PUBLIC EXPENDITURE

HC Deb 16 January 1968 vol 756 cc1577-620

The Prime Minister (Mr. Harold Wilson)

With permission, Mr. Speaker, I should like to make a statement.

1.On 18th December I informed the House that the Government were engaged in a major review of every field of public expenditure as one of the measures necessary to achieve a progressive and massive shift of resources from home consumption, public and private, to the requirements of exports, import replacement and productive investment.

2. This review has now been completed. Our purpose in this review is to make devaluation work, because until we do, until we are earning, year in and year out, a substantial surplus on our overseas payments, we are unable internally or externally to do all the things which, as a nation, we would like to do. But what this means for the immediate future is to ensure that we cut down our demands and our ambitions at home and abroad within the limits of what we can currently earn. At home, it means cutting back on excessive demands, both as individuals and as a community, and abroad it means reassessing our rô1e in the world and realistically limiting our commitments and outgoings to our true capacities. On this basis, provided that our recovery is soundly based and lasting, we can go forward. The review we have undertaken, covering as it does our ambitions and expenditure at home, and our commitments and deployment abroad, is an essential step towards making these principles a reality.

3.Our immediate objective, first, is to release resources from home use in order to reinforce the balance of trade, and to do this in a way which realises every practicable opportunity to reduce Government expenditure overseas. Second, it is to ensure that as the economy moves into expansion, led by the priority areas I have mentioned—exports, import replacement and investment —the total level of demand, public and private, is kept in line with what the productive machine can make available without lurching into inflation and excessive strain on our national resources. Third, and immediately at a time when unemployment, contrary to widespread expectation six months ago, is falling—seasonal factors apart — and demand for labour increasing, it is to ensure that the growing consumer expansion now underway gives way to an export-led expansion.

4. Our aim is not deflation, but expansion based on the growing use of our resources at an ordered pace so that the build-up of exports and the other priority categories does not lead to undue pressure on those resources. A higher proportion of our growing national production must be shifted decisively for the benefit of the balance of payments and investment, and a smaller proportion will be left, therefore, for rising consumer demand and Government expenditure.

5. From every point of view it would be wrong to seek to achieve the necessary reduction in demand solely by restraining the growth of personal consumption, though personal consumption must be sharply restrained. But public expenditure also must make its full contribution. Indeed, if the rate of increase of public expenditure were not severely restrained in the years immediately ahead, unacceptable burdens on the personal consumption of the ordinary family would be required.

6. My statement this afternoon, therefore, relates to public expenditure. The measures will be progressively reinforced as I indicated on 18th December, by all appropriate further measures, budgetary and non-budgetary, to hold back private consumption.

7. These measures which I am announcing today follow the steps announced at the time of devaluation, aimed at restraining both private and public consumption, and are additional to the cuts in defence expenditure, the £70 million cut in the investment programmes of the nationalised industries, prospective changes in taxation, the hire purchase restrictions, Bank Rate and the tightening of bank lending.

8. These measures accord fully with the policies which we have pursued in the defence of the old parity—the restructuring of industry, the stimulation of investment, technological assistance to industry, an intensified attack on the problems of the development areas, and a policy of severe restraint in prices and incomes. Conceived as they were in the pre-devaluation period, these policies achieved a great deal of what they set out to do: they will be needed in full measure in the new situation we now face. For whatever has to be done by reductions in the growth of public expenditure and in restraining private expenditure, so that we do not spend before we earn, the solution of our problems will basically come from changes in industry and industrial attitudes which are concentrated on increasing what, as a nation we earn, at home and abroad.

9. The measures I shall announce follow a detailed and searching review of policy by the Government in every major field of expenditure, with no exceptions, on the basis that no spending programme could be sacrosanct; and, I repeat, all these are in addition to the measures announced by my right hon. Friend the Home Secretary on 20th November.

10. The House will be aware, from long experience, that the expenditure of any given year is to a very large extent committed by decisions taken two and three years before, particularly where major works such as roads, hospitals and schools and many items of defence production are involved. Because of this time-lag, and the difficulty of making an impact on many continuing projects, we have concentrated on expenditure in the financial year 1969 –70, though in some cases, particularly defence, the full saving resulting from our decisions will not be seen until 1970 –71 or even later. At the same time, substantial reductions in expenditure in 1968 –69 will be achieved. I must, however, tell the House that, so great is the proportion of expenditure governed by programme decisions taken two, three and more years ago, that there will still be a considerable rise in' public expenditure in 1968 –69 compared with 1967 –68, and a further small rise in 1969 –70.

11. I begin with defence expenditure, the whole of which has been reviewed against the background of our commitments and alliances. Our decisions have been based on two main priciples. First, the House will recognise that it is not only in our own interests but in those of our friends and allies for this country to strengthen its economic base quickly and decisively. There is no military strength whether for Britain or for our alliances except on the basis of economic strength; and it is on this basis that we best ensure the security of this country. We therefore intend to make to the alliances of which we are members a contribution related to our economic capability while recognising that our security lies fundamentally in Europe and must be based on the North Atlantic Alliance. Second, reductions in capability, whether in terms of manpower or equipment, must follow and be based on a review of the commitments the Services are required to undertake. Defence must be related to the requirements of foreign policy, but it must not be asked in the name of foreign policy to undertake commitments beyond its capability. Major foreign policy decisions, therefore, are a prior requirement of economies in defence expenditure; and in taking these decisions we have to come to terms with our rô1e in the world. It is not only at home that, these past years, we have been living beyond our means. Given the right decisions, above all given the full assertion of our economic strength, our real influence and power for peace will be strengthened by realistic priorities.

12. We have accordingly decided to accelerate the withdrawal of our forces from their stations in the Far East which was announced in the Supplementary Statement on Defence Policy of July 1967 (Cmnd. 3357) and to withdraw them by the end of 1971. We have also decided to withdraw our forces from the Persian Gulf by the same date. The broad effect is that, apart from our remaining Dependencies and certain other necessary exceptions, we shall by that date not be maintaining military bases outside Europe and the Mediterranean.

13. Again, by that date, we shall have withdrawn our forces from Malaysia and Singapore. We have told both Governments that we do not thereafter plan to retain a special military capability for use in the area. But we have assured them both, and our other Commonwealth partners and allies concerned, that we shall retain a general capability based in Europe—including the United Kingdom—which can be deployed overseas as, in our judgment, circumstances demand, including support for United Nations operations. During his recent visit to Kuala Lumpur, my right hon. Friend the Commonwealth Secretary told the Government of Malaysia that we wish to reach a new understanding with them about the Anglo1alaysian Defence Agreement so as to make it fit the changed conditions. As he House knows, the Agreement contains provisions for a review of this nature. He also assured the other Commonwealth Governments concerned of Britain's continued interest in the maintenance of security in South-East Asia, with the forces which will be available here. Meanwhile, if our Commonwealth partners so desire and mutually satisfactory arrangements can be made, we would be prepared to assist them in establishing a future joint air defence system for Malaysia and Singapore and in training personnel to operate it. We have informed the Governments of Malaysia and Singapore that we will discuss with them the aid implications of our accelerated withdrawal. We shall amend our force declarations to S.E.A.T.O. as our forces in the area are run down.

