HC Deb 20 March 1967 vol 743 cc1300-18

4.4 a.m.

Mr. Stephen Hastings (Mid-Bedfordshire)

I begin by expressing thanks to the Financial Secretary to the Treasury for coming to the House in the dead of night. Whether or not in this debate we agree with the way in which the economy is going, I nevertheless am well aware that he, like most Ministers, has probably too much to do. I know that he has gone to some trouble to prepare for this debate and I am grateful to him.

In one sense, it is fair to say that there is an aspect of this complicated subject, public expenditure, which is non-party. It is very easy to trace that it has been rising steadily under all parties for a very long time. Earlier today I made a note of a number of figures. It is interesting to reflect that in 1910–11 it was only £172 million, in 1930–31, it was £881 million, in 1947–48, just after the war, it was £3,376 million, and in the middle 'fifties £5,000 million. Last year, of course, it has risen to the massive figure of £9,000 million.

It is true that for a long time no party has succeeded in keeping public expenditure within, one might say, reasonable bounds. In that sense, it is a problem of both sides of the House. But I think it fair to strike a certain balance between the way the Conservative Government attempted to deal with the problem and the attitude of the present Government.

It is true that under the Conservatives public expenditure rose during 13 years and rose particularly steeply during their last two years. I dare say that there are among my hon. Friends those who felt that this later rise was more than should have been allowed. At the same time, this rise was accompanied by a growth rate of over 3 per cent. and confidence of industry in the private sector was maintained. Also at the same time, private investment was rising by about 4 per cent.

What is the attitude of the present Government towards public expenditure? I would like to make two quotations which seem to make their attitude perfectly clear. The Leader of the Opposition asked the Prime Minister on 22nd November whether, as laid down in the National Plan, public expenditure was to continue until 1970 at the rate of 41 per cent. per year. The reply was: In terms of 1964 prices, that is our general policy. The right hon. Gentleman will have to wait until he sees the Estimates before he can appreciate how far it is possible in any year to hold to that figure."—[OFFICIAL REPORT, 22nd November, 1966; Vol. 736, c. 1145.] There was, of course, this reservation, but, nevertheless, the intention was clear and it was made clearer the next day by the present Leader of the House, in a speech to the Fabian Society, when he said: Despite the critical nature of the economic situation we inherited, we accordingly decided that in the future the public sector must take an increasing share of the national income. We decided, for example, that public expenditure in real terms should rise by 4¼ per cent. a year over the period 1964–70—a rate of growth of a good bit higher than the expected rise in the gross domestic product. This determination to make sure that total public expenditure rose faster than the G.D.P. was a decision to plan—to do what was necessary to achieve a particular and very important social and economic objective, that of redressing the balance between public expenditure and private expenditure. I will examine the present position in the light of these two statements of policy. The Chancellor of the Exchequer has sought to maintain so far the 4¼ per cent. growth in public expenditure, but the growth rate, as everyone realises is under 1 per cent.

My last quotation is from the Economist of 19th November, 1966, roughly the same time. The paper was prognosticating about likely public expenditure in 1967–68 and it said: The first point to make is that 1967–68 is a year when real current government expenditure should not be allowed to rise by 3 or 4 per cent., or by anything like it. The squeeze that was scheduled for next year was originally advertised as one in which government expenditure would take its fair cut. It is now becoming more and more apparent that the whole weight of the squeeze is going to fall on productive private investment instead. We are talking about a situation of what is, in effect, economic stagnation. I am also concerned about what I might describe as the unpleasant economic changes which are taking place at the bottom of the economic pond. I ask the hon. and learned Gentleman to consider these figures. During the calendar year 1966–67 public authority expenditure rose by 3 per cent. Public investment rose, not by the 3 per cent. or 4 per cent. which the Economist thought was far too much, but by 8 per cent. Meantime, private investment was falling, according to the Board of Trade survey, by 10 per cent.; that is, leaving out private investment in housing, which was only 5½ per cent. In manufacturing industry it fell by as much as 10 per cent.

