HC Deb 27 February 1962 vol 654 cc1136-44
The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

With your permission, Mr. Speaker, I desire to make a statement on the Vote on Account which will be in the Vote Office at 4 o'clock.

I said in my Budget speech last year that I would put in hand a study of the whole problem of public expenditure in relation to the prospective growth of our resources for a period of five years ahead.

The Report of the Plowden Committee published last July endorsed this approach, and the Government accepted all the recommendations of that Report. My right hon. Friend the Chief Secretary was appointed to help me in implementing them. As, however, the Plowden Committee itself recognised, the scope for making large savings quickly is limited.

On 25th July last year, I said to the House that I would do my utmost to keep the increases in the 1962–63 Estimates to a level of not more than 2½ per cent. in real terms; in other words, after taking into account increases in rates of pay and prices.

The Estimates for 1962–63 total £5,611 million, exceeding that target by £111 million. They show, on a comparable basis, an increase of £384 million over last year's Budget Estimates. Had it not been for drastic pruning, including a wide range of savings in administrative costs, this figure would have been much higher. In fact, more than one quarter of the Civil Votes have been brought lower than they were last year. Of the increase, £139 million is due to increases in rates of pay and prices. The balance of £245 million is the increase in real terms. The figure for a 2½ per cent. increase would have been £134 million.

Seven-eighths of the increase of £384 million is accounted for by six large items. Agricultural support requires £66 million more. The railways deficit, that is to say, the British Transport Commission's deficit, requires £43 million. These two items together account for £109 million. Defence, together with related elements now in Civil Votes, requires nearly £100 million more. The increases in general and rate deficiency grants to local authorities call for another £86 million—mainly to finance education, including the higher pay for teachers. National Health Service expenditure is up by £27 million and that on roads by another £15 million.

In the task of containing the growth of the Estimates, the level of public service investment both by local authorities and by the Government is of particular importance, because much of it entails a continuing increase in Government current spending. The object must be to maintain a steadily expanding programme of public service investment while making sure it will be within our means.

In the current financial year, public service investment will have increased by about 13 per cent. In 1962–63, as the White Paper published last October showed, this expenditure is planned to increase by 6 per cent. We are working to plans which are based on holding the aggregate rate of increase in 1963–64 at the same percentage increase. I believe that this is of the greatest importance.

The task of containing public expenditure both on current and capital account is made harder by the constant pressure in this House and elsewhere for higher Government spending on many different objectives; each may be desirable in itself, but collectively beyond our resources. The Government aim to make these resources larger by doing everything to secure sound growth in the economy, primarily through growth in exports. But it is none the less of cardinal importance to ensure that the growth of public expenditure is kept within reasonable limits in relation to the growth of our resources. The fact that we have not attained the July target will not affect our determination to achieve that aim.

Mr. Albu

On a point of order, Mr. Speaker. Is it not an abuse of the normal procedure of the House for the Chancellor of the Exchequer to introduce a Vote on Account with a part of his Budget speech when he is not making a statement about any new change in Government policy?

Mr. Speaker

I do not think that any abuse of procedure is involved.

Mr. Callaghan

We all congratulate the Chancellor of the Exchequer on the frankness with which he has acknowledged his miscalculations. It is not for me to stand between him and his hon. Friends who, no doubt, will wish to ask him about the reason for the miscalculations, but I have two questions to put.

As the right hon. and learned Gentleman obviously will need to raise more money next year, and as his incentive for increased production has entirely failed, does not he think that, instead of visiting the additional cost upon the hard-pressed taxpayers in the lower income groups he might well recoup from the Surtax payers the £58 million which he will be yielding this year in terms of taxation?

Second, why do the Government the themselves to this ridiculous rate of growth which at the moment is stationary and is not likely to be more than I per cent. per annum, when, if they would only stimulate the country's economy, we could generate such a rate of growth as would enable it to contain this increased expenditure?

Mr. Lloyd

On the question of miscalculation, the hon. Gentleman will realise that the two items in respect of which I said that the results had not come in accordance with my expectations were agricultural support and the railway deficit, both of which are considerably larger than were expected in July.

He has had my answer about Surtax before.

As regards growth, the important point is that growth should be soundly based. As I have said, if we have growth here which simply means that attention is distracted from exporting to the soft market at home and we have growth of demand here which attracts more imports, we shall not solve our balance of payments difficulties.

