§ The Chancellor of the Exchequer (Mr. James Callaghan)I now come to public expenditure. Both in my statement of 22nd February and in my opening remarks todays I have made it clear that it is our intention to plan the use of economic resources and to control the growth of public expenditure so that the right balance of economic and social priorities can be duly secured. The control of public expenditure will therefore be used positively as well as negatively. The Government have decided that the growth of public expenditure between 1964–65 and 1969–70 will be related to the prospective increase in national production. In the Government's present judgment this means limiting the overall increase in public sector expenditure excluding the investment of the nationalised industries, and taking one year with another, to 4¼ per cent. a year at constant prices. We are examining the whole of public expenditure again in order to determine a proper order of priorities and to control waste.
In the field of defence, reviews are being conducted to ascertain the changes that would be required to contain expenditure at roughly the 1964–65 figure in real terms. One of the most serious aspects of this problem is the growth of overseas military expenditure. This includes maintaining our troops in Germany, the Middle East and the Far East. Since 1959—I ask the Committee to note these figures—this total has gone up year by year without let or hindrance from about £175 million to over £300 million, including defence aid. These payments across the exchanges constitute a serious drain on our balance of payments. A reduction in them depends upon others as well as ourselves, but the economy badly needs some of the foreign exchange resources absorbed by the defence programme; and the Government intend to secure a reduction in the existing burden.
Altogether, about 1½ million men and women are employed in the Forces and in industry to supply them. These are important and scarce resources of manpower, needed for industrial expansion and for exports. It is against this background that the Government have had to consider the future of the TSR2 project. My right hon. Friend the Secretary of State for Defence hopes to catch your eye later in the debate this evening, Dr. King, 280 in order to make a full statement about the Government's policy and its decision to cancel the project.
The effect of this decision is to save £35 million of Government expenditure in 1965–66, after taking account of the terminal costs which may become due to be paid this year. For technical reasons this saving appears in the accounts as an increase in receipts. We all admire the technical skill that has been put into this advanced aircraft. [HON. MEMBERS: "0h."] Hon. Members opposite may speak for themselves. But, so far, this aircraft has cost £125 million, and the cost is mounting fast every week. It has, and would have, diverted hundreds of factories employing thousands of skilled and semi-skilled men from other work of national importance, including exports in particular. This is not a sensible use of our overstrained resources. The Government's decision will, in the next five years, release £350 million of resources of an advanced kind for more productive work.
On expenditure in industry, my colleagues" statements in the last few days about postal charges, railway closures and agricultural support demonstrate our policy—and we do not intend to be moved from it—that these industries should continue to increase their contribution to the national economy. Where we believe that Government expenditure can have a constructive and fertilising effect on industry, we have shown ourselves ready to make the money available. In education, in health, in social security and in housing we are engaged in arranging our priorities so that we can get the best combination of programmes and the best value for money within the expenditure which can be devoted to these purposes.
Side by side with this is the review of local government finance which is going on, which will enable us to decide how the expenditure on the public services can best be shared between central and local sources of finance. It is no easy matter to reshape public expenditure in a short time and we must look further ahead than just the current year if we are to make a real impact on these expenditures. But I commend to the Committee, and especially to my hon. Friends, the words of Robert Owen:
Beneficial changes can alone take place by well digested and well arranged plans temperately introduced and perseveringly pursued.281 I know only too well, as my predecessors did, of the pressure for higher pensions and for better pay; and I do not need to recall to any hon. Member the recent outcry about the state of some of our schools, the condition of some of our hospitals and the wretchedness of some of London's housing. My earnest wish is to see the nation freely and willingly devoting the necessary resources to satisfying the simple needs of ordinary men and women—a home to live in, a school to learn in, a hospital when we are sick and a modest living for the elderly. But the fulfilment of these plans jostles against the need for a healthy balance of payments as well as the desire by all of us as individuals for an increase in our own personal standards of living.For the reasons which I gave at the outset, in 1965 first priority must be given to balancing our overseas payments. I have already indicated the manner in which we are setting about this. Until we get this, we shall need to contain the rise in private expenditure. For the rest, a healthy balance of payments is necessary to enable the economy to grow at a steady pace. Our most important task is to reconcile faster growth with a satisfactory balance of payments. We look to the economic plan which is now being prepared to co-ordinate the conflicting claims made upon our resources by private expenditure, social expenditure, defence and industrial investment; and also to stimulate the economy into greater efficiency and productivity.