There was, at the same time, a welcome rise in exports of 3¾ per cent. There is in this an element of profit for industry. However, private consumption, which is where the main profit lies, did not change at all during this period. Private investment and private consumption, taken together, fell by 3 per cent. By comparison, over the last decade the average rise in private consumption has been 2¾ per cent. and of private investment 4 per cent. The figures which must be taken together are thus 4 per cent. over the last decade as against a fall now of 10 per cent. in private investment and an absolute stagnation of private consumption now, as against an average rise over the decade of 2¾ per cent., and that is where the profit should be coming from.

These figures represent a steep decline in private business activity since this Government have been in office. I suggest that the balance has not been redressed. It is, on the other hand, plummeting downwards—and, in my view, the wrong way at that.

Where is all this leading? We are all too familiar by this time with the credit cycle and the endless argument as to how to get rid of it or cope with it. It was the Labour Party, when in opposition, which first coined the phrase "stop-go economics". This is something of which we are only too painfully familiar. I believe that, as a result of the position as I have sought to describe it, on top of this continuing cycle there is now a dangerous trend which leads to two results: first, to slower growth—I have mentioned already the present growth figure—and, secondly, to lower profitability.

In the latter connection, the gross trading profits of companies are at the moment the lowest they have been for 10 years—12 per cent. of net income before tax. That is the figure from the National Institute Economic Review. In addition, net income is falling steadily in relation to net assets. It is 13 per cent. today as against 16 per cent. three years ago.

Thus, as the new taxes—the Corporation Tax and the S.E.T.—begin to take their effect in the private sector, as the credit squeeze steadily increases in effect, as margins are narrowed perilously as a result of all these things, so the spare resources in men and machines are being shed in order to cope with these ever decreasing margins. Although they should be finding their way, if the objective of the strategy as I have understood it were being achieved, into other sectors of industry which were growing, they are instead being sucked into the maw of the public sector all the time as a result of this trend.

There are two other ways in which the steady increase in the public sector can and should be measured. The first is in the growth of the Civil Service—a steady 3½ per cent. a year. The Financial Secretary's latest memorandum shows that all all-time peak in the administrative Civil Service was reached on 1st April last, an increase of no fewer than 24,000 civil servants since last year. The second means of measuring the increase is the oblique method of physical take- over of resources which is being practised assiduously by the Government.

I do not want to weary the House, but it is right that the various headings should be mentioned. First, there are the 14 companies to be nationalised under the Iron and Steel Bill. These have ramifications far beyond the steel industry, In the aircraft industry, in order to achieve a merger which may or may not be a good idea in itself, the Government claim that they must have a substantial minority holding. In transport, the Government's 1964 election manifesto contained the commitment to expand the nationalised sector, and already 20 private companies, including the Tartan Arrow service, have disappeared into the Transport Holding Company. The Minister of Transport has said that she looks forward to further take-overs "on an every widening scale".

The ports are to be taken over. This was promised last summer by the right hon. Gentleman who is now the Foreign Secretary, and repeated by the Minister of Transport. Water supply undertakings are to have "further extensions of public ownership"; that was in the 1966 election manifesto. Building land, under the terms of the Land Commission Act, is to be controlled, and both the Gas and the National Coal Boards are already empowered to go into the search for North Sea gas. The Industrial Reorganisation Corporation has been voted £150 million of public money to form new companies and to take up shareholdings, without limit of time. It is already in Rootes Motors and is said to be looking at the telecommunications industry as well.

Under the broad heading of "Science-Based Industries", the Government's 1964 election manifesto stated that Government establishments are entitled to go beyond research and development and to establish new industries, and the 1965 Science and Technology Act gave wide powers over this field. The Atomic Energy Authority is an example. It has done magnificent work, and is staffed by the most capable scientists, but it is primarily a research organisation. If you are seeking to diversify in industry, you do not go to the marketing division for ideas; nor to the research division, where otherwise you are liable to let yourself in for some expensive failures.

Recently, I understand, the A.E.A. discovered a means of slowing down an aircraft which has over-run the runway by digging holes and filling them with pebbles. Very ingenious, but is it really what one would expect a Ph.D. to be up to?

We are told that the nationalised industries are to diversify their activities. Already, the National Coal Board has bought its way into brickmaking and chemical companies, solid fuel and heating equipment. Under the regional development programme, new public enterprises are to be installed "wherever they prove necessary."

