Public Expenditure

HC Deb 09 March 1983 vol 38 cc845-924

[Relevant document: Third report of the Treasury Civil Service Committee, House of Commons Paper 204, Session 1982–83.]

3.57 pm

The Chief Secretary to the Treasury (Mr. Leon Brittan)

I beg to move, That this House takes note of the White Paper on the Government's Expenditure Plans 1983–84 to 1985–86 (Cmnd. 8789).

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

Mr. Brittan

We are today debating one major component of the Budget. The other half will be presented to the House next Tuesday. Cmnd 8789, which sets out our plans for expenditure for the years to 1985–86, was published on 1 February. This earlier date of publication followed a recommendation from the Treasury and Civil Service Select Committee in its report on budgetary reform, which I am glad we were able to meet. I am sure the whole House would wish me to express our thanks to the Select Committee for the great effort it has made in publishing its report on the White Paper in time for this debate.

A new economic forecast will be published next week with the Budget, and I cannot anticipate that, but before discussing the White Paper I should like to look briefly at where the economy stands. As we forecast last autumn, 5 per cent. inflation has been achieved early in 1983; this is some three percentage points lower than the figure we were projecting at the time of last year's Budget. The inflation path may be a little more bumpy this year, reflecting in part the relatively small price increases experienced during much of 1982, but we shall certainly continue to maintain sound financial policies.

Output levels, particularly in manufacturing, remain disappointing. That is partly due to the substantial fall in world trade last year, but total domestic demand has continued to rise fairly strongly—most recently because of higher consumer spending—and output in some sectors, such as construction, North sea oil, consumer goods and distribution, has also been increasing. The latest CBI trends inquiry indicated a significant improvement in manufacturers' order books and in expectations about output. Recent indicators from the United States point to the beginnings of a modest recovery in world activity, and most outside forecasts currently see a growth in the United Kingdom's gross domestic product of some 1.5 per cent. to 2 per cent. in 1983.

The level of unemployment, however, is tragic and worrying. It is a tragedy that we share with many industrialised countries. We assume in the public expenditure White Paper that adult unemployment in Great Britain will average a little over 3 million next year and, as is the convention, that it will stay at that level in each of the two following years. We state quite plainly, however, that the unemployment levels in the later years may turn out to be lower than that if developments in the world economy are favourable and developments at home—notably by way of a continued reduction in pay settlements—permit.

I emphatically reject the claim in the Opposition amendment that unemployment is set to rise towards the 4 million mark. For one thing, there is the substantial amount of money that the Government have allocated to special employment and training measures. In 1983–34 we are planning to spend some £2 billion on such measures—five times as much as in 1979–80. These measures are currently reducing the unemployment total by about 360,000—

Mr. Nigel Spearing (Newham, South)

But not unemployment.

Mr. Brittan

From this year all unemployed 16-yearolds can look forward to a year's useful training under the new training scheme. But we all recognise that unemployment is a deep-seated problem and it will take a long time to check and reverse it. If that is to happen, it is essential that we build on the underlying strengths of the economy. I utterly reject the idea reflected in the amendment that any lasting improvement could be achieved by a massive increase of public spending.

Mr. Peter Shore (Stepney and Poplar)

A moment ago the right hon. and learned Gentleman referred to checking and then reversing unemployment. Are we therefore to understand that he accepts that unemployment will go on rising and that he cannot even now predict when it will be checked, let alone reversed?

Mr. Brittan

That depends on what the right hon. Gentleman means by checking. The Government of which the right hon. Gentleman was a member made no more attempt to predict unemployment levels than the present Government do, and I very much doubt whether any future Government would be so foolish as to engage in such a task. It is possible, however, to give a general picture of what one expects, and that is what I have done.

The medium-term prospects in fact depend critically on further progress in reducing inflation and containing costs. Our pursuit of balanced fiscal and monetary policies is an essential precondition for economic growth and an increase in employment which can be sustained. The Opposition parties now seem to have a common approach to the economy, although the Labour party's figures are rather more extravagant than those proffered by the alliance, so it is fair to address to both parties the same three questions. The House will listen eagerly for the answers.

First, both Labour and. the alliance want to increase public spending and borrowing on a massive scale. Yet Labour wants lower interest rates and the alliance no higher interest rates than now. How can they pursue both objectives simultaneously? How can they spend and borrow more without higher inflation or higher interest rates or both?

Secondly, how do the Opposition parties think that the markets would react? Do they think that reversal of the present policies of monetary and fiscal restraint would have no effect on confidence, interest rates and inflation?

Thirdly, the Opposition parties are keen on assuming pay restraint. That is what they feed into the model. They admit that without that pay restraint their plans could not work. Labour hopes for a deal with the unions. The alliance wants—or at least wanted until recently—a statutory incomes policy. But could and would the unions deliver, and could and would a statutory incomes policy last? Why should either approach work now when both have broken down in the past?

Against that, our approach is clear. We aim to reduce, both in the short and the longer term, the share of the nation's output taken by the public sector. Reduced expenditure will help to keep down the level of taxation, and by limiting the Government's need to borrow it will help to keep down interest rates. Both of these are necessary for a lasting industrial recovery.

That does not mean that the actual level of public spending must necessarily fall. The plans in the White Paper show the cash total of expenditure rising from £119.6 billion in 1983–84 to £132.3 billion in 1985–86. The Select Committee report suggests that there may even be a small increase in real terms. But although the absolute level of expenditure is important, whether it is expressed in cash or in constant prices, it is less important than the share which public expenditure takes of the whole national output. We wish to ensure, against the background of our wider policies, that that share is reduced.

Perhaps the most important single fact in the White Paper is, therefore, that the ratio of public expenditure to the nation's output—the GDP ratio—is now planned to fall. Between 1979–80 and 1981–82 it rose from 40.5 per cent. to 44.5 per cent. as we grappled with the effects of the recession, high rates of inflation and the legacy of commitments, especially on pay, left by the previous Government. The White Paper shows the ratio falling this year to 44 per cent, and again to 42.5 per cent. in 1983–84. This ratio is the measure of the burden which public expenditure places on the rest of the economy.

The White Paper therefore marks the turning round of a long and damaging trend. The first step has been to stay within the levels of expenditure originally planned. In cash terms there is no doubt that, compared with earlier plans, the plans for future expenditure have been substantially reduced. The planning total has been cut by £1.1 billion in 1983–84 and by £1.2 billion in 1984–85. When comparing that with the preceding years, in which again and again as a result of the annual survey plans were regularly increased, the contrast is indeed striking. It is certainly true that because of the Government's success in reducing the rate of inflation the available cash will now go further, but in my view that should be warmly welcomed. It in no way detracts from the fact that the previous cash plans were reduced.

Mr. Tam Dalyell (West Lothian)

How much cash for contingencies will be available after the increasing and horrendous cost of the commitment in the south Atlantic has been met?

Mr. Brittan

The hon. Gentleman's intervention comes as scant surprise, but I think that he will find the answer in the White Paper.

Mr. Dalyell

Exactly.

Mr. Brittan

It might be argued that we should have made even bigger cuts—that is the implication of the criticism that spending has increased in cost terms—but if programmes were automatically adjusted downwards when inflation fell there would be strong demands to increase them if inflation were to rise. The prospects for inflation were among the many factors which we took into account in preparing the plans. We felt able to reduce the plans by about £1 billion each year, but I do not think that we would have been right to go further.

The plans also show that the annual rate of increase in expenditure has slowed dramatically. For 1978–79, the last full year of the Labour Government, expenditure increased by 15.8 per cent. and was on a rising trend. For 1982–83, the rate of increase is 8 per cent. and falling. We plan to reduce it to 4.7 per cent. by 1985–86. So the apparently inexorable rise has been halted. That is a major benefit of the fall in inflation which our policies have brought about.

Mr. Peter Tapsell (Horncastle)

Does my right hon. and learned Friend agree that the best way to reduce public expenditure as a proportion of the gross domestic product is to get growth in the economy, which makes the whole thing so much more painless? Has my right hon. and learned Friend observed the estimates that if, for instance, the United States economy grew not at the projected rate for the next 12 months of 4 per cent. but with an increase only to 5.2 per cent., the projected budgetary deficits in the United States, which are at the root of so many of our financial problems in the western world, would disappear?

Mr. Brittan

Of course, if the economy grew faster it would be possible to increase spending without increasing its share of the economy, and that would be desirable. However, if I may turn the argument, it seems to me that when the economy has not been growing the achievement in reducing the proportion of public spending is the more remarkable. I take pride in it.

Some fears have been expressed that these planned levels of expenditure may be based on over-optimistic forecasts of the rate of inflation and wage settlements, and mistaken estimates of future levels of underspending and possible contingencies. I do not share those fears. The movement of inflation is notoriously difficult to predict with accuracy more than a year ahead, but I do not think that it will be found that the provision we have made for inflation is inadequate or unrealistic. On pay, which accounts for some 30 per cent. of total public expenditure, we have, as the White Paper says, provided in 1983–84 for average increases of 3.5 per cent. If settlements exceed this level, then—as last year—the excess will have to be absorbed by economies elsewhere in programmes.

As to underspending, it is true that in the plans for 1983–84 we have assumed that, over the programmes as a whole, there will be net underspending of £1.2 billion. This "general allowance for shortfall", as it is known, is not in any sense an innovation as some seem to have suggested. Seven out of the last nine public expenditure White Papers included such a provision. It is to be expected, for example, that in a largely cash limited system there will normally be some underspending as programme managers aim to keep just within their cash limits. Equally, there are other areas—local authority current expenditure is an example—where in recent years, to our great regret, there has been chronic overspending. More recently, in 1982–83, we have been faced with quite serious capital underspending by local authorities and the nationalised industries. Together these factors led to a net shortfall in programmes in 1982–83 which, at the time of the White Paper, was estimated at £700 million.

I regret the fact that the local authorities have given priority to current over capital spending, and that nationalised industries have not used the full resources that were made available to them, but not all underspending is necessarily bad. Some of it is an unavoidable consequence of the recession. Some of it results from the lower prices or improved efficiency and that is to be welcomed. What is regrettable is the underspending that results from slippage in planning, delay in letting contracts, late deliveries, or postponement—for whatever reason—of capital projects that could earn a satisfactory rate of return. My right hon. Friend the Prime Minister wrote to local authorities and nationalised industry chairmen in November explaining the Government's concern at the present level of underspending. Changes are also now being made in the capital allocation procedures for local authorities which are specifically designed to combat underspending in future. Corrective measures have therefore been taken but it will take time for these to have effect. We have therefore thought it right to continue to make provision for shortfall for 1983–84. It is a difficult matter of judgment, but in the light of recent experience I believe that the provision is of the right order.

There have, for example, been a number of changes in the circumstances of nationalised industries since the figures in the White Paper were prepared. The current outlook suggests that in the coming year, 1983–84, the industries' requirements in aggregate may fall well below the external financing limits announced at the end of the last year. This is something that we shall watch closely. In the case of British Telecom, where there is a large undershoot against EFL this year, a substantial reduction is currently under discussion. If similar circumstances arise for other industries, we would certainly need to consider whether their EFLs should also be reduced.

Mr. Douglas Jay (Battersea, North)

If the Chief Secretary regards 'the ratio of public expenditure to national income, as he apparently does, as almost the most important aim of economic policy, how does he explain the fact that the Government have failed to reduce it after nearly four years?

Mr. Brittan

I did not say that it was the most important aim. I said that it was the measure of the share of national resources taken by public spending, and as good a measure of that as one could get. I made it clear earlier that the ratio went up in the early years of the Government. Had the right hon. Gentleman been following me—I am sorry if I was not clear enough—he would have heard me give the reasons clearly. I referred to the recession, to inflation and to the legacy of commitments on pay inherited from the Government that the right hon. Member supported. There is no secret about this, but we are changing that and the proportion is coming down. I am entitled to point that out, and it is a fact. Sometimes one wonders, when listening to Labour Members, whether their complaint is that public spending is too high, or that it is too low. They cannot have it both ways.

It has also been suggested that we may have made an inadequate provision for contingencies. Again, I could not accept that. The contingency reserve for 1983–84 is set at £1.5 billion, compared with £2.4 billion in 1982–83. We have been criticised for having that too low. In retrospect, it is clear that the size of the reserve was set too high in both those two years. When we set those figures we had little of the experience of cash planning that we now have. This year, in spite of the Falkands war, less than £1.4 billion out of the £2.4 billion has actually been used, and we are very close to the end of the year. After careful consideration we felt fully justified in reducing the reserve to £1.5 billion to 1983–84. That is realistic in the tight of experience. We have said that we shall review this figure in the context of the Budget before it is set finally as a control figure for the year.

Mr. Michael Meacher (Oldham, West)

Is it not the case that the contingency reserve was used up to the smaller degree that it was last year because the rate of inflation fell faster than was anticipated at the time of the last Budget? Is it not also the case that now the reverse is likely to be true, so that the reduction in the contingency reserve is quite unrealistic? Secondly, is it not equally wrong in producing a shortfall of £1.2 billion if his right hon. Friend the Prime Minister is successful in ensuring that local authorities spend nearer to their full total? Therefore, on both these grounds are not both these deductions unrealistic, and are not the Government trying to pretend that there w ill be a reduction in public expenditure when they know that there will be no such thing?

Mr. Brittan

The hon. Gentleman is wrong on both scores. With regard to the shortfall, the estimate that we have given allows for all the recent action that has seen taken and does not just cover local authorities but the totality of programmes. That is a reasonable estimate to make. I do not accept the hon. Gentleman's explanation of why the contingency reserve was not fully spent. It seems fantastic that the hon. Gentleman takes no account at all of the fact that not only has the contingency reserve been used so far to the tune of only £1.4 billion out of the £2.4 billion, but that that was at a time when we fought the Falklands war, with all the expenses that that involved. To suggest in those circumstances that it is unrealistic to set a contingency reserve of £1.5 billion lacks credibility. It also lacks credibility when it comes from the mouth of somebody whose essential criticism is that the Government are not spending enough. It is time for the hon. Gentleman to make up his mind what his criticism is.

The message of the White Paper, as it relates lo the global picture, is that public expenditure is under firm control and that planning totals have been held. I see no grounds for thinking that the plans are unrealistic, because of likely movements in pay and prices, because they are too heavily dependent on shortfall which may not arise or because too little has been set aside for contingencies. I am satisfied that the plans for 1983–84 are robust and we do not expect them to be exceeded.

So far, I have spoken mainly about the broad aggregate of public expenditure. It is also important to look at its composition. That is the focus of the Opposition amendment. The composition of public expenditure is dominated by the four big programmes of which social security, at nearly 30 per cent. of the total next year, is by far the largest. Its size is determined by three main factors: demography, the level of unemployment and the level of benefits. Pensions have been fully price protected in accordance with our pledge. Indeed, between November 1978 and November 1982, they went up by 68 per cent. compared with a rise of 61 per cent. in the RPI. We have also helped families by increasing child benefit and one-parent benefit.

The Government have increased the provision for health services every year since we came to office. The plans for 1983–84 continue that growth. The sum of £100 million is being provided for increases in the level of service. From 1978–79 to 1983–84, the growth in services is expected to amount to 7.5 per ent. which substantially exceeds the increase required to reflect demographic changes. For the years after 1983–84, the growth in services will depend upon movements in pay and prices as well as on the scope for further improvements in efficiency.

Mr. Arthur Lewis (Newham, North-West)

Will the right hon. and learned Gentleman give way?

Mr. Brittan

Not at the moment. I must make some progress.

In the case of the third big programme, education, the position is somewhat different. This is growing more slowly because of falling school numbers. But pupil-teacher ratios are now at their lowest ever level and authorities may even be able to improve on them during the plan period if they can contain their costs. However, given the size of the school population, existing patterns of education, and, above all, the fact that educational expenditure is largely the responsibility of individual local authorities, there are severe limits on any Government's ability to change the pattern over the period of a public expenditure survey.

I have put defence last, although it is the second largest programme and, under this Government, has grown faster than the rest. I make no apology for that growth. The growth over the last few years and the growth planned for the survey period reflect the Government's priorities. Despite our efforts, the proportion of defence expenditure in the United Kingdom is far exceeded by that in the Soviet Union. NATO is faced with a potential threat of increasing numerical superiority and increasing sophistication. Defence provision also reflects the need to deter any renewal of hostilities in the south Atlantic.

Mr. Michael English (Nottingham, West)

Is it not true that the percentage of gross national product spent by our NATO allies in Europe is less than ours?

Mr. Brittan

The measure of defence expenditure that one can apply varies enormously. One can talk in absolute terms; one can talk in real terms. I shall give the hon. Gentleman the figures later if he wishes to have them. I am making a serious point. The measure of defence expenditure that one applies—expressed as a percentage of GDP, in absolute terms or per head of population—will give different outcomes to the question that lies behind what the hon. Gentleman stated.

We have been criticised for spending too little on capital. I want to deal with this. It is wrong to take the view that Governments decide to spend a certain amount on capital and a certain amount on current, in that sense. The Government have to decide how much they want the various spending authorities to spend on defence, on education, on health, on social security and on all the other programmes. If, for example, school rolls are falling, one would expect the school building programme to reflect this. If, as a matter of policy, we encourage people to buy their own homes we would expect that, too, to be reflected. It is not a matter of capital expenditure being good and current expenditure being bad, quite apart from the fact that the definitions do not reflect common parlance of what capital expenditure is and what current expenditure is.

Not all capital expenditure is investment in productive equipment. Most nationalised industry investment falls within this category, but most nationalised industry investment is financed from internal resources—that is, out of the depreciation fund and retained profits of the industry. It is only the net balance which the industries borrow from Government that appears in the public expenditure planning total. The capital investment of the industries themselves is determined by market considerations. No sane person would wish deliberately to encourage the industries to embark upon a course of investment in uneconomic facilities.

In any event, whatever the nature of the spending in the nationalised industries or elsewhere, whether it is classified as capital or current, to the extent that it is not financed by internal resources, the money has to be borrowed. Whether we like it or not, it is the total level of that borrowing that exerts pressure on interest rates.

Another large component of capital expenditure can be described as social infrastructure. The hospital building programme is perhaps the most important part of this. It receives a large share of the total Health Service budget. Forty-seven new hospitals are under construction or about to start in 1983–84. Water supply and sewerage is another important element to which attention is often drawn. We have made provision that should allow capital investment by the regional water authorities to increase by 30 per cent. between this year and 1985–86. A detailed look at the programmes is essential if one is to make a balanced judgment about the Government's expenditure plans. It is no use complaining about the grand totals unless one is prepared to say, in detail and with illustration, how one would arrange things differently. I recognise, of course, that the Treasury Committee report had to cover the whole battle front and to do so speedily in order to inform the debate.

Mr. Shore

The right hon. and learned Gentleman has mentioned detailed and specific expenditure programmes. Will he now say what precisely he has in mind in the social security provision, with particular reference to the iniquitous table outlining the extent of the proposed clawback of the pension uprating in November 1983?

Mr. Brittan

As the right hon. Gentleman will observe from a careful reading of the White Paper, the further announcement in relation to that which is foreshadowed will be made in the context of the Budget. I cannot clarify the matter further at this stage. The right hon. Gentleman looks indignant, but he will not have to wait long.

I was saying that the Treasury Committee report had to cover the whole battle front and to do so speedily. It is for the departmental Select Committees to look at the detail of the individual programmes and to give the House the benefit of their views. I ask for one thing and one thing only. It is that where they propose additional expenditure, they will tell the House what savings they would make to offset it.

Given the economic circumstances, it is an impressive achievement to have slowed down the growth of expenditure in real terms and to have begun to reduce it as a ratio to GDP. We have done this through a combination of difficult policy changes and ceaseless vigilance in the management of programmes. We have made a deliberate choice of priorities and tried to pursue them consistently. We have reversed the trend by which public expenditure was increased inexorably every time programmes were being reviewed.

I do not claim that we have yet reduced expenditure in real terms. I do assert that public expenditure as a proportion of national product has begun to fall. By reducing the Government's need to tax and to borrow, this careful control has contributed to the increasing financial soundness of the economy, of which the falling rate of inflation is the most obvious evidence. I believe that the Government can justifiably take pride in bringing expenditure under control in a period of world recession, thereby contributing to the eventual process of recovery.

4.30 pm

Mr. Peter Shore (Stepney and Poplar)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: declines to approve the White Paper on the Government's Expenditure Plans (Cmnd. 8789), which, while increasing defence expenditure, imposes further cuts on social and community services, attacks the standard of living of retirement pensioners and which, far from using public expenditure to help reduce unemployment, allows its further growth towards the four million mark". Having listened to the Chief Secretary, I have reached the conclusion that a capacity for self-deception is probably a condition of ministerial survival in the madhouse that the Treasury has become in the past four years. If it is not self-deception, this is deception of a truly disgraceful kind. I leave aside the question of blame. If any Member of this House, contemplating the ruin of so much of our industry and the despair of so many of our people, were to deliver a speech reeking of such complacency and self-satisfaction, I should be amazed. However, that is what we have had. The right hon. and learned Gentleman has again pointed to his illusory and secondary targets, slapping himself on the back for having achieved some hypothetical change in money figures, whereas in the real world the evidence of failure on a truly colossal scale is all around us.

I shall not bother with the main points in the right hon. and learned Gentleman's speech. Instead, I shall deal with the real subject of this debate. We are examining the fifth and almost certainly the last public expenditure White Paper that this Government will present to Parliament. I shall have a certain amount to say about its contents—its sins of omission as well as its sins of commission. However, I shall go further than that. This White Paper must be seen in the context of those that have gone before. It must be seen and judged as a crucial part of an overall economic strategy—one that I believe has failed, as events have demonstrated, with the most grievious effects on Britain and its people.

The economic failure is the root cause of the "new wave" of hostile thinking on public expenditure, on the future of the welfare state and on the mixed economy. That thinking first emerged in the long lecture delivered by the Chancellor of the Exchequer to the Conservative political centre in Cambridge last July. The lecture was followed in September by the massive but authentic leaks from the now notorious Think Tank report. That thinking has been further developed and, again, was massively leaked to The Guardian newspaper in the new ministerial studies of the family and the welfare state only a few weeks ago. I shall comment on these matters later.

Any debate on the Government's public expenditure plans is, of course, of major importance. As the Chief Secretary said, it is almost one half of the budget. We are dealing with about 44 to 45 per cent. of our total national expenditure, a sum which this year is more than £119 billion. The disposal of such a sum between different uses itself reveals the priorities and values of the Government of the day. In the broader context that I have just outlined, those values become startingly clear, as I shall demonstrate.

However, I begin today with two issues which, while small in finance or resource terms, are large in the values that underlie them. I refer to the proposed clawback of the alleged overpayment to pensioners and other long-term social security beneficiaries in last November's uprating, and to the failure to make provision to restore the five point cut in unemployment pay that goes back to November 1981.

We are dealing with sums which, in this financial year, would amount to no more than £250 million, or roughly one quarter per cent. of the total £119 billion worth of public expenditure. Nevertheless, on clawback, in spite of the strongly and repeatedly expressed opposition in this House, the Government in the White Paper have obstinately restated their intentions. It specifically subtracts from the total of social security expenditure in 1983–84 the figure of £180 million, in 1984–85 the figure of £500 million, and in 1985–86 the figure of £600 million. The subtraction or "adjustment"—to use the language of the White Paper—is explained in a footnote as follows: this line"— the line with the figures— reflects the Government's decision to adjust the public expenditure provision for the social security programme to take into account the fact that provision for the rise in prices in the benefit uprating in November 1982 was higher than the actual rise". What I demand today—I rose to question The Chief Secretary about it a few moments ago—is a categorical statement from the Government that they will abandon the whole shoddy and mean enterprise of clawing back money from old-age pensioners and other beneficiaries. To take away another £1.40 a week is a particularly shameless proposal when one recalls that, by severing the link between pensions and average earnings, the Government have already, by Act of Parliament, deprived pensioner couples of more than £2 a week. This £1.40 will be an additional denial of their pay.

I come to the second issue. The treatment of the unemployed—the failure to uprate unemployment pay against inflation in 1981 and subsequently the failure to make it good—is, if anything, a still more shameless act. It was originally justified as a temporary measure, to last only until unemployment and other short-term benefits were brought into income tax. It is simply outrageous that, having brought such benefits into tax as from last summer, the Government, with some £500 million per annum of additional tax revenue, should still fail to restore that five per cent. cut. It is worth £2 a week to a married mart who is out of work.

I said at the beginning that while those two issues were small in amount they were highly significant in revealing the values and priorities of the Government. The Government either do not know or do not care about the needs and wants of a large and hard-pressed section of our people.

I shall now comment on the general shape of the public expenditure White Paper. Most of the figures in it, as the Select Committee on the Treasury and Civil Service pointed out in its report, are presented in cash terms only. As it rightly says, Given the lack of explicit inflation forecasts in the White Paper, it is not possible to convert the 1984–85 and 1985–86 cash plans into cost terms on any authoritative basis". I certainly concur with that view.

Unlike last year the White Paper contains a table—the last in volume 1—which gives public expenditure in cost terms that at least enables us realistically to judge against provisions in the previous six years the provisions made for the coming year, 1983–84. In cost terms—near enough to constant prices—total public expenditure, the planning total, will rise this year by £807 million or by 0.8 per cent. Of that £807 million increase, no less than £757 million is accounted for by increased defence expenditure and £264 million by increased social security payments, mainly to finance the further rise in the number of people out of work. Those two items exceed by some £200 million the total increase in public expenditure planned for 1983–84. Therefore, it follows that other programmes have been cut.

It is revealing to see where the largest cuts have been imposed. This year education and science, which really is investment in the future, is reduced by no less than £620 million. Direct assistance for industry, energy, trade and employment is reduced by £465 milliion; transport by £226 million; and lending to nationalised industries is cut by £282 million, implying, I suspect, further price increases.