14. We shall make an early reduction in the number of aircraft based in Cyprus while maintaining our membership of C.E.N.T.O.

15. On the Gulf, we have indicated to the Governments concerned that our basic interest in the prosperity and security of the area remains; and, as I have said, the capability we shall be maintaining here will be available for deployment wherever, in our judgment, this is right having regard to the forces available.

16. As the House already knows, my right hon. Friend the Foreign Secretary has visited Washington to discuss our intentions with the United States Administration; and my right hon. Friend the Commonwealth Secretary has paid special visits to the four Commonwealth countries concerned with Far East defence so as to discuss with their Prime Ministers the intended changes in our political commitments and consequent military dispositions and the consequences flowing from them. My right hon. Friend the Minister of State, Foreign Office, has paid a special visit to the States of the Gulf for a similar purpose. Other Governments and Organisations concerned have already been made fully aware of our decisions. These decisions were taken in the knowledge, and in the light, of the views of our Commonwealth partners and of our allies directly concerned.

17. We recognise the deep feelings and anxieties of our allies and Commonwealth partners. We recognise, too, that these changes involve risks, but, in the circumstances, we believe they are risks that must be accepted. We are determined that our commitments, and the capacities of our forces to undertake them, should match and balance each other.

18. These decisions will entail major changes in the rô1e, size and shape of the forces, in the nature and scale of the equipment which they will require, and in the supporting facilities which are necessary. 'Time will be needed to work out the precise implications: these will be embodied in a White Paper to be published and, if the House so wishes, debated later in the year. Nevertheless, I can now give some specific illustrations of the effects of our decisions in advance of the further detailed work.

19. Manpower. Cmnd. 3357 envisaged withdrawal from certain east of Suez stations by the mid-1970s, and planned for a reduction by roughly the same date in the establishment of the Services of 75,000 uniformed manpower and 80,000 civilians. As a result of our decisions, and of others that will result from the further planning which is now starting, the active strength of the forces will be reduced by the end of 1971 well below the levels forecast last July in Cmnd. 3357. We would expect that, within about five years or so from now, we shall have reduced the total size of the forces below the long-term strengths we had previously planned. Thus, the eventual saving in Service manpower will be greater than the total reduction of about 75,000 forecast previously for the mid-1970s and we shall achieve it earlier. We shall also be reducing civilian manpower at a faster rate over the same period, and our aim will be to increase the forecast reduction of 80,000 civilians and to achieve this significantly earlier than previously planned.

20. The Navy. The aircraft carrier force will be phased out as soon as our withdrawal from Malaysia, Singapore and the Gulf has been completed. There will also be reductions in the rate of new naval construction, for example in the nuclear-powered Hunter/Killer submarines.

21. The Army. There will be a considerable increase in the rate of rundown of the Army and in the disbandment or amalgamation of major units. As a result of our accelerated withdrawal from Singapore and Malaysia, the rundown of the Brigade of Gurkhas to 10,000 by the end of 1969 will continue at the same rate until 1971, bringing the total strength of the Brigade to 6,000. The future of the Brigade after 1971 will depend on developments obtaining at that time there is no question of reducing the strength or effectiveness of the Hong Kong Garrison. There also be substantial savings on Army equipment and stocks and many of these will be achieved between 1969–70 and 1972–73.

22. The Royal Air Force. We have decided to cancel the order for 50 Fill aircraft. Further study is being given to the consequences of this decision on the future equipment of the Royal Air Force. Leaving out of account the results of this study, the cancellation of the Fill is estimated to yield total savings on the Defence budget of about £400 million between now and 1977–78. This figure allows for likely cancellation charges. The saving in dollar expenditure over the period, again allowing for likely cancellation charges, will be well over $700 million. Because of the credit arrangements, these savings will mature over a period of years. We are discussing with the United States Government future arrangements for offset orders and credit for the Phantom and Hercules aircraft. The reduction in our overseas commitments will make it possible to cut down the transport force.

23. Support facilities. The more rapid withdrawal of our forces from outside Europe and the changes we intend to make in their rô1e and equipment will impose a massive task on those responsible for providing the most efficient and economical logistic support for the three Services. Very substantial savings in base facilities staff overseas will follow as a consequence of withdrawal. The rundown in the forces will be increasingly reflected in reduced support facilities, such as training establishments in this country, but it is too early yet to indicate the extent of the total reduction of the United Kingdom base as a whole. In spite of the extra planning load placed upon it, we shall energetically continue the process of cutting the size of the Ministry of Defence.

24. Financial effects. The financial effects of policy changes on this scale will inevitably take time to work themselves through. The immediate effect will not be to reduce the level of defence expenditure: indeed, in 1968–69—when we have already made a saving of £110 million—the level will be increased through cancellation payments and other transitional costs. These are expected to be relatively modest thereafter. From 1969–70 onwards, accordingly. there will be an increasing relief to the Budget, accompanied by a release of valuable resources for civil production. The scale of what is involved for the economy can be measured by my expectation that in 1969–70 the Defence budget which was planned to come down to £1,970 million at 1964 prices as a result of the November devaluation economies will be reduced to about £1,860 million at 1964 prices, that is, a cut in expenditure of £110 million in the Estimates of 1969–70. By 1972–73 the Defence budget is expected to be between £1,600 million and £1,650 million, at 1964 prices, a further reduction of between £210 million and £260 million.

25. The Government are very conscious of the effect that these further cuts will have on the Services and of the upheavals they will cause. Nevertheless, they are necessary in the national interest so that we can restore the strength of our economy. The accelerated rate of rundown in the Services, and in the civilians associated with them, is bound to cut short the careers of some who would otherwise have expected to serve for some years to come. There will inevitably be a considerable amount of disruption in all three Services and one of the major problems will be to arrange this very large reorganisation so that hardship to individuals is minimised and at the same time efficiency is maintained. The Government intend to ensure that at the end of this process the Services remain cohesive and viable and still offer a good career to those who serve in them.

26. The future of the Services will then lie mainly in Europe. But we still face the problem of the heavy continuing cost in foreign exchange of stationing our troops in Germany. As the House knows, there have already been informal preliminary talks in Bonn about ways and means of meeting this after the current Anglo-German Offset Agreement expires on 31st March next. We are now ready for formal negotiations at Ministerial level. We have proposed to the Federal German Government that the talks should start early in February.