Finally, we have what I call the subsidised industries, those which, for one reason or another, have got into trouble and are to be pulled out by the Government. There is the Shipbuilding Industry Board, which has power to hold shares. And £200 million of public money has been invested in Fairfields, earning 3 per cent. on net assets. But a business undertaking, such as I.C.I., would not look at anything like that under 15 per cent. There is also the matter of Beagle Aircraft. All these activities increase the Government's financial liability and increase the extent of Government control over British industry. It is really as though wherever a vacuum occurs in the economy it is automatically filled by Government in some form or another, using public money.

One could ask, "Does it all matter?" Am I simply boring the House with a lot of ideological nonsense? It is perfectly legitimate for hon. Members opposite to consider whether this is so, and I concede straight away that there are people who believe that it probably is. I will state three reasons why I do not believe this to be ideological nonsense.

The first is that profit is the only measurement of efficiency in business, and this applies to the public and private sectors. The sector which measures performance and indeed its very existence in this way is steadily diminishing, and the sector which is growing like some avaricious monster does not. The Minister of Technology today had the temerity to accuse British industry of wasting hundreds of millions of pounds every year. If one makes that simple comparison of method, I do not see how it lies in his mouth or in the mouth of anybody else in the Government to say such a thing.

There is a tendency all the time—and I have mentioned the case of the aircraft industry—for the Government or the Treasury to feel—I do not know from where the feeling stems—that if they invest heavily in a concern they must follow it up with some degree of control; in order to get nearer to what is going on they put two or three people on the board. This is the sort of thing which is, I imagine, envisaged in the aircraft merger which will possibly occur. As soon as a major industrial concern gets Government nominees on the board, automatically it begins to dawn, perhaps unconciously, in their minds that tucked away somewhere there is £200 million to bail them out if they get into trouble.

Suppose that they get into trouble. The tendency will be not to take the drastic decisions which they would take if they were depending solely on what had to be achieved in terms of profit, but to turn to the Government nominees and say, "We have explained the position to you. You understand the difficulties. If we cannot get a subsidy or help from somewhere, we shall have to close this or that subsidiary and there will be men out of work". They will hope to get away with it in this natural and understandable way.

The second reason is the proposition about whether management generally is more efficient if exercised by the Government or more wasteful. The lesson undoubtedly, so far as my studies have gone, is that it is incomparably more wasteful if exercised by the Government in the industries in which I have been involved. The Treasury is at the heart of so much of this matter. Equally I am sure that the Financial Secretary would agree that quite often this critically important but extremely powerful Department of State is the butt of unfair criticism because of the responsibilities which it cannot possibly avoid.

But within the general context of management of affairs by the Government, I would put to the Financial Secretary three questions about which I have often wondered. What exactly is the Treasury? First, is it an administrative unit? It administers the Civil Service, but it seems to me that it is not entirely this. Secondly, is it a production machine? I do not think that this is true, either, although it involves itself in research, development and production decisions at many points in the economy. Thirdly, is it a bank? Again, no, but it creates money on a very large scale.

It is a sort of holding company, and I am afraid, in present circumstances, an extraordinarily inefficient one. I am not sure that this should be its function, and I would prefer to see it represent very much more closely the banking function; staffed with people who understand the banking for profit and who are fit to judge risk and who would look at all expenditure in this light. The most difficult expenditure to justify would be that which could not show a profit for the nation, and there would be a good deal of that for the best possible reasons.

To finish with the nationalised industries, I believe that it will be vital, if public expenditure is to be held, to stick to the financial standards laid down in the 1961 White Paper. I wonder very much whether the Government are not beginning to slide away from this concept. It is difficult enough to get efficiency in private industry, but how does one get it when there is no standard of return on money invested; when it is virtually impossible for anybody to get the sack; and when there is a system of automatic promotion?

The 4¼ per cent. rise in public expenditure must result in ever heavier taxes, it seems to me that even if it does not happen this year this trend will return next year to blight us. Incentives are already pathetically small in the private sector, because of the level of taxes required to finance the public sector. The maximum rate of 90 per cent. taxation is imposed at an income of £18,000 per annum in this country, compared with 70 per cent. at £78,000 in the United States. It is hard to see how we can compete on that basis.