Mr. Arthur Lewis

Do those cuts take into account the 12 per cent. increase in the salaries of all those in the top-paid jobs in the nationalised industries which is back-dated to last April? How can those people receive a wage increase back-dated to last April when the sick, disabled and unemployed cannot?

Mr. Shore

I well take my hon. Friend's point. It is for the Minister who replies to the debate to answer not only that question but the larger one that is implicit in it as to whether there will be further price increases in the nationalised industries as a result of this major cut in lending to them this year.

This year we are told, as one of the main points from the White Paper, that total public sector capital expenditure in 1983–84 at £11.25 billion is planned to be 12 per cent. higher than the outturn expected for last year. The Chief Secretary dwelt upon that. Expenditure on construction is expected to rise by 10 per cent. to £10.25 billion. That will elicit somewhat cynical laughter from anyone who recalls last year's White Paper. We were told then that the total public sector capital expenditure would be £11.25 billion this year. However, total public capital expenditure was not £11.25 billion but £11 billion and total expenditure on construction rose not by 13 per cent. but by only 7 per cent. That 7 per cent. increase in expenditure is simply in cash terms and by my reckoning of the proper figure to apply for inflation in that period that cannot mean anything but a tiny increase, if any increase at all, in real construction expenditure.

Mr. English

Does my right hon. Friend realise that one of the causes of that is simply the Government's use of euphemism? They always say that local authorities' capital expenditure will rise by a certain amount when they mean borrowing authorisation, but they do not give the local authorities the money.

Mr. Shore

My hon. Friend speaks with a considerable knowledge and is absolutely correct. In a sense, the initiative is shared between central and local government, but it is not the same thing to give a borrowing requirement as to authorise capital expenditure, let alone to see that it is taking place.

A central weakness of the White Paper is its failure—planned failure—to stimulate the economy and reduce unemployment. The forecast or assumption for unemployment during 1983–84 is for yet another rise of 280,000 out of work. When we had this discussion a year ago, the Chief Secretary said then what he said today, that it really is only a kind of necessary accounting formality. That will not do. The right hon. and learned Gentleman was right last year when he said that the forecast assumption was for an increase of 300,000—a slight under-estimate of what happened. The truth, as he knows well, is that the trend is remorselessly upwards. All that remains in doubt is not whether unemployment will rise, but the pace and extent of that rise in the year ahead. When the right hon. and learned Gentleman suddenly produces, as it were, out of his hat, the information that 350,000 young people are being kept on special or temporary subsidised schemes, he is simply emphasising my point. If he adds another 50,000 to that number, what has he achieved? He will have increased the number of what used to be called phoney jobs, not the real jobs that the Conservatives said they would create when they were complaining bitterly four years ago about 1.3 million unemployed, under the last Labour Government.

I said that the White Paper was the fifth in a series. It is right to look now at what the complete pattern of the Government's public expenditure reveals. Over the period 1978–79 to 1983 84—I am referring to the Government's figures—in cost terms expenditure has increased by just over 5 per cent. Defence expenditure has risen over this period by 23 per cent.; law and order by just over 30 per cent.; and social security—largely because of the massive increase in unemployment—by 21 per cent. Expenditure on housing, the principal victim of Government cuts in the same period, has been reduced by just over 55 per cent. or by some £3 billion; overseas aid has been reduced by 15.5 per cent.; on environmental services—drains, water supply and sewerage—it has been reduced by over 8 per cent.; and education and science by 6.5 per cent. Those are crazy priorities.

The House will not fail to note that, in spite of the Government's declared intentions, public expenditure—however inadequate in total and however perverse in its priorities—has increased. The Chief Secretary will recall that when he made his first speech on a public expenditure White Paper on 9 April 1981 he was presenting a White Paper that showed a planned fall in real terms by 1983–84 of 4 per cent. compared with current levels."—[Official Report, 9 April 1981; Vol. 2, c. 1124.] That has not happened. Indeed, with national income declining, public expenditure has taken not a smaller but, inevitably, a larger share of GDP in every year that the Govenment have been in office. The proportion stood at 41 per cent. when the Government took over. The right hon. and learned Gentleman used that figure himself. It reached 43 per cent. in 1980–81 and 44.5 per cent. in 1981–82. It was shaved to 44 per cent. this last year, and I suspect that when the Budget figures are presented the Government will confirm what we were told today, that it will be 43–5 per cent. in 1983–84.

Mr. Brittan

The right hon. Gentleman must accept that those figures belie the statement that he made a second ago that the proportion increased every year under the Government. That is not true. This year it went down and next year it will go down. The right hon. Gentleman uses euphemisms such as "shaving" but he cannot ignore two years' figures like that.

Mr. Shore

In every year since the Government took office, public expenditure has taken a higher proportion of the GDP than it did previously. Having reached a peak of 44.5 per cent., he hopes that this year there will be a reduction of 0.5 per cent., but I am a little dubious about that. The Chief Secretary is entitled to the triumph of that correction, and I willingly concede it to him.

The explanation of what has happened is well understood by the House, although I am not sure whether it is understood by the Government Front Bench. The attempts to cut public expenditure on goods and services have reinforced the recession which the Government's money supply and high tax policies originally induced. The consequence of the recession has been to reduce national output by no less than 5 per cent. in the past three to four years. At the same time, and as an inevitable consequence of the recession, unemployment has risen to its present calamitous level. Recession and unemployment—however meanly the Government seek to treat the unemployed—impose heavy costs on both sides of the financial account.

Social security payments have risen by more than £5 billion. At the same time, large additional sums have been necessary to sustain the basic industries and community services rendered unprofitable by so large a collapse of demand for their products. The railway, steel and coal industries come to mind. The loss in tax revenue and national insurance contributions by those previously at work brings the total cost of 3.5 million people unemployed to something of the order of £17 billion a year. In November 1979 the Government in their first expenditure White Paper gave their diagnosis of Britain's economic malaise and its remedies. According to them, public expenditure is at the heart of Britain's present economic difficulties. According to the Government, that led to the growing burden of taxation and borrowing. The White Paper states: High Government borrowing has fuelled inflation, complicated the task of controlling the money supply, raised interest rates and thus denied the wealth-creating sectors some of the external finance they need for expansion. It was that thinking that underlay the medium term financial strategy with the original proposal to cut Government expenditure by 5 per cent. in real terms. That was what they set out to do, and to reduce the public sector borrowing requirement to 1.5 per cent. in 1983–84.

It has all proved illusory, has it not? Public expenditure programmes have been cut but, overall, public expenditure, for the reasons I have stated, has risen. The public sector borrowing requirement has been cut but only through a truly massive increase in taxation. Interest rates, far from falling, have reached unprecedentedly high levels during the Government's term of office. Even today, when world interest rates have fallen sharply during the past eight to nine months, bank base rates in London remain at 11 per cent., 2.5 per cent. higher than the American equivalent rates and imposing on industry and other borrowers a real interest rate burden of no less than 6 per cent.

Far from Government borrowing denying the wealth-creating centres of some of the external finance they need for expansion industry, flattened by recession, has massively contracted its investment plans. Investment in manufacturing continues to fall and billions of pounds of surplus British capital is flowing overseas.

What is more, the Government have no expectation of eventual success. November's autumn statement somewhat hesitatingly forecast a rise in output of 173x00B7;5 per cent. in 1983 together with a continued rise in unemployment. February's OECD report on the British economy forecasts the same figure for 1983 and as much as 1.75 per cent. in 1984. Apart from Professor Minford, I know of no forecaster who predicts anything other than the most moderate growth for Britain in the years ahead.

It is this that brings me to the notorious Think Tank report whose contents appeared in The Economist and The Observer last September. What many commentators missed in their understandable concentration on the devastating options for future cuts which the Central Policy Review Staff report volunteered was the assumption about growth not just for the next two years but from now until 1990. The report covered those years. Since the report predicted public expenditure, on present policies, claiming some 45 per cent.—it might even be 44 per cent.—of the GDP for the rest of the decade, and since on present policies public expenditure is rising by about 1 per cent. per annum, it must be assumed that the GDP growth assumption for the rest of the decade is of the order of 1 to 1.5 per cent.

Then we come to the most remarkable discovery of all. Faced with not only the experience of failure of the past four years, but with their best estimates of continued failure for the rest of the decade, the authors of the paper and the Government drew not the obvious conclusion that the policies themselves were radically wrong, but that to make them successful a massive new attack on the welfare state would have to be mounted. That was the genesis of the notorious options on which public comment has focused and which the Government have sought to conceal. The House will recall them. First, there was the option for a major reduction in pensions and other benefits; secondly, that of putting an end to the present system of state funding of higher education and the introduction of a scheme of educational vouchers. Third was the replacement of our still substantially free National Health Service with new schemes to encourage the private health sector and to finance the residual state sector by a new health insurance scheme.

The problem is how to sell that to the country. That is what the new philosophy of the family and individual responsibility is all about. Where Professor Alan Walters has failed, perhaps Mr. Ferdinand Mount can succeed. If the country could be brought to believe in the virtues of "individual responsibility" and "family care", would the present welfare services really be necessary? If people can be encouraged to save—if, as the Chancellor stated, children can be trained to manage their pocket money—surely the Government can retrench on national insurance and other pensions arrangements. If some parents can be persuaded to finance more of their children's education, then the state sector will be less demanding of financial resources. If more women stay at home, will it not enable reductions to be made in the personal social services and perhaps cut the unemployment figures?

The Prime Minister gave the most direct evidence of the new Conservative thinking in her last long television interview with Mr. Brian Walden. He put it to her specifically: What sort of Britain do you eventually want? Am I wrong when I say that what you seem to be looking for is a more self-reliant Britain, a thriftier Britain, a Britain where people are freer to, act, where they get less assistance from the State, where they are less burdened by the State"? The reply was: Yes, very much so; and where people are more independent of the State. She went on proudly to proclaim what Mr. Walden had called her Victorian values: the values that existed when, according to the Prime Minister, "our country became great"; the values that existed when the rich gave great voluntary things to the state and displayed what the Prime Minister called this great benefaction feeling that we have in Britain. The right hon. Lady reminded us that in Victorian times they provided homes—Peabody buildings are still there as a monument—founded voluntary schools, endowed hospitals, built town halls and civic buildings. None of them, of course, was a charge on public expenditure.

That was not a very adequate philosophy for the 1880s and it certainly bears no relevance to the needs of Britain in the 1980s. We wholly reject it. We believe that the community has a responsibility to all its members and that our people enjoy more freedom and are ready for more responsibility when their basic needs are met. The poor, the sick, and the old are not enslaved by community provision, but liberated by it from the limitations and pressures of want. Moreover, we believe that public expenditure in its many different forms plays a crucial role in the economy's total performance. It is simply madness to seek first to turn off and then to dismantle this major engine of growth—the public sector of the British economy.

So we reject the White Paper, the failed economic policies that underly its provisions, and the new philosophy that has been dredged from the past to conceal Britain's economic failure and to justify a new root and branch assault on the major achievements of postwar Britain.

It is on all that that we shall vote tonight.

5.1 pm

Mr. Edward du Cann (Taunton)

Much of the last part of the speech made by the right hon. Member for Stepney and Poplar (Mr. Shore) seemed to be totally supportive of the proposal made by the Liaison Committee of Select Committee Chairmen that the policy recommendations and the investigative work of the Central Policy Review Staff should be made available to Select Committees for serious examination. There is undoubtedly a whole series of questions with which the House will have to grapple sooner or later in relation to the increased cost of welfare provision, and notably pensions. The sooner that we grapple seriously with those issues and work out precisely how to handle the future instead of making party-political and emotive points, the better.

I agree with the right hon. Member for Stepney and Poplar in one respect. He is right to say that the White Paper is part of a series and so it is appropriate to take a long view of it. I should like to recommend some variations on the policies of my right hon. and learned Friend the Chancellor of the Exchequer, as delineated in the White Paper. However, before doing that I congratulate and thank my right hon. and learned Friend the Chief Secretary on two counts. I congratulate him, first, on a clearer presentation of the expenditure plans in this year's White Paper. Of course, there are still shortcomings, as the Treasury and Civil Service Committee's report states. Notably, paragraph 3 states: We regard them as a useful start in the process of improving the format and content of the White Paper and are glad to note"— in the words of one of the distinguished Under-Secretaries in the Treasury— that the Treasury very much hope they 'can do a lot more next year'. More specific recommendations are made in paragraphs 4, 5 and 6. They are clearly spelt out and I am sure that they will receive my right hon. and learned Friend's attention in the months ahead. Therefore, we need spend no time on them now. Nevertheless, there has been an important and significant development that is of help to the House, and in that respect I regard my right hon. and learned Friends the Chancellor of the Exchequer and the Chief Secretary as significant reformers. We are in their debt.

Second, I congratulate my right hon. and learned Friend the Chief Secretary especially on the earlier publication of this White Paper. The Treasury Committee made a recommendation to that effect and my right hon. and learned Friend was good enough to accept it. As he said, earlier publication has enabled the Treasury Committee to evaluate the Government's proposals and to report to the House on them before this debate. I hope that this process and the report will be of assistance to the House. Indeed, my right hon. and learned Friend was good enough to say that they were. They are certainly a proper and constructive use of a Select Committee's capabilities. After all, this arrangement must enable the debate in both the House and the country to be better informed and I hope that we shall make a better judgment about the Budget, for which this debate is of course the trailer.

There are three chief evils in the British economic scene. The first—to which my right hon. and learned Friend the Chief Secretary referred—is inflation, that monstrous scourge. The whole country rejoices at its reduction to more tolerable levels, but there are still uncertainties. I draw the attention of the House to those sections of the report that bear on this issue, and especially to those relating to the assumptions on which the Government rely. In some respects, they are questionable.

Alas, what is undoubted is that public sector inflation remains at double the rate of private sector inflation. As Arthur Seldon has recently pointed out, the public sector is a mere euphemism for the Government. It follows, therefore, that in its fundamental task of disciplining the growth and expanse of the Government and their creatures the Treasury has not yet had the comprehensive success—although it has had some success—that my right hon. and learned Friend's supporters had hoped for and expected. I regret that, but it is a fact. Our nation's economic recovery is thereby impeded and delayed. That area of our national affairs requires more of the attention and enthusiasm for which the Chief Secretary is particularly noted. In future, I hope it will receive it.

As the Chief Secretary rightly acknowledged at the beginning of his speech, the second evil is unemployment. Its present level of 3,250,000—which is forecast to rise this year—is utterly intolerable. Even if we had to reduce overmanning, even if robotics, computerisation and the like will inevitably be increasingly used while human beings are used less, and even if there had to be still more of a shift from the older to the newer industries, the present levels of unemployment are intolerable. I also repeat my conviction, which I have stated before in the House, that we could readily do more to give our people hope.

The report clearly shows the appalling decline in capital investment. The Chief Secretary devoted much of his speech to that. Paragraph 19 states: A recurring theme in our earlier Reports has been disappointment about falling shares of fixed investment in the overall expenditure total. My right hon. and learned Friend the Chief Secretary was right to say that inevitably the Select Committee took an aggregate rather than a closely analytical view. He was also right to say that there was no time to do more than that.

However, I think that the following point is right. The paragraph continues: we note that the fixed investment share of total expenditure is planned to rise over the 1983–84 financial year; but even allowing for this, and for the distorting effect of revenue from council house sales … it will still be about two percentage points beneath the ratio which prevailed in 1978–79. It remains our view that much more needs to be done". The truth is that a substantial shortfall has become the yearly norm. The right hon. Member for Stepney and Poplar was right to point that out. The picture is the same however one analyses the figures.

It is the same in the nationalised industries. Paragraph 20 states that the Committee viewed with deep concern underspending on capital investment by the nationalised industries. It goes on to say that: in 1982–83 it is estimated to amount to £600 million. Of this £308 million is attributable to British Telecom alone. The same applies to expenditure by local authorities. Paragraph 21 states: A similar high level of capital underspending is evident in the local authorities programmes. This is estimated to amount to £1.3 billion in 1982–83, compounding a shortfall of £¾ billion in 1981–82. Again given this level of underspending there is reason to doubt whether the plans for 1983–84 of £3.9 billion … will be realised. That puts the matter modestly.

I have a letter from the chief executive of my local authority. I noted what my right hon. and learned Friend said about the instructions given to county councils and others, but I ask the House to mark the following words: Over the last ten years or so local government has been plagued by a succession of changes in its capital programming arrangements which have eroded its ability to programme effectively its investment. The letter gives specific instances, and I shall send it to my right hon. and learned Friend.

Unemployment benefits and additional allowances—especially supplementary benefit—this year alone will cost £5 billion. The House may think that the actual cost of unemployment is considerably higher, and it will be higher this year. How much better if a large proportion of that cash were used on capital expenditure to create real jobs, rather than paying people for doing nothing.

I have argued before that a drive to mobilise private capital to finance public works projects is feasible. I have no doubt about that—whether the subject be the Channel crossing, the Severn barrage or many other small items. All that we lack is the imagination and the will. I am sad beyond expression that both are apparently lacking.

In the meantime, the decline in Britain's manufacturing capacity continues. Manufacturing output in 1982 was 14 per cent. below the 1979 average. The decline has gone too far. I was in Birmingham yesterday, and I was told about the demise of the foundry industry. I heard about one company that used to make engine blocks for the Rolls-Royce engines used in Chieftain tanks. The engine blocks are now being made in Germany. If we wish to use tanks on a future military venture, I suppose that we will have to ask permission of the Germans before we can build the tanks. That is one example of how the decline in our industry has gone too far—no doubt other hon. Members can relate others. It is time to cry halt and to attempt to reverse the process. I am sure that it can be done.

In our society there are too many commentators and too few producers; too many consultants, officials, advisers, talkers, administrators and hangers-on, and too few doers. That brings me to the third and greatest evil in our economy. It is the size of Government and its appendages.

There have been some switches from expenditure to revenue. My right and hon. learned Friend took the House through the figures in the White Paper. Paragraph 32 of the Select Committee report states: The Government's financial position is in no way improved by this kind of change even though the public expenditure figures are thereby reduced. It is clear from table 1 of the report that, in real cost terms, public expenditure continued to grow between 1981–82 and 1983.

As my right hon. and learned Friend hinted in his speech, whether public expenditure has continued to rise as a proportion of GDP is more difficult to assess, partly because it depends on the level of GDP. But it. is undoubted that public expenditure as a proportion of GDP has risen greatly during recent years—from 40½per cent. of GDP in 1979–80 to 43 per cent. in 1980–81 and to 44½ per cent. in 1981–82. According to chart 16 of the White Paper, it is scheduled to fall to 44 per cent. in 1982–83. It had previously been estimated to be 45 per cent. in table 22 of the autumn expenditure statement. I am not sure which of the two figures is the more reliable.

My right hon. and learned Friend is right to say that the proportion appears to be falling by a small margin, having risen considerably over several years. He may be right that there is a turn round. I hope that he is right. But whether it rises a little or falls a little is not the main point. I regret having to tell my right hon. and learned Friend that the Government have failed to do more than simply sip at the harsh economic medicine that they have poured down the throats of us all.

I want the Goliath of today's Government—the public sector—to be cut down to its essential functions. There, is substantial irony in the fact that it is the House of Commons on an all-party basis—not the Government—which has done most in taking the initiative in insisting on a higher degree of competence in the public sector. It has done so in the development of the new departmentally-related Select Committees and the continuing flow of recommendations from the Procedure Finance Committee. On Monday we shall begin the process of giving the House the opportunity of better scrutiny of Estimates than it has had in past years. I pay tribute to my right hon. Friend the Member for Worthing (Mr. Higgins), who is Chairman of the Committee. Last, but not least, there is the Bill to modernise and develop the work of the Exchequer and Audit Department and to insist on a higher degree of effectiveness and value for money in the state sector. When those initiatives have been well carried out, we must begin on the process of internal audit in Government Departments—something that badly needs tackling. The Government and their satellites—however we describe them—should be the mainspring of our economic advance. My complaint is that too often they are a dead hand on the economy.

We are engaged in a fearful struggle to maintain and, if possible, to improve the standard of life and prospects of our people in a world that is uncertain and desperately dangerous. Economically, we are living on the edge of a volcano. The recent crisis in bank lending has shown how fragile is the present position. My determination, and that of the whole House, is that we make better progress. Already, Britain's productivity gains—of which we all boast—are being matched by our trading competitiors. Time is not our ally. I support the Government's objective wholeheartedly, but I repeat that we must make better progress. We appear to be faltering a little. We must not fail, because if we do all that has gone before will have been in vain. I will not contemplate that prospect.

5.18 pm

Mr. Richard Wainwright (Colne Valley)

In everything but name, today's proceedings are part of the Budget debate. With the present state of the British economy, and with unemployment at its present level and on its present trend, the public spending part of the Budget is, this year, the most important part. That is borne out in the view, for example, of the National Institute of Economic and Social Research. It has sketched out the impossibility of British industry responding quickly to a tax stimulus, and has said that the Chancellor of the Exchequer could devote as much as £2.5 billion this year to reducing income tax—and yet have fewer than 20,000 additional jobs to show for it at the end of 12 months. I believe that the NIESR is right when it says: Per pound of additional borrowing, increases in public expenditure on goods and services are the most effective means of raising output and employment. Hence the importance of this White Paper and the debate. As the right hon. Member for Taunton (Mr. du Cann) has just pointed out, it is unfortunate that the White Paper, like some of its predecessors, cannot be regarded as wholly reliable. I was surprised to hear the Chief Secretary claim that public expenditure is under control. It suggests that, to the Chief Secretary, having public expenditure out of control means that expenditure is exceeding plans and targets. Some of us regard falling seriously short of planning targets as equally important.

Perhaps the Chief Secretary is not familiar with the tragedy of the big order that never arrives or of the skilled workers who are waiting desperately for fresh work to be put in hand, only to find that the order for the Government Department or local council is not forthcoming or will be delayed so long that they must be laid off.

It is unfortunate to find that there is insufficient control of public spending at present in the sense that underspending has become serious. I do not wish to repeat matters illustrated clearly by the right hon. Member for Taunton but I too shall refer to the report of the Treasury and Civil Service Committee. I draw the attention of the House to paragraph 22 where table 3 shows clearly that in 1981–82 direct expenditure on new construction fell short between the estimated outturn and actual outturn by no less than £800 million. In 1982–83, the same item, leaving out nationalised industries, fell from a planned £8,550 million to an estimated outturn of £7,411 million only. That is a huge difference, and it is no wonder that the industries most intimately involved are sceptical of public expenditure plans.

In the same paragraph the Treasury Committee states: It seems unrealistic to plan for local authorities to spend an extra 10 per cent. in the forthcoming year when capital spending has been on a declining trend for four years past". The British Aggregate Construction Materials Industries, which represents industries which rely on construction orders, told the Chancellor of the Exchequer in a letter the other day: the construction industry must remain sceptical of there being any real rise in capital construction despite a planned 10 per cent. rise in 1983–84. The public capital construction budget has fallen in real terms by an average of 3 per cent. per year since the government took office. I hope that the Treasury and other Departments are fully aware this year that serious shortfall is as grievous an administrative error as excess spending. I hope that they will understand the tragedy, in terms of jobs lost, skills wasted and futures blighted, of this massive underspending. What is needed at present is not shortfall, but greatly expanded capital spending—not by inventing needs and giving people temporary jobs, but by dealing with the massive and obvious neglect of our public assets, which anyone who travels around the country can see.

Mr. Nigel Forman (Carshalton)

I agree with the hon. Gentleman's bias in favour of public spending, but does he agree that an underspend of £1.3 billion this year represents about 1 per cent. of the total, and that in the private sector that would be considered a fairly good control of spending?

Mr. Wainwright

It depends upon which part of the private sector one is using as the yardstick. I should hope that our better organised companies, large and small, could do better.

The serious aspect of this is that the shortfall is concentrated in the capital spending and fixed investment sector, where I believe it is least excusable, because there is a need at present for an expansion of capital spending on public assets of lasting value and importance.

Construction and civil engineering are important because it is estimated reliably that approximately one unemployed person out of every eight—covering both sexes—has at some time been associated with construction and civil engineering. That illustrates the extent to which a typically British skill is flat on its back through lack of a demand which only the public sector can supply at present. There is a need not just for the hardy annuals of water supply and sewerage—important though they are—but for a mass of smaller schemes which cannot be categorised broadly: such as schemes for heat conservation, flood control, the prevention of erosion of our east coast and, above all, long overdue attention to our housing stock. I stress these points because there is evidence, as shown by the Treasury Committee report, that the Government are not primed to undertake such massive capital projects.

The House should worry about whether capital planning by Government Departments has fallen apart so much during these three years of neglect that we no longer have the plans ready for early execution to put people back to work on such schemes. The Government's deplorable habit of blaming local government for much of the shortfall has been illustrated in the White Paper. As the hon. Member for Nottingham, West (Mr. English) pointed out, the use of the word "allocation" would appear to the reader to mean that the Government had presented local councils with the cash for schemes when all that they have done is to give them borrowing consent.

One does not have to be an expert on local government to know that borrowing consent is worth little by itself. It may be worth nothing if the prevailing rate of real interest on the money and the running costs associated with the project are together so high as to put intolerable burdens on local councils' current expenditure. Many councils have had to lay aside with heavy hearts important capital projects because the revenue costs, including interest charges, would be too great for their budgets. It seems to me humbug for a Government who control the rate support grant to belabour local government for alleged neglect of capital spending.

