The Problem of Prices
14. Our linked exchange rate system limits our ability to use monetary weapons to fight inflation. Our inflation, unlike that in most parts of the world, is part of the price we are paying for substantial growth. That explains inflation; it does not excuse it. I want to stress to you again that I share the community's concern about the threat of double-digit inflation.
15. While we are constrained in our ability to fight inflation, we are certainly not powerless. Our most useful weapon in the battle against inflation is improved efficiency. I want the Government to set a good example:
—we shall be vigorous in our search for savings and in our efforts to
root out waste and inefficiency;
we shall not allow growth in public expenditure to exceed growth in the economy;
we shall, through the new Efficiency Unit, work energetically to achieve levels of efficiency in Government which match those in the private sector.
And the harder we work together, within the Government and outside it, to make sure that our economy is competitive, the tougher we shall be on inflation. As always, we must keep increases in wages and salaries in line with the higher productivity that efficiency brings.
16. But as long as we have inflation, there must be proper protection for those most vulnerable to price increases. The elderly. The widowed. Those unable to hold regular jobs through disability or infirmity. I want to make this plain: we shall not permit the value of their social security payments to be gnawed away by inflation.
17. While we can deal with the menace of inflation in this way, the biggest problems we face, with the largest impact on the efficient use of resources and therefore on prices, are in employment and the availability of land. I will be saying more about the labour market, particularly about retraining and the importation of workers, in a moment, and later on I will set out my thoughts on housing and the effect of high costs on middle-income earners.
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