27. Now I turn to civil public expenditure. No review of planned expenditure programmes would be realistic, or adequate for the task we have set ourselves as a nation, which failed to go deeply into every aspect of home expenditure. This we have done. Our decisions reflect the national priorities we have applied and which we commend to the House. In almost every major area of expenditure economies have been made in the rising programmes which we had before us. Within each major area we have, of course, been highly selective in the cuts we have made. Our objective, a I stated a month ago, is to produce a total of economies which is coherent, credible—and fair.

28. Social Security. I begin with social security. Expenditure this year, 1967–68, is £2,909 million, an increase at current prices of 48 per cent. since 1963–64. Last year, the House approved a general uprating of National Insurance and other benefits, which took effect last autumn. In our forward planning we do not envisage that a further general uprating can be undertaken before at least the autumn of 1969.

29. In the statement made by my right hon. Friend the Home Secretary on 20th November an assurance was given that the most vulnerable classes of the community will be protected against hardship resulting from those price increases which must result from the effect of devaluation on import costs. We shall be watching price rises very carefully and we intend in the light of this to raise supplementary benefits in the autumn of this year.

30. It has already been decided that family allowances will go up by 7s. in April. But it is essential that this increase should be confined to families most in need and my right hon. Friend the Chancellor of the Exchequer intends to recover the full amount of the increase from taxpayers at the standard rate and above through the tax machinery, taking back lesser amounts from those who will pay tax only at reduced rates. I should add that my right hon. Friend is examining the possibility at a later stage of extending this principle of selectivity based on tax adjustments more generally through the family allowance system, not just the 7s. increase. To help less well-of families generally we intend to raise the income limits for the rate rebate scheme in the coming autumn. The qualifying limit for the full rebate will be raised for single persons from £8 per week to £9 per week, and from £10 to £11 for married couples; the rate for each child will be raised from 30s. to £2.

31. Education. Next education, one of the biggest and most rapidly expanding expenditure programmes. Total expenditure is estimated this year at £1,989 million, an increase at current prices of 42 per cent. since 1963–64. Here again it is a question of priorities. We have decided we have no alternative to deferring from 1971 to 1973 the raising of the school leaving age, a postponement of two years. I need not tell the House how difficult, indeed repugnant, this decision has been to my right hon. Friends and myself.

32. This decision will mean a saving of about £33 million in 1968–69, and £48 million in 1969–70, principally in the school-building programme. But the basic school-building programmes will be increased by extra starts of £8 million both in 1968–69 and in 1969–70 to ensure that comprehensive reorganisation is not held up, and to provide additional resources beyond the extra £8 million starts in each of these years announced by my right hon. Friend the Secretary of State to the House last year, for improving conditions in educational priority areas.

33. We propose to cease to provide milk free in secondary schools from September of this year. This will require legislation.

34. The capitation grants to direct grant schools will be reduced.

35. Some new capital projects in the universities, colleges of further education and elsewhere will be held back during 1968–69. Following the next review of students' awards, the increase in September will only cover half the rise in the cost of living since the last review.

36. The combined effect of all these measures in the field of education will be to make a net saving of £39 million in 1968–69 and £58 million in 1969–70.

37. Health and Welfare. I turn next to health and welfare, with a 1967–68 expenditure of £1,619 million, an increase at current prices of 45 per cent. over the past four years.

38. In the Government's view the most important way of sustaining and improving the National Health Service is to press ahead with the expanding programme of hospital building. We are, therefore, proposing no reductions in this programme which will go ahead as planned.

39. The Government have, however, decided after the most serious consideration and with the utmost reluctance, to reintroduce a system of charges for prescriptions issued under the National Health Service, at the rate of 2s. 6d. per item.

40. My right hon. Friend will immediately enter into discussions with the medical profession with a view to introducing as soon as possible a system of exemption for particular categories of patients. Those we have in mind are the elderly, over 65, children up to 15, expectant and nursing mothers and the chronic sick. While the procedure for dealing with these proposed exemptions is being negotiated, regulations will be made to bring these charges into operation in the spring which is the earliest that arrangements can be made to introduce simultaneously refund of charges to those in need on the pre-1965 basis, namely those on supplementary benefits, those with the standard of living broadly at or below supplementary benefit levels and war pensioners in respect of disabilities. This will be immediately. The scheme as initially introduced would save about £50 million in a full year. But the further exemptions, which we regard as fair and necessary, would reduce this saving to about £25 million

Hon. Members

Then why bother?

The Prime Minister

—and we propose to make this good by increasing the National Health Service employees' contribution by 6d. as soon as possible.

41. The maximum charge for dental treatment which has not been changed since 1952 will be increased from £1 to 30s. and this will yield a further £1½ million. As the House knows, children and young people up to 21 and expectant and nursing mothers receive free treatment and people receiving supplementary benefits have the charges met for them. These arrangements will continue. In addition, some reductions in the planned growth of local health and welfare capital expenditure are being made, averaging £5 million a year over the three years 1968–69 to 1970–71.

42. I have referred to the National Health Service stamp. The House ought to know that quite apart from the expenditure review, and for quite other reasons, a further 1s., 6d. for employees, 6d. for employers, will be needed to prevent the National Insurance Fund from going into deficit. This will be done at the same time as the 6d. increase in the National Health Service contribution which is collected on the same stamp.

43. Home Department Services. Now I turn to Home Department Services, including Home Defence. We have decided to reduce Home Defence—Civil Defence —to a care and maintenance basis, with a saving of about £14 million in 1968–69, and £20 million in 1969–70 and in subsequent years. This will involve the disbandment of the Civil Defence Corps, the Auxiliary Fire Service and the Territorial and Army Volunteer Reserve Category III. The Government propose to restrain the growth of expenditure on other Home Department Services by £6 million in 1968–69 and £12 million in 1969–70.

44. Housing. Expenditure in the public sector in 1967–68 is £1,018 million. The Government have decided to reduce planned approvals of new houses by 15,000 in England and Wales and 1,500 in Scotland in both 1968 and 1969, saving in terms of public expenditure £27 million in 1968–69 and £55 million in 1969–70. But, even with these withholdings, we shall be able to maintain the momentum of the programmes for slum clearance and for the relief of serious local housing shortages. Our measures will safeguard the housing priority areas.

45. Transport. Next, roads. The estimated expenditure in 1967–68 is £560 million, an increase of 52 per cent. at current prices, compared with 1963–64. Of the present programme £300 million is on the major road programme of my right hon. Friends; and the remainder, nearly all local authority expenditure, includes about £200 million on road maintenance. The Government have decided that, overall, expenditure on roads should be reduced so as to produce savings of £53 million in 1968–69 and £69 million in 1969–70. Of this, local authorities will be asked to find £75 million over the two years out of their expenditure on the maintenance and improvement of their roads; and the planned growth of expenditure on major roads, including trunk road maintenance, will be cut by £18 million in the first year and £29 million in the second.