Not only in fixed investment and material capital spending should there be a substantial expansion. The Liberals and the Social Democrats regret that the White Paper does not contain provision for a larger expansion of the personal social services. We believe that one of the functions of modern government is to help those who wish to serve their fellow citizens, especially when they want to take on such vital jobs as home helps, ancillary health workers, therapists and the like. That cannot be done by the market. It cannot be done for ordinary people, on a private hiring basis. It must be a function of government.

We should have liked at least a further £250 million allocated to such domiciliary services, primarily because so many people are not receiving the care that they should have in their declining years or in their chronic sickness. It is expensive to treat the sick and elderly institutionally, and less happy for them. Enormous savings financially and, more important, a great increase in the sum of human happiness could be achieved by an expansion of the relatively low-cost work force which keeps a regular eye on the elderly in their own homes or cares for the sick. I am talking about long-term, lasting jobs costing relatively little and with no import content.

This year public expenditure should be the main feature of our national Budget. We should have a Budget for jobs, to get Britain back to work. However, I fear that when the other side of the Budget is revealed next week it will be a Budget for votes.

5.32 pm

Mr. Chris Patten (Bath)

I shall deal with a few of the remarks by the hon. Member for Colne Valley (Mr. Wainwright) later, but first I should like to make the obvious observation that when one looks at public expenditure White Papers one is reminded of how innocence is one of the first casualties of life within these walls. Until I arrived here, I thought that control of public expenditure was a subject of almost all-consuming interest among right hon. and hon. Members, particularly those on the Opposition Benches who place such store on what the right hon. Member for Stepney and Poplar (Mr. Shore) called the locomotive in our economy—the public sector. The interest today is a little constrained, but I have no doubt that hon. Members will flood in after I have sat down.

Until I arrived here I also thought that what the economic and constitutional textbooks told us about the control of public expenditure was true. That shows just how green I was. Having listened to some of the speeches about public expenditure by the right hon. Member for Heywood and Royton (Mr. Barnett) and having react his excellent memoirs—which I hope are now in their fifth or sixth edition, rather than remaindered at John Menzies—I am aware how important to the control of public expenditure are concepts such as "deep massage" and "mirrors", to which the right hon. Gentleman refers in his admirable and frequently quoted book.

I wish to be as courteous as possible to my colleagues, but it has to be said that, although the White Paper is not without some of the effects produced by devices such as "deep massage" and "mirrors"—the Treasury Committee in its excellent report draws attention to some of them—it would be unfair to argue that the Chief Secretary's achievement was solely in the manipulation of such instruments.

My right hon. and learned Friend the Chancellor has put the damper on public expenditure. No one can argue with conviction against that proposition. Nevertheless, there has been a rise in public expenditure, and that rise is likely to continue. It has much to do with the recession and little to do with any lack of vigour or rigour by my right lion. and learned Friend. The recession has pushed up social security expenditure, for reasons which most of us concede. Exactly the same problem arose in the 1930s when public expenditure as a proportion of GDP grew remorselessly year by year.

The extent to which the policies on which Treasury Ministers have hung their hats are responsible for the recession, and therefore in part responsible for some of the effects of the recession on the control of public expenditure, will be the subject of increasingly lively debates for many years to come. Although one trips delicately round the subject today, I am sure that there will be ample opportunity for us to offer our observations on the subject at frequent intervals in the next decade and beyond.

I wish to concentrate on capital expenditure as part of public spending. My right hon. Friend the Member for Taunton (Mr. du Cann) addressed himself to that. Some people see the Government's line on capital expenditure in the public sector as representing some inconsistency in the overall strategy that the Government have followed since 1979. Consistency is, perhaps, an overrated quality. Most right hon. and hon. Members appear to believe in that proposition—some more than others—and follow it in practice even more than in theory. It is unfair to expect complete consistency from Ministers in implementing strategy. There are larger inconsistencies, to be sure, in the management of public expenditure, for example, in the Think Tank Report, to which the right hon. Member for Stepney and Poplar addressed a number of remarks. That report was issued a few months ago and described several ways in which we might turn back the clock to the 1880s. The right hon. Gentleman said that he did not much care for the way that society was run then. Nor did Disraeli, so he has that in common with a former leader of the Conservative party.

We were told that the issues raised by the report were essential to the control of public expenditure. Now we are told—and I believe it—that, without such draconian nonsense, public expenditure is under control. That is, perhaps, one inconsistency, but I am grateful for the way in which things have turned out.

Another larger inconsistency or contradiction is in the international sphere. It is obvious that we have a gruesomely tight fiscal stance. Apparently we are all depending on a more expansionary fiscal and monetary policy in the United States to drag us down the tunnel into the light of day which, as we know, follows night.

Mr. Dalyell

There was an extremely well written article in The Times about the Falklands by the hon. Gentleman. My recollection is that he came to a different conclusion. In his two despairing paragraphs at the end he said that defence public expenditure was not under control. There he stands, if I am not wrong, wearing his penguin tie. Does he really think that expenditure in the south Atlantic is under control?

Mr. Patten

I shall be delighted to come to that point in due course when I refer to defence expenditure. I must correct the hon. Gentleman on an ornithological point. This is a hawk rather than a penguin tie. He will appreciate that it is an entirely suitable bird for me to decorate myself with. Next week it will be an elephant seal. I promise the hon. Gentleman that I shall come back to the south Atlantic later. I have one or two informed prejudices about that subject, as, I am advised, does the hon. Gentleman.

The point that I wanted to make is that we are apparently dependent on the United States, with a deficit of £200 billion and a more expansionary monetary policy, to drag us out of a recession when we are reluctant to attempt it ourselves by a little more expansion. Somewhere in the middle of that argument the intellectual coherence becomes a trifle unravelled.

The inconsistency to which I wish to draw attention concerns capital expenditure. I think that it is an inconsistency. I was not entirely convinced that the Chief Secretary had made the conversion which I had assumed from the White Paper the Government were making. Doubtless he has now disappeared to a more important meeting down some corridor of power, so it is difficult to clarify that point. Perhaps the Minister will do so when he winds up. Not long ago—1981 is a good time for picking out quotations—we were warned off the grass about capital expenditure. There was widespread feeling, as the Treasury conceded, that capital spending in the public sector should be increased. That widespread feeling was given a sharp dressing down by Treasury Ministers and in Treasury briefings.

I shall not trouble the House with a large number of quotations, but I shall draw hon. Members' attention to a speech by the Chancellor of the Exchequer in Bradford on 1 June 1981 and, more to the point, a background brief that was distributed widely in the House by the Treasury a couple of weeks later. It set out in a helpful and no-nonsense way—although not much of a common-sense way—the thinking that apparently lay behind the Government's argument about capital expenditure. The argument lay on the cruder shores of monetarism and went something like this: any distinction between capital and current expenditure is irrelevant, because what matters is the total amount of money that the Government require and how that money is financed. There was a lot more about crowding out and one or two other concepts that we hear slightly less about these days.

It is conceivable that my right hon. and learned Friend the Chief Secretary has made one or two similar speeches along those lines since then. His speech was a little like that today. We want to be charitable, just as we want to be sparing in our diligence in going through his previous speeches, and make the assumption, which I am sure is justified, that the Government's position has changed. It seems like that from the public expenditure White Paper. In the glossy volume one—the Cecil B. de Mille version—among the main points from the White Paper that are set out at the beginning of page 2 is this: Total public sector capital expenditure in 1983–84 … is planned to be 12 per cent. higher than the outturn expected for 1982–83. Expenditure on construction is expected to rise by 10 per cent. to E10¼ billion. I take it that those facts have been put there for the purpose of demonstrating the Government's good sense in increasing capital investment. I take it that we should regard that as a conversion of sorts: joy shall be in heaven over one sinner that repenteth". That is welcome news so far as it goes. It represents a policy response to the criticism that has been made not only of this Government but of Governments for almost a decade. I looked up some of the reports of the general Sub-Committee of the old Expenditure Committee. In its report on the 1977 White Paper on public expenditure, the Sub-Committee criticised the composition of public expenditure between capital and current and blisteringly criticised a decline of 18.4 per cent. in the share of capital spending between 1976–77 and 1978–79. The Sub-Committee said: The Government is thus itself acting like those industrialists it criticises for failing to invest. Indeed, even worse, it appears to be cutting capital expenditure and selling off productive capital assets (eg BP shares)"— let us not forget that we are talking about the Labour Government— in order to sustain current expenditure, the classic action of an ailing industrial company. The results will inevitably be felt in every public service and also particularly in the construction industry"— to which the right hon. Member for Stepney and Poplar referred— upon which unemployment is being differentially imposed. This recent action also, of course, is only the latest of a long series of similar actions by successive Governments"— that is a perfectly reasonable point— stemming back at least to the public expenditure cuts of December 1973. The Sub-Committee went on to say that the situation under the Labour Government reflected "the Government's political priorities." Precisely. That is what the Labour Government did on the front of capital expenditure. This Government, the last one and the one before have found it consistently easier to cut capital spending than to cut current spending. Therefore, as private investment in this country has sunk like a stone, so too has public sector investment, which should have compensated for the private sector fall.

I hope that what we see in the White Paper is the start of a different attitude to capital investment. I hope that, however inadequate it is as a start, it represents the first step on the road back to more sensible levels of capital investment in the public sector. If it represents those things, we owe a great deal to my right hon. Friend the Member for Taunton, who has consistently argued for a more sensible attitude to capital investment in the public sector. We also owe a great deal to the Committee that he has chaired so well, the Select Committee on the Treasury and Civil Service, which has also argued along those lines.

The Treasury Committee in its excellent comments on the White Paper is right to temper our enthusiasm for what has now belatedly happened. It does so, for example, in paragraph 19 and a number of succeeding paragraphs. It states that we have not yet travelled very far and that any increase in capital investment in the public sector is all too likely to be missed because of underspending. That point is brought out extremely well in the evidence annexed to the report by British Aggregate Construction Materials Industries. It is stated that the industry welcomes the planned increases in spending but remains wary of the government's ability to deliver. There is need for better control of capital spending: continual monitoring, ability to switch to reserve projects when main programme projects get unavoidably delayed, less rigid application of cash limits (eg by carryforward) which are a project manager's nightmare, less panic measures such as November's instruction to local authorities to 'spend, spend, spend'. The fact that the construction industry, and the Treasury Committee, have to repeat the same sermon year on year, indicates that the government remains a convinced unbeliever in sensible capital financial management. It is difficult to avoid the conclusion that one should say amen to that.

I have two further points to make, during the second of which I shall come to the comments of the hon. Member for West Lothian (Mr. Dalyell) after he referred to my tie. The Ministry of Defence is one of the hardest hit Departments when it comes to rolling underspend and carrying forward underspend from one year to the next. That point was made perfectly reasonably by Sir Frank Cooper, the retired permanent secretary to the Ministry of Defence, in, I think, a radio interview last weekend. He said that underspending over about a decade in the Ministry of Defence equalled one major capital project. That is how serious underspending in the Ministry of Defence has been.

The Ministry of Defence has devised, or attempted to devise, all sorts of ways to circumnavigate the problem of cash limits which, once again, defy what one reads in the text books. Last year, it was able to use the phases of the moon. For various calendar reasons, there were 13 possible pay days in 1982, so the Ministry of Defence included an extra one in the financial year 1981–82. That point came to the attention of the Defence Committee belatedly when we were examining the winter Supplementary Estimates. When the Ministry of Defence discovered an underspend of about £250 million in 1981–82, it paid £250 million worth of contractual obligations on the last day of March for the 1982–83 financial year. I suppose that using the moon in that way is one way of getting round the existing system, but we should have a more organised and coherent way of rolling expenditure forward than occasional displays of Sir Frank Cooper's commendable initiative.

The hon. Member for West Lothian will agree that the public expenditure that the House votes should be adequately controlled. He and I can disagree—no doubt we do—about whether we are right to have such a substantial financial commitment in the south Atlantic. I believe that it is unfortunate, but inescapable, that we have that commitment. We can argue on that point. I do not believe that that commitment is nearly as substantial in terms of pound notes as the hon. Member has sometimes argued, but I imagine that neither of us would argue other than that the expenditure that the House votes should be used sensibly, both for the good of those whom we represent and for strengthening the British economy. That is why some of what my right hon. Friend the Member for Taunton said earlier is so important.

Another important point was also brought out by the evidence that was given to the Treasury Committee, notably the memorandum from the British Road Federation. I am surprised that that evidence has not been mentioned so far. The Government must note the current account expenditure implications of capital investment decisions. Current expenditure implications exist. One reason for the underspending in the past year or two that the Committee brought out is that the Government have not recognised those implications. They will have to if they are serious about underspending in the future.

I welcome the small increase in capital expenditure that is represented by this White Paper. I hope that it will be larger in the future. I hope that the Government will do a bit more about the problem of underspending, especially bearing in mind the condition of the British economy. It is hardly overheated. Moreover, I hope that, in future, the control of public expenditure will owe more to practical common sense—the types of things to which my right hon. Friend the Member for Taunton referred—and less, to quote the right hon. Member for Heywood and Royton now that he has returned to the Chamber, to massage, mirrors and barely comprehensible theory.

5.54 pm

Mr. John Horam (Gateshead, West)

It is always pleasant to follow the hon. Member for Bath (Mr. Patten) because he always makes a civilised speech. I admire the deft way in which the criticisms of the Government are also criticisms of the previous Labour Government. His speeches are therefore put within the code of acceptable criticism from Conservative Back Benchers. I shall not press that point as I do not wish to discourage him from making other speeches of a similarly trenchant kind.

My central quarrel with the Government is that they do not appear to live in the real world when it comes to their economic policies. They do not ask themselves what is going on in the factories, offices, showrooms and export markets, in product development, research, management training and trade union co-operation and then ask themselves how they can help increase industry's confidence to plan on a more long-term basis and how they can help industry by encouraging enterprise and enhancing the skills that we deploy in the market place. Instead of that practical, down-to-earth approach, they seem to fix their gaze, as in a trance, on various intermediate financial targets such as the public sector borrowing requirement, sterling M3 and other arcane matters of which the public have little knowledge.

This approach reached its apogee when the right hon. Member for St. Ives (Sir J. Nott), in one of his previous incarnations, was Secretary of State for Trade shortly after the Government doubled VAT. He pointed out from the Dispatch Box that the doubling of VAT could not possibly increase prices in the high street because it would lower the PSBR. Moreover, he said that as though it were an obvious truth. The Government have got themselves into absurd circumstances by following those financial targets so closely and averting their gaze from what is happening in the real world.

I sometimes wonder why the Government have got themselves into this position. Even some Conservative Members have speculated about that recently. Some people argue that it is a cynical exercise, that monetary targets have been erected with the ultimate aim of dealing with trade unions and that a way out of these problems can be found by creating more unemployment. I believe that the recently published book written by the right hon. Member for Chesham and Amersham (Sir I. Gilmour) lends some substance to that theory. I have not read it yet, but I look forward to doing so with an eye to quotations for my leaflets at the general election.

Perhaps the Government are following intellectual fashion. We all know that there has been a great intellectual renaissance of the monetarist point of view. However, it is curious for the Conservative party to become a slave of intellectual fashion. I thought that they were always somewhat anti-intellectual. Indeed, they have been known, rather patronisingly, as the stupid party. It is strange that they should be hooked on the current vogue. That demonstrates the weakness of their view of what they are about. The Secretary of State for Energy believes that modern Conservatism is all about the monetarist view of the economy. That demonstrates a lack of understanding of the Conservative party's philosophical base. However, that is a matter for the Conservative party.

The Government seem to misunderstand that the real issue is not so much monetarism as a real understanding of the market in economic policy. I agree with those who have advocated a greater appreciation of the market, the Institute of Economic Affairs and other bodies. One of the Labour party's faults is that it has not understood the role of the market. But monetarism and the market should be separated. It is a pity that the Government entwine the two and assume that one inevitably encompasses the other.

Perhaps the Government are in this rather strange recherché intellectual position because most Ministers in charge of the Treasury and other leading Departments do not have much understanding or knowledge of business. That fact has been mentioned recently in the Chamber and it is probably true. Most Ministers are barristers or journalists with little experience of running a small or large business. That is a great disadvantage, as Conservative Members have said. The hon. Member for Chippenham (Mr. Needham) made a trenchant speech to that effect during a recent economic debate.

The result of the concentration on intermediate financial targets rather than on the real economy is that the economy has become rather like a business run by accountants. In fairness to the Government, I must say that the books are in not too bad a shape, but the business is rapidly going bankrupt. That is the real problem. Manufacturing output is nearly 20 per cent. lower than it was in 1979, and is at its lowest level since 1963. Car production is lower than in any year since 1957. Steel production is lower than in any year since 1950, and the number of houses completed last year was the lowest since 1947. The recession is deep because of the tendency to ignore what is happening in the real world.

The Government's approach is reflected fully in the White Paper that we are discussing. The emphasis is on financial control, and there is a superficial appearance that all is well. That surface impression is especially important this year, which may well be an election year, because the Government must seem to be always in control so that they can give away some money, while reassuring the City that little is changing and that nothing is being given away. The purpose of the exercise was explained clearly by the Chief Secretary to the Treasury a few days ago, when he made two successive speeches, saying in the first—with great pride—that expenditure was clearly under control, and in the second that there would be no giveaways or quick fixes. Those statements implied that he had fixed the expenditure by means of mirrors or massage, so that he could give the impression that it was under control and that there was still some room for giveaways.

The Chief Secretary's speech showed that, for once, it is more interesting to listen to the monkey than to the organ grinder. The Chancellor of the Exchequer seems to have sunk into Chancellor's purdah and, with his usual lack of eloquence, is happy to eschew words altogether in the runup to the Budget—[Horn. MEMBERS: "Cheap."] It is not cheap. The Chancellor probably relishes the pre-Budget period because he need not say anything about the economy. He says little enough at the best of times.

The surface impression is thus glittering but deceptive. The truth is more gloomy. As has been said three times in the debate, the White Paper reveals a substantial and continuing decline in capital expenditure since the Government took office, which has done great damage to industry and deepened the recession. The White Paper gives the impression that the Government are planning an increase in capital expenditure next year, but planned increases in capital expenditure during the past few years have often led in reality to underspending, so that there is widespread scepticism about whether planned increases will lead to real increases when the day comes.

It is interesting that such general scepticism in industry has been voiced widely. Indeed, never in the history of economic debate has British Aggregate Construction Materials Industries been so widely quoted as it has in this debate. That group says that, as the 14 per cent. promised increase in construction capital expenditure in 1982–83 was translated into a 6 per cent. actual rise, it remains sceptical about the effects of a planned 10 per cent. increase in 1983–84. That scepticism is fair. The Government should recognise that it is vital to consider not only financial markets—they spend much time worrying about opinion and confidence in those markets—but industrial confidence. Industrialists believe that, for all the words mouthed by the Government, there will be no real increase in capital expenditure. If they plan accordingly, we shall not have a real increase in capital expenditure. The Government should pay more attention to industrial confidence instead of being so obsessed with financial markets.

Much of the increase in capital expenditure depends upon an increase in local authority capital expenditure, but the latter has revenue implications. Will local authorities step up their capital spending while the Government's attitude to revenue expenditure and the means of controlling it remains the same? Much underspending, both in local authority areas and in Government areas, follows over-long bureaucratic and consultative processes. When I was a Minister at the Department of Transport, trying to improve the rate of progress on the motorway that has been planned for years or even decades to link the M1 and the M5 south of Birmingham, the real obstruction was not lack of Government finance but a series of consultations, leading to resolutions that were challenged in the High Court by local opposition groups. Many civil servants were tied down for months, if not years, by those consultations and the bureaucratic paperwork that flowed from them. The Government must either increase the number of civil servants working on the matter to ensure real progress, or they must try to slim some of the overelaborate consultation procedures. They are doing neither, but are exhorting local authorites to get a move on with their capital expenditure. The result will be the same lack of progress that happened under previous Governments. It will not be enough.

The Government wish much of the increase in capital expenditure this year to come from an increase in spending by nationalised industries. However, as the representatives of those industries—especially British Telecom—said to the Treasury and Civil Service Select Committee when it examined the White Paper, they have underspent because they face a much tougher market. The expected demand has not materialised and, as prudent business men, they have cut their planned capital expenditure. If demand does not rise, that will be the case next year. We do not expect much growth, and the nationalised industries will soon undershoot their external finance limits. Therefore, we cannot expect an increase in capital expenditure from this source. The outlook is rather gloomy, and the extent to which we can improve the economy on that front is likely to be small.

The Government have substantially cut aid to industry. Hon. Members on both sides of the House must agree that such aid should be handled with care. In recent years, much of the aid has not been well spent, but, whatever one's view of that, it is foolish to cut such aid in the depths of a recession. Only this morning I read in a national newspaper an article by Dr. David Storey of Newcastle university, who wrote a book called "Entrepreneurship and the New Firm", in which he said that many of the companies that have gone bankrupt during the past two or three years are the medium-sized companies—employing perhaps 250 to 1,000 people—who supply the large companies, or the giants of the economy. If demand ever recovers, those medium-sized companies will not be there to produce the components for the large companies, and the result will be an influx of imports.

That is a real fact in the real world, yet the Government have cut the financing of the very agencies that were developed by previous Governments to help restructure industries and companies that were fundamentally sound but in difficult short-term financial straits. As a result, those agencies no longer exist to help deal with that real industrial problem.

The same is true of regional aid. In my own area of Tyneside, there are now predictions that under present policies unemployment in the Northern region will average more than 20 per cent. in a year or two and that in the foreseeable future many young people will never become employed. Consequently, the north-south distinction will become larger. I worry enormously about what is happening in our great provincial cities, because it is clear that the Government have no interest in, and provide no resources for, any meaningful or coherent regional policy.

Whatever one's view about the share of public expenditure in GDP—there can be differences of view about that in the long term—it is foolish to decrease public expenditure during a recession. It is right to increase it, and the Government's failure to do so has further pushed the economy down. That is a fundamental point. It appears that they are about to add insult to injury by bringing forward a Budget that will do very little for industry but will concentrate on putting more money into the pockets of those with jobs rather than helping industry and the jobless directly.

This is, of course, an election year, and I suspect that the Prime Minister is looking for that sort of election help from the Budget. Equally, she is aware that the Government's promises on taxation have been so massively belied by their performance that she must feel under some pressure to restore her previous image as a tax cutter by concentrating the resources available on income tax cuts. That will not be good for industry or for the future of our country. It is a cynical exercise that is typical of the mean-spirited attitude now rampant in the Conservative party, and it will do the country no good.

6.13 pm

Mr. Reg Prentice (Daventry)

I listened with interest to the speech of the hon. Member for Gateshead, West (Mr. Horam). He and I were good friends in the days when we were on the Right wing of the Labour parry, from which we have both since escaped, and I was looking forward to hearing from him about the SDP's policy on public expenditure. I say without offence that we did not hear much policy. We heard many interesting comments and some mild criticism of both the present and previous Governments. However, the hon. Gentleman's speech was thin on policy, which in a sense is typical of SDP speeches in the House.

Above all, we should face up to some hard and difficult questions of national priorities. I have always felt that the annual debate on the public expenditure White Paper ought to be one of the major debates of the parliamentary year. That is not a fashionable view. The House is not full of hon. Members clamouring to speak. In the past, we have devoted one day to this debate and four and a half days to the Budget debate. I have often felt that we have got it the wrong way round.

Our examination of the public expenditure White Paper should make us face up to two vital subjects. The first is the proportion of the GDP that ought to be spent publicly, whether we have got it right, whether we should alter it, and, if so, in what direction. The second is the broad choice of priorities within that total of public spending. The decisions contained in. the White Paper create the parameters for all Government policies and, indeed, for the Budget itself. In that sense, they are more fundamental.

Within Government Ministers have some of their most tense and difficult arguments about the allocation of public expenditure. Anyone who has had experience of arguing for a departmental programme—perhaps across the table from the right hon. Member for Heywood and Royton (Mr. Barnett)—is aware of the grave problems involved and the clashes on priorities, not just between departmental Ministers and the Treasury but among departmental Ministers.

Rightly and inevitably, those are difficult problems facing Government. The House should catch up with that process, and we should have similar debates on the Floor of the House. However, we are all liable to the occupational disease of climbing on to bandwagons in favour of more spending on fashionable good causes or fashionable demands for tax relief. That enables us to dodge the priority issues presented to us. In my few remarks, I hope to approach one or two of the different problems that now face the Government and the country.

I congratulate my right hon. and learned Friend the Chief Secretary and his colleagues on the White Paper. He had every right to claim that the Government have altered the trend by which the share of the GDP going to public expenditure was increasing substantially year by year. We now have stability, with the target figure being 0.5 per cent. lower next year than in the current year and a further 0.5 per cent. lower in the following year. It is easy to poke fun at that, as some hon. Members have done, by claiming that that cannot be estimated with accuracy. Indeed it cannot, but it is a plan for stability with regard to the ratio that goes to public spending. In that sense it is a considerable advance on the records of previous Governments of both parties.

We are also entitled to contrast the figures in front of us with the last figures in the forward planning of the Labour Government during their last year in office. They set a provisional figure for 1982–83, but the outturn for 1982–83 is £7 billion less than the figure contained in the Labour party's plans. A difference of £7 billion is an average difference of £10 a week for a family of four, and that is a lot of money. That is the difference between what is happening now and what was planned by the outgoing Labour Government.

The Labour Government consistently spent more than they planned, and that comparison takes no account at all of the enormous additional promises—the billions of pounds of promises—that have been made by the Labour party since 1979, over and above what it was planning to spend when in government.

The 44 per cent. of gross domestic product devoted to public expenditure is still far too much. One is not entitled to say that unless one has ideas about how to reduce it. That is very difficult, and one has to face the choices. It is a very large chunk out of people's income, a very tight restriction on the freedom of the wage-earner or salary-earner to spend what he has earned and a major disincentive to extra effort. For those reasons, I look forward to a time when we shall spend less of the GDP on public expenditure, preferably because the GDP is larger but also because, where necessary, we have pruned some of the public spending programmes still further.

