§ The Chancellor of the Exchequer (Mr. James Callaghan)Another urgent task which awaited me when I took up office was to examine the prospects of public expenditure.
The expenditure programmes that we found in being for defence, the social services, houses, schools, hospitals, roads, will all entail substantially increased ex- 1030 penditure every year. By 1968 the total expenditure in the public sector will be £2,000 million more than it is today, without making any allowance for increased prices in the interim. This future expenditure is based on the revenue and savings that would accrue from a growth rate of 4 per cent. in our gross national product. Hon. Members will know that the average annual increase in our national product over the last five or six years has been only about 3 per cent., or a little less, and over the whole period from 1951 onwards has been no more than 2½ per cent.
Putting it another way, the previous Administration have pledged our future revenues for the next four years on the basis of an underlying growth rate that they did not achieve and, looking at their record, they were unlikely to achieve. Of course, it is possible that the previous Government would have achieved and maintained a 4 per cent. growth rate for the next four years in a row. I do not say that miracles cannot happen, but the programmes that we have taken over have been planned on the assumption that the miracles have already happened. Many of these programmes—current and capital—are, in practical terms, already committed. It will take time to reshape them, but we intend to do this.
Our first objective is to get the deployment of economic resources right. For example, large and important parts of our industrial and technological manpower and capacity are locked up in production and research for the Government. It will be our urgent task to see how far this pattern should be modified in the national interest so as to release resources for more productive purposes and for the expansion of exports. Defence will be in the forefront of this examination. This year's figure is over £2,000 million, of which over £350 million is spent overseas and is a direct burden on the balance of payments. This is the important point. The failure to secure value for money in the defence field has become a byword throughout the country: by relating commitments to resources it is our intention to ensure that the Armed Forces are able to discharge their tasks with greater effectiveness and economy.
We shall also examine those Government expenditures in the civil field which have an economic aspect to ensure that an adequate economic and financial 1031 return can be secured for the industrial and scientific manpower and capital which they absorb. The purpose of much of this expenditure is sound enough and it is not our intention to hack it with a meat chopper. In the first instance, therefore, we intend to ask a task group of senior officials including scientific and economic advisers to sort out these projects and appraise their economic priority. We shall then have a firm basis for action.
Next, my hon. Friend the Chief Secretary will be reviewing the remaining field of civil expenditure and I have asked him to consider whether the priorities at present established are right or whether it is possible for the Government to release valuable men and plant for work which will strengthen the balance of payments and help expanding industry. We are looking for all economies, not just tiny economies, although it must be part of the Chief Secretary's task to try to get rid of the kind of waste to which the Comptroller and Auditor General has drawn attention in recent years. But our basic objective is to find substantial cases where expenditure is not yielding full value in social and economic terms.
To turn to the other side of the medal, there are, clearly, fields in which increased expenditure by the Government can help the modernisation of the economy and the improvement of the rate of technical progress. The help that is being given to ensure more rapid development in the under-employed areas of the country is a good example of this. I very much welcome the discussions which my right hon. Friends the First Secretary and the Minister of Labour are about to have with industry to help men move easily from jobs where productivity is relatively low and opportunities are few to more productive and progressive employment.
I come now to a very important priority in the field of public expenditure. I believe that all of us found during the course of the recent election that there is widespread public concern, not limited to any one section of the community, about the condition of the elderly, the sick and the needy in this country. I believe that there was a general desire to see their lot improved.
1032 We pledged ourselves during the course of the election that pensions would be increased if we formed a Government. We adhere to that pledge. We shall very soon be introducing legislation proposing increases in the rates of National Insurance and associated benefits. The standard rate of National Insurance benefit for a single person will be raised to £4 a week, an increase of 12s. 6d. The rate for a married couple will go up to £6 10s. a week, an increase of 21s. The 10s. widow's pension, which has been the cause of much heartburning for many years among widows who have felt themselves unfairly treated, will be increased to 30s.