The managing director of a firm with a turnover of £40 million a year, the sort of firm doing most of our exporting, who earns, say, £15,000 a year, must earn £2,000 more next year to get the miserable £200 he needs to maintain his present position with the 3 per cent. rate of inflation taking place today.

At the other end of the scale, overtime is taxed at 32 per cent. compared with 23 per cent. five years ago. What is the purpose of trying? Many people in the board room and on the shop floor ask themselves that question today.

The public sector is steadily advancing, and reward for effort is steadily diminishing. Those two facts are closely related. Until that trend is set in direct reverse there will be no real recovery in this country. We have all the resources we need to stage a resurgence which could stir the world. We shall do it one day, but not until we are rid of the present dim and woolly tyranny.

Mr. David Howell (Guildford) rose—

Mr. Speaker

Did the hon. Member wish to speak on the same topic?

Mr. Howell

Briefly, Mr. Speaker.

Mr. Speaker

The Chair should have known. It is an advantage if the Chair knows, because there is a planned order of debate on the Bill.

4.28 a.m.

Mr. David Howell (Guildford)

With respect, Mr. Speaker, I informed the Chair earlier in the day that I wished to speak. I shall be very brief.

I wish merely to expand on one or two of the very interesting points which were raised by my hon. Friend the Member for Mid-Bedfordshire (Mr. Hastings). It seemed to me that in his speech he touched on a rather broader theme, which will come up in debates on the Budget during the next few weeks and which will be worth bearing in mind before we plunge into those weeks of financial discussion.

My hon. Friend's speech indicates that not merely for the past two years, but for 15 and possibly 20 years, we have faced a constant tendency for our system of administration, which is over-centralised and in many aspects highly inefficient, to grow in ways which do not reflect a deliberate policy by the Government of the day. If this or any Government are serious in their efforts to control the inexorable growth of public expenditure we shall have to see them tackling the system, administration and structure of government far more vigorously and radically than the present Government have done so far.

I sympathise, as I think my hon. Friend does, with the Treasury's position at the centre of the machine. Year after year the Treasury sets out with very vigorous intentions to try to prune and control public spending and seek to impose limited budgets on the Departments. Year after year the Departments come back with unaswerable arguments that they must have a higher budget, that costs have risen and that, for policies to be implemented, more money must be obtained. The show must go on!

The process has already started this year with a considerable rise in Government spending for the corning year. It is interesting to note how much that spending seems to be in areas where the Government do not seem to have full control—particularly in non-defence areas—and where there will be a 4 per cent. rise in real terms in spending compared with a 2½ per cent. average over the last 15 years or more.

This is a considerable increase in precisely the areas where increased spending is generated not by decisions of policy at all, but by a plethora of memoranda and small pleas for money for this and that. This gradually forces upon the Government increased expenditure without any policy decision at all.

The effect of this immediate prospect of increased expenditure this year has been to remove the elbow room that the Treasury and the Chancellor may have had for reflation, We shall get reflation, but in a way that will suck resources into precisely the wrong areas, those which have the least effect on exports and increased national efficiency. We shall see increases in resources concentrated almost entirely on increased Government expenditure.

We are, in effect, moving towards a Government expenditure-led reflation which, in terms of national efficiency and exports, must be the wrong way forward out of our present rather unpleasant situation During the months ahead, there is no immediate clash between the growth of public spending and the needs of the economy, because we have considerable slack in the economy.

Mr. Will Griffiths (Manchester, Exchange)

The hon. Gentleman represents Guildford. Does he ever ask Ministers in charge of spending Departments to improve the amenities of life for his constituents? Does he, for example, ever ask the Minister of Health for better hospital facilities for Guildford or the Secretary of State for Education and Science for increased grants for better schools in Guildford? Does he, in short, ask the Government to spend more for better amenities for his constituents, then squeal about the total? He wants individual items to be higher and the total to be less.

Mr. Howell

If the hon. Gentleman will listen he will understand that what he is saying reflects a complete misunderstanding of my proposition about the development and control of public spending. I raise questions of decisions on public spending—that is necessary. But to suggest that I am, as it were, singing the familiar and, I agree, rather pointless chorus of saying, "Let us spend more on everything in detail and reduce the total overall" does not do justice to my argument.