I wish to make four specific points, each with a slightly different emphasis, about spending priorities.

First, some 30 per cent. of the total public expenditure recorded in the White Paper goes on public sector pay. In some of the vital services, such as the National Health Service, the proportion is much larger. If there was one reason why, in their first two years of office, the Government disappointed public expectations by not bringing down public expenditure as they had hoped, it was the excessive pay awards made by the Clegg commission.

It is easy to speak with the benefit of hindsight, but I wish that the Conservative party had made, before the general election, a pledge to disband the Clegg commission. I wish that when we came to office we had disbanded it and had looked afresh at all the outstanding pay issues with greater attention to the public interest. However, that is water under the bridge. In the more recent past, public sector pay has been under better control and it is essential that it should stay that way. It is essential that the 3.5 per cent. pay limit that the Government have suggested for the coming pay round should be adhered to and that Conservative Members should support the Government, if necessary, in their determination to resist those in the public services who try to break that limit.

I go a little closer to the concept of a formal incomes policy than Ministers have tended to do. I do not think that at present there is a need for formal machinery of the kind established by Governments of both parties from time to time since the end of the war. Inevitably, however, the Government have an incomes policy in the public sector. The 3.5 per cent. and the figures that preceded it are evidence of such a policy, but do the Government have sufficient means to enforce it?

I was worried by the outcome of the water industry dispute. It did not matter very much in itself. The numbers involved were small. The main lesson for the workers must have been that it would take them a very long time to make up the wages lost during the five weeks of the strike, and that the whole thing had not been worth while. That dispute, however, must not be a pattern for the future. I am confident that it will not, but I should have been happier if the Government had had power to set the settlement aside.

In the case of the teaching profession, the Government have that power. Some years ago I piloted through the House the Remuneration of Teachers Act. That Act provides for arbitration. It also provides that Parliament can set aside the award of an arbitrator if it is in the national economic interest to do so. Since then, I have taken the view that the minimum that the Government need is a similar power in respect of all public sector employees.

I believe that the water unions, because of their bad faith and the way in which they behaved, should have been punished by such a resolution of both Houses. I shall address myself, however, to the importance of public sector pay for public expenditure in the future. I do not expect a positive response from the Government today and I realise that Ministers are not thinking along those lines, but I believe that it is an option that they may need to examine for the future either in the form that I have suggested or in some similar form.

My second point relates to the social security budget. I had ministerial responsibility in that area for nearly two years. Social security is the largest single item in the entire public expenditure White Paper. In the coming year, the total amount of money transferred from three quarters of the population who pay to the one quarter who receive will be some £33 billion. That is an enormous sum. Labour Members always speak as though those in receipt of national insurance benefits are the poorest people in the country, but that is not so. Many of the three quarters who pay for the benefit are poorer than many of the one quarter who receive them.

The social security budget has increased for a number of reasons. It has increased partly as a result of higher unemployment, which we are all dedicated to reduce, an aim that is more likely to be achieved if a Conservative Government remain in office. It has also increased for demographic reasons and because successive Governments have increased benefits in line with, and often by more than, the rate of inflation. It will increase rather less next year and the following year due to the Government's success in dealing with inflation, which is greatly to the credit of the Government and, indeed, of the whole country.

Total expenditure on social security has also risen because successive Governments have added new benefits but have never or hardly ever abolished a benefit. They have also enlarged the ground rules for claiming benefit but have seldom if ever narrowed them. I believe that in the immediate future and for some years to come the Government must be absolutely rigid in resisting demands for further enlargement of the benefits available. Many worthy pressure groups put forward a good case—for a special allowance for blind people, for a better deal for war widows, for more generous death grants, and so on. Seen in isolation, each of those cases is a strong one that we would happily accept and many hon. Members sign early-day motions supporting them. Nevertheless, if the aim is to control public spending and this is the largest single item—it has grown out of all proportion to other items and far more rapidly than the ability of the country to pay for it—it must be kept under control by a rigid refusal to give way to pressure of that kind.

The capital element in the programme has been discussed at some length and I welcome the figures in the White Paper, although I understand why they have been knocked by hon. Members on both sides. There are many reasons why figures for increased capital spending may not be fulfilled in practice, due to underspending, late starts and other problems of definition. Nevertheless, as my hon. Friend the Member for Bath (Mr. Patten) said, the figures are a policy response—a signal by Government for higher capital spending this year, within a relatively stable public expenditure position, to the extent of 12 per cent., with a specific figure of 10 per cent. for construction projects. I hope that that can be achieved and maintained over the years.

I have vivid recollections of the time when I was Minister of Public Building and Works and had to deal with the construction industry, and of its constant representations to me and other Ministers about the devastating effect on the industry of switches in Government policy and stops and starts in capital programmes. It depends for more than half its custom on the public sector and has been subjected to sudden demands to increase activity and then sudden cuts in activity by both Labour and Conservative Governments. The irony has been that, because of the time scale involved, those cuts or increases have taken place so much later that the economic circumstances have often been very different from those when the original decision was made.

The construction industry is vital to this country and to any future economic growth for which we plan. I have seen research which shows that if we are to have a given degree of economic growth we have to have growth in the construction industry 1 per cent. or 2 per cent. a year higher than in the economy as a whole. One key to that must be consistent demand from the public sector. No. Government have achieved that in recent years and I hope. that this Government will be more successful in future.

My final point concerns overseas expenditure. I do not want to talk about the defence programme, which is clearly the biggest item in this category. I welcome the renewed implication of the 3 per cent. growth of expenditure on NATO, and the fact that the Falklands expenditure will be additional. However, I wish to say a word about table 2.2 in the second volume of the White Paper, which deals with the overseas aid programme and other overseas services. This is a small part of the totals that we are discussing. The aid programme is about 1 per cent. of total public spending and the other items are only about 0.5 per cent. if one excludes the European budget, which is rather a special case.

I welcome the modest increase in the overseas aid programme shown in the White Paper, but this programme was cut disproportionately by the Government in their early years. This led me into a rare abstention in a debate on the subject last year. I do not want to have a wide debate on the subject now, but I emphasise to the Minister and his colleagues that the case for doing more for overseas aid and for some of the other overseas services referred to in the table is a moral case, but also a case of our self-interest.

We have 5,000 British specialists working abroad on technical assistance problems, and that is very much in Britain's interest, as are the thousands of overseas students at our universities, technical colleges and polytechnics, paid for by our overseas aid programme. The fact that the Commonwealth Development Corporation is a success story is in Britain's interests, and so is the work of our overseas broadcasting and of the British Council. All of these objects should have been provided for rather more liberally in recent years and should be provided for rather more liberally in future years. I repeat that this is only a small proportion of public spending. Whatver else we economise on, it must be in terms not of a little England philosophy or a little Europe philosophy, but of a global philosophy. There are enormous dividends both commercially and diplomatically for Britain if we work along those lines.

I welcome the White Paper; it is basically a success story. I hope that there will be many similar success stories in the years to come.

6.34 pm

Mr. Joel Barnett (Heywood and Royton)

Listening to the right hon. Member for Daventry (Mr. Prentice) is difficult. I am a fairly even-tempered fellow, but it is difficult to restrain oneself when one recalls where he spent his political life. I shall return to some of the points that he made.

I apologise to you, Mr. Speaker, and to the Chief Secretary and my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) because, as I am Chairman of the Public Accounts Committee and had to be there, I was unable to be present at the start of the debate.

I agree with the right hon. Member for Daventry on one point. This public expenditure debate should be —unfortunately it is not — one of the most important debates in the year, when we discuss what should be the total level of public expenditure and what should be the priorities in it. The House might have listened to the right hon. Member for Daventry with rather more respect if, instead of just saying, as one would have expected him to do, that he would have liked the Government to give a little more overseas aid, he had condemned them for what they have done to overseas spending.

The right hon. Gentleman quoted some of the differences in public expenditure since the Labour Government left office in 1979, but he did not quote the cost terms in table 1.14, which shows that the overseas aid programme was £1.108 million in 1979 and in 1982–83 is £892 million. I for one would have listened to the right hon. Member with much greater respect if he had condemned his Government outright.

Mr. Prentice

I said that I had abstained from voting in a Supply day debate on this subject, but in that debate I criticised the Government on precisely the ground referred to by the right hon. Gentleman. I am not saying that the right hon. Member should have known that. I merely take the opportunity to point it out to him. I should listen to him with more respect on this subject if he had been more eloquent on it in the past. I never heard him make speeches from the Opposition Benches in favour of overseas aid. Perhaps he did so, and perhaps I am mistaken.

Mr. Barnett

I was not a Minister for Overseas Aid and did not leave the Labour party for the reasons that the right hon. Gentleman gave.

Mr. Prentice

The right hon. Gentleman should do so.

Mr. Barnett

Despite all the cuts that I had to make as Chief Secretary to the Treasury, the level of overseas aid was considerably higher in 1978–79 than it is under the Government whom the right hon. Gentleman now supports. I have nothing to withdraw from what I said about the right hon. Gentleman. If it helps his conscience to make an occasional speech saying that he would like to see more spending on overseas aid he is welcome to do so. The plain fact is that under the Government whom he now supports overseas aid has been reduced substantially. I hope that he is pleased with that.

I apologise to the Chief Secretary for not having been here to hear him speak, but I understand that he put forward a complex argument about whether public expenditure had increased or reduced. In volume one of the White Paper the Chief Secretary boasts, as he has done frequently, that he has public expenditure under control. This time it is because his plans for public expenditure in this year's White Paper are £1 billion lower in 1983–84 than they were in last year's public expenditure White Paper. He considers that to be "control". I do not take it as being a form of controlling public expenditure to claim that one has brought planned public expenditure down by £1 billion.

Even on the Chief Secretary's basis of cuts equalling control, the Treasury and Civil Service Select Committee points out that there has been an increase of 6.2 per cent. in real terms since 1978–79. The Treasury Committee goes on to refer to the figures in the White Paper—the right hon. Member for Daventry referred to them as well—of public expenditure as a percentage of GDP. The Committee referred to the figures in the public expenditure White Paper which show that public expenditure is even less under control.

The right hon. Member for Daventry quoted the fact that public expenditure would come down by 0.5 per cent. of GDP. That is true, but in 1978–79 public expenditure under the same definition was 41 per cent. of GDP, and for 1982–83 the estimate—there is no actual figure—is 44 per cent. The actual figure, as a percentage of GDP in 1981–82, was 44½ per cent., exactly the figure it was in 1976–77, the "Year of the IMF", as it has been called, when we were described as probably the most profligate Government who had ever existed. The same percentage of GDP is the latest figure in actual terms. If the estimate turns out to be right, it will this year be 0.5 per cent. less.

In current circumstances, I do not complain that public expenditure is too high. My complaint is that the case made by the Chief Secretary that public expenditure levels are under control is nonsense. Even the cut of £1,000 million that he claims in 1983–84 is the result of fiddling the figures. His claim is meaningless. If the same contingency reserve had been used as was used last year, there would have been no cut at all. If, as we now know, the shortfall had been changed by a few hundred million pounds, and if certain estimates in some of the budgets of other Departments had been changed, it would be possible to show that public expenditure was another £1,000 million up or down.

It is possible to play around with the figures when someone in the Treasury, at a meeting with the Chief Secretary, says, "Do you not think that we can best say that we have it under control if we cut it by a billion?" However, after examining the matter, it looks like the same figure, or even a bit more. On the ground that something has to be done, it is decided to adjust the shortfall, reduce the contingency reserve and make one or two other changes. It can then be claimed, "We have got it down by £1,000 million and now have control of public expenditure." Obviously, by that process, the Chief Secretary has satisfied the right hon. Member for Daventry, but I doubt whether he satisfies anyone else.

I do not complain that public expenditure is not under the kind of control that the Chief Secretary pretends. When one is spending £120,000 million a year there is bound to be some waste and some inefficiency. One cannot have total control. The fact is, however, that public expenditure is not under control in any real sense of the word. My concern is over the great harm done by the Chief Secretary to the concept of public expenditure control. It is a concept that I strongly support. The right hon. and learned Gentleman does real harm by equating control with haphazard cuts, yet he goes on doing it.

No real thought is given in these debates, or within the Treasury, to what should be the total level of public expenditure as against private consumption and what should be the priorities within that total level. This applies to all Governments. It applied to the Labour Government. One tends to play about on the margin. Because so many departmental budgets have been fixed and are treated as sacrosanct, all one does by increasing or reducing public expenditure a few thousand million pounds in a year is to play about on the margin.

I tried hard, during my period of office, to get some better understanding of the need to re-examine fundamentally the priorities within a given level of public expenditure. I cannot pretend to have succeeded, but this Government have not even tried. The result of the concept of control espoused by the Chief Secretary is that those most affected by the cuts—local authorities, trade unions, former spending Ministers and those aspiring to be spending Ministers—blame cash limits, value for money audits and effectiveness and efficiency audits as the cause of their misery. That is wrong.

The real cause of their misery arises from a number of factors. The money does not exist because our rate of economic growth has been so poor. To pretend that the fault is due to the mechanisms that are being improved to control public expenditure is so false that I regret that the idea was given a boost by the Chief Secretary arguing that he has public expenditure under control.

The savings obtained by better control of public expenditure should not, and especially in current circumstances must not, mean a cut in public expenditure. Because so many people who care deeply about public expenditure and want it increased have fallen for the argument of the Chief Secretary, they now, like him, equate control with cuts. This is a serious matter.

I wish to make a brief plea for higher levels of public expenditure. This might be considered strange, coming from a former Chief Secretary who spent more than five years cutting, cutting and cutting again. However, the circumstances, to put it mildly, are very different today, although not entirely. Any increase that is now made in the level of public expenditure will still have to be strictly controlled. Indeed, I hope that what happened between 1974 and 1979 will be a powerful warning to those who may have it in mind to plan for huge increases in public expenditure. They could find happening again what occurred in 1974–75, when we increased public expenditure by 9 per cent. in real terms.

Because we did not have the rate of economic growth to match that expenditure, at a time when there were also massive increases in money incomes, it meant that I spent the following five years carrying out the unenviable task of cutting, cutting and cutting again. I hope that no one is under any illusion that if, as I trust, a start can be made on increasing public expenditure it can be done in a wholly unconstrained and unrestrained manner. It cannot. I hope that if no other lesson is learnt from the past, that lesson has been taken very much to heart.

The position today is very different, both in economic terms and in regard to the state of so much of the nation's capital assets. No one with eyes to see can dispute the need for more public expenditure in many areas where private expenditure can never be a substitute. There is an obvious need for more public spending on our roads and our railways if we are to prevent total chaos in our transport system. This cannot be left to the haphazard working of the free market system. Whatever political view one holds, the idea that any sensible transport system can be left to the haphazard working of the free market must be seen for the nonsense that it is.

It is equally obvious that more expenditure is needed on the National Health Service. The free market can provide something towards having a private health service, but this can never meet the needs of more than a trifling proportion—a small minority—of the number of people in this country. At times like this, not to be spending more on the National Health Service is almost criminal.

Few who see the state of much of our housing in the major cities will doubt the need to provide decent accommodation. In a comparatively affluent society, people should not expect and hope to live in a trouble-free society when so much of our housing is in such a terrible state. The private sector can make a contribution, especially with some assistance from public sources, but if we are to help the millions of people who in 1983 still live in appalling conditions there is no substitute for substantial increases in public expenditure. I was interested to hear the plea of the right hon. Member for Daventry on behalf of the construction industry, and I hope that his Government will take note of it.

Room must be found to improve the lot of people who are dependent upon benefits, although the amount of money available will inevitably be small, even if the rest of the community are willing to hold back their demands. If we spend as much as I want to spend on the increased capital expenditure that we so desperately need, the amount that will be available for the rest of the economy—whether one does it under a national economic assessment or any other assessment—especially in the earlier years before we get reasonable growth will inevitably be minimal. However, priority must be given to the areas of capital expenditure, a few of which I have mentioned today.

I said that I would be brief, and I shall. I end with a plea to the Government. Additional expenditure on capital at this time is not Keynesian, it is not anti-monetarist, it is not Labour, Liberal or Conservative. It is just plain common sense. I desperately hope that the Government will be led to do something about it, perhaps even by some Conservative Members.

6.51 pm

Mr. Stephen Dorrell (Loughborough)

The House will have listened with rare amusement to the right hon. Member for Heywood and Royton (Mr. Barnett) describing the tricks of the trade in creating the illusion that public expenditure is either lower than it is or under better control than it is. He speaks with a rare authority and, as my hon. Friend the Member for Bath (Mr. Patten) suggested, some of the tricks that the right hon. Gentleman admitted to using as described in his book are the same methods that my right hon. and learned Friend the Chief Secretary used in parts of his White Paper, and for which he is now criticised by the right hon. Gentleman. The circle has been squared.

My right hon. and learned Friend, in opening, said that this White Paper on public expenditure covers half o f the nation's budget. That point has been made by several speakers in the debate. It is therefore important to consider this White Paper from two different viewpoints. First, we must consider it from the point of view of the way in which it decides our national priorities, and, second, we must consider it from the point of view of the effect that the total budget, half in the form of public expenditure and half in revenue raising, will have on the economy.

I want to mention one or two detailed aspects of the priorities that are delineated in the White Paper. The first concerns defence. I am glad that the Government did not allow themselves to fall into what I regard as the trap of regarding the Falklands expenditure as part of the defence budget, and therefore, in effect, diverting resources that were previously committed to the defence of Europe. We are committed by NATO to a 3 per cent. real increase in defence expenditure, and the Government are right to regard the extra and unavoidable expenditure incurred as a result of the Falklands campaign as being in addition to that 3 per cent. growth target.

The second is also a foreign affairs matter, and was made with considerable authority by my right hon. Friend the Member for Daventry (Mr. Prentice). I am glad that after several years in which, regrettably, the Government saw fit to reduce expenditure on overseas development that trend is now being reversed. I associate myself with what my right hon. Friend the Member for Daventry said about the importance of that item in our national expenditure. If I had to choose which pound brought more security, the pound spent in our defence budget or the many fewer pounds spent in our overseas development budget, I would find it a hard choice. This country's security interests are supported in a very real sense by our expenditure both on defence and on overseas development. I welcome the priorities that the Government are now giving to both items.

I also welcome another item of increased expenditure for which my right hon. Friends on the Front Bench have perhaps not taken enough credit. It is the substantially increased expenditure on health and personal social services during the lifetime of this Government. We can measure it in a number of different ways, but they all demonstrate a significant total increase in the amount of resources committed to that end. I welcome that, particularly in view of the Government's commitment to ensuring better value for money out of the increased resources. The announcement made by my right hon. Friend the Secretary of State a few weeks ago about opening the ancillary services of the NHS to subcontracting is part of that commitment, as is their commitment to a half per cent. efficiency target within the Health Service. Those two examples form part of a strategy of a substantially increased provision in the health and personal social services, of which I am sure that every Conservative Member has every right to be proud.

There are two items under one budget heading about which I am less happy. They come under the social security budget. When any hon. Member tells us in the House of his enthusiasm for a social security project, he is always well advised to remember the enormous scale, to which my right hon. Friend the Member for Daventry referred, of our social security budget today. Nevertheless, the Government should reconsider—I hope that they will do so before next week's announcement—the present policy, announced in the autumn, on the 5 per cent. abatement introduced nearly two and a half years ago on unemployment benefit, and the 2 per cent. "overpayment" made to recipients of state benefits in November 1982. The revenues from the taxation of unemployment benefit are now coming in, and the 5 per cent. abatement was introduced as a specific attempt to get the revenue effect of that tax increase before the tax actually fell. My hon. Friend the Member for Bath rightly says that it was introduced in lieu of taxation. We now have the taxation and the cut in lieu of taxation. That is unfair on those who receive unemployment benefit, and I hope that my right hon. and learned Friend the Chancellor of the Exchequer will put it right next week.

There is an arithmetical case for arguing that the recipients of benefit should receive more than the inflation entitlement in November 1982, when they received 2 per cent. more than the inflation rate over that period, but I am sure that that argument would be lost on almost all those recipients. They already find it difficult to understand why the increases announced in March are not paid until November. It would be an impossible task to explain to them that not only were they announced six months earlier, but that they will be reduced because of a mistake that was made 18 months earlier. When my right hon. and learned Friend makes his announcement next week, I hope that he will bear that in mind.

I want to move on to the broader considerations of the effect of the public expenditure White Paper on the economy. My right hon. and learned Friend the Chief Secretary concentrated on the share of the gross domestic product that is accounted for by public expenditure. No Conservative Member and, I suspect, few Labour Members would argue with the proposition that that is important. Of course, it is important that we do not allow public expenditure to run wildly ahead of the ability of the productive resources of the economy to pay for it. However, it is a mistake to imagine that that is the only, or even in some circumstances the main, criterion for the level of public expenditure. It is too simplistic to say that public expenditure is bad and that private expenditure is good. Indeed, there are many cases in which we would argue that public expenditure is good. One of the purposes of achieving a growing economy is to allow us to provide improved public services. It is not the fact of public expenditure that is bad, but when public expenditure rises faster than the ability of the economy to pay for it. That means that perhaps the most important single consideration in fixing the level of public expenditure is not the short-term share of public expenditure in GDP but the impact of public expenditure programmes on output.

It is perfectly normal to consider the revenue-raising effect of the Budget on output but, for some obscure reason, we are discouraged from considering the effect of public expenditure on output. Anyone who wants to argue that a particular attitude to public expenditure would have a desirable impact on output will find himself in a Catch-22 position.

If public expenditure is dealt with in the context of the White Paper we are told to wait until the Budget because it is then that we make our macro-economic judgments, but when Budget time comes along we are told that public expenditure was fixed at the time of the public expenditure White Paper. We are in the absurd position that we cannot consider both sides of the Budget together and their impact on total economic output. I hope that when my hon. Friend the Minister of State replies to the debate he will consider the impact of the various proposals in the White Paper on output and also the representations made to him by hon. Members during the debate from that point of view.

The most obvious of those representations was made by many hon. Members about capital expenditure. The Government have repeatedly let it be known that they are sympathetic to the arguments on capital expenditure, particularly to the arguments on the construction industry. Perhaps it is significant that table 1.13 in volume 1 of the White Paper specifically isolates the impact of the decisions in the White Paper on the construction industry. The Government are obviously showing an interest and I welcome that. However, in doing so it is only right that we should also refer, as various hon. Members have, to the fact that in table 1.8 it is clear that the total gross domestic fixed capital formation by the public sector has been on a strongly declining trend in recent years. That, as many hon. Members have suggested, is regrettable and, more important, damaging.

We were advised earlier that if we wanted to argue for increased capital expenditure we should produce specific examples of where that capital expenditure could be directed to useful economic and social effect. I want to isolate two such areas that have not yet been commented upon. First, it is often said that the Government have cut expenditure on housing. In so far as they have cut expenditure on indiscriminate current subsidies to occupants of state-owned housing, I welcome it. But in so far as that cut is reflected in the declining new build of specific types of accommodation which are needed and which people want to occupy and pay for, I can see no rational defence for that. Many hon. Members have experienced in their constituencies the lack of old and single persons accommodation. In our present economic circumstances there is a strong case, not for the indiscriminate building of council houses in places where they are not needed but for a discriminating policy to increase resources for the building of housing units that are required in the 1980s.

A similar position arises for school building. Since 1980–81 expenditure on school building has fallen from £376 million to £229 million next year in cash terms. In real terms the cut is dramatic. We all know that school rolls are falling and that that is an argument for cutting unnecessary current expenditure. However, once again we all have in our constituencies examples of 19th century school buildings that are insanitary and more expensive to run than their modern replacements would be. Therefore, there is a strong case for increasing capital expenditure on such projects. Neither my proposal for housing nor for school building will have a major short-term impact on public sector current revenues because both could be to a large extent self-financing. They would create extra work for the construction industry which would be extremely welcome. When I argue the case for the construction industry, I am aware that I am arguing a popular case that has been argued many times before.

In conclusion, I want to enter a caveat on the case for capital expenditure. It is easy to be over-simplistic and argue that capital expenditure is good and that current expenditure is bad. At the end of the day we must remember that capital expenditure is a cost and not a benefit. We exist, and the economy exists, to consume, not to invest. One of the great mistakes of state socialist planned economies is so to hold down the level of consumption and to insist on diverting resources into capital investment so that they cannot create the consumption to make the capital pay for itself. Capital expenditure is welcome and, as I have just argued, we should commit extra resources to it. Do not let us imagine, however, that it is the only kind of public expenditure that can be beneficial to our economic circumstances, or that it is the only acceptable way of influencing the total output.

If, as I said at the beginning, we judge the public expenditure White Paper by its impact on the economy as a whole, we should also look at other types of public expenditure which can have a desirable effect on economic output. That is why I do not apologise for my remarks earlier about social security and unemployment benefits and short and long-term benefits. If it is right—I believe that it is—to increase personal allowances in the Budget in order to channel more spending power into the pockets of the relatively low paid in our society because of the impact of that on demand, exactly the same argument applies to increasing the transfer payments which, if anything, go to an even lower income bracket in our society. The impact on output for which I am looking can be largely obtained by capital expenditure, but do not let us overlook the impact that some current expenditure can have on that as well.

I make it clear to the House that I am not arguing, and never would argue, for reckless reflation. The right hon. Member for Heywood and Royton was explicit and authoritative when he pointed out the dangers if that were to go wrong. The limitations on our freedom to manoeuvre in the British economy could not be more clear. It is to live in cloud-cuckoo-land to believe that we can dramatically expand the British econorny against the background of a deep recession overseas. 1 do not argue that because it is an impossible case to sustain. I welcome the Government's continuing commitment to personal tax cuts. That should not be the Government's only priority. The House should not ignore what my right hon. and learned Friend the Chief Secretary described in his opening remarks as "half the nation's budget". We should not ignore the impact that that may have on the economic performance and the level of output from the British economy.