Sir G. Nicholson

I am sure that the House will be glad to hear the reiteration of the statement that the Government accept the Plowden Report in toto. Cannot the Plowden Report be summed up by saying that its lesson or recommendation was that the Chancellor of the Exchequer should decide upon the global sum, calculated in a certain way, which should be expended by the Government in a given year and that, if any one service wanted a larger slice of the cake, other slices of the cake would have to be smaller? Does my right hon. and learned Friend still accept that in theory at any rate?

Mr. Lloyd

One of the conclusions of the Plowden Committee was that it was very difficult to chop and change once a programme had been adopted without doing more harm than good and, therefore, it was important not to embark upon any new project until its whole cost over the years had been measured and seen to be within the resources likely to be available. That is why I attach the importance I do to the public service investment programme in the future.

Mr. Bellenger

Why has the Chancellor of the Exchequer made this statement to us today in advance of his Budget speech which cannot now be very far off? If hon. Members put questions about policy which affect his Budget, he will evade answering them by saying that it is too near Budget time to give an answer. It is obvious from what he said today that these matters will affect the policy which he will disclose in his Budget speech. Therefore, in making his statement he has limited the whole issue from the point of view of questions being put. Why has he done that?

Mr. Lloyd

The Vote on Account will be placed in the Vote Office shortly. It shows that I have fallen short of the target by £111 million. I thought it straightforward to come to the House and say so openly.

Mr. Nabarro

Is my right hon. and learned Friend aware of the great anxiety felt on this side of the House concerning the apparently illimitable losses of such State boards as those for railways and coal? Is he aware that in addition to the railway loss of £151 million this year, there is now piled up a further loss of £90 million on coal? Much more important than the year in retrospect, what does my right hon. and learned Friend propose to do in the forthcoming year to try to hold these shocking losses within reasonable bounds?

Mr. Lloyd

First, regarding coal mining, I think that the whole House has welcomed very much the increase in productivity in the industry. That is very important for the national economy.

As regards the publicly-owned transport undertakings, my hon. Friend will be aware that plans are now being considered for a radical reorganisation of them.

Mr. Grimond

Will the Chancellor of the Exchequer consider two practical economies? First, will he get rid of the British independent nuclear deterrent and all that goes with it? Second, since he has wholly failed to carry out Government policy, will he get rid of the Chief Secretary?

Mr. Lloyd

In responding to those questions, I have in mind that the Liberal programme involves additional public expenditure of about £1,000 million.

Mr. Peyton

Is my right hon. and learned Friend aware of the degree of welcome which we give to the practice with which he has faced what must to him be a very disappointing set of facts? Is he aware further that many of his supporters are seriously disappointed that the promise, or even the threat, of last July has not been carried out, since this means, in the view of many of us, that we are failing to encourage the people of this country to live within their resources and face the facts? I very much hope that my right hon. and learned Friend will face his task in the knowledge that the stronger he is the more support he will receive from some quarters behind him, and I hope that he will communicate that knowledge to his colleagues.

Mr. Lloyd

I am determined to do everything in my power to carry out the aim which I stated in my statement. However, the House should realise that in these matters there are broad policy decisions involved. As I said, £86 million is for the local authorities, and most of this is for growth in the education programme. Who wishes that that should be cut? There is the road programme, the National Health Service, and so forth. I have not been aware of great pressure from my right hon. and hon. Friends in regard to cutting defence expenditure. As for the Opposition, their defence programme, as I understand it, would cost more than the Government's.

The main point is that the House as a whole has to consider the planning of the public investment programmes for the future. The 13 per cent. increase in public service investment this year is one of the reasons for the excessive demand upon our resources.

Mr. Mitchison

In view of what the right hon. and learned Gentleman has said today, may we have an assurance from him that there will be no further cuts, by way of delay or otherwise, in the expenditure on the social services or in public investment of which the Government gave notice earlier this year?

Mr. Lloyd

The hon. and learned Gentleman will be able to see, in the Vote on Account, the exact particulars. I, too, have read in the newspapers of suggested cuts in such things as welfare milk and family allowances, and things of that sort. There will be no such cuts.

Dame Irene Ward

While welcoming my right hon. and learned Friend's statement about increased productivity in the mining industry, may I ask if he can tell me what was the assessment of increased productivity both in the mining industry and the railway industry, having regard to the amount of capital investment in them? Would he also tell me why it is that we have not had anything in the way of an increase for the railway superannuitants who, in the old days, did something to make the railways better than they are today?

