Below is the text of Mr Major’s response on Inflation made on 25th October 1990 in the House of Commons.
Mr. Andrew MacKay To ask the Chancellor of the Exchequer if he will make a statement on the current level of inflation.
Mr. Major I expect there to be a substantial reduction over the coming year.
Mr. MacKay As there is a clear need for pay restraint, does my right hon. Friend agree that those chairmen and chief executives of major companies who received highly publicised and spectacular pay rises last year – which, by and large, were supported because they were linked to increased profits – must equally accept reductions in their salaries this year, which should be equally spectacular if their profits are suitably reduced?
Mr. Major As I said earlier, if there is a need for wage restraint throughout industry to ensure greater competitiveness, it must apply at the top as well as at the bottom. I am happy to reiterate that.
Mr. Robert Sheldon Does the Chancellor realise that we are now two years into the counter-inflationary strategy of relying on high interest rates? Does he realise that, by increasing the retail prices index – which is what high interest rates have done, through mortgage interest rates, quite apart from the other factors – the Government are now relying on exhortation, and that exhortation will not be enough as the RPI rises?
Mr. Major The right hon. Gentleman makes a better case against the way in which we measure prices than against the policy that will bring inflation down.
Mr. Ian Taylor Does my right hon. Friend agree that the most sensitive guides to the direction that inflation is taking is not the latest RPI figure but the movement of monetary aggregates? Will he confirm that there has been a steady decline in monetary aggregates over the past six months – particularly in M0 but also in M4? Does he agree that that is a good sign that he has got inflation under control and that the Government’s policies are working at last?
Mr. Major I strongly agree with my hon. Friend’s view. The reduction in M0 has occurred over the past six months or so and the reduction in broad money has continued throughout this year in each and every month since January.
Mr. Flannery Like his predecessor, the Chancellor is constantly explaining to us that he is trying to bring down the rate of inflation. Why does he talk as though it was an act of God that caused inflation? Why does not he admit that the Government did it? Why is it that, with the bonus of North sea oil, which no other country in Europe has enjoyed, our inflation rate is higher than those of our European counterparts – in some cases twice as high?
Mr. Major At no stage have I placed the blame where the hon. Gentleman suggests I have. The problem that created inflation was excessive demand, as I have repeatedly stated. That is accepted by commentators and it is broadly accepted by hon. Members on both sides of the House. As a result of monetary policy, demand is falling away, and inflation will come down as well.