7.11 pm

Mr. Tam Dalyell (West Lothian)

My right hon. Friend the Member for Heywood and Royton (Mr. Barnett) and the hon. Member for Loughborough (Mr. Dorrell) referred to the construction industry. Before the Minister of State goes for a well-earned supper, let me ask him a question. He is one of the few hon. Members who is an engineer. The Institution of Civil Engineers sent out 250 invitations to MPs to attend a seminar last Monday at Great George Street but the hon. Member for Folkestone and Hythe (Sir A. Costain) and I were the only hon. Members present.

Several speakers, including the chief executive of the Severn-Trent water authority and Mr. Bill Devanay of Strathclyde, stated that to maintain standards, but not to improve them, before the end of the century Britain would have to spend about £40 billion on the replacement needs of our superb but crumbling Victorian sewerage inheritance. The Institution of Civil Engineers will put the results of this seminar to the Government.

The institution gave several remarkable figures. It stated that for every £100 million spent on sewers £50 million would be recouped because of the labour intensity of the work. More people would be employed and would pay tax and other money into the Revenue. Therefore, there would be less unemployment benefit to pay out. I do not say that that figure is correct, but will the Minister say that he will pay great attention to the document from the Institution of Civil Engineers when the Government receive it?

I move from the enormous figure of £40 billion to a figure of £20,000. My bemused constituents read on the front pages of the Scottish newspapers on Monday that Heriot-Watt university, which is partly in my constituency, was being fined £20,000 in terms of a cutback in grant for the he:.nous crime of exceeding its number of engineering students. It is incredible folly that this country fines its technological universities for having a few more engineering students—many to do with the North sea—than they should have.

It has been brought to my attention this week—on seven occasions I have introduced a kidney opting-out Bill—the doctors face terrible problems. They have to make decisions between life and death and say who goes on to dialysis and who does not. I echo the speech of my right hon. Friend the Member for Heywood and Royton about capital expenditure.

At 4.24 pm today the Chief Secretary to the Treasury said that the defence expenditure reflects the need to deter any resumption of hostilities in the south Atlantic. This is not the time or the place to argue my views on the Falklands, but the Government are living in a world of unreality if they think they will ever, in the absence of negotiating sincerely on sovereignty, against which the Prime Minister has set her face, get a cessation of hostilities.

The opinion of Lord Montgomery, who does not share most of my political views, is that a civilian Government in Argentina will be more difficult to deal with than the junta. They will have their pressure groups just as we have the Falkland Islands committee. Many people in an infant parliament in Buenos Aires will be happy to see the military establishment concerning itself with the issue of the Malvinas rather than with trying any type of countercoup against an infant democracy. The Chief Secretary envisaged a preoccupation with internal affairs which a British Government, in the absence of negotiation on sovereignty, will not get. If Argentina sees the threat of bee sting attacks as a way of draining our resources, heaven help us.

I wish to reflect on the figures in paragraph 2.1.3 on page 4 of the White Paper. The provision includes £624 million for 1983–84, £684 million for 1984–85 and £552 million for 1985–86. This drains sterling away at a dizzy rate. It costs £250,000 for each Hercules journey from Ascension to the Falklands. General Thorne says that in no way can the Hercules journeys be cut. The professional opinion of the GOC is that we have reached the limit in reduction in ships, men and in cutting back the air bridge.

The cost to the taxpayer is horrendous. I interrupted the Chief Secretary because I fear that in the next few months or years, if we do not negotiate, it is I who will be proved right, not the Government's estimates. The irony is that the more we develop the Falklands, the more we aggravate Argentina. The drain on our resources is out of all proportion. Britain continues building up assets which it will find difficult to leave.

We hear that the islanders are jittery. Mrs. Velma Malcolm said on "Panorama" that the islanders will miss the tranquillity that attracted people to the Falklands in the first place. If the policy is to give the islanders confidence, we must have a credible defence force. This will cost billions of pounds. We cannot do other than give our forces the best when we know that Argentina is scouring Europe, transferring that sinister arms office from the Vauxhall Road to Germany.

Argentina may have been frustrated in its efforts to buy Exocets through a gentleman in the Sudan, through Mr. Klein the arms dealer in New York, and through Mr. Karl Villavicienza, the arms dealer of Hamburg, by Mr. Peter Durish of The Observer, but. even now it is making inquiries about the Israeli Gabriel missile.

The Prime Minister said: The additions to the defence budget for the replacement of equipment lost in the Falklands conflict will be based on the full cost of replacement and will be spread over the period of procurement".—[Official Report, 20 October 1982; Vol. 29, c. 134.] I wonder whether the Prime Minister has any idea of the depth of expenditure to which we are committed.

The hon. Member for Blackpool, South (Mr. Blaker) said that the costs of the Falklands campaign as well as the costs of replacing equipment lost of any future garrison will be met out of moneys that will be in addition to the 3 per cent. annual rate of real growth."—[Official Report, 21 October 1982; Vol. 29, c. 197.] On 26 October, in response to question No. 1, the Prime Minister told me that the replacement of lost equipment is estimated to be about £700 million."—[Official Report, 26 October 1982; Vol. 29, c. 885.] On 28 October the Minister of State for the Armed Forces referred in columns 473 and 474 to £700 million this year and a further £900 million over three years.

I shall give the Chief Secretary just one example. There must be a replacement for the type 23 destroyer. The original estimate for each of those light destroyers was, until a month ago, £65 million. I am not criticising the Navy, but because of its understandable demands the figure has now risen to £85 million. I am told that we shall be extremely fortunate to obtain any replacement for the type 23 for under £100 million. The real cost of modern arms is increasing at an exponential rate.

On 7 March I asked the Secretary of State for Defence what assessment he has made of the damage to military equipment from the effects of storms on ships in the South Atlantic and consequent rattling in the hold and of the cost of repair of such equipment. The Under-Secretary of State replied: We cannot afford the time or staff in the Falklands to estimate the cost of damage which might have been caused by storms in transit."—[Official Report, 7 March 1983; Vol. 73, c. 304.] I do not complain too much about that answer, but I am told that the cost of damage to sophisticated equipment is enormous.

The Minister of State for the Armed Forces said that an additional £424 million has been provided for 1983–84 to cover garrison costs, including capital equipment."—[Official Report, 11 November 1982; Vol. 31, c. 205.] On 21 February, the Minister said: Information about the breakdown of expenditure is not available in the exact form requested. However, on the above basis, the estimated extra cost of transportation (including requisitioning and charter of ships, and fuel costs) is about £300 million on Defence vote 1. Some additional transport costs will fall on vote 2, but these have not been identified separately. The estimated extra cost of works services is about £40 million, while the cost of overtime and other special payments is expected to be about £50 million."—[Official Report, 21 February 1983; Vol. 37, c. 368–69.] Those are not trifling figures compared with the cuts imposed on universities and the cutbacks faced by most social work departments of local authorities.

Even water has to be transported, at expense, from the northern to the southern hemisphere. On 31 January I asked the Secretary of State for Defence how much fresh water has been transported to the Falkland Islands and by what means; and whether the vessels concerned have used port facilities in Rio de Janeiro. The Under-Secretary replied: It is not in the national interest to disclose information about the size or supply of our garrison on the Falkland Islands." —[Official Report, 31 January 1983; Vol. 35, c. 37.] That may be so, but the costs of those ships are mind-boggling and are referred to in column 655 of 23 December 1982. In the winter Supplementary Estimate of the Ministry of Defence for additional expenditure on fuel, the charter and requisitioning of ships, and cold weather clothing, the cost came to a cool £371 million.

With reference to the speech made by the right hon. Member for Daventry (Mr. Prentice), the fact is that there is a 23.3 per cent. increase in real terms in defence spending as between 1978–79 and 1983–84. That coincides with a 1.2 per cent. fall in the gross domestic product and cuts of 6.4 per cent. in education spending, 54.8 per cent. in housing and 15–5 per cent. in overseas aid. That takes Britain back to the same position it was in in the mid-1960s when we had to carry defence expenditure for our considerable east of Suez commitment. Those of us who remember 1965 and 1966 can recall all the arguments in the Labour party about that. I am indebted to Dr. Paul Rogers and Malcolm Chalmers of the University of Bradford, who say: The figures so far presented, however, may understate the likely increase in the defence burden. For the Ministry of Defence in 1982 successfully argued for an allowance to be included in its budget for 'the relative price effect'—that is, the extent to which defence costs rise at a rate faster than prices over the whole economy. Thus the 1982–83 defence cash limits incorporated a higher figure for inflation than those for other sectors of public spending. The present plans for three per cent. per annum real growth in non-Falklands defence spending appear to assume that the future relative price effect is zero. Historical experience suggests that it is more likely that defence equipment costs will rise on average at 6–10 per cent. above and total defence costs at 2–4 per cent. above the general inflation rate. Were this to happen, the government would be obliged to either (i) make substantial cuts in planned defence commitments or (ii) accept a further increase in the defence burden. Like many Labour Members, I am concerned about the denuding of some commitments to NATO that we would regard as important.

An example of particular costs can be found in the Official Report for 28 February 1983. I asked the Secretary of State for Defence at what cost he bought the British Rail Sealink Ferry St. Edmund for work in the Falklands Islands area. The Under-Secretary of State for the Armed Forces replied: This is a commercially confidential matter between the Ministry of Defence and Sealink."—[Official Report, 28 February 1983; Vol. 38, c. 60.] However, it is fairly common knowledge that the figure was £7 million plus. Again, I asked the Under-Secretary of State for Defence what estimate he makes of the cost of a second 'Coastel' floating hotel for soldiers living in unsatisfactory conditions in the Falklands Islands."—[Official Report, 28 February 1983; Vol. 38, c. 60.] I am not in any way criticising the establishing of a second Coastel. All of our colleagues who have been there complain about the conditions in which the service men are living and it is no part of my case to criticise individual service men or groups of service men. Indeed, I feel strongly about the conditions that they have to put up with. The Coastels have a tremendous sewerage problem—[Interruption.] The hon. Member for Bath (Mr. Patten) has been to the Falkland Islands and he will not disagree with that.

Mr. Chris Patten

I was going to say that as far as I know the sewerage problem with the Coastel is not as great as that with the Rangatira—which has a particularly unattractive smell—and some of the other craft that service men are having to live on. The sooner that we can get the Coastel into place—I hope before winter—the better, because our service men are not living in very good conditions.

Mr. Dalyell

I take that point, which agrees with what I was told by my hon. Friend the Member for Dunfermline (Mr. Douglas) and others.

On 12 January I asked the Secretary of State for Defence how many service communication personnel were stationed at Ascension Island for various dates between June 1981 and May 1982. Again, I was told that it would not be in the national interest to disclose that information. However, it is a major operation on Ascension Island and enormously expensive. It is also expensive to charter foreign ships. I asked the Foreign Secretary if he will make a statement on the terms of the charter of the. Swedish ship Linne."—[Offcial Report, 31 January 1983; Vol. 36, c. 21.] The Minister of State, Foreign and Commonwealth Office, replied: The Linne was engaged by the Crown Agents, on behalf of Her Majesty's Government, to transport materials and equipment from Sweden and the United Kingdom for rehabilitation work in the Falkland Islands. The engagement started when the, vessel commenced loading at Helsingborg on 11 November 1982 and ended with final discharge of all cargo at Port Stanley on 5 January 1983."—[Official Report, 31 January 1983; Vol. 36, c. 21.] The Ministry of Defence should be candid with the House about how much all those ships are costing.

In Hansard on 14 February, in column 3, the Prime Minister gave my hon. Friend the Member for Batley and Morley (Mr. Woolmer) a whole list of ships that had been chartered. They included the Contender Bezant under the Bermudan flag, the St Helena under the St Helenan flag, the Stena Inspector under the Cayman Islands flag and the Sandshore under the Norwegian flag. Ships directly chartered were the Corona, the Cortina and the Vinga Polaris under the Swedish flag, the Hans Maersk under the Danish flag, the Marianne under the Swedish flag, the Hulda Maersk under the Danish flag, and the Natalie under the Federal German flag.

I was told on 31 January that the Grey Master would serve as a temporary replacement for the RFA Sir Galahad and would be named the RFA Sir Caradoc, and that the Lakespan Ontario from Canada would serve as a temporary replacement for the RFA Sir Tristram and would be named the RFA Sir Lamorak. I understand from Jim Slater of the National Union of Seamen that there are 25 merchant ships under the British flag. What can the cost be?

In answer to a question on 3 March I was told: The number and cost of sorties needed to complete the Zeus radar project cannot be accurately predicted because they depend upon such factors as weather conditions and the local availability of natural materials such as aggregate."—[Official Report, 3 March 1983; Vol. 38, c. 232.] If we are to shift aggregate by helicopter, would it not be better to send it to help some of the desperate housing conditions in the inner cities rather than to somewhere 8,000 miles away?

On 28 January I asked about the cost of the radar station. The Under-Secretary of State for the Armed Forces replied: It is not the practice to give information that could reveal our operational capability."—[Official Report, 28 February 1983; Vol. 38, c. 61.] It is no secret that the concrete is being carried by helicopter. When I suggested that mules would do the job more cheaply, I was told that the conditions were unsuitable for poor old mules.

On 3 March the Leader of the House wrote me a civil letter when I asked about the cost of the airfield. He said: I think my best course is to recommend to you the replies to these Questions. Our policy is to spend what is needed to defend the Islands, support the garrison and reinforce it quickly if necessary; this requires a better airfield than the present temporary and restricted facilities at RAF Stanley. How much the necessary improvements will cost, neither we nor anyone will know until we have received tenders; these will shortly be invited from contractors experienced in this sort of construction work, and in the meantime I would not take too much account of the figures quoted on 'Panorama'. The figure quoted on "Panorama" was £350 million, but the Daily Express puts it at £880 million. I am told by experts at London airport who had something to do with the construction of the runway at Edinburgh, which is not as difficult as Port Stanley, that a figure of almost £1,000 million would not be far out. We understand that Cabinet Sub-Committees are discussing the issue.

We must be clear about what we are letting ourselves in for in the long term. On 28 February I asked the Secretary of State for Defence how long he estimates it would take to construct a military airport in the Falkland Islands capable of accepting long-distance jets such as Tristars. The Minister of State for the Armed Forces replied: Depending on site and the construction programme, a strategic airport capable of operating wide-bodied aircraft could be built in a couple of Falkland summers. We are trying to construct Stansted in Stanley. The runway will be the size of the third London airport. It must have instrument landing system category 3B because of the fog. There must be the capacity to land with 75 metre visibility. One detail that has not been taken into account is the corrosion associated with the 3B instrument landing system. We are talking not about thousands, tens of thousands or hundreds of thousands of pounds, but about millions of pounds.

On 28 February I asked on how many occasions since 1 January Hercules aircraft have had to return to Ascension Island without landing at Port Stanley on account of bad weather over the Falklands. The reply was: It is not the practice to give such operational information. The truth is that we all know that there have been diversions to Brazil. We all know that the hazardous journey has happened at least half a dozen times. The hon. Member for Bath has done that journey—I have not. The idea that we can continue to do that for the lifetime of the youngest among us is preposterous.

On 28 February I was told: The cost of providing the necessary landing and other aids will be estimated with the cost of other airfield improvements in the Falkland Islands."—[Official Report, 28 February 1983; Vol. 38, c. 61–62.] I have been in this place sufficiently long to remember what the late Tony Crosland had to say about Stansted when he spoke from the Government Front Bench—the subject is not unfamiliar to my right hon. Friend the Member for Stepney and Poplar (Mr. Shore).

I have been told by the Minister that doors have been modified on some hangars to facilitate opening and closing in high winds. Building hangars in the Roaring Forties, 8,000 miles away, when there is no good will from the near continent, is an expensive operation.

The Minister for Overseas Development, who was previously a Minister at the Home Office, told me that the main existing jetty at Port Stanley was barely satisfactory to meet the heavy demands made on it, but he was not aware of any specific British harbour requirement that applied to jetties.

I wish to raise a delicate issue under the heading of overseas expenditure. It is the only time that the House can legitimately discuss expenditure under the Foreign Office Vote on the security services. It is probably true that the publicity surrounding Mr. Klein in New York and Mr. Villavicienza in Hamburgh has temporarily put a spanner in the works of Argentina's attempts to get 30 Exocets through a leading politician in the Sudan, but it will be only a slight, inconvenient hiccup. The military establishment that wants the Exocets will find another route. Aerospatiale is a willing seller and will connive as it did through Herve Colin during the months of May and June 1982—or Argentina will pursue its efforts to get hold of the Israeli Gabriel missiles.

Geoffrey Gibson, one of the leaders of the AngloArgentine community, said in the magazine "The World Today": Mrs. Kirkpatrick would find this very complacent. Americans were ironically far more unpopular in Argentina than the British, who were after all just pirates hanging on to their ill gotten gains, whereas the Americans were traitors to the Americas! The American Chamber of Commerce's telegram to President Reagan from Buenos Aires deploring the American decision to back Britain was almost hysterically angry compared to some quite mild missives from the British Chamber of Commerce to Mrs. Thatcher begging her to jaw rather than war. The Anglo-Argentine community is plainly interested in this matter. This country has lost a great deal of revenue. People in the United Kingdom tend to assume that we can wait 10 or 15 years for Argentine and our elections. If we do, we are in danger of having a Franks situation all over again. We should take note of what is being said in Latin America.

I return for a moment to overseas expenditure. From table 2.2, I notice that overseas representation will be increased between 1977–78 and 1983–84 from £166 million to £327 million, overseas information from £56 million to £128 million in 1983–84 and external relations from £57 million to £149 million in 1983–84. That covers the security services. I gave oral evidence to the Franks committee and some of my colleagues think that I have submerged myself too deeply in this subject, but I believe that our security services are justified in being bitterly angry about accusations that they let the country down.

Any careful reading of the Franks report reveals that the security service did their job superbly well. I shall not go into details, but I shall refer colleagues to paragraphs 147 and 152. Paragraph 152 states that the Prime Minister, in her own handwriting, scribbled over the message from our ambassador to Buenos Aires: we must make contingency plans. That meant military contingency plans. The security services performed extremely well by breaking the code earlier than Sir Terence Lewin has admitted. He said that we knew about the Argentine dispositions on 8 June. I believe that the security services broke the code in mid-April, or late April. I believe that the "General Belgrano" and its escorts received orders from Admiral Inaya to return to port in the belief that peace would break out. That is now proved by the fact that pilots of the aviation naval and the fleet air arm are accusing the admiral of treachery because he ordered the "General Belgrano" and the escorts back. When, before lunch on Sunday 2 May at Chequers, the Prime Minster ordered the "General Belgrano" to be sunk, she was under no misapprehension about the orders to the Argentine fleet, because the security services, possibly with US help, had broken the code superbly and were able to tell Downing Street and Northwood what the orders were.

Furthermore, I believe that the security services had discovered, with American help, that there was a meeting of the military council of Saturday 1 May in Buenos Aires, not at army headquarters but at the military club when the officer corps and the powerful army council forced the dipsomaniac alcoholic Galtieri, for such he was, to order the withdrawal from the Malvinas. I believe that this had been known for some hours at Chequers on Sunday 2 May. I believe that Parliament is the proper place to say these things, particularly when we are discussing the Vote for the security services.

And, now, should not the French have tipped us the wink at least that Exocets, ostensibly being sold to a Sudanese politician, were earmarked for the Argentine? Was the Foreign Office alerted by an arms dealer in Kent or Hampshire about the roles of Mr. Klein of New York and Mr. Karl Villavicienza of Hamburg in the deal? On what basis was the telephone number of either MI5 or MI6 given to the British arms dealer? Was it to allow him to contact security services about an arms deal involving Exocets which could be damaging to our forces? I do not know the answer. The Observer newspaper stated that this telephone number was available.

I do not expect a reply this evening, but I expect the Foreign Office to consider two matters: first, the breaking of the code at an early stage, before the order to sink the Belgrano—it should reflect on that—and, secondly, whether The Observer journalist Mr. Peter Durisch is right or wrong when he says that the British arms dealer attempted to contact the secret service in order to scupper the deal involving the 30 Exocets destined for Argentina through the fraudulent and fudged end-user system, and that the secret service did not care and did not bother to investigate. The Foreign Office should make a statement about this story. It raises basic issues about our secret services.

I thank my colleagues for their patience. This is the only occasion upon which one can legitimately raise such matters in the House.

7.46 pm

Mr. Nigel Forman (Carshalton)

I shall not follow the hon. Member for West Lothian (Mr. Dalyell) in his detailed interest in what went on before and during the Falklands campaign, because I want to focus my remarks on some aspects of the Government's expenditure plans, the White Paper, and the points which arise from it, and also on the Opposition amendment. I am glad to see the right hon. Member for Stepney and Poplar (Mr. Shore); that is fortuitous.

I listened carefully to the right hon. Gentleman, and I heard nothing resembling a powerful argument in favour of his amendment. Naturally, he made a colourful and rhetorical case against the Government, as one would expect from the Opposition Front Bench. However, there was not much substantial argument—which I think is significant—in support of his amendment. The reason is, possibly, that if he studies the words of the amendment he would be bound to conclude that in many respects they represent a travesty of the truth. I shall establish why I make that allegation.

First, the amendment claims that the Government have been attacking the standard of living of retirement pensioners. It is widely known, and has been publicised by the Prime Minister and others, that over the years 1978–82 pensions have been kept ahead of the increase in RPI. The figures will be familiar to the right hon. Gentleman. The amendment implies also that the Government have neglected the interests of the unemployed. It must be stated and restated that the Government have embarked on a huge programme of training and retraining and special employment measures, the like of which have not been seen in recent years, and which are likley to cost the Exchequer about £2 billion. No one can say that that is neglecting the interests of the unemployed.

One aspect of the Opposition amendment is correct—its reference to defence spending. Because of the long lead times in many defence decisions and because successive Governments have believed in supporting NATO and our contribution to it, I am sure that if the right hon. Member for Stepney and Poplar had remained in Government he would have honoured Britain's commitment to NATO. He probably would not have clone it as well as the present Government because we believe in giving a higher priority than did the last Labour Government to defence spending, but he would have done the responsible thing for the nation.

The present Government have a good record on defence spending. I believe that there has been a 23 per cent. increase in defence spending during the Government's term in office. That is a responsible aspect of our policy when the threat from the Soviet Union and the Warsaw Pact is increasing so dramatically both in terms of weaponry and money spent.

I hesitate to challenge the authority of the right hon. Member for Heywood and Royton (Mr. Barnett) on public expenditure control, particularly as he has laid out all his tricks in his memoirs. Today we listened to a gamekeeper turned poacher. The right hon. Gentleman listed all sorts of desirable ways that he would spend money if he were in office. I doubt whether he would adopt that policy if he were in office. I think that he did quite well as Chief Secretary to the Treasury some years ago.

The right hon. Gentleman spoke more seriously about the true meaning of control of public expenditure. Real control of public expenditure must mean, if it means anything, deciding on the total amount of public spending that the Government think desirable, the priorities within that, and the ability to achieve broadly the correct outturn in the light of those intentions.

We all recognise that that is bound to be difficult, partly because only 40 per cent. of total public spending is directly cash limited. It is more significant that another 40 per cent. is demand driven. The Government have no direct control over that, other than through major policy changes, which are always difficult in sensitive areas, particularly in the short term. The remaining 20 per cent. is current spending controlled by local authorities and only remotely controlled by central Government. It is controlled as a back seat driver might seek to control the person at the wheel of a car. It is wholly inadequate as a control mechanism, but, none the less, it is necessary. Governments have to strive to exercise control through the rate support grant.

Not enough has been made by Government Back Benchers of the shortcomings in the Opposition's arguments as expressed by the right hon. Members for Stepney and Poplar and Heywood and Royton. The Government are to be congratulated because they have public spending broadly under control, within the terms of my definition, even allowing for only 40 per cent. of total spending being directly cash limited.

The Government deserve congratulation for the example that they have set in controlling their own numbers in the Civil Service. I am glad to see my hon. Friend the Minister of State, Treasury on the Front Bench because that is his responsibility. It is an achievement to have brought down Civil Service numbers by 11 per cent. since 1979 without, apparently, affecting the efficiency or the effectiveness of the public administration. I understand that the aim is to cut Civil Service manpower by 14 per cent. by the end of the financial year 1983–84.

I welcome the Government's determination to spend more money on defence because that is a Conservative priority. A 3.9 per cent. a year cost increase in the period 1978–79 to 1982–83 is a good earnest of our intentions. I welcome the fact that spending on law and order has increased by 6.3 per cent. a year in cost terms since we came to power and that our spending on the National Health Service, which is so important to our constituents, is up by 3.2 per cent. a year in cost terms. Such spending has been directed in the right quarters. We are now employing about 20,000 more nurses and about 1,000 more doctors in the National Health Service. That is all to the good.

The pattern of spending reflects the Government's priorities, as does our protection of state pensioners against the rise in the cost of living. We have had some gratifying success in controlling and reducing the rate of inflation and that has helped to buy more goods and services for the money allocated under any heading.

I have complimented Ministers and now I seek their comments on some disappointments. We need to face one or two disappointments—notably the failure to control current spending by spendthrift local authorities. As a London Member, I think particularly of the GLC with its absurd right to precepts on the London boroughs. I hope that the next Conservative Government will be committed to abolishing the GLC and the metropolitan authorities. That aspect of local government spending is not controlled sufficiently.