Mr. Lloyd

If my hon. Friend will give me notice of both those questions, I will try to answer them.

Mr. Lee

In view of the effects on the economy of the right hon. and learned Gentleman's miscalculations, does he say that his policy of a pay pause still stands?

Mr. Lloyd

Certainly.

Sir Harmar Nichols

Is my right hon. and learned Friend aware that there will be overwhelming support for his diagnosis that, above all, we must increase exports and that we must do it speedily? In view of the need to do that very speedily, is this not an opportune moment to look with sympathy at the suggestion for giving direct tax incentives to the exporting part of industry?

Mr. Lloyd

I would ask my hon. Friend to look at the report of the committee appointed by the Federation of British Industries to investigate that matter. Perhaps when he has read it we might discuss it.

Dr. King

Is the right hon. and learned Gentleman aware that local authorities which have responded to his appeal and have taken it very seriously find two significant causes of rises in local government expenditure to be thoroughly unjustifiable? One is the astronomic rise in the price of land and the other is the heavy burden of loan charges. Will he direct his attention to solving these two factors?

Mr. Lloyd

We will consider these and other relevant matters.

Mr. Prior

Is my right hon. and learned Friend aware that much of the increase in the agricultural subsidies has been caused by the dumping of a marginal amount of food from abroad which was not needed to feed our population properly, that this caused an increase in deficiency payments which could not be well avoided, and that it really does not help our import bill or give great encouragement to exports either?

Mr. Lloyd

I am aware of that fact.

Mr. Shinwell

Has the right hon. and learned Gentleman taken into account the possibility of the West German Federal Government making a contribution in support costs? Is it not the case that, in all, that contribution should be about £70 million per annum? If that sum were paid, would it not make a substantial difference?

Mr. Lloyd

No credit is taken in the figures given in the Vote on Account for a contribution by the West German Government. My views about a West German contribution have already been expressed and negotiations are continuing.

Mr. Speaker

I am in the hands of the House in this matter, but there is no Question before the House.

Mr. Gaitskell

rose—

Mr. Speaker

Mr. Gaitskell.

Mr. Gaitskell

What does the Chancellor mean by "sound rate of growth"? Does that mean that anything in excess of 2½ per cent. a year is unsound? If so, how does he reconcile this with the fact that the O.E.C.D. agreed to a rate of growth of 4½ per cent. per annum? Is it not the case that, if we were to reach such a rate of growth, we automatically raise all the money that is required for this expenditure?

Secondly, I ask the Leader of the House whether, in view of the Chancellor's statement—which was made, presumably, in order to keep the House fully informed on these matters—he will make arrangements for an early debate.

Mr. Lloyd

The answer to the question addressed to me by the right hon. Gentleman is that it depends on the nature of the growth. The plain fact is that everyone must accept that our growth, if it is to be sound, must come from growth in exports.

Mr. Hirst

On a point of order, Mr. Speaker. The Chancellor of the Exchequer has made a grave and alarming statement. I put it to you most sincerely that it is not fair to cut this off so early when so serious a statement has been made which is causing alarm to a number of us—my hon. Friends as well as hon. Members opposite.

Mr. Speaker

I am in the hands of the House in this matter. Right hon. and hon. Gentlemen are asking and answering questions without there being a Question before the House, and that time is in subtraction from time available for other business. I have to balance these matters as best as may be. I do not think that we should pursue this matter now without a Question before the House.

Mr. Gaitskell

May I first have a reply from the Leader of the House about an early debate?

Hon. Members

Answer.

Mr. Hirst

Further to that point of order, Mr. Speaker. In view of the absence of a reply by the Leader of the House to the Leader of the Opposition's question, I beg to give notice that I will seek to raise this matter at the earliest possible moment.

Mr. Gaitskell

Further to that point of order, Mr. Speaker. Is it not very unusual for the Leader of the House to refuse to answer a very simple question, put quite courteously by the Leader of the Opposition, about a debate on a statement which, whatever our views on it, we all regard as being of immense importance?

The Chancellor of the Duchy of Lancaster (Mr. Iain Macleod)

On the contrary, the Leader of the Opposition knows perfectly well that these matters often are, and always can be, discussed through the usual channels. Beyond that, there is nothing more I can say now, as he knows perfectly well.