46. At the same time, expenditure on the new forms of assistance to public passenger transport, provided for in the Transport Bill, is being limited to £10 million in 1968–69 and £20 million in 1969–70.

47. Industry. The Government will continue to give special priority to the regeneration of the development areas, and will continue their programmes of financial assistance. They will direct this assistance towards activity which will contribute most to the economic strength of the areas and to the Government's general objectives.

48. In the Ministry of Technology's industrial programme there will be a careful selection of priorities. The reorganisation of the shipbuilding industry will continue, the work of the National Research Development Corporation will be fully maintained and programmes will go ahead for other industries including computers, electronics and machine tools. Industrial research in the Ministry of Technology's civil establishments will be kept within present limits, and there will be savings concentrated in the nuclear research and development programme of the Atomic Energy Authority. There will also be a further cut in the Ministry's defence research programme in 1968–69, part of which will be carried by Aviation Establishments. The saving on planned expenditure from all these measures will be £13 million in 1968–69 and £15 million in 1969–70, including the savings by the Atomic Energy Authority which were foreshadowed by previous announcements.

49. On investment grants, where in the current year the Board of Trade has paid grants on five quarters of investment in order to shorten the period between the incurring of expenditure and the payment of grant, the Government consider that any further shortening of this period must wait for the time being. We therefore intend that, in 1968–69, grants will be paid in respect of four quarters' past investment, so that the average time between investment and payment will remain at the 12 months which it has already reached. This compares with the interval of about 18 months between the incurring of expenditure and the receipt of investment allowances. It will reduce payments in 1968–69 by £80 million below what they would have been had there been a further acceleration. Decisions about 1969–70 will be taken in the light of circumstances nearer the time.

50. Local Authorities. The House will be well aware that a substantial area of public expenditure lies within the control of local authorities, whose expenditure has risen by £1,380 million, or 46 per cent. at current prices over the past four years. A considerable part, though by no means the whole of local authority expenditure, is in response to national programmes endorsed by this House by statutory or other provision. Much of it is, however, subject by various means, indirect and direct, to a measure of Government control or influence, and some of it will be affected by the measures I have announced. But it is vital that local authorities, no less than central Government, make their full contribution to restraint m their programmes, the release of resources for the reinforcement of our trade balance and the avoidance of inflation.

51. Taking local authority expenditure as a whole, the Government expect that, in 1969–70, local authorities as a whole will restrain the level of their expenditure so that it does not in total exceed a figure in the region of 3 per cent. in real terms above what has already been agreed for purposes of the Exchequer contribution in 1968–69; and the Government will pro-pose rate support grant for 1969–70 on this basis when the time comes. As regards 1968–69, the Government will expect local authorities to absorb any increases in cost which they cannot avoid by making savings elsewhere. Full details for England and Wales and for Scotland, where special problems arise, will be worked out with the local authorities and the House will be kept informed.

52. Northern Ireland. As regards Northern Ireland, it should be possible to realise substantial savings in public expenditure there, broadly comparable to those in Great Britain. Discussions with Northern Ireland Ministers have already started.

53. Special measures must be taken to arrest the growth in the number of people employed in public Service. Government Departments will, under the guidance of the Treasury, plan their staffing so that over the year 1968–69 there is no further net increase in the number of civil servants as a whole. This is estimated to save £15 million. The economies which we are asking local authorities to make. notably in Services assisted by the rate support grant, should produce similar results for local government staffs.

54. To avoid unduly wearying the House, I have given the facts only about the main expenditure programmes of any size. In addition, there are other reductions totalling £28 million in 1968–69 and £41 million in 1969–70. These come mainly from environmental Services. There may well be other savings as the consequences of these major decisions work through the whole field of public expenditure.

55. Summary. The results of all the changes I have announced will be to reduce planned expenditure in 1968–69 by £300 million, plus, of course, an additional £325 million income from the N.H.S. contribution, and in 1969–70 by £416 million, again plus the contribution. This implies an average annual rise in public expenditure in the period 1967–68 to 1969–70 of 2.8 per cent. I am circulating in the Official Report a table showing public expenditure in 1968–69 and 1969–70 as forecast before the reductions, and the details of the reductions themselves.

56. I must again remind the House of the severe limitations within which any expenditure review must operate, particularly so far as the period immediately ahead of the review is concerned. In many of the continuing programmes, particularly where major and lengthy capital projects are concerned, cuts which act quickly can be achieved only with great disruption and great diseconomy. Some of the Government's decisions will have an immediate and major impact on expenditure in 1968–69 and subsequently, others will have a more limited effect in 1968–69, and a growing impact on 1969–70 when a decisive switch of resources will be needed. In defence large-scale savings will be achieved only in 1970–71 and later years. But in this case, if the decisions are not taken now, they will not make any impact until well into the 1970s, and Parliament in 1970, 1971 and later years will be impotent to secure major savings in those programmes.

57. Finally, I repeat that the review whose conclusions I have announced today is only part of a continuing process which will dominate national financial and economic management for the next two years. Other measures including budgetary decisions will be required.

58. But in a wider sense, no measures of a purely financial character, however necessary, can by themselves solve our problems, and ensure that the opportunities presented to us by the decision to devalue are fully realised.

59. I must again emphasise the paramount importance of prices and incomes policy. The measures we have decided on and those which will be announced in succeeding months will be adequate if, and only if, the competitive advantages we have gained are not dissipated in increases in incomes over and above the very limited figures the country can afford. It is this which must guide us—not what the country or individual sectional interests would like or would seek to extract, but what we are earning.

60. But success in securing the massive shift we need to get from home consumption to the priority areas of exports and Import saving depends above all on the response of industry, at all levels, to the challenge of winnable export markets, import replacement and productive investment.

61. To the efforts of those industry who are responding to the challenge and opportunity which the new situation has created, the measures I have announced, cutting deep, comprehensive, but—the Government believe—balanced and fair, provide essential help and backing. What these measures cannot do is to provide a substitute for the efforts that now have to be made by all in industry, indeed by the whole nation.

Whenever in the past this nation has set out to achieve the domestic objectives it has set itself, we have been frustrated by an endemic imbalance within the economy. If we refuse to abandon these objectives—and we do refuse—then the course we must take, however great the temporary cost, is to remove that problem once and for all.

Mr. Heath

The important statement to which the House has just listened—important both for its omissions as well as for its contents—can only be fully dealt with, as I am sure the Prime Minister realizes, in the debate which is to follow tomorrow and Thursday.