The same applies to the failure to control nationalised industries' current spending, especially when public sector pay settlements are higher than the nation can afford. We are glad to see the water workers back at work, but that is only the latest example of a settlement which, on any reckoning, is too high. Others in the public sector, or even the private sector, will lose jobs as a result of that excessive settlement. I welcome the fact that the settlement for local authority manual workers, who are more numerous, is more responsible.

It is also disappointing that local authorities and the nationalised industries have not used their full allocations for capital spending. As a general principle capital spending and investment for the future is still too low, not only in the private sector but in the public sector. The shortfall totals about £1.3 billion for local government and about £600 million for the nationalised industries. I wish that that were not so.

The problem can be dealt with in various ways. The Government should give higher priority to making further progress with public procurement to help revive the private sector. A good example is set, as always, by the Ministry of Defence which knows all about public procurement. Its example should be emulated in construction, as my right hon. Friend for Daventry (Mr. Prentice) said, and in vital national infrastructure—for example, the water and sewerage systems, and in rail electrification and new rolling stock.

Recently in a meeting with some people on the management side of British Rail I was struck by the fact that there is a great need for new rolling stock, especially for the short haul commuter services serving Greater London and my constituency. It should be a high priority for the Government to arrange the cash limits for British Rail and the support for it so as to make it possible for the new rolling stock to be brought into service. Many of the coaches and much of the equipment in which my constituents and I have to travel is 30 or 40 years old and very cramped.

Support for public sector infrastructure is a major aspect of policy in our competitor countries such as France, West Germany, Japan and the United States. In Japan the longest railway tunnel in the world has been recently completed, linking Honshu with the northern island of Hokkaido. If the Japanese can do that, we can look sympathetically at the idea of a Channel tunnel.

In all of those schemes, particularly on construction, the great thing is that the import content is not too high, so it is possible to use that form of public spending to the benefit of the private sector without laying ourselves open to the charge that there is an enormous marginal propensity to import. In the infrastructure of construction, that need not be so. It can be made compatible with our general bias, which is sound, which is to buy British wherever and whenever possible.

With regard to the longer term, one or two other theoretical problems underlie many of the difficulties about public spending, and need to be faced by the House, if not solved. The first is that the Government, from what I can tell, seem to be aiming at a lower public sector borrowing requirement as a matter of policy and as a consequence of the medium term financial strategy, leading eventually to a balanced budget. That is the logical outcome of the path upon which the Government are embarked.

However, is that the right thing to do in a recession? Is that the right thing to do in what is, after all, the deepest recession for about 40 or 50 years? Is there a case for what is called a cyclically adjusted PSBR that separates the impact of unemployment from the rest of the calculation? It is just possible that there is a case for such a change of view by the Treasury. I shall be interested to hear the views of my hon. Friend the Minister on that vexed and rather technical question. One of the difficulties is that such a change would have to be credible in the financial markets or it could have adverse consequences on the interest rate structure. It might be helpful to the House if the Treasury thinking on that matter were spelt out.

The second point about the longer term is that the Treasury still seems unwilling or unable to distinguish fully between capital and current spending in its control of public expenditure. I have been brought up on simple economies and the view that capital spending should, on the whole, be financed from borrowing and current spending on the whole from taxation and revenue. I do not understand why it is not possible to make that separation in public accounts in the way that business men do almost every day of the week in private accounts above and below the line. In the absence of such a distinction, there continues to be an unfortunate bias built into the system against capital investment for the future, because essential capital investment always has to compete against other current claims, which are always more pressing because they involve the employment of people, public sector trade unions and all the other sticky difficulties in the public sector. That also means that public sector investment becomes, to some extent, the hostage of the buoyancy of the economy and what the public can stand in the way of taxation at any one time.

It has been said in the debate that roughly 25 per cent. of the population is supported by the other 75 per cent. in terms of the transfer payments to social security. There are limits to what the majority—the 75 per cent.—will stand in terms of rapid or ambitious increases in transfer payments to social security. However, one must consider that, if public sector capital spending is all the time to be dependent upon those two factors—the willingness of the public to fork out in taxation and the buoyancy of the economy when the world is in a difficult recession—we might put the claims of public sector capital investment into an unnecessarily invidious position. According to what I have learnt from the White Paper, as a proportion of total public expenditure, public sector capital expenditure has fallen from 13.1 per cent. in 1978–79 to 10.4 per cent. in 1982–83.

My third point about the longer term is that our continued success in reducing the rate of inflation and our continued efforts to increase efficiency in the public sector are very much to be welcomed. That must be one of the main planks in our way forward as it will enable us, whatever the totals of public spending and whatever the balance between different programmes, to get better value for money from the public spending that we sanction.

However, if that procedure and if those mechanisms are to be bought at the price of higher unemployment and raiding capital budgets in the public sector to meet our current commitments, inevitably we shall take longer and find it more difficult to get out of the recession than would otherwise be the case. Therefore, I conclude that we need the tightest possible continuing control of public sector pay, which accounts for about 30 per cent. of total public spending and a higher percentage in many of the labour-intensive parts of the public sector, which are the very aspects that are likely to expand fastest in the future.

We also need greater efficiency and effectiveness and the strongest possible commitment to that throughout the public service, with the Rayner exercises and everything that follows on from them. Above all, there should be more use of public capital spending to help the private sector. The economy of this country will be healthy and the Chancellor's Budget next week will be a success only if both the public and private sectors of the economy are run as efficiently and effectively as possible. In broad terms, I commend the Government on the progress that they have made so far. I shall be very interested to hear what the Minister says about some of the specific queries that I have raised.

8.8 pm

Mr. Michael Meacher (Oldham, West)

We shall all be interested to hear what the Minister has to say about the cyclically adjusted Budget policy. It is impossible not to feel some sympathy for the hon. Member for Carshalton (Mr. Forman) as he desperately tries to keep a fingertip hold on what are so obviously sensible and needed policies and equally desperately tries to stay within the parameters of Government policy. I doubt whether he will manage to square that circle. I wish ham well, but I have my doubts.

One central criticism that must be made of the 'White Paper is that it provides no clear statement anywhere in the two volumes about the underlying Budget strategy. I should like to ask some fairly obvious and fundamental questions. Is a smaller role for Government planned for two or three years' time? Are there any plans to shift resources from one sector of the economy to another? This is a sensitive question, with this Government. How will the taxpayer be affected in two or three years' time? Those questions are not answered in the White Paper. The fact remains that neither the autumn statement nor this White Paper provides price forecasts for 1984–85 and 1985–86. Therefore, it is not possible reliably to estimate the implications of the expenditure projection in terms of cost. That is all the more serious when the Treasury disbands volume estimates and when the White Paper commentary gives so little idea of the intentions that underline the strategy.

When personal taxation has risen, as it has under the Tory Government, by about £9 billion above the level that they inherited in 1979, one is entitled to ask why the Government have failed to show what the expenditure plans imply for future tax rates. It must be unacceptable that public expenditure plans are presented without the other side of the coin—the associated plans for tax revenue.

It is well known that the Treasury Select Committee attempted to correct for the inadequacies of the Government's presentation by setting out the plans in terms of what they were expected to cost when they were published. It is clear from the Select Committee's report that public expenditure will have risen, in cost terms, in each year from 1978–79 to 1985–86. That is contrary to the impression that is given by chart 1.2 in the White Paper.

Opposition Members are in no way opposed to increases in public expenditure. Indeed, quite the reverse—as is made clear by our amendment. Two things anger us. The first is the Government's two-facedness. When it suited the Chancellor last September to frighten the hell out of the nation, especially wage earners, by giving the impression that public expenditure was rising and out of control, the Chancellor drew on the leaked Think Tank document to say that, unless public expenditure was subject to further massive cuts, it would rise inexorably and, by 1990, income tax would reach 55p in the pound. Now that it suits the Chancellor to demonstrate to his Back Benchers how bone dry he is, we are told that public expenditure is falling. The Chief Secretary fell over himself today to make that clear. It may be lies, damn lies, and Treasury statistics with this Government, but they cannot have it both ways as they have tried to do recently.

My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) made an excellent speech. He made a stunning case about the consequences of persistent public expenditure cuts. Opposition Members strongly object to the fact that the real cost implication of those figures is a huge cut in essentials such as housing, in which there has been a massive cut of £3 billion in five years. That massive cut is balanced by an equally large expansion in defence, law and order and the effects of massive unemployment.

The expenditure on the appalling waste of unemployment, which will be £17 billion in the coming year, is now so huge that, if the cyclical element that contributes to the estimated public deficit was excluded, the Government would be running a huge Government surplus. They are. That vital point is at the heart of the vicious spiral to which the Tory Government's policy on public expenditure has brought the country. Running what is effectively a huge Government surplus in one of the deepest recessions that we have suffered this century is not only absurdly, even criminally, irresponsible; it is counter-productive.

Massively restrictive fiscal policies of that type inevitably contract the economy further. That pushes up unemployment, which in turn pushes up the cost of unemployment and supplementary benefit provision which, given that the Government insist on a rigid public sector borrowing requirement, means either an increase in taxation or more cuts in other forms of public expenditure. Under this Government we have had both. Either way, the vicious circle starts again.

That is not simply theory. As the Government draw towards the end of their parliamentary life, we are entitled to say that that process is clearly demonstrated by what has happened in the past four years. The Government came to power asserting that public expenditure was unduly high, was a restraint on growth and was holding back private sector expansion. I am glad to see that the hon. Member for Wolverhampton, South-West (Mr. Budgen) agrees. The record shows that the Tories were wrong on all three counts.

If one excludes purely transferred payments—we should, to arrive at the most accurate definition of public expenditure—it is clear that public expenditure was and is lower in the United Kingdom than in the great majority of OECD countries. Public expenditure is simply not unduly high as compared with our international competitors. Nor, on the same evidence, is it true that countries with a higher level of public expenditure have a lower rate of economic growth. By and large, they do not. Nor is there any evidence that present levels of public expenditure shut out private sector expansion. Of course, there are levels at which the reverse would be the case.

In the past four years, non-cyclical public expenditure has been cut sharply but private sector investment has crashed down about 25 to 30 per cent. in real terms. Therefore, far from crowding out, which was all the monetarist rage, the evidence probably supports the exact opposite, and there is in fact a net element of crowding in because so many private firms depend heavily on local authorities and nationalised industries for many of their orders.

Where, in the light of what I have said, and after four years, does the Government's obsession for cutting public expenditure stand? What is the rationale, in the light of recent experience, for cutting public expenditure further as a proportion of gross domestic product, about which the Chief Secretary to the Treasury preened himself ostentatiously as if it were a magical and desirable achievement of Government?

No doubt we will continue to argue about whether public expenditure has risen or fallen in real terms in the past four years, but there can be no doubt that, if one excludes the cyclically-oriented component in the huge rise in unemployment benefits, there have been massive cuts in public expenditure. But where are the benefits to show for all the misery that has been created? It has not produced private sector expansion, it has not increased private sector investment and it has not brought down interest rates. What it has done, and on a huge scale, is push up unemployment. So why the Tory fetish for cutting public expenditure even further now?

Mr. Forman

Is it possible that, had we not taken the action that we did, albeit inadequate as my hon. Friend the Member for Bath (Mr. Patten) said, taxation and borrowing would have had to be still higher?

Mr. Meacher

The hon. Gentleman has misunderstood the Opposition's case on public expenditure. It is not a burden on the economy that must be paid for and a drag in terms of taxation and the private sector. If there is an expansion of capital investment, most public expenditure results in expansion of the economy. It generates growth and increases tax revenue to the Exchequer. That is why the central part of our amendment is that we support the role of public expenditure as a generator of growth.

The irony of the Tory position on public expenditure is that it is the wrong way round. The Government's economic policies have sharply contracted the productive element of public expenditure—the hon. Member for Carshalton (Mr. Forman) referred to this—especially the public investment element, which has fallen successively for the past five years and which has been almost halved as a proportion of GDP. That is a staggering fall. At the same time the Government's policies have bloated the unproductive component of public expenditure—the provision of unemployment and supplementary benefits. The opposite is so obviously and commonsensically required that only those with partisan tunnel vision can fail to see and accept it.

However, we do not only advocate sensible economic policies. In their attitude to public expenditure and their political vindictiveness towards the welfare state, the Government show their class antagonisms at their most overt and nasty. That is why we reject the cruel and economically senseless philosophy behind the White Paper.

8.21 pm

Mr. Nick Budgen (Wolverhampton, South-West)

The contribution of the hon. Member for Oldham, (Mr. Meacher) was most interesting and persuasive until he reached his peroration. When I hear about how civil servants have corrupted the policies of our nation, and what I may describe as the Benn Friday night theme about the men from Oxford and Westminster conspiring to prevent Labour Governments from doing that which they promised the people, I cannot agree with that section of the Labour party that the hon. Gentleman represents so often, so intelligently and so persuasively.

I hoped that this Administration would cut public expenditure, not because I believe that civil servants are traitors to our nation, or from vindictiveness, or from a class attitude towards those who serve in the public sector, often with considerable idealism. The spiv who makes a quick buck should not always be regarded as a saint because he is also an entrepreneur. We have a diverse society and our public servants should often be admired but, none the less, I had hoped that in 1979 we should see a Tory Administration cutting public expenditure. Between 1974 and 1979 I took part in several debates on public expenditure. It is in an interesting change to speak in a more or less empty Chamber, with the Whips scurrying round asking hon. Members to add an extra five minutes to their speeches. Although a few non-Government hon. Members are still interested in public expenditure, there is no mass of youngish men anxious to demonstrate that, should they be appointed parliamentary private secretary to the third line Minister at the Department of Industry, they would be the best cost cutters in the business and that they agree with the right hon. Member for Stepney and Poplar (Mr. Shore) that there is always plenty of room for cutting waste once they are returned to power. While in Opposition we were very keen to cut waste, but it is rather different now that we are in Government.

The Government have not cut public expenditure. It has been controlled, but there is much difference between controlling and cutting. That is to be regretted. On the criteria that we put forward between 1974 and 1979, we have introduced honest finance in the sense that the failure to cut public expenditure has been balanced by increases in taxation. We have tried, progressively, to reduce the public sector borrowing requirement because we still believe in the concept of crowding out and the necessity to allow interest rates to fall.

Mr. Jack Straw (Blackburn)

Perhaps I may assist the hon. Gentleman with the extra five minutes that he promised the Whips.

Mr. Budgen

I did not promise it.

Mr. Straw

Although the hon. Gentleman is correct to say that the Government have not cut public spending as a proportion of the gross domestic product, they have significantly altered the balance of public spending. They have reduced the proportion of capital spending and cut the basic welfare programmes, including education and social services. The failure to cut public expenditure, of which the hon. Gentleman complains, has been due to other Government economic policies that have forced up unemployment and added about £.14 billion to the public spending requirement.

Mr. Budgen

The cuts that we have made in public expenditure did not cause the present deep recession. I am supported in that by Mr. Sam Brittan, who said in the Financial Times on 3 March: Nearly everything that has happened in the British economy in recent years can be explained by two events—the 1979–80 rise in sterling and the wage explosion of the same period. I have a fairly pessimistic view of the role of Government and Opposition. While we were crowding in with youthful vigour to similar debates between 1974 and 1979, we added up the cuts that we would make and demonstrated how it would be possible to reduce the standard rate of tax to 20p in the pound. We had full and useful debates, but it all came to nothing. Just before the general election, it was for political reasons regarded as necessary to underwrite Clegg. As my hon. Friend the Member for Carshalton (Mr. Forman) pointed out earlier, 30 per cent. of public expenditure goes on wages. There was a massive explosion in the payments made to civil servants and to the public sector generally. Lucky old them—I do not blame them for getting the money. I am merely saying that all that splendid energy and planning in which we indulged from 1974 to 1979 became utterly useless.

We were then left with a very much larger public sector than we expected, simply because of that one promise that was regarded as politically necessary in order to win the 1979 election. I regarded it as a great mistake at the time, and it turned out to be an even greater mistake. It also had considerable effects throughout the private sector, because the public sector is to some extent a guide to wages in the private sector. That promise before the last election not only upset all our public expenditure calculations, but had a significant effect in creating the unemployment that is now such a sadness to us all.

I should like to offer a few suggestions to try to prevent a small mistake before the next general election. There can be no doubt that the west midlands is an area of great political importance. In the higher reaches of the Government at present, south-east and country Members are well represented, but it is in the west midlands and up the spine of England that elections are decided.

It is said—I have not worked it out because I am not that much interested—by those who advise us that 11 marginal seats in the west midlands may well decide the next election. Current levels of unemployment in the area have not been endured since the 1930s. They were perhaps endured most of all in 1922, when by monetarist means the post-first world war inflation was rapidly corrected. We must therefore go back either to 1922 or 1930 to remember any comparable misery.

When we next go the country, the level of unemployment in the west midlands will perhaps be 17, 18 or 19 per cent. I notice the hon. Member for Walsall, North (Mr. Winnick) in the Chamber, and he will have a view about that, but even if my view is unduly pessimistic I believe that the level of unemployment will be wholly new, and will be a deep psychological shock, to the west midlands.

The Government may well be asked "What are you going to do?" and there may be a panic reaction. They may say "It is true that there is 15 per cent. unemployment in many areas of the north, which have the advantage of regional policy. We will extend regional policy to the west midlands".

The Secretary of State for Industry has said that there is no demand in the west midlands for the extension of regional grants to that area. However, the mood is changing rapidly. For example, for a variety of reasons Wolverhampton has always been the home of those who believe in less state activity and the abolition of regional grants and, since 1832, has on the whole been represented by free traders whether under the Liberal, Whig or Tory banners. The chamber of commerce in Wolverhampton is now reluctantly convinced, however, that regional grants should be extended to the west midlands. The hon. Member for Walsall, North nods. He has advocated that for some time, from a position of perfectly consistent Socialist philosophy, but it is unusual for groups dominated by Tories to favour it.

There are two directions in which the Government can go. They can either follow the Socialist route, as they have on a number of other policies, and extend the advantages of regional policy to the west midlands, or they can say that they intend at an early stage to reduce the extent and type of regional benefit to the rest of the country.

Mr. Straw

What would the hon. Gentleman do?

Mr. Budgen

I should prefer the benefits received by the remainder of the country to be reduced. Many of my right hon. and hon. Friends would say that that would be electoral suicide, that it should not be made public before the election and that, if it is to be done, it should not be done until after the election.

Mr. Straw

The fact that such a proposal would be electoral suicide for the Government seems to me to be its only advantage. If regional assistance elsewhere in the country were reduced, would not the south-east and the country areas of which the hon. Gentleman spoke in such pejorative terms benefit even more than they do, and would not the split between the north and the south, and between industrial and country areas, become even worse than it is at the moment?

Mr. Budgen

If the advantages of regional development were extended to the whole country—I have not yet heard that case argued, but that might ultimately happen—the northern development areas would lose the advantages that they are said to enjoy. But the more likely proposition is that the benefits of regional development grants and so on should be extended to the west midlands but not to other areas to the south of the west midlands.

There should be an announcement by the Government now, or at any rate before the election, that it is the Government's firm intention to reduce—I see that I have the support of my hon. Friend the Member for Aberdeenshire, West (Sir R. Fairgrieve)—

Mr. Chris Patten

He is not standing for re-election.

Mr. Budgen

It is true that a significant step was made in that direction in July 1979 when the proportion of the population enjoying these grants was reduced from 40 per cent. to 27 per cent. However, it must be reduced further; otherwise it is certain that the demand from the west midlands will be very strong in the period leading up to the general election.

I understand what happens when political pressure is exerted just before a general election or indeed a by-election. One of the more obvious examples of public expenditure designed to affect a particular election was the announcement of the Humber bridge project. That is a little bit of corruption—

Mr. Straw

Coincidence.

Mr. Budgen

—that we can all laugh about. Nevertheless, despite the fact that it was announced at the time of a by-election and useless though it may be and vastly more expensive than the original estimate, it is something that can finally be paid for.

An article appeared in The Economist of 19 February which, I suspect, may have derived from certain guidance from the Department of Industry. The article points out that regional grants in the past two decades have cost the country £20 billion. If promises are made to extend regional assistance to the west midlands they will have to be honoured not just for a couple of years or even five years as with the Humber bridge, but possibly over the next couple of decades. There was strength in the argument advanced in July 1979 that when regional assistance is offered industry demands some stability and one cannot turn the tap off immediately. If the tap is turned on for the west midlands, the expenditure will continue for a very long time.

I conclude with a word about the nature of regional assistance. As the excellent—and, I suspect, inspired—article in The Economist points out, regional assistance has generally been capital intensive and a subsidy to capital. That is not what our society needs at this time. The hon. Member for Blackburn (Mr. Straw) nods in agreement. I suspect that I would carry him with me in saying that one of the first preferences for all Members from areas hit by heavy unemployment would be the abolition of the national insurance surcharge because it is a tax on labour. We understand that capital and labour compete in our society, but why should capital be subsidised by regional grants so that it can compete with labour on advantageous terms? The Economist puts it very well. Why should great chemical factories on Teesside be subsidised? The average cost of the 400,000 extra jobs in assisted areas since the late 1960s has been £50,000 per job. That is a great deal of tax being raised perhaps through the national insurance surcharge to drive other people out of work.

Mr. Straw

The hon. Member raises an important issue, and one that is not sufficiently discussed, both in respect of the grants made to industry and of our taxation of companies, in which we favour capital at the expense of labour. Does he agree that if we are trying to redress the balance we should be looking not only at reductions in taxes on jobs such as the national insurance surcharge, but at job subsidies? The temporary employment subsidy was one such scheme but by no means the only one of those that can be cost effective at the margin in keeping people in real jobs.

Mr. Budgen

It is true that subsidies to labour have a temporary effect. One of the reasons why, as I was describing it, public expenditure is controlled but not cut is the massive expenditure by the Manpower Services Commission, the body that, on the whole, carries out these various systems of subsidy to which the hon. Gentleman refers.

I regret, and here I think that I carry the hon. Member for Oldham, West (Mr. Meacher) with me, that the public expenditure White Paper does not carry a clearer picture of the Government's preferences and political priorities for the future. This Chamber may yet again be crowded by those who take an interest in public expenditure. I hope, for instance, that those who believe that the world price of oil is likely to fall substantially are right, but the consequence of that in the short term is that we lose some £5 billion a year of revenue from oil. That shortfall will take a great deal of cutting of public expenditure to make up. There will be renewed interest in cutting public expenditure, whichever party wins the next general election. After the general election, when we come to discuss public expenditure this Chamber will be crowded.

I hope that in the crucial, and for all of us rather frightening, weeks before the general election no unwise promises are given. I hope in particular that we shall hear from the Government specific plans for reducing the incidence of regional subsidies to capital, so that the pressure from the west midlands can be resisted on a proper and intellectually consistent basis.

8.48 pm

Mr. R. B. Cant (Stoke-on-Trent, Central)

I shall follow what the hon. Member for Wolverhampton, South-West (Mr. Budgen) said only in the sense that I wish to talk about another £20 billion industry—local government. Local government is so often the whipping boy in public expenditure. Central Government are never to blame; it is always local government. Undoubtedly, on revenue account, some local authorities, although not all, are acting quite irresponsibly. While the Chief Secretary is here, I point out to him, on the subject of revenue expenditure, that it is time something was done to try to formulate a more satisfactory basis for local government grants. In the 30 years that I have been in local government service I have always found it very strange that the control of local government finances, a vast subject, should be with the Department of the Environment.

In the past two or three years, I would say from my practical experience that revenue expenditure in particular has been a financial disaster on a massive scale. We have introduced a new method of deciding how local government finance should be determined, turning our backs on the old rate support grant with its multiple regression analysis and everything else. We have introduced grant-related expenditure, which, in my opinion, although some people find it slightly attractive, has led to a large number of problems which local government finance officers find almost insoluble. No sooner is the grant-related expenditure announced than the Treasury has its own targets. We have had a period in which elected representatives and officials have seen the formulae for revenue expenditure in local government changed on 12 different occasions.

I wish to deal not with the overspending on revenue but with the underspending on capital to illustrate the chaos that exists. Reference has been made to the relative decline in capital expenditure in the whole public sector. This is also the case in local government. It is never very difficult for local authorities to spend all the prescribed local government capital expenditure to which they are entitled. In fact, I should like to enter a plea. I am not being parochial. I speak as chairman of the Staffordshire education committee. At a time when the Government ask us to spend more on capital account, they have cut our prescribed capital expenditure quota by £4 million. May we, please; have that back?

The situation now becomes more ludicrous. On the one hand, the Secretary of State for the Environment is cutting prescribed capital expenditure. On the other, he is calling for more spending on capital account from this other esoteric source of capital receipts. The whole thing becomes absolute nonsense. It becomes even greater nonsense this week. The previous Secretary of State for the Environment—he is, bless him, a real gentleman and I have great admiration for him—was on the horns of an inevitable dilemma. He wanted us to spend more when local authorities did not necessarily want to use their capital receipts for this purpose. The right hon. Gentleman told them that he would cut their entitlement to their own capital receipts by 50 per cent. If they had £10 million of capital receipts, they could spend only £5 million and he would take £5 million from them to be redistributed among other authorities in the hope that the global sum of expenditure from capital receipts for the nation as a whole would increase.

The lawyers—I do not know whether they were from the Treasury or the Department of the Environment—then intervened. This effort to increase the amount of money spent from capital receipts is being frustrated because the lawyers now say that the regulation to be introduced in the House on Friday will apply to all capital receipts—not only capital receipts that accrued this year, but in every previous year. The actual total of capital expenditure from capital receipts as distinct from prescribed capital expenditure will actually go down remarkably.