Finally, I am very glad to announce that the earnings rule for widows' benefits will be abolished. I have been convinced for a long time that it was intolerably unjust that a widowed mother who goes out to work should have deducted 6d. out of every 1s. of her earnings where they are between £7 and £8 per week and 1s. out of every 1s. of her earnings when they are more than £8 a week. These are families who have been deprived of a father, the principal breadwinner, and I am glad to sweep away this hardship which has been visited on mothers who have been trying to keep the home together and do a little better for their families.
There will be corresponding increases in war pensions and industrial injuries benefits. The pension for 100 per cent. disablement will be increased by 20s. from £5 15s. a week to £6 15s. a week. These improvements must be paid for and their cost will be about £300 million in the first year. National Insurance contributions will, of course, have to go up, and account will have to be taken at the same time of the quinquennial review increase due to come into force in April, 1965. The increase in the contribution for an employed man will be 2s. a week and for his employer 3s. 3d. a week. The increase for an employed woman will be 1s. 9d. and 2s. 10d. for her employer. These increases will cover industrial injuries as well as National Insurance benefits.
There will be no increase in graduated contributions or pension. We are leaving the graduated part of the scheme unchanged until our own plans for replacing it are ready for introduction. We 1033 believe that it was right and in accordance with the feeling in the country that we should not delay bringing about these improvements for the old, the sick and widows while we are working on our longer-term plans.
The additional cost to the Exchequer of the improvements in National Insurance benefits and war pensions will be about £85 million a year. My right hon. Friend the Minister of Pensions and National Insurance hopes to present a National Insurance Bill within the next fortnight together with a covering explanatory White Paper and Report from the Government Actuary. All the details will then be before the House. My right hon. Friend will, at the same time, give full information about the war pensions increases.
Subject to the timely passage of the legislation, the changes will come into operation in the week beginning 29th March, 1965, which, for practical reasons, is the earliest possible date. [Laughter.] Is that disputed?
§ Mr. Arthur Tiley (Bradford, West)May we be told what differences will be made? We are interested. We are very glad to hear of these improvements. May we be told what difference will be made in the National Assistance grants at the same time, because they run together?
§ Mr. CallaghanI want to say about the machinery, about which I thought there was some tittering—[HON. MEMBERS: "There was."]—that it really does need overhauling. I wish that it had been looked into before. It might then have been possible to do this earlier, but we are satisfied, on the basis of the machinery as it works at present, that it is not possible to make these increases from an earlier date.
I understand that the National Assistance Board intends to propose increases in the scale rates of assistance to come into effect at the same time. The increases proposed in the single rate and in the rate for married couples will be 12s. 6d. and 21s. respectively, that is, the same as the increase for pensions. The annual cost to the Exchequer is £23 million.
Since it will be some months before the new rates come into operation—a matter I regret—the National Assistance 1034 Board will meanwhile be giving special attention to the needs of the old and of others who may have heavy fuel bills and other bills to meet this winter. My right hon. Friend the Minister of Pensions and National Insurance, who has got through a remarkable amount of work since her appointment, will be announcing the details in due course. But I should like to say now that the Board will do its best to see that where additional help is needed as many of the payments as possible are made by the end of December.
There is an Income Tax aspect of the proposed pension increase, namely, the income limit for the dependant relative allowance. Subject to the passage of the National Insurance Bill, I propose in my Budget next year to raise the present dependant's income limit of £180 up to which the full dependant relative allowance is due by £30 to £210 and the upper income limit of £255 at which no allowance is due to £285. Tax offices will proceed on this basis when they are fixing P.A.Y.E. code numbers for 1965–66 which take dependant relative allowance into account. I shall also consider, before next April, the question of raising the income limit for age exemption which exempts individuals over 65 from tax up to an income of £360 for single people and £575 for married couples.
In the view of the Government these proposals are right and just in themselves; but they serve another purpose, particularly at the present time. The nation will be called upon for fresh efforts and this will give our people tangible evidence that even in times of economic difficulty ours is a society where the weakest and neediest are cared for. This action is the mark of a humane and compassionate society; it helps to bind our people together in facing the future and it is in that spirit that I believe the cost will be met. The improvements in National Insurance and those which are expected to be made in National Assistance, together with the removal of prescription charges, will cost the Exchequer something of the order of £130 million in 1965–66.