Is the Prime Minister aware that we shall want to judge this statement by the extent to which it restores confidence both in industry at home and overseas; by the way in which it is choosing the priorities and in which such a heavy burden seems to have fallen on defence compared with home expenditure; by the way in which the cuts which are being made will affect the fundamental economic efficiency of this country; by the way in which the statement takes account both of short-term as well as long-term requirements of the situation following devaluation; by the way in which it will safeguard the most vulnerable sections of the community; by the way in which it enables Britain's commitments and obligations overseas to be carried out or in fact breaks them; and by the way in which it will allow British interests abroad to be protected?

I should like to put three questions to the Prime Minister. As a result of his announcement about prescription and other charges—on which we on this side of the House fought the last General Election—does he now accept a reasonable system of selectivity throughout the social services? Is that Government policy?

Secondly, what justification does the Prime Minister give for putting postponement of the raising of the school-leaving age at such a high position in Government action, rather than many other cuts or reductions in expenditure which were open to the Government?

Thirdly, do the changes being made in overseas defence expenditure mean that Britain will not in fact carry out her commitments and obligations in the Gulf and in the Far East? Is not this dishonourable and ought it not to be thoroughly condemned? Does not the right hon. Gentleman's statement about defence equipment mean that in fact any defence policy which the Government may have had in the past is in ruins?

Finally, is not the whole of the Prime Minister's statement entirely negative? There is not a positive content of any kind. There is no indication to the people of this country about how to overcome our present difficulties. What the Government have done is to announce the consequences of devaluation and three years of Socialist mismanagement.

Until right hon. Gentlemen opposite can show the country how to get out of its difficulties in a positive way, they will not achieve their objectives, and in that case they had better follow the example of the Prime Minister on prescription charges last time—let him not only resign himself, but the Government with him.

The Prime Minister

I thank the right hon. Gentleman for his very constructive comments. As he has said, this statement will need examination and I have already referred to the paper which is being circulated in the OFFICIAL REPORT and of which copies will be available this afternoon.

The right hon. Gentleman referred to the debate. I am sure that he is quite right and that the criteria which he outlined will be among the criteria which hon. Members in all parts of the House will want to apply to this statement when we come to debate it and ask the House to approve it later this week.

The first of the right hon. Gentleman's specific questions was about prescription charges. He asked whether we now accepted his nostrums—not his word—about selectivity throughout the social services. He will have noticed the extremely important announcement about the way in which we feel that family allowances should be handled in future —on a basis of selectivity according to need, through the use of the tax system. I was not quite clear whether the right hon. Gentleman approved of that particular form of selectivity, but we shall no doubt hear in the debate. This is a case of selectivity which we have accepted, but this is not the right hon. Gentleman's form of it.

In answer to the general question, we have reviewed each of the spending programmes and we have decided where more selectivity is required. As I have said, we have announced the position for major exemptions when we introduce prescription charges and we have extended that particular form of aid to less well-off families by improving the working of the rate rebate scheme.

The right hon. Gentleman wanted to know, secondly, what justification there was in education for postponing the raising of the school-leaving age. I do not need to tell the House that this is a very difficult decision, but we had to review all our priorities within education in addition to within all the social services. It was essential to maintain, as we have maintained, the main structure of our educational system and expenditure, with a very sharp increase, as we still have compared with three or four years ago, in expenditure on, for example, new building particularly on what is most pressing, the building of primary schools.

We felt that if something had to be cut, however difficult, postponing raising the school-leaving age was the right choice to make, but no doubt later in the week the right hon. Gentleman will tell us what other cuts he would have made, because we know how committed he is to reducing expenditure.

The right hon. Gentleman's final question was about overseas expenditure. I said that cuts in defence expenditure would follow reductions in commitments. As I made clear—although this will be more fully dealt with in the debate—it will mean renegotiating a whole series of arrangements, agreements and treaties—I mentioned the Anglo-Malaysian Treaty —with our allies and with our partners, including on the subject of the Gulf.

However, I must put it to the right hon. Gentlemen opposite, whose general vocal greeting of my statement suggested that they rejected 95 per cent. of all the cuts in Government expenditure which I announced, that it is impossible to attack these cuts in defence expenditure and try to maintain a credible posture of being In favour of reductions in public expenditure generally. If they attack what we have said about defence expenditure and the raising of the school-leaving age, it will be up to them this week to produce a list of other cuts, comparable in size —and even going beyond, because I do not think that they think that the total is very much good. When they do, we shall be very glad to have them examined and costed to show what they are worth.

Mr. Thorpe

May I, first, ask the Prime Minister a question about prescription charges, in which he showed some interest in the past? Since the net yield is £25 million only, can the right hon. Gentleman say why, by seeking to tax the sick, he wishes to return to the Conservative principles of the National Health Service in order to atone for past extravagances abroad?

Secondly, when public expenditure is running at £600 million for the 500,000 civil servants in Government Departments, why are we told only that there are to be no further increases in the coming year? Does not the right hon. Gentleman think that there is a case for setting each Minister a target for a reduction in numbers and a reduction in wastage?

Thirdly, while I recognise the right hon. Gentleman's belated conversion to realism in the Far East, is it intended that the Phantom order will be carried out in full, or can economies be made there?

Finally, as the right hon. Gentleman's Administration has reversed so many of the policies on which it was returned at the last General Election, does not the right lion. Gentleman think that this is the moment to put these proposals to the British electorate?

The Prime Minister

Of all the suggestions I have had, I can imagine none out forward with less enthusiasm with:he Liberals in their present state than that we should have an immediate General Election.

The right hon. Gentleman's question about prescription charges enables me to deal with a reference made in passing by the right hon. Gentleman the Leader of the Opposition to what happened in 1951. That was not about prescription charges. Prescription charges were not at issue at that time. They were not introduced—[HON. MEMBERS: "Oh."] Hon. Gentlemen should get their facts right—until 1952. It involved a question of priorities about social expenditure and rearmament.

When I tell the House—and this is relevant to the answer to the right hon. Gentleman's question—that at that time the total National Health Service accounted for less than a quarter of the armaments programme which some of us criticised, when I say that at present health expenditure is about two-thirds of defence expenditure, when I say that after the statement which I have made today Health Service expenditure by 1972–73 will be coming fairly close to total expenditure on defence, I think that the right hon. Gentleman will realise that we have fulfilled the priorities in the Health Service over the years which I have described.

With regard to the last of the questions, about the Civil Service, of course, if we can get further reductions beyond the target that I have mentioned, we shall be glad to do so. We are approaching this on the basis of Department by Department targets. I have seen assurances given by more than one Government of more than one party in the past that there was to be a reduction based on targets, but I have not yet seen it fulfilled. This time we are having a go.