That is not the end of the story. The current Secretary of State for the Environment has a new proposal, which he is to introduce on Friday. The right hon. Gentleman calls this the 50-50-50 formula. This states that only 50 per cent. can be spent this year, as his predecessor announced, but that authorities will be allowed to spend 50 per cent. of the balance of 50 per cent. next year and, the year after that, 50 per cent. of the remaining balance. That is remarkable. It is cloud-cuckoo-land. The situation has gone berserk. The Secretary of State may say that councils which face any difficulty because of these new rules can effectively ignore them.

The financial environment of local government needs to be carefully investigated. I hope that the Chief Secretary, or his successor in a Labour Government, and the Secretary of State for the Environment will get together to make some sense of local government expenditure.

8.55 pm

Mr. Richard Alexander (Newark)

It has always been an objective of my right hon. and learned Friend the Chief Secretary and the Government to reduce public expenditure as a proportion of gross domestic product. In the White Paper and in his speech this afternoon, my right hon. and learned Friend has shown that we are on the way to achieving that objective. To achieve it at a time when social security benefits and unemployment benefit payments are high, and at a time when the special employment measures, which themselves are costly, are coming in, is something of which my right hon. and learned Friend can be justly proud. However, it is more than a matter of pride. It is a further indication of the successes of this Government and their policies as a whole. It is perhaps a small indication, a small straw in the wind, but there are a number of straws in the economic wind now which give us ground for more than cautious optimism about the economy as a whole.

The Government's view of what still needs to be done to create prosperity differs significantly from the view of the Labour party. We do not see the problems of unemployment, loss of competitiveness, and regenerating our inner cities in terms merely of spending other people's money—taxpayers' money. We said that at the time of the election, and we still say it.

We started by reducing the burden of bureaucracy, and in cold figures we are achieving it. However, I wonder whether Ministers who have the ultimate say about the size of their Departments devote as much time and enthusiasm to carrying out that aim as they might. I served on a Standing Committee on a middle-ranking Bill last year, and I counted around the Minister 16 advisers, clerks, bag carriers and handkerchief holders. I do not know exactly why they were there, but there were 16 of them, and I doubt whether they were necessary. I like to think that if I had been the Minister in charge of the Bill, I could have done it with one quarter of the staff.

We as a Government have tried to hold down wages in the area where we have a direct responsibility. We have had some successes and one or two spectacular failures. The nation views the failures with considerable dismay. After all, it is the nation who pays.

Will my right hon. and learned Friend accept that there is a time—perhaps it is now—to control the huge cost of inflation-proofed pensions, particularly among the higher reaches of state pensioners? We should tackle this question not only in fairness to other pensioners but in fairness to the person who has to pay at the end.

Redundancy payments are another cause of anxiety in public expenditure. Why should the redundancy payments be significantly greater when steel works or pits close than when a private firm closes? Why should the differential be so vast and why should the taxpayer continue to pay for it? I urge my right hon. Friend the Chief Secretary to equate what is spent in the public sector with the private sector.

I appreciate that we are discussing expenditure rather than taxation, but has my right hon. Friend considered the waste which arises from the level at which traders have to register to pay VAT? In addition, trading between traders still incurs VAT and there is an enormous waste from just passing pieces of paper around. Likewise, we are passing paper around in the stamp duty offices; employing people to consider whether small amounts of stamp duty are payable. There is great scope for reducing employment in that area.

My final plea to my right hon. Friend is that the Government should not merely reduce the burden of public expenditure but ensure that it is incurred wisely. I am saddened by the grudging acceptance of the legislation introduced by my right hon. Friend the Member for Chelmsford (Mr. St. John Stevas) for controlling expenditure in the public sector. Anyone who saw the television programme on Sunday night on the aircraft industry and British Airways in particular, and the roasting that the people in charge of British Airways received, along with their not terribly effective response, will know that there is scope at least in that industry—how many more are there?—for reduction in wasteful public expenditure and for obtaining more of what the consumer wants.

In those areas must lie the reduction of public expenditure and greater efficiency. In those endeavours I wish my right hon. and learned Friend well.

9.2 pm

Mr. Austin Mitchell (Grimsby)

I shall not follow the piggy-bank economics of the hon. Member for Newark (Mr. Alexander) because the essence of his conclusion is that the more misery and the greater the depression the better things are. It might be that he and people like him are better off compared with the misery that is inflicted on the rest of the community, but the logic of what he is saying is remorseless economic decline.

In a sense, the Government's expenditure plans are symbolic of their achievements. The White Paper is a much better presentation of an increasingly inadequate policy. It is based on assumptions—I am not sure whether they are optimistic, super-optimistic or just election year assumptions—that are essentially incredible. The first is the cutting of the contingency reserve by £1 million without any justification at all. What will happen to the British Steel Corporation if there is a continuing industrial decline? It will become an increasing burden. Expenditure this year has been about £500 million and there is no reason why that should not increase again next year. What will happen to expenditure on British Leyland? The cut in the contingency reserve is an unlikely assumption.

Even more unlikely is the Government's assumption that inflation will go down to 5 per cent. The fall in the pound, which is now a fall of about 15 per cent.—it must be slightly more since last November—still has some way to go. As the election approaches, the fall in the pound will continue, as it has done today. The Prime Minister could check the fall by announcing that there would not be an election until next year. If she is coy and enigmatic about the date of the election, the fall in the pound will continue. It is still 25 per cent. over-valued in real terms against EC competitors. That decline means that the inflation assumptions in the White Paper are incredible.

I am in favour of devaluation—it must be as part of an expansionary strategy—but now we have the management of the economy by depression and deflation as practised by this Government. That means that productive capacity is cut, and bottlenecks are built up. In any expansion, unless it is the kind of expansion that a Labour Government can carry through, there will be accumulating inflation pressures. A 5 per cent. assumption on inflation means that the Government are assuming that there will be no expansion and no economic recovery because inflationary pressures are bound to be generated by such an expansion.

Another incredible assumption is an increase in the public sector wages and salaries bill by 3.5 per cent. In the light of recent settlements and the negotiations that are proceeding, that is a totally unrealistic assumption. Such optimistic assumptions have become the basis for what will probably be the first cuckoo of spring next week— a give-away Budget, concentrating on tax cuts for those in employment. Tax cuts are not now a means of stimulating recovery. Tax cuts, such as the relaxation of hire purchase controls, will wash over into imports and not benefit British domestic manufacture.

It is important at this stage in the cycle to stimulate public spending and growth, and to rebuild the economy through public spending and not by bringing in tax cuts in the way that has been trailed in advance by the Treasury. That means prolonged depression and economic decline, and the two-nation society of massive unemployment which we have developed will be extended into the indefinite future. That will happen on the basis of a cynical calculation that it is possible to buy votes from those in employment by offering them tax cuts at the expense and misery of a large proportion of our people. Public spending should be used to expand the economy by investment.

The Treasury and Civil Service Committee report emphasises strongly that the fall in investment, despite the Government's forecast of an increase, will be two percentage points below the ratio that prevailed in 1978–79. The Treasury Committee speaks strongly about the underspending on capital investment, especially in the nationalised industries. It puts a strong case for an increase in capital spending which the Government do not seem to be able to envisage. The Government are envisaging further piggy bank economics in a massive Government surplus. The Government must be in surplus, adjusting for unemployment, given the expense of unemployment, which the Institute for Fiscal Studies estimates at £14 billion—that is the tax loss and the benefits paid out.

A House of Lords Committee estimated that it costs £5,000 to maintain an unemployed person. If that figure is multiplied by the number of unemployed, the Government are in substantial surplus. So the effect of the policies is massively deflationary. The Government are doing less than any other advanced industrial country by counter-cyclical spending in an attempt to repair the ravages of the depression. The public sector borrowing requirement is lower than that of any other advanced industrial economy. That helps to perpetuate the depression and perpetuates the present decline.

So the White Paper is a prelude to a brief flash of optimism in the form of tax cuts next week but a reality of continued economic decline. Public and private investment are down, and will continue to decline. The pound is still overvalued. There is no real economic stimulus in that. We face a future of prolonged unemployment without any attempt to fight back.

That is a tragedy, because North sea oil offered us a brief opportunity to expand and face balance of payments problems that we have never before been able to face. That opportunity is being thrown away. The balance of payments consequences of North sea oil are being used to finance imports and destroy jobs in this country, and the tax revenue from North sea oil is being used to pay for the unemployment created as a result of those imports. That is the essence of the Government's strategy. It is mean, narrow-minded, piggy-bank economics.

The hon. Member for Wolverhampton, South-West (Mr. Budgen) is essentially right, because it means that we are placing an increasing burden of public expenditure on a shrinking productive base. If the Conservative party is returned after the next election, the logical outcome will be further cuts in public spending and benefits, and in the machinery and fabric of the welfare state. That is what the prolongation of such policies means, unless there is an attempt to go to the root of the problem, to expand the economy and to rebuild British industry, which is the only basis for healthy public spending.

9.10 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

My hon. Friend the Member for Grimsby (Mr. Mitchell) sees little hope in the White Paper and only further cuts in store. I agree with him and shall come to that later.

Several hon. Members, including my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) and the right hon. Member for Daventry (Mr. Prentice), asked an important question. They want to know why, when crucial decisions are made on public expenditure arid the Cabinet and Government spend much of their time marshalling the arguments, we do not have anything approaching that level or intensity in a debate on the Floor of the House. However, such arguments do not find a ready mirror in this Chamber. That is a great pity, but I hope that I and many other hon. Members understand some of the reasons for it. Perhaps the arguments become crucial only when a choice is being made. Another factor may be that we have no method of horse trading on the Floor of the House. However, that is no reason for failing to examine some of the issues more fully than we do at present.

The previous Estimates Committee failed in that task and was replaced by the Expenditure Committee, which again and again failed to concern itself with the matters for which it had some responsibility. It is only with the subject Committees of today that we come a little closer to detailed examination. Of course I pay tribute to the work of the Treasury and Civil Service Committee. Nowadays no debate on public expenditure is complete without it, and in some ways a debate cannot begin its serious task without the type of analysis that is now made available to us.

My right hon. Friend the Member for Heywood and Royton asked what the level of public expenditure and the priorities should be. We shall achieve that discussion on the Floor of the House only if we commit the subject Committees to undertaking the necessary examination. Therefore, we want them to make the same type of examination as the Treasury Committee gives, but on the more particular aspects of the matter.

In time, I look forward to a Green Budget examination in the autumn of each year, so that we are able to compare expenditure with revenue in the only meaningful way. As the Chief Secretary said, the Budget is only the first part. I think that the hon. Member for Loughborough (Mr. Dorrell) said that when it came to the Budget he would be told that expenditure was for last week, and that if he raised the subject of taxation now he would be told that that was a question for next week. It is only when these things come together and we see a more important role for the Treasury Committee in helping us to understand these matters more fully, and to bring out the more important essentials for debate, that we will finally make the progress for which many of us have long hoped.

In the Government's first public expenditure White Paper they made their declaration in clear, simple and resolute terms. Cmnd. 7746 of November 1979 said: Public expenditure is at the heart of Britain's present economic difficulties. It was not that we might observe our efficiency as a manufacturing nation, nor our management expertise or lack of it. It was not even that tired old scapegoat for all Tory troubles, the trade unions. The prime cause of economic problems was held to be public expenditure. We note full well the import of that. The Chief Secretary appears to be shaking his head. Not only did the White Paper say that, but it was its very first sentence.

At a stroke, it appeared that the Government had discovered the solution to our performance as a nation. The philosopher's stone has been uncovered and all that was needed was a reduction in public spending. That simple assessment rests upon the belief that public spending is extravagant and private spending is virtuous. When the nation spends it is bad, when an individual spends it is good. It is irrelevant to that simple theory that the nation might be spending on essential investment and the individual spending on less necessary purchases. It all rests on the view of our economy that Government income and expenditure are like household accounts—if one is in financial difficulties one cuts down on spending, and equilibrium is restored.

I am sorry to have to say to certain simple souls who may believe that theory that Government expenditure does not work in that way. Public expenditure may be the spending of the nation, but it is also the investment of the nation. It is directly or indirectly the employer of a part of the nation. It is the recipient of the taxes paid by the people it helped to put to work. It can get people to work and it can obtain taxes from those same people.

Those ideas were rather too complicated for the Government. They believed that public expenditure was at the heart of our difficulties and had to be cut. So sure were they that that would mean lower taxes that they implemented tax cuts immediately. They believed that revenue and expenditure were in different watertight compartments, as they are for the individual. But as they cut expenditure, more and more people lost their jobs, tax revenue fell, unemployment benefit had to be increased in toto and taxes had to be increased also. Far from revenue and expenditure being independent, they depend vitally one upon the other.

The economy slithered down and there was the shameful Budget of 1981 when tax thresholds were not increased and unemployment rose and continued to rise. Unemployment has created the most shameful increase in public expenditure. The more the Government tried to restrict the economy, the more their public expenditure rose. The total cost of unemployment has been estimated by the Institute for Fiscal Studies at about £14 billion a year, including benefits and lost taxes. That is the amount of money that is being squandered. It is worse than that. Squandering implies that we get nothing for the money that we spend. We get less than nothing. Not only do we lose that money; we have the added burden of our people idle on street corners or locked away in their homes, losing their spirit and self-respect. Since 1979 more than £40 billion has been lost to the Exchequer in that way.

Maynard Keynes, 50 years ago, suggested what could have been done with similar resources. What we have forgone can be copied from the prescription that he laid down—the money could have built 1 million homes, one third of all our roads, provided equipment which could have revolutionised our industry and made our cities the greatest works of man in the civilised world. That is not dissimilar from what we could have done if we had had the money and spent it wisely. We have forgone it all in a vain attempt to reduce the proportion of the public to the private sector. The irony is that the proportion is changing as parts of the private sector are destroyed.

During the finance debates of 1965 it was argued that the new corporation tax would mean not the survival of the fittest but the survival of the fattest. Fewer firms failed in those happier days than now. The latest startling figures show that more than 12,000 companies were liquidated last year. Many of them were good, valuable firms with an important contribution to make to the local area and the nation's life. Many such firms invested heavily and sensibly in a future which, for them, would never exist. Other firms, sitting on unused assets with their funds idling away in Government stocks, have grown fatter and survived the industrial devastation inflicted by the Government's theories.

So it is that in the west midlands—this was the point made by the hon. Member for Wolverhampton, South-West (Mr. Budgen—the GDP per head of population is lower than it is in Scotland, the north-east, the north-west and elsewhere in the country. Our industrial heartland has suffered greatly. The fattest parts of our economy have survived, not the fittest. Those are the consequences of the Government's actions. Hon. Gentlemen who sit for west midland constituencies should take note of them.

One of the achievements of the Victorians—so admired by the Prime Minister—is that they realised that the public sector could invest profitably and so they initiated their big schemes for the supply of gas, water and electricity. The Victorians realised that wealth could be created in different forms by different institutions. Wealth could be created by individuals, by individuals banding together in a company, and in local authorities, by building the Manchester ship canal, and by the Government acting on behalf of their citizens.

Enterprise can be fostered by a Lord Nuffield, an ICI, a local authority building the municipal Manchester airport, or the British Gas Corporation discovering and developing our gas and oil reserves. It is enterprise alone that needs to be encouraged. The particular form of enterprise must be determined by circumstances and not dogma. Roosevelt took over as President of the United States of America 50 years ago. He was this century's greatest President. No economist, no theorist, he understood one thing—a nonsense is a nonsense. One does not need to wait for a complete economic theory, still less does one become a retailer of other people's dogmas. With millions of one's fellow citizens out of work and with the Government in a position to create the jobs—they should create them. No Socialist Roosevelt, he responded to the circumstances as he found them. He acted, helped and relieved, but this Government pass by on the other side of the road. Franklin Delano Roosevelt realised that wealth could be created by the public as well as the private sector. He set about creating wealth through such works as the mighty Tennessee Valley Authority. Electricity, great irrigation schemes and public works all formed part of his early achievements.

Our response to the same challenge is to squeeze public expenditure so that, far from investing, our sewers are crumbling and our railways declining.

There was a time when one looked forward to each new railway timetable to see how many minutes had been cut from one's regular journey. Today, with the squeeze on investment in track and rolling stock, we study each timetable to see how each journey has lengthened. Such is the rundown of our capital equipment.

Surely investment must increase even under this Government, but the answer is no. Will it remain the same? The answer again is no. Paragraph 25 of the Treasury Committee report shows that the plans for investment in 1983–84 involve less than in 1982–83. That is an illustration of the decline under this Government.

Hon. Members have considered the proportion of public expenditure in relation to gross domestic product. Some hon. Members may think that there is an ideal and fixed relationship between what we spend as a country—our public expenditure—and the size of our created wealth—our gross domestic product.

There was a time when a certain politician thought that 60 per cent. of our resources went in public expenditure and therefore there was a threat to our liberities. It was then discovered that because the figure had not previously appeared important there had been much double-counting. Eventually the figure was discovered to be a little over 40 per cent. It is interesting that the clamour for cuts was undiminished.

Such reaction throws into doubt the importance of the relationship between public expenditure and GDP. If there was concern at 60 per cent., 40 per cent. should have created less concern. That view was not, of course, expressed. Those who complained that 60 per cent. was too high complained that the new estimate of 40 per cent. was too high. They used it as an all-purpose statistic to attack public expenditure. It mattered not whether the figure was 60 per cent. or 40 per cent., or even 30 per cent. Public expenditure was always regarded as excessive, and that view is common today.

I find the argument of limited interest. The debate should not be about public expenditure versus private expenditure, but about good expenditure, which, at a time of deep depression, brings about useful investment and creates jobs. The Government came in pledged to reduced the share of the nation's resources controlled by the state. Such thinking led to the famous Think Tank report of last September. It assumed current spending plans and the possible growth under this Government of 0.5 per cent. to 0.75 per cent. a year. It said that on that basis public expenditure would rise to 47 per cent. of GDP by 1990, or 6 per cent. above that inherited by the Government.

Rather than concentrate on the major question of how to improve growth and the GDP part of the relationship, the Government concentrated on reducing public expenditure still further. The dedication to yet another piece of mongrel theory led to yet another piece of nonsense. A silly question was asked and a silly answer given. We are able to understand, because one of the few endearing aspects of the Government is that the dottier something becomes, the more leaks we receive. By comparing the leaks we get a fair picture of what transpires.

One of the best accounts was given in The Economist of 9 October last year, when it described the Government's public expenditure plans if the people were unwise enough to elect them for a further term. It said that the Think Tank report was circulated to Ministers and that The gist of its argument was that, on present spending plans and assuming low growth (½ per cent. to ¾ per cent. a year on gross domestic product) public spending would take 47 per cent. of GDP by 1990. The question was how public expenditure was to be reduced. The most controversial suggestions were replacing the National Health Service with private health insurance—saving £4 billion a year—ending state financing of education except for a certain number of scholarships and ending the link between pension increases and inflation.

The saner members of the Cabinet prevented such thinking being discussed. However, they did not stop it entirely, because the Chief Secretary to the Treasury less than two weeks later went further and started telling us about the need for further examination of public expenditure cuts. He said on 22 September 1982: It is therefore not surprising that Treasury Ministers had decided that it was necessary to take a fundamental look at what lay behind the present spending patterns, or that ministers were looking at various options. Therefore, it is becoming crystal clear that what was happening could be seen from the headline of The Economist article: Thatcher's Think Tank takes aim at the welfare state. We must ask why the Government took aim at the welfare state. Why not defence? Many Opposition speakers have shown how it has increased year by year. Why did they not discover the need for real jobs for the unemployed? Why did they not examine the case for unemployment benefit being retained at the level at which it was before they started reducing it to take account of a notional tax increase and did not subsequently restore that reduction? All those options were available. However, it seems that they were closed to the Government.

In the four years under this Government their major task, which was wealth creation, has been uniformly disastrous. Manufacturing output is down by 19½ per cent. Unemployment is about 3½ million, on a generous estimate. Company liquidations are taking place at a historic high level of more than 12,000 a year. Those are nearly all small or medium-size firms. Let me not hear anything about helping the small firms. No help can be given to a liquidated small firm. The lives of the people working in those firms and running them have been destroyed by the actions of the Government.

All that has been taking place against the background of North sea oil. What are the benefits of North sea oil? Where have they gone? The March 1982 Quarterly Bulletin of the Bank of England gives us the figures. It states that dependence on net imports of oil was eliminated between 1980 and 1981 and that we became a net oil exporter in 1981. The value to us in our balance of payments is over £10 billion a year. The tax revenue for 1983–84 is forecast by the Government at £7½ billion a year.

The horrifying question is: if we have had such benefits from North sea oil, what would have happened to our economy under the Government if North sea oil had not existed? It is clear that the oil financed the experiment in monetarism. Without the oil the events of the past four years could not have taken place. We would have had two separate crises—one at home and the other overseas. The balance of payments would have swung into deep and permanent deficit. Secondly, unemployment benefit and other benefits would not have been maintained. There would have been a re-run of 1931 with cuts in unemployment benefit, severe means testing and a cut in the pay of Government employees. As this Government are the ideological legatee of the 1931 Government, their actions would have imitated those of their predecessors as they faced the same problems.

It was North sea oil that gave the Government the opportunity to use that resource to such little benefit for our people. We have only to compare ourselves with France, Germany, Italy and Japan, to note our inferior performance in all aspects of our economy in the past four years and then to ask ourselves what difference an asset such as North sea oil would have made to their economic and industrial condition to realise that the rise in oil prices has constrained their performance. An abundance of oil would have freed them as it should have freed us. Such an asset should have provided for the re-equipment of industry for when the oil starts to decline. It will eventually, although I believe that it will continue, even into the 1990s and beyond, to supply a major part of our needs.

When we examine public expenditure and the White Paper, we find that perhaps the most notable omission is the failure to realise that public expenditure has a role to play in a recession or deep depression such as we are now in. Public expenditure should be used to move the economy towards greater equilibrium. If the economy is weakened, public expenditure should be used counter-cyclically. That would have been regarded as sensible in Victorian times, in the 1930s and in all post-war years until now. Failure of imagination and addiction to dogma permeate the White Paper. We oppose it and we shall vote for the amendment.

9.36 pm

The Minister of State, Treasury (Mr. Barney Hayhoe)

Those of us who have been present for the whole debate will know that it has been distinguished by the quality rather than quantity of those hon. Members who have taken part. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred at the beginning of his winding-up speech to the fact that there has been fairly widespread comment about the lack of interest in what, in parliamentary terms, ought to be one of the most significant debates of the year.

It was interesting to hear the right hon. Member for Heywood and Royton (Mr. Barnett) who tonight lifted the curtain about what happens when public expenditure is discussed in the Treasury a little more than he did in his book. Even accounting for that, I am still not sure that we have found the best way to deal with these issues. Last year, the equivalent of this debate followed the Budget, the long Budget debates and the Second Reading of the Finance Bill. That debate had something of the flavour of yesterday's warmed-up menu. Today we have preceded the Budget. Perhaps it should have been an appetiser.

Although I am under the most stringent requirements not to anticipate my right hon. and learned Friend's Budget statement of next week in any way, there is little doubt that people are looking forward to it. Perhaps that is the essential difference between Labour and Conservative Budgets—Labour Budgets are feared and Conservative Budgets are generally looked forward to. As I have already said, I must not anticipate my right hon. and learned Friend's Budget statement. What I have said should not be taken in any way as a prediction of what he may announce.

Mr. Robert Sheldon

The Minister has said, as a general proposition, that Conservative Budgets are looked forward to with pleasurable anticipation. Surely he cannot be wholly denying what he knows are the effects of next Tuesday's Budget.

Mr. Hayhoe

I am speaking of a general rule. When my constituents asked me to tell them in a sentence the difference between Tory and Labour policy, I used to say "Think about Budgets." Labour Budgets are generally feared, whereas Conservative Budgets are nearly always welcomed. That rule is not always followed.

The right hon. Member for Stepney and Poplar (Mr. Shore) moved the Opposition's amendment at the beginning of the debate. I hope that it is not indelicate of me to refer to it—no one else has. The right hon. Member for Ashton-under-Lyne managed to get round to it in his last phrase, saying that it should be supported. However, none of his arguments supported the amendment—they did not even refer to it. Perhaps that is understandable, because it is a most extraordinary mixture of errors and omissions. First, the Government are criticised for increasing expenditure on defence. However, we heard no suggestion from the Opposition that the threat to our security has diminished, nor did they make serious suggestions to counter that threat effectively with fewer resources. At the same time we are told that public expenditure should be used to reduce unemployment. It is difficult to see how cutting defence expenditure would help unemployment in the defence industries. We make no apology for our record on defence, nor for our future defence plans.

The amendment is wrong to suggest that there will be further cuts in social and community services. Expenditure on health and personal social services next year will increase both in cash terms and at constant prices. Expenditure on education has increased in cash terms—[Interruption.] The fall of about 5 per cent. in real terms reflects the fall in school rolls, as it should. The Government have not cut the standard of living of the retirement pensioner. The pension has been fully price-protected in accordance with our pledge. As my right hon. and learned Friend the Chief Secretary said, between November 1978 and November 1982, the retirement pension increased by 68 per cent. while the retail price index increased by 61 per cent. That is an increase in pensioners' standards of living, and families have been helped by increases in child benefit and one-parent family benefit.

The right hon. Member for Stepney and Poplar asked about the 1983 pension uprating and the 5 per cent. abatement in unemployment benefit. He knows only too well that those matters will be dealt with by my right hon. and learned Friend in his Budget statement, so he must wait until next Tuesday to hear the Government's views on them. Much has been said about Britain's tragically high unemployment. I make no complaint about that, but I complain about those who offer instant solutions to our most serious problem. Jobs are created and sustained by customers. As increasing numbers of people at home and abroad buy British goods and services, so employment prospects will improve.