I am talking in the short term and not about the overall growth of public spending. I simply say that, in the immediate future, there will obviously be, as the National Institute of Economic and Social Research agrees, a clash between the growth of public spending, particularly in areas where there does not seem efficient management control, and the needs of private sector investment, consumer spending and the desire of people in our constituencies for a better life in all forms, both in the public service and private spending. To object to that proposition seems unrealistic and to be throwing an antique argument into an area where new forms of control and new ideas are needed.

As we face this situation of a steady growth in public spending, is there anything which politicians can do? Are we left with a world in which the public sector goes on growing? There are very sensible steps which can be taken—not ideological or doctrinal ones—to improve the management performance of the public sector, the way in which public money is spent, and the way in which services and facilities are provided with taxpayers' money.

If I may put three of them before the Fninancial Secretary, the first, which may sound a little abstract, is that the Government and public officials at all levels must throw off the habit of thinking that everything can be done best by public authorities, and that everything which the public authorities touch must be run and controlled by them. That is a habit of mind which is very extensive. It dominates the public sector, and it must militate against efficient organisation.

No human organisation can be run with excessive central organisation, and that applies as much to government as to anything else. As long as the Government look benignly on the continuing appropriation by the public sector of functions which could be done by private individuals in the private sector, and so long as we see this growth of public intrusion into areas where individuals of the private sector could do as well, so long is the bill which we are discussing likely to grow.

What is needed in our system of government is an incentive operating on public officials the other way. What we need to see is public officials acting in a much more creative way at every level in the government structure—local, regional and central—to combine public initiative with private enterprise in new forms. There are all kinds of possibilities for opening out better opportunities in local authorities, at central Government level and in the national economy generally which arguments divided strictly between the public and the private sector automatically preclude.

That is one of the essential principles if we are to reform the management of government and enable it to control its own growth. It needs applying in the nationalised industries, where participation by private enterprise is long overdue. Many good ideas are available for bringing private initiative back into harmony with public enterprise.

Mr. Gwilym Roberts (Bedfordshire, South)

If it is argued that there is room in the public sector of, say, local government for certain aspects of private management and investment and the basic profit motive which predominates in the private sector, the counter to that arugment is that, in the private sector, there is room for the use of techniques which permeate the public sector, and that profit alone should not be the basic motivation?

Mr. Howell

It is not quite as simple as that. In some areas, decisions must be taken on the basis of the profit motive. My argument is that those areas could be larger than they are at present. There are many areas where we are not bringing to bear the possible incentive effect which we could if the profit motive were more widely used and encouraged. Similarly, I accept that, over large areas of the public sector, public initiatives operate and public decisions are taken which have a direct effect on private enterprise as well.

Earlier this evening, we discussed the relationship between public sector decisions on civil and military aircraft development and the outcome in the private sector where those aircraft are developed. There are all kinds of possibilities here of a different relationship, but the main thing is to ensure that the relationship is such that we make the best of both the profit motive, the private enterprise contribution, and the public sector initiative, and we do not say that we have to have one or the other to meet some out-dated doctrine.

We are seeing this development in many local authorities which are pursuing methods of co-operation with private enterprise. I think that we ought to encourage it more in the universities, where there are great opportunities for staffs in the technological universities to involve themselves in new commercial enterprises and ensure that innovation is encouraged and science-based small firms spring up in relation to universities. This is a good example of public money being invested in knowledge and people in universities, and they, in turn, using that knowledge to stimulate private enterprise and, therefore, benefiting the community by a mixture of private and public enterprise.

The whole principle which is at the heart of the question of the control of public expenditure is one which can be applied almost across the entire spectrum of our public affairs. There was mention of it the other day during the debate on the Plowden Report in the discussion on nursery schools, where, I think, there are great possibilities for ensuring that full-scale nursery school provision comes forward for all as a result of the mixture of public money and private contributions, otherwise we will not have full-scale nursery education at all. That has been the position in the past.

That really seems to be the central long-term point which arises from any discussion of the growth of public expenditure. We are in a situation in which we have this inexorable growth of expenditure, and the Treasury is not able to control it. We are in a situation in which there is an almost uncanny proliferation of departments of public bodies, often overlapping ones that exist, with blurred responsibilities. It is sad to say that the Government have been particularly profuse in this, and have a particularly high rate of productivity in the production of new Ministries and Departments.

We are in a situation in which, unless we are prepared to look into the system of government and the structure of government, we will have to live with a constantly growing public sector, one which will be growing not for reasons of policy, not even because the Government may wish the public sector to grow, but simply because it is developing of its own accord in a way which is out of control and which is immeasurable in terms of management efficiency, and which, in the end, will ensure that the efficiency of the nation is held back, and so is the rate of growth.

4.43 a.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

I thank the hon. Member for Mid-Bedfordshire (Mr. Hastings) for the courteous opening to his speech, and I hope that he will acquit me of discourtesy if I seek to reply to the debate briefly. I do so partly because the debate has ranged widely on what is a very wide topic, but also because, as has been said, we will shortly have an opportunity, in our Budget debates, to discuss these matters much more fully, and because we are all conscious that other debates which are due to take place on the Consolidated Fund Bill are liable to be squeezed out for want of time.

The hon. Gentleman said that in a sense this was a non-partisan matter, but having paid lip-service, as it were, to recognising that public expenditure was growing fast, and the Civil Service was growing steadily during the closing years of the Conserva- tive Administration, he then forgot that and sought to make a party argument.

I thought that the hon. Member for Guildford (Mr. David Howell) approached the matter rather more dispassionately, as one would expect after reading his interesting article on this topic in The Times a few days ago. I agree with him that what is needed is a Government who are prepared to look at the structure of local and central Government. The present Leader of the House, when Minister of Housing and Local Government, grasped the nettle which eluded many of his predecessors in setting up the Royal Commission on Local Government. The resulting general consensus is that we should move towards a reduction in the number of local government units; the argument is about how many and what size they should be. Surely this is the sort of change which will bring improvements. This Administration also set up the Fulton Royal Commission on the structure and organisation of the central Civil Service.

In his article, the hon. Member for Guildford put his finger on the key question of the relationship between this House and the Executive. Much of the structure of Government and Civil Service is determined by the House's requirement of detailed accountability. If we want methods of Government which will devolve responsibility and managerial power, the House must be prepared to surrender some of this type of control and seek a new form—perhaps arising out of our experiment with Select Committees, which will be aimed to look precisely at administration and structure.

I agree, also, with the hon. Gentleman's article that reform of Government structure must go hand in hand with Parliamentary reform. We are considering these longer-term matters. In the shorter term—this is primarily the Treasury's responsibility—we are trying to improve the machinery for the control of public expenditure, a notoriously difficult problem for this and other countries. We are continuing to seek better control. Our objective over public expenditure—including local and central Government current and capital expenditure, the investment of nationalised industries and other public corporations—is to give the highest priority to strengthening the balance of payments and encouraging economic growth.

At times of balance of payments pressures, these two objectives cannot be achieved simultaneously. We have sought, also, to provide what we regard as the most important social and economic priorities—to establish a sound relationship between the growth of public expenditure and the development of the national economy. That is why we set a 4¼ per cent. annual growth target in the National Plan, compared with a target under the previous Government's White Paper projecting public expenditure of 4.1 per cent.

The hon. Member for Mid-Bedfordshire devoted part of his speech to contrasting the position of the growth in public expenditure with the present decline in private investment and sought—I believe too facilely, as others have done—to try to attribute the decline in private investment to the growth in the public sector.

The decline in private investment at the moment is primarily a consequence of the economic measures that have had to be taken to rectify our balance of payments problem. A most depressing picture would follow if, as a result of that, the Government decided at such a moment to slash public expenditure and public investment to mitigate that decline; and I do not quite see how such a step would stimulate optimism with a resultant growth in the private sector.

Although public fixed investment is rising, the estimated prospective increase, at constant prices, of 8½ per cent. announced by my right hon. Friend the Chancellor of the Exchequer the other day is no greater than the estimated increase between 1965–66 and 1966–67 and, with the forecast decrease in private sector investment, the increase in public sector investment should not create excessive demand and is not incompatible with an early recovery of private sector investment.

In short, the Government's objective is to stimulate productive investment and to foster economic growth. In their judgment of the optimum size of the public investment programmes, this must and does take into account all the needs of the economy as a whole and the extent to which investment in the private sector is likely to meet this.

Mr. Hastings

I do not disagree with the hon. and learned Gentleman. I tried to show that taxes and the squeeze are responsible for the effects which he has mentioned. I pointed out that what appears to be happening is that the resources squeezed out of the private sector, as a result of these measures and the conditions thereby created, instead of finding their way into the growth industries, seem to be getting mopped up by the public sector because of the rate of growth of that sector.

Mr. MacDermot

A lot of the public sector investment is in quite essential investment. This must be so if we are to get a future expansion of the economy, including the private sector, to meet the country's needs, as the nationalised industries do for power, transport and communications. The hon. Gentleman may dislike our plans for the exploitation of North Sea gas in that this has been done by the public and not the private sector. If there is an objection on that score, then it is an objection on ideological grounds; but the hon. Gentleman must agree that it is essential that we should not allow present temporary difficulties to hold back an essential piece of investment at this time for the future prosperity of our economy.

At the same time as there is this public sector industrial investment, there is also a widespread demand for an expansion of the housing programme, for improvements in the National Health Service, the development of universities and schools and an increase in social benefits in line with the improved standards of living. The Government's public expenditure programmes have gone some way towards meeting these demands for a higher standard of public services.

In the restrictive measures we have had to take and the cuts we have had to make in public expenditure, it is in these spheres that we have had to make the main reductions. Anybody who criticises the level of public expenditure must realise that any proposal to reduce the level will involve a cutting back in either productive investment or in the social services—or to make further cuts in defence expenditure. Those who make proposals for these reductions should be prepared to specify the areas in which they would wish the cuts to fall.

It is not possible to make any firm estimate at the moment of the prospective increase in the total public expenditure in 1967–68 over 1966–67, but it is likely to be a little over 5 per cent., at constant prices. The annual average for the three years from 1965–66 to 1967–68 is likely to be just under 4 per cent., at constant prices, confirming the figure which the hon. Member for Guildford mentioned. This compares with a figure of just over 4½ per cent. in the last two years under the previous Administration, so these figures will serve to correct and put in proper perspective the amount of growth in the public sector under the present Administration.

Sir Edward Boyle (Birmingham, Handsworth)

Can the hon. Gentleman give an undertaking that in the Budget debates we shall get reasonable information not only about the likely percentage movement in the public expenditure, but also in private expenditure and investment in 1968? I well remember that in Lord Amory's Budget in 1960 the likely movement in public expenditure, but gories was given. We attach considerable importance to that on this side.

Mr. MacDermot

I will draw the Chancellor's attention to the right hon. Gentleman's point.

The hon. Gentleman for Mid-Bedfordshire referred to the growth in Civil Service manpower. This has been happening steadily for the last five years under the previous Administration. It is important to remember that this growth in the Civil Service is only one aspect of growth in the public service generally. There has been, over many years, a steady and increasing growth in manpower in the local authorities, much of it in education and the police. I am not sure that this is not where improved management conditions could effect greater economies.

I think that it is generally recognised by those who study it that the picture which is sometimes put forward, perhaps sometimes for purely partisan reasons, of an overgrown and bloated Civil Service is misleading. There is a highly efficient organisation in Government Departments, helped by a central department in the Treasury. It is of the highest standard. Its control of establishments and complementing in the Civil Service is very good. The Civil Service is often in the van in the use of computers and automatic data processing as a means of economising in manpower.

Under this Administration, as under the previous one, the increase was the consequence of new policies and it is the policies which have led to the growth. The difference is that hon. Members opposite dislike some, at least, of the policies we introduce and approved of the policies they introduced, but it is policies which lead to growth. The numbers of policies which lead to growth are relatively few. The Land Commission is obviously one and was a highly controversial proposal. Even in matters of taxation there was broad agreement that it was right to introduce the Corporation Tax and the Capital Gains Tax.

What produced the considerable expansion of manpower that was required was not so much, or merely, the decision to introduce those taxes, but the pressures—and quite proper pressures—to which we were subjected to refine those taxes, to make exceptions and transitional provisions to meet special cases and hard cases. It is those requirements which made such large demands for an increase in the Civil Service.

If I were to argue this ease in detail I would fail to do that which I set out to do, which was to be brief. I have found this debate interesting, and perhaps we will have a chance to return to this aspect in other debates shortly after the Easter Recess.