Mr. Shinwell

Does my right hon. Friend realise that if successive Tory Gov- ernments during the past 13 years had faced up to the economic and financial problems which were obvious to all but the Tory Party we would not be in the present economic difficulties? Does he also appreciate that, stiff though the package is, and disturbing as some of the proposals undoubtedly are, it is far better, even if we have to reduce our commitments to people overseas, to remember that our primary commitment is to this country and to putting our economy in order, to save the position?

May I ask him why it is that, when the Leader of the Opposition complains about the Prime Minister's negative attitude, he does not propose a voluntary reduction in his salary—a sacrifice that all of us are prepared to make if other people are prepared to make sacrifices?

The Prime Minister

With regard to my right hon. Friend's opening words, I am aware of his wise comments and the ideas that he has expressed about past years. As to his second question, I thank him for what he has said in that he believes this to be a very tough and unpleasant package, but that it is balanced and reasonably fair.

With regard to the question about the Leader of the Opposition—more difficult for me to answer—the Leader of the Opposition said that my statement was a negative statement. Statements of cuts in expenditure are bound to have a pretty negative aspect about them. When my right hon. Friend and the right hon. Gentleman say what is it that the people can do positively, everyone knows what needs to be done positively in terms of winning—[HON. MEMBERS: "Resign"] Not in terms of parrot slogans. We want something a little more constructive from hon. Gentlemen opposite, such as their help with us in persuading industrialists to go out and get export orders at the right price. We need willingness by manufacturers not to shove up prices here just because import prices have gone up, when it is not necessary, but instead to get part of that home market away from their import competitors. These are the two positive things that need to be done, and I would like to see more co-operation from the other side of the House in achieving this.

The last suggestion of my right hon. Friend is, naturally, a matter to which we must give attention. So far as Her Majesty's Government are concerned—I cannot and ought not to try to speak for the House in this matter—it is a matter which at the right time will be raised. I am not sure that this would be the relevant time, but in relation to the incomes policy, and perhaps to further burdens that will be necessary, it will be relevant. I did refer to the Budget and other things. We will have to consider whether this would be the right gesture. It is a matter for all of us to consider, but I have nothing to announce this afternoon.

Mr. Mendelson

Is my right hon. Friend aware that about 8 million working people on lower incomes will have to bear the full brunt of the prescription charges, and that it will not be possible to exempt them under the scheme that he has announced? Will he tell the House why he has surrendered to the Tory clamour, ill-informed as usual on this matter, and why he has not resisted those members of his Cabinet who once before supported the prescription charges, and whom he once helped to keep together, with the late Aneurin Bevan?

The Prime Minister

It is a question of selectivity. My hon. Friend is a great practitioner of the pointed statement. He will pick out the one that he can attack the Government on, as he has done, because I have not heard from him what he thinks of the package as a whole.

As to the exemptions, it will be clear from the figures that I have quoted that something like one-half of the prescriptions dispensed in this country will be the subject of the exemption categories I listed, which we are now to put into effect. Since these include those in greatest need so far as the Health Service is concerned, I would hope that my hon. Friend would feel that it is fair and understand that the charges on the stamp will be on those who, in the main, are in work and who can afford it. In so far as they come in any of the categories, including the chronic sick, then they are subject to the exemptions I have mentioned.

This has been an extremely difficult decision for us, but I hope that my hon. Friends will realise that every other de- cision that we have taken has been extremely difficult for us. I would like them to look at the package as a whole and not select one item, which some of my hon. Friends have decided in advance that they would attack.

Mr. Maudling

To clarify our discussions, will the Prime Minister publish in the OFFICIAL REPORT or place in the Library a list of any undertakings given by Ministers to overseas countries which, as a result of devaluation and its aftermath, can no longer be honoured?

The Prime Minister

I will certainly consider what can be done to inform the House on statements which have been made, including, and I fully accept and recognise this, certain statements made, inside this House and outside it, since last July. I will certainly consider what can be done to give a fair picture of statements which must be qualified or made the subject of fresh negotiation.

Mr. Sheldon

While warmly welcoming the decision finally to end our Eastern rô1e, would my right hon. Friend not agree, with reference to our home cuts, that there is a distinction to be drawn between those cuts which can subsequently be remedied as the economic position improves and a decision to postpone the school-leaving age, which will irrevocably deny to at least two years of the school population a chance to get that education, and which can never subsequently be remedied?

The Prime Minister

I know the very strong feeling about this, not only among my hon. Friends but among many hon. Members in all parts of the House, and I said with what reluctance the Government had decided to take this decision. I entirely agree that one of the main reasons for that reluctance is that two age groups of school leavers will fail, except in so far as their parents allow them to continue voluntarily, to get the benefits of the extra year's education. This is something that in their case cannot, by ordinary means, be caught up. I am also very worried, as I know my hon. Friend is, about the position whereby very many children do not stay on after the age of 15 years and the very sharp regional differentiation there is between the South and the North.

We very much regret that this postponement of two years will continue this regional differentiation rather than end it once and for all by a mandatory, statutory requirement to stay on another year. As I say, it is a choice of priorities, and it is very hard, in my mind, to balance this one above prescription charges. I know that many of my hon. Friends will have the same view about other things that might have had to be done if we had not done either of those.

Sir G. Nabarro

The Prime Minister mentioned import replacement three times. Is he aware that British agriculture, in the form of its spokesmen, the N.F.U.s, has estimated imports' saving of £250 million a year given realistic prices instead of the present debased prices? Why did the Prime Minister deliberately omit any reference to agriculture, and its huge import' saving potential, from his lengthy statement? Will he undertake to give instructions that the February Price Review should be announced as early as possible and that all Review commodities should show a substantial post-devaluation increase in price to encourage the British farmer to produce a much larger output, of which he is so readily capable?

The Prime Minister

The reason I did not make any reference to agricultural expenditure in my statement is because we are not proposing any reduction in agricultural expenditure. I should have thought that that was quite simple.

With regard to the important contribution which agriculture, as well as many other sections of industry, can make to import replacement, this was a point made very strongly by a number of my right hon. Friends, and most right hon. Gentlemen opposite, in the debate following devaluation. It also featured in the statement made, I think it was a Written Answer, by my right hon. Friend the Minister of Agriculture, to the House just before Christmas, dealing with some of these issues, particularly in relation to cereals.

Since this matter falls to be discussed in the February Price Review, it would be better to wait until then. We are certainly doing all that we can to bring that on as early as possible, but there are difficulties about getting the necessary information from the farmers in time, but we shall do it as quickly as possible and we shall bear in mind what the hon. Gentleman has said, and the very hopeful predictions of the industry in the matter of what it can do. We must do that, like everything else we have been talking about this afternoon, with due regard to the public purse. If we can get the import replacement without fantastic expenditure, then, of course, it will be very welcome, but we have to protect the public purse in the outcome of the Price Review.

Mr. James Griffiths

May I ask my right hon. Friend whether he realises that the country will accept the statement which he has made as fair and just having regard to the problems facing the country? What the country will want to know is this: if we support these measures, as we shall, is he satisfied that they will be adequate to put the country on its feet? Have not our problems been aggravated by, if not been due to, the fact that every time that there has been economic expansion it has led to inflation because of the maldistribution of industry? Is it not therefore absolutely essential that if these measures are to work additional measures must be taken to ensure a redistribution of industry in the country and to use the resources which are already available in the development areas?

The Prime Minister

I thank my right hon. Friend for what he said. As I said in my statement, everything done in a financial sense, whether in this way or by budgetary means, will be of no avail unless we get right the restructuring and reorganisation of industry. This means that as a very high priority we must get a higher proportion of active industry in the development areas. We have not cut that programme. Indeed, we are spending considerably more on the development areas at present than we were a year ago, and we have a very heavy programme for the next year or two. We regard this as right not only for the development areas, but for the economy of the country.

On the question of the motivation of what I have announced today, as I have explained, it is needed to release resources for import replacement. It is also needed to prevent an export-led boom, with unemployment falling, as it is now falling very substantially on a seasonally corrected basis, not getting out of hand and leading to the very inflation about which my right hon. Friend has just warned the House.

Mr. Sandys

What right does the Prime Minister think he has irrevocably to abdicate Britain's rô1e in the world without even giving Parliament an opportunity beforehand to discuss the grave implications involved and without any genuine consultation with our Commonwealth partners and allies? Is not this a monstrous abuse of power?

The Prime Minister

The right to put forward this proposal to the House is the right of any Government to put forward a proposal to the House and, if supported by the House—

Mr. Sandys

It is not a proposal.

The Prime Minister

It is a decision which we are putting to the House for its approval. Obviously, the House can reject it.

Mr. Sandys

You have decided.

The Prime Minister

The House has the right to reject it. The right hon. Gentleman was extremely good at tying up all kinds of long-term arrangements which were disastrous, costly, irrelevant and outmoded without consulting the House. We are still trying to unravel the ones in writing, and we keep being told about them from time to time. The cost of maintaining some of them has been one of the difficulties we are facing today. We have decided that in the national interest, in the interest of a strong Britain—[HON. MEMBERS: "Speak up."]—in the interests of a strong Britain—[HON. MEMBERS: "Oh."] Yes, in the interests of a strong Britain—this is something in which all our Commonwealth partners have a very close interest with us— it was right to take the decisions we have announced today. But if the right hon. Gentleman and those who have made noises with him are against this, let us hear no more from any of them about cuts in Government expenditure.

Mr. Emrys Hughes

Will my right hon. Friend look again at his proposal to axe housing in Scotland? Is he not aware that in Scotland nearly every local authority has long waiting lists and that we are finding difficulty in housing key workers to man the new industries? Why does he follow the example of his Tory predecessors of axeing housing at a time of financial crisis?

The Prime Minister

My hon. Friend, like so many of my hon. Friends, is in danger of using the word "axeing" when it is a question of restraining rapidly growing expenditure. I fully agree with what he has said about not only the long waiting lists and overcrowding in Scotland, but the number of slums which need clearance, which is equally true of the priority housing areas of England and Wales. It is for this reason that we have tempered in Scotland the 1,500 as against the 15,000 in England and Wales, being very well aware of the point which my hon. Friend has made.

But with regard to the housing programme generally, we believe that it will be able to meet the requirements of slum clearance in the housing priority areas. My hon. Friend will be glad to know that, as my right hon. Friend will be ready to announce in greater detail, for the first time we exceeded the 400,000 housing target last year, and we intend to build up and increase on that from now on.

Lord Balniel

The Prime Minister indicated that he is likely to finance the family allowances in future by a reduction in the tax allowances. Tax allowances allow a married man to keep more of his earnings, because he has greater obligations, than the family allowance, which is a payment by the State. They are totally different in principle. A reduction in the tax allowances for the married man is, in fact, a direct increase in taxation. Did he not promise the day before the last election that there would be no direct increase in taxation?

The Prime Minister

The House will no doubt be able to discuss this matter in much greater detail—because somewhat complicated tax provisions will be required—with more information than is possible on the basis of my statement today. But, certainly, we would regard this as a very fair application of the principle of selectivity, which I thought the Opposition wanted us to accept. It sounds from what the hon. Gentleman has said as though he would wish to select between Income Tax payers and the rest and that he would be prepared to draw a distinction on a needs basis between two groups of people neither of whom pays Income Tax. But if it is selectivity vertically between more well-off people and less well-off people. he thinks it a bad scheme.

Mr. Winnick

While welcoming the more realistic defence commitments, may ask my right hon. Friend whether he will accept that the delay in raising the school-leaving age and the reintroduction of prescription charges will cause bitter disappointment among many people in the Labour movement? Is he aware that some people feel, rightly or wrongly, that the prescription charges have been reintroduced, not so much in order to save money, but to satisfy certain bankers at home and abroad. Are we for ever to accept the Tory line on prescription charges?

The Prime Minister

Of course, I accept what my hon. Friend says. It was a matter of deep disappointment to us to have had to take both these decisions, and that is the position of all my right hon. Friends. [Laughter.] I am sorry if hon. Members opposite regard this as a matter for frivolity. We at least have some idea of what this means. We would riot have done this lightly, frivolously or ideologically, as hon. Members opposite would do.

I therefore agree with my hon. Friend that there will be disappointment, but it would not have been possible to do what was necessary to get the economy right without making some cuts in the social services, which account for a very high proportion—and I have given the figures—of total Government expenditure. We cannot get all that we need from defence savings. There must be a balance, with some reduction in home expenditure. Of course it is disappointing. But we believe that it is fair.

Mr. Boyd-Carpenter

The right hon. Gentleman spoke of renegotiating our defence obligations with our friends in the Near and Far East. Will he give an assurance that we shall honour those obligations and retain the power to do so until they are freely renegotiated?

The Prime Minister

We shall have to answer this case by case in the debate, and my right hon. Friend will answer it, but at this stage I have nothing to add to what I have said in my statement this afternoon. As long as we have a capability in the area and are able to do so we shall, of course, honour agreements to which we have set our name as long as we are there.

I have also referred to our general capability in cases where, in our judgment, it is right to help from our general capability. I have explained the position about that, but I certainly am not suggesting that those with whom we are negotiating should have a right of veto of Britain's freedom of action in this matter beyond the period when the capabilities might lie.

Mr. Mayhew

Is my right hon. Friend aware that whatever may be said against the handling and timing of the cuts in overseas commitments, these decisions were absolutely necessary and were extremely welcome and will produce a balance between our commitments and our defence capability for the first time for many years? Is he further aware that his statement as a whole will be accepted as fair by the substantial majority of Labour supporters inside this House and outside it?

The Prime Minister

I thank my hon. Friend for what he has said. It looks as though, at last, we have managed to please him in these matters, although he will be at least as clear in his mind, as are hon. Members opposite, with what difficulties we have been faced in taking these defence decisions.

Mr. Peyton

How can the Prime Minister expect to be taken seriously or to restore confidence when, at the behest of his Government, within minutes of his own statement, the House is to discuss a totally frivolous and irrelevant proposal to spend £70 million on nationalising bus companies? Does not this seem to be the height of irrelevancy, even by the Prime Minister's standards?

The Prime Minister

It may seem so to the hon. Member, but in the debate we shall probably find that there will be many right hon. and hon. Members who may catch your eye, Mr. Speaker, who will be aware of the needs within our limited resources to reorganise urban transport, which is very urgently necessary. Since the hon. Member has mentioned the transport question, I shall be glad to see whether we get the usual nocturnal notice from the transport spokesman of the party opposite to say that we should not cut transport but should cut Government expenditure.

Mr. Maxwell

While congratulating my right hon. Friend and his Administration on being the first Prime Minister in 20 years to bring our legions home from the East—[Laughter]—

Mr. Speaker

Order. We can now leave the Romans alone.

Mr. Maxwell

—and while we are satisfied that the measures announced by the Government will get Britain out of the foreign pawnshop, may I ask my right hon. Friend, since he has stated that due to Government expenditure being arranged the way it is, Government expenditure will rise in 1968–69, to tell the country what steps the general public can take to have a go to redress our balance of payments and to get back Britain's self-respect?

The Prime Minister

I would have thought that my hon. Friend would have been sufficiently up to date to leave the Romans alone, as you have said, Mr. Speaker, and at least to have gone as far as Kipling's "Recessional", which may be more relevant.

With regard to the way in which our accounts are presented, I think that the House continuously would want to consider whether our accounts, which successive Governments have tried to modernise, are as modern as they can be in expressing the real position of public expenditure. My right hon. Friend the Chancellor of the Exchequer will be continuously looking at this question.

As to matters outside my statement, I know that my hon. Friend and many people on both sides of industry and in other ways are indicating things that can be done by those in industry and by ordinary citizens—by us shoppers, for example—to solve the broader underlying economic problems which the country has faced for so many years.

Rear-Admiral Morgan Giles

Why does the Prime Minister leave the rump of the British forces in Europe, where there is no threat to peace, instead of in the Far East, where, according to the words of his own Foreign Secretary, the greatest threat to peace exists?

The Prime Minister

It was, I thought, the accepted view of all parties in the House that our priority commitment is to N.A.T.O. here in Europe. I know that there are different views, but that is the position of Her Majesty's Government and, I thought, of the Opposition. I have explained why it is necessary to cut down. This can only be done effectively by a total evacuation in the areas of the Far East, because we do not accept the view of the hon. and gallant Member that we should have troops fighting in Vietnam. Not only do we think that that is wrong, but we think that there is no longer any rô1e for us to remain in the Far East and the Gulf after the date I have announced.

Dr. John Dunwoody

Would my right hon. Friend agree that the reintroduction of prescription charges at a higher rate than before, with initially no greater exclusions than before, in the middle of the winter months, appears to run contrary to Government assurances that the weaker sections of the community would be protected from the full blast of the economic crisis? Would he further agree that many of us feel that to come to a fair and adequate definition of the chronic sick will be well-nigh impossible for the purpose of exclusion?

The Prime Minister

First, as to the timing, it is intended that this will happen in April and not in the winter months, as my hon. Friend suggests. With regard to the exemptions and the difficulties of the exempted categories, this depends on making rapid progress with the medical profession, of which my hon. Friend is a member. If they can co-operate in finding the answer with us—we think that there is an answer to these problems—and give their full cooperation, there is no reason why that should not be introduced very quickly indeed without any overdue delay between the introduction of the regulations and the introduction of the fuller exemption scheme.

Sir H. Legge-Bourke

While I am sure that everybody outside this House will be studying with interest what they cannot have which they would otherwise have liked to have, will the Prime Minister recognise that what the country is waiting for are the Government's plans to enable the country to pay its way by exporting more? Will he recognise that what is singularly and remarkably absent from his statement today is any real encouragement to exports and to the industries which can save imports? What plan has he to ensure that industrial activity and the selling of British products in the world is really boosted? That is what we want.

The Prime Minister

I fully accept that in my statement there was no reference to this fundamental problem in solving our problem. I referred to it as the underlying problem. With regard to incentives and help, both in winning export orders and in holding them and in import replacement, of course the new, lower parity gives an opportunity, and, indeed, the possibility, of much increased profits from exports and import replacement which they did not have in the past. It is our job as a Government, as a House, to see that what we hope they will do in increasing amount is not held back by resources being over-consumed in the home market. We have got to release the resources for them.

In addition, the hon. Member will be aware—if he is not, I will be glad to send him a mass of material—of what the Board of Trade is doing increasingly to help both the large and the small exporter in matters of credit, in breaking into new markets, consumer research, export research and the rest. The hon. Member will, I think, be very impressed by what is happening in that way.

Sir Dingle Foot

Is my right hon. Friend aware that there are some of us on these benches who are gravely concerned about the effects on Commonwealth relations in South-East Asia and Australasia of the decisions which he has just announced, and that we cannot help feeling that those decisions were arrived at without any due consultation with the Governments concerned? Will he, therefore, consider the suggestion that there should be an early five-Power conference to consider the future defence of the area? Will he, in particular, consider the representations which have been made to Her Majesty's Government during the last few days by the Prime Minister of Singapore?

The Prime Minister

Yes, Sir. My right hon. Friends and I considered at very great length the representations made by the Prime Minister of Singapore, and also what was said by the other Commonwealth Governments concerned to my right hon. Friend the Commonwealth Secretary as well as what was said to my right hon. Friend the Foreign Secretary and the Minister of State on their visits. As I said this afternoon, we are prepared to co-operate with the Prime Ministers of Singapore and Malaysia in working out suitable air defence arrangements with substantial help from us in the matter of training and in other ways.

As to a five-Power conference, we have said that we are prepared to discuss such a matter with them if it is generally felt that a conference will be helpful, but it should start from the situation announced today to work out what we can do in the way of defence co-operation and understanding, but we cannot postpone any longer the decision which has been announced today.

Sir A. V. Harvey

First, will the Prime Minister say how the cancellation of the F111As will affect the offset agreement where the Americans have agreed to take British equipment?

Secondly, is the Prime Minister aware that almost everything that he said this afternoon has been printed in the Press during the past week, and particularly the last 48 hours, in the minutest detail down to the cost of the insurance stamp, and