The Government and the public sector are important customers in their own right. However, we cannot have a policy of buying British regardless of price and quality. That would waste the taxpayers' money and would foster a non-competitive British industry that is increasingly linked to the home market. It would be contrary to our international obligations and would encourage our trading partners to retaliate, thus reducing opportunities for British exporters. However, we always wish the public sector to consider carefully the goods and services offered by British firms and to buy them when price and quality are right. Under the Treasury purchasing guidelines, Departments are reminded that value for money should not be judged solely on the basis of the lowest initial cost. Factors such as design, reliability and the cost of maintenance may justify a higher initial cost, and actions to promote industrial viability, and hence the trading competitiveness of suppliers, may justify an increased initial cost or greater technological risk if, in the longer term, the purchaser expects to gain improved value for money.

That general policy was introduced in 1981. There are difficulties in collecting statistics, as many of those who have experience of such matters will recognise, but the best estimate that we can make is that during 1981 Government Departments purchased 96 per cent. of the goods and services that they required from British firms. Controversial decisions are, of course, made from time to time, but overall that record is good. If similar figures applied more widely throughout the whole economy, think how enormously employment prospects would be improved. If British industry could regain the share of the market at home and abroad that it had 10 or 12 years ago, more than one million extra jobs would be restored.

When people complain about unemployment, one of the questions I nearly always ask is "What make of car do you have?" When they reply "A foreign car"—(HON. MEMBERS: "They are free to choose."] Of course they are free to make that purchase, but I draw their attention to the fact that in that way they are subsidising and increasing jobs abroad. I want British industry to provide goods at the right quality and price so that the British people will buy them.

Mr. David Ennals (Norwich, North)

I declare my interest. I have a British car. What are the Government doing about the appalling fact that the private sector is obviously not buying British, as a result of which imports are pouring in virtually without restraint?

Mr. Hayhoe

The people of this country should have a free choice. I am merely saying that the Government are setting a good example, and I hope that it will be more widely followed.

Important matters were raised by my right hon. Friend the Member for Taunton (Mr. du Cann). I join in the tributes that have been paid to him and to the Committee that he chairs with such distinction. Whatever differences we may have about the level of public expenditure, we can surely all unite around my right hon. Friend's proposition about the need to use the resourcess available as effectively as possible. The Government have given great emphasis to that essential task. We have made good management in the Civil Service a policy in its own right. The search for better value for taxpayers' money is, and must be, never ending, and a whole range of measures are to hand to improve efficiency and effectiveness in all Departments. More are being devised and planned.

The most visible sign of progress is the slimming down of the Civil Service from 732,000 in post when the Governmant took office to about 652,000 now. As my hon. Friend the Member for Carshalton (Mr. Forman) said, that is a reduction of about 11 per cent. It is worth nearly £600 million on the present annual Civil Service pay bill. We remain firmly on course to achieve our target of 630,000—the smallest Civil Service since the war—by April next year.

Since the Government came to office, Civil Service pay bill savings amount to about £1.2 billion, and that has freed resources for other highly desirable programmes and projects. As normal, good management pratice, Departments have been asked to review their manpower needs—

Mr. Joel Barnett

I note what the hon. Gentleman said about cost-effectiveness in the Civil Service. Why then is he insisting on cuts in Customs and Excise, Inland Revenue and the DHSS, even when it is shown that it would be cost effective to have more staff?

Mr. Hayhoe

One cannot judge a civil servant by striking a balance as to whether that individual makes a profit or a loss. On the right hon. Gentleman's criterion, one would presumably sack all civil servants who did not show a financial return on what they did. That is absurd. We are looking at the Civil Service in the round. Reducing the numbers is part of the control that we are exerting within that public sector, and that has been shown to be effective.

Our aim is not just a smaller Civil Service but better value for taxpayers' money. That is the purpose of our programme of special scrutinies and reviews, pioneered by Lord Rayner but carried through by civil servants themselves. Overall, potential savings from the scrutiny and review programmes so far stand at over £300 million. The review programme will be continued and sustained, and I am delighted that it is now being extended to the National Health Service. I believe that it will prove an effective tool for concentrating resources on patient care and I am sure that many opportunities for doing so will be identified.

The Government have also launched a major initiative to improve the financial management in all the large Departments. We are determined to ensure that managers at all levels have a clear view of their objectives, a well-defined responsibility for making the best use of their resources and the information, training and access to advice that are necessary for effectiveness. This means a push to greater decentralisation and delegation down the line, which will represent a highly significant change in the culture of the Civil Service. All the major Departments have now submitted their plans, which are being appraised, modified, expanded and improved, and the results will be published this summer in a White Paper.

As more and more civil servants become involved in this financial management initiative, the whole process of achieving better administration will gain an impetus of its own. Recruitment, training, promotion prospects and practice will all be affected as we seek the greater efficiency and effectiveness that will guarantee better value for money.

Mr. English

rose—

Mr. Hayhoe

I will not give way now. I want to reply to some of the points that have been made. Reference has been made to Civil Service pay. It is important to comment on what was said in the report—

Mr. English

On a point of order, Mr. Speaker. Towards the end of the debate, the Chief Secretary promised me a reply on a fairly obvious point—the percentage of GNP or GDP spent by NATO countries in Europe.

Mr. Speaker

That is not a point of order for me.

Mr. Hayhoe

I can answer the hon. Gentleman. He asked whether we were spending more than most of our NATO partners. The answer is that we are spending a larger percentage of GDP than our NATO partners in Europe and about the same as the United States. That is on public record. The hon. Gentleman does not need to waste the time of the House with a tutorial on that.

The Treasury and Civil Service Committee was concerned that the provision for a 3.5 per cent. increase in wages and salaries might turn out to be too low. My view is that the 3.5 per cent. provision for the Civil Service remains adequate, especially in view of the recent rapid fall in the rate of inflation. It is important to remember that this cash provision is not a pay norm.

Mr. Robert Sheldon

Will the Minister give way?

Mr. Hayhoe

No, not at the moment.

Mr. Sheldon

rose—

Mr. Speaker

Order.

Mr. Hayhoe

It is the increase that we have allowed for in the total provision to meet expenditure under the relevant Votes. Final decisions about how any particular pay settlement is to be financed must be taken in the light of the circumstances of the time. However, experience in the last three years has been that there is sufficient flexibility in the system—through, for example, manpower reductions and savings in other types of administrative expenditure—to absorb pay increases somewhat above the percentage increase made year by year in the relevant provisions.

Mr. Robert Sheldon

rose—

Mr. Hayhoe

The right hon. Gentleman knows very well—

Mr. Sheldon

rose—

Mr. Speaker

Order. If the Minister does not wish to give way he is not obliged to do so.

Mr. Hayhoe

As the right hon. Gentleman knows full well, a number of points were raised about Civil Service pay. The House listened in silence to him and it ill behoves him to shout and barrack when I try to answer the points raised by those who were present.

We were asked about arrangements for Civil Service pay in the future.

Mr. Straw

Who asked?

Mr. Hayhoe

Negotiations so far—

Mr. Straw

rose—

Mr. Speaker

Order. Hon. Members must understand that only one hon. Member may stand to address the House at any time. The Minister said that he is not giving way.

Mr. Hayhoe

The questions were raised by my hon. Friend the Member for Carshalton. I thought that the hon. Member for Blackburn (Mr. Straw) was here at the time.

Negotiations in relation to the Megaw report are now in hand and I hope that they will come to a successful conclusion. The Government have accepted the broad approach of the Megaw recommendations, and the possibility of a new agreed arrangement for determining Civil Service pay is very important.

Concern was expressed about capital expenditure. There is, of course, a link with employment. There has been a decline over time in the capital share of total expenditure. There is also the more recent problem of underspending. The Government agree that expenditure should be channelled into worthwhile capital expenditure, but the projects must be genuinely needed and able to show an adequate return. They must also be appropriate to the public rather than the private sector.

Capital investment is not, as some hon. Members seem to suggest, automatically desirable. There is no point in making more money available when spending authorities are not using what they already have. The important thing is to ensure that the provision already made is fully and sensibly spent. The Government's plans have been adjusted to take account of that reality. It was not possible to achieve the level of investment planned for 1982–83. The present plans take as their starting point that which can be achieved and provide for a significant increase on that.

The Government share the concern expressed in all parts of the House and especially by the hon. Member for Colne Valley (Mr. Wainwright) about capital underspending. As the evidence to the Select Committee shows, there has been no underspending by central Government this year, so the problem does not arise in areas under direct Government control. The Government have taken action to avoid the shortfalls in capital expenditure by local authorities and nationalised industries. Local authorities have been told that they can spend without limit on house improvement grants and more funds will be allocated. Other measures have been taken to encourage increased spending by local authorities.

In opening the debate, my right hon. and learned Friend the Chief Secretary asked the Opposition three questions about their economic policies. He asked how Labour proposed to spend and borrow more without generating higher inflation or higher interest rates or both, but answer came there none. The reality is that they cannot. Spending and borrowing would spin out of control, inflation would rise and any attempt at wage restraint would fail irrevocably if they tried to put their policies into practice.

My right hon. and learned Friend also asked whether a reversal of present prudent policies would not cause a major collapse of sterling, higher inflation and higher interest rates. Even a hint of the official Opposition proposals being introduced would inevitably lead to massive capital flows across the exchanges. A dramatic fall in the exchange rate would damage the underlying strength of the economy and leave exchange markets shivering. The Opposition's reply is to say that their national economic assessment would solve the problem. That is utter wishful thinking. I have seen no signs in today's debate that the opposition parties are prepared to come to grips in the same way that we have with these difficult questions. They live in a fantasy world in which expenditure can endlessly be increased while borrowing and taxation are reduced. I ask the House to reject the Opposition amendment.

Question put, That the amendment be made:—

The House divided: Ayes 228, Noes 287.

Division No. 91]	[10 pm
AYES
Abse, Leo	Bagier, Gordon A.T.
Adams, Allen	Barnett, Guy (Greenwich)
Allaun, Frank	Barnett, Rt Hon Joel (H'wd)
Alton, David	Beith, A. J.
Anderson, Donald	Bennett, Andrew(St'kp't N)
Ashley, Rt Hon Jack	Bidwell, Sydney
Ashton, Joe	Booth, Rt Hon Albert
Atkinson, H.(H'gey,)	Boothroyd, Miss Betty

Bottomley, Rt Hon (M'b'ro)	Huckfield, Les
Bray, Dr Jeremy	Hughes, Mark (Durham)
Brown, Hugh D. (Provan)	Hughes, Robert (Aberdeen N)
Brown, Ronald W. (H'ckn'y S)	Hughes, Roy (Newport)
Buchan, Norman	Hughes, Simon (Bermondsey)
Callaghan, Rt Hon J.	Janner, Hon Greville
Callaghan, Jim (Midd't'n & P)	Jay, Rt Hon Douglas
Campbell, Ian	Jenkins, Rt Hon Roy (Hillh'd)
Campbell-Savours, Dale	John, Brynmor
Canavan, Dennis	Johnson, James (Hull West)
Cant, R. B.	Johnson, Walter (Derby S)
Carmichael, Neil	Jones, Rt Hon Alec (Rh'dda)
Carter-Jones, Lewis	Jones, Barry (East Flint)
Clark, Dr David (S Shields)	Jones, Dan (Burnley)
Clarke,Thomas(C'b'dge, A'rie)	Kaufman, Rt Hon Gerald
Cocks, Rt Hon M. (B'stol S)	Kerr, Russell
Cohen, Stanley	Kinnock, Neil
Coleman, Donald	Lambie, David
Concannon, Rt Hon J. D.	Lamond, James
Conlan, Bernard	Leadbitter, Ted
Cowans, Harry	Leighton, Ronald
Craigen, J. M. (G'gow, M'hill)	Lewis, Arthur (N'ham NW)
Crawshaw, Richard	Lewis, Ron (Carlisle)
Crowther, Stan	Litherland, Robert
Cryer, Bob	Lofthouse, Geoffrey
Cunliffe, Lawrence	Lyon, Alexander (York)
Dalyell, Tam	McDonald, Dr Oonagh
Davidson, Arthur	McElhone, Mrs Helen
Davies, Rt Hon Denzil (L'lli)	McGuire, Michael (Ince)
Davis, Clinton (Hackney C)	McKelvey, William
Davis, Terry (B'ham, Stechf'd)	MacKenzie, Rt Hon Gregor
Deakins, Eric	Maclennan, Robert
Dean, Joseph (Leeds West)	McTaggart, Robert
Dewar, Donald	Marks, Kenneth
Dixon, Donald	Marshall, D(G'gow S'ton)
Dobson, Frank	Marshall, Jim (Leicester S)
Dormand, Jack	Martin, M(G'gow S'burn)
Douglas, Dick	Mason, Rt Hon Roy
Duffy, A. E. P.	Maxton, John
Dunnett, Jack	Maynard, Miss Joan
Dunwoody, Hon Mrs G.	Meacher, Michael
Eadie, Alex	Mikardo, Ian
Eastham, Ken	Millan, Rt Hon Bruce
Ellis, R. (NE D'bysh're)	Miller, Dr M. S. (E Kilbride)
Ellis, Tom (Wrexham)	Mitchell, Austin (Grimsby)
English, Michael	Mitchell, R. C. (Soton Itchen)
Ennals, Rt Hon David	Morris, Rt Hon A. (W'shawe)
Evans, Ioan (Aberdare)	Morris, Rt Hon C. (O'shaw)
Evans, John (Newton)	Morris, Rt Hon J. (Aberavon)
Ewing, Harry	Moyle, Rt Hon Roland
Faulds, Andrew	Mulley, Rt Hon Frederick
Field, Frank	Newens, Stanley
Flannery, Martin	Oakes, Rt Hon Gordon
Forrester, John	O'Halloran, Michael
Foster, Derek	O'Neill, Martin
Foulkes, George	Orme, Rt Hon Stanley
Fraser, J. (Lamb'th, N'w'd)	Owen, Rt Hon Dr David
Freeson, Rt Hon Reginald	Palmer, Arthur
Garrett, John (Norwich S)	Park, George
George, Bruce	Parker, John
Gilbert, Rt Hon Dr John	Pavitt, Laurie
Ginsburg, David	Pendry, Tom
Golding, John	Penhaligon, David
Gourlay, Harry	Powell, Raymond (Ogmore)
Graham, Ted	Prescott, John
Hamilton, James (Bothwell)	Race, Reg
Hamilton, W. W. (C'tral Fife)	Radice, Giles
Harrison, Rt Hon Walter	Rees, Rt Hon M (Leeds S)
Hattersley, Rt Hon Roy	Richardson, Jo
Haynes, Frank	Roberts, Albert (Normanton)
Healey, Rt Hon Denis	Roberts, Allan (Bootle)
Heffer, Eric S.	Roberts, Ernest (Hackney N)
Holland, S. (L'b'th, Vauxh'll)	Roberts, Gwilym (Cannock)
Home Robertson, John	Robertson, George
Homewood, William	Robinson, G. (Coventry NW)
Hooley, Frank	Rooker, J. W.
Horam, John	Roper, John
Howell, Rt Hon D.	Ross, Ernest (Dundee West)
Howells, Geraint	Ross, Stephen (Isle of Wight)
Hoyle, Douglas	Rowlands, Ted

Ryman, John	Tinn, James
Sever, John	Torney, Tom
Sheerman, Barry	Varley, Rt Hon Eric G.
Sheldon, Rt Hon R.	Wainwright, E.(Dearne V)
Shore, Rt Hon Peter	Wainwright, H.(Colne V)
Short, Mrs Renée	Walker, Rt Hon H.(D'caster)
Silkin, Rt Hon J. (Deptford)	Wardell, Gareth
Silkin, Rt Hon S. C. (Dulwich)	Watkins, David
Silverman, Julius	Weetch, Ken
Skinner, Dennis	Welsh, Michael
Smith, Rt Hon J. (N Lanark)	White, Frank R.
Snape, Peter	White, J. (G'gow Pollok)
Soley, Clive	Whitehead, Phillip
Spearing, Nigel	Whitlock, William
Spellar, John Francis (B'ham)	Willey, Rt Hon Frederick
Spriggs, Leslie	Williams, Rt Hon A.(S'sea W)
Stallard, A. W.	Williams, Rt Hon Mrs(Crosby)
Steel, Rt Hon David	Wilson, Gordon (Dundee E)
Stewart, Rt Hon D. (W Isles)	Wilson, Rt Hon Sir H.(H'ton)
Stoddart, David	Wilson, William (C'try SE)
Stott, Roger	Winnick, David
Strang, Gavin	Woodall, Alec
Straw, Jack	Woolmer, Kenneth
Summerskill, Hon Dr Shirley	Young, David (Bolton E)
Taylor, Mrs Ann (Bolton W)
Thomas, Dafydd (Merioneth)	Tellers for the Ayes:
Thomas, Dr R.(Carmarthen)	Mr. Allen McKay and
Thorne, Stan (Preston South)	Mr. George Morton.
NOES
Aitken, Jonathan	Cormack, Patrick
Alexander, Richard	Costain, Sir Albert
Alison, Rt Hon Michael	Cranborne, Viscount
Amery, Rt Hon Julian	Critchley, Julian
Ancram, Michael	Crouch, David
Arnold, Tom	Dickens, Geoffrey
Atkins, Rt Hon H.(S'thorne)	Dorrell, Stephen
Atkins, Robert(Preston N)	Douglas-Hamilton, Lord J.
Atkinson, David (B'm'th.E)	Dover, Denshore
Baker, Nicholas (N Dorset)	du Cann, Rt Hon Edward
Banks, Robert	Dunn, Robert (Dartford)
Beaumont-Dark, Anthony	Durant, Tony
Bendall, Vivian	Dykes, Hugh
Bennett, Sir Frederic (T'bay)	Eden, Rt Hon Sir John
Benyon, Thomas (A'don)	Edwards, Rt Hon N. (P'broke)
Benyon, W. (Buckingham)	Eggar, Tim
Berry, Hon Anthony	Elliott, Sir William
Best, Keith	Emery, Sir Peter
Bevan, David Gilroy	Eyre, Reginald
Biffen, Rt Hon John	Fairgrieve, Sir Russell
Biggs-Davison, Sir John	Faith, Mrs Sheila
Blackburn, John	Farr, John
Body, Richard	Fell, Sir Anthony
Bonsor, Sir Nicholas	Fenner, Mrs Peggy
Bottomley, Peter (W'wich W)	Finsberg, Geoffrey
Bowden, Andrew	Fisher, Sir Nigel
Boyson, Dr Rhodes	Fletcher, A. (Ed'nb'gh N)
Brittan, Rt. Hon. Leon	Fletcher-Cooke, Sir Charles
Brooke, Hon Peter	Fookes, Miss Janet
Brotherton, Michael	Forman, Nigel
Brown, Michael(Brigg & Sc'n)	Fowler, Rt Hon Norman
Browne, John (Winchester)	Fraser, Rt Hon Sir Hugh
Bruce-Gardyne, John	Fraser, Peter (South Angus)
Bryan, Sir Paul	Fry, Peter
Buck, Antony	Gardiner, George (Reigate)
Budgen, Nick	Gardner, Sir Edward
Burden, Sir Frederick	Garel-Jones, Tristan
Butler, Hon Adam	Gilmour, Rt Hon Sir Ian
Carlisle, John (Luton West)	Goodhart, Sir Philip
Carlisle, Kenneth (Lincoln)	Goodhew, Sir Victor
Carlisle, Rt Hon M. (R'c'n)	Goodlad, Alastair
Chalker, Mrs. Lynda	Gorst, John
Channon, Rt. Hon. Paul	Gow, Ian
Chapman, Sydney	Gower, Sir Raymond
Clark, Sir W. (Croydon S)	Grant, Sir Anthony
Clarke, Kenneth (Rushcliffe)	Gray, Rt Hon Hamish
Clegg, Sir Walter	Greenway, Harry
Cockeram, Eric	Grieve, Percy
Colvin, Michael	Griffiths, E.(B'y St. Edm'ds)
Cope, John	Griffiths, Peter (Portsm'th N)

Grist, Ian	Macfarlane, Neil
Grylls, Michael	MacKay, John (Argyll)
Gummer, John Selwyn	Macmillan, Rt Hon M.
Hamilton, Hon A.	McNair-Wilson, M. (N'bury)
Hamilton, Michael (Salisbury)	McNair-Wilson, P. (New F'st)
Hampson, Dr Keith	McQuarrie, Albert
Hannam,John	Major, John
Haselhurst, Alan	Marland, Paul
Hastings, Stephen	Marlow, Antony
Havers, Rt Hon Sir Michael	Marshall, Michael (Arundel)
Hawksley, Warren	Marten, Rt Hon Neil
Hayhoe, Barney	Mates, Michael
Heddle, John	Mather, Carol
Henderson, Barry	Mawby, Ray
Heseltine, Rt Hon Michael	Mawhinney, Dr Brian
Hicks, Robert	Maxwell-Hyslop, Robin
Higgins, Rt Hon Terence L.	Mayhew, Patrick
Hill, James	Mellor, David
Hogg, Hon Douglas (Gr'th'm)	Meyer, Sir Anthony
Holland, Philip (Carlton)	Miller, Hal (B'grove)
Hooson, Tom	Mills, Iain (Meriden)
Hordern, Peter	Mills, Sir Peter (West Devon)
Howe, Rt Hon Sir Geoffrey	Miscampbell, Norman
Howell, Rt Hon D. (G'ldfd)	Mitchell, David (Basingstoke)
Hunt, David (Wirral)	Moate, Roger
Hunt, John (Ravensbourne)	Monro, Sir Hector
Irvine, Rt Hon Bryant Godman	Montgomery, Fergus
Irving, Charles (Cheltenham)	Moore, John
Jenkin, Rt Hon Patrick	Morgan, Geraint
Jessel, Toby	Morrison, Hon C. (Devizes)
Johnson Smith, Sir Geoffrey	Mudd, David
Jopling, Rt Hon Michael	Murphy, Christopher
Joseph, Rt Hon Sir Keith	Myles, David
Kaberry, Sir Donald	Neale, Gerrard
Kershaw, Sir Anthony	Needham, Richard
Kimball, Sir Marcus	Nelson, Anthony
Kitson, Sir Timothy	Neubert, Michael
Knight, Mrs Jill	Newton, Tony
Knox, David	Nott, Rt Hon Sir John
Lamont, Norman	Oppenheim, Rt Hon Mrs S.
Lang, Ian	Page, John (Harrow, West)
Langford-Holt, Sir John	Page, Richard (SW Herts)
Lawson, Rt Hon Nigel	Parkinson, Rt Hon Cecil
Le Marchant, Spencer	Parris, Matthew
Lester, Jim (Beeston)	Patten, Christopher (Bath)
Lewis, Sir Kenneth (Rutland)	Pattie, Geoffrey
Lloyd, Ian (Havant & W'loo)	Pawsey, James
Lloyd, Peter (Fareham)	Percival, Sir Ian
Loveridge, John	Peyton, Rt Hon John
Luce, Richard	Pink, R. Bonner
Lyell, Nicholas	Pollock, Alexander
McCrindle, Robert	Porter, Barry

Prentice, Rt Hon Reg	Stokes, John
Price, Sir David (Eastleigh)	Stradling Thomas, J.
Prior, Rt Hon James	Tapsell, Peter
Proctor, K. Harvey	Taylor, Teddy (S'end E)
Raison, Rt Hon Timothy	Tebbit, Rt Hon Norman
Rathbone, Tim	Temple-Morris, Peter
Rees, Peter (Dover and Deal)	Thomas, Rt Hon Peter
Rees-Davies, W. R.	Thompson, Donald
Renton, Tim	Thorne, Neil (Ilford South)
Rhodes James, Robert	Thornton, Malcolm
Ridley, Hon Nicholas	Townend, John (Bridlington)
Ridsdale, Sir Julian	Townsend, Cyril D, (B'heath)
Rifkind, Malcolm	Trippier, David
Rippon, Rt Hon Geoffrey	van Straubenzee, Sir W.
Roberts, Wyn (Conway)	Vaughan, Dr Gerard
Rossi, Hugh	Viggers, Peter
Rost, Peter	Waddington, David
Royle, Sir Anthony	Wakeham,John
Rumbold, Mrs A. C. R.	Waldegrave, Hon William
Sainsbury, Hon Timothy	Walker, B. (Perth)
St. John-Stevas, Rt Hon N.	Walker-Smith, Rt Hon Sir D.
Scott, Nicholas	Wall, Sir Patrick
Shaw, Giles (Pudsey)	Walters, Dennis
Shaw, Sir Michael (Scarb')	Ward, John
Shelton, William (Streatham)	Warren, Kenneth
Shepherd, Colin (Hereford)	Watson, John
Shepherd, Richard	Wells, Bowen
Shersby, Michael	Wells, John (Maidstone)
Silvester, Fred	Wheeler, John
Sims, Roger	Whitelaw, Rt Hon William
Skeet, T. H. H.	Whitney, Raymond
Smith, Sir Dudley	Wickenden, Keith
Smith, Tim (Beaconsfield)	Wiggin, Jerry
Speed, Keith	Wilkinson, John
Speller, Tony	Williams, D.(Montgomery)
Spence, John	Winterton, Nicholas
Spicer, Michael (S Worcs)	Wolfson, Mark
Sproat, Iain	Young, Sir George (Acton)
Squire, Robin	Younger, Rt Hon George
Stanbrook, Ivor
Stanley, John	Tellers for the Noes:
Steen, Anthony	Mr. Carol Mather and
Stevens, Martin	Mr. Robert Boscawen.
Stewart, Ian (Hitchin)

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of the White Paper on the Government's Expenditure Plans 1983–84 to 1985–86 (Cmnd. 8789).