation reports. In the latest reports, it has set out what the pressures have been on inflation in recent quarters and where they will be in the immediate future. Some of those pressures naturally come out of the figures over the next six months. It is quite right that the Governor and the MPC have and are committed to that target. It is important to realise that it is a medium-term target, and their judgment is that it is more likely that inflation will undershoot rather than exceed 2 per cent in the medium term. Indeed, that judgment is supported by the great majority of independent forecasts that I have seen.

[Lord Myners]

My Lords, the Question related to RPI and unemployment. I remind the Minister that RPI is at its highest level since June 1991 and unemployment is at its highest level since October 1994. The Governor of the Bank of England clearly feels that he has reached the end of the line in terms of monetary policy and inflation risk. What are the Government going to do to bring forward a credible, coherent and sustainable strategy for economic growth?

[Lord Sassoon]

First of all, as the noble Lord, Lord Myners, knows, the Governor of the Bank of England has set out very clearly his and the MPC’s analysis of the inflation situation and of their reasons for increasing by £75 billion the asset purchase scheme, so I am not going to answer for them. On unemployment, I would point out that in the second quarter of 2011 the internationally comparable employment rate for the UK was 69.4 per cent. That was the fourth highest employment rate in the G7, behind Canada, Germany and Japan and ahead of, among others, the US. We also had the seventh highest employment rate in the European Union in the second quarter. Of course we would wish to see growth increased, but we have to have sustainable growth. We should not put ourselves in the position of thinking that, on unemployment, we are out of line with our peer group. We are coming out of the deepest recession that we have known for many decades—and who caused that?

[Lord Martin of Springburn]

My Lords, I must tell the Minister that I welcome the fact that the Government are keen to see as many apprenticeships as possible. In that case, will he urge the authorities of this House and the other place to take on more apprentices and trainees? We have a fine building and many highly skilled people, and it would be good if we showed a good example by employing more apprentices and trainees in this very building.

[Lord Sassoon]

I am sure that the authorities of both Houses have heard what the noble Lord, Lord Martin of Springburn, has said. Of course, skills will be part of the supply-side reforms that we continue to work on going forward.

[Lord Eatwell]

Does the Minister agree that the very high rate of inflation in this country is one of the key factors leading to a significant reduction in the living standards of ordinary households and is therefore contributing to lower expenditure and lower employment? Will he explain to the House why, at over 5 per cent, the inflation rate in this country is almost double that of all other European countries and that of the United States?

[Lord Sassoon]

My Lords, the noble Lord, Lord Eatwell, seeks to get me to commentate on matters that we have given to the independent Monetary Policy Committee of the Bank of England. It was the party opposite in government who took the right step of giving the Bank of England independence. Therefore, as I have already explained twice in my answers today, it is for the Bank to explain, as it does very transparently, the track of inflation. The Government are ensuring that we relieve wherever we can the pressures on household bills because I accept that inflation puts a high burden on our households. That is why we cut fuel duty by 1p per litre in the Budget and why we announced in recent weeks a further £805 million to enable council tax to be frozen for a further year. The Government are concerned to make sure that our hard-pressed households are relieved of pressures. That is why we need to keep interest rates low, which have contributed to £10 billion of lower mortgage payments than there would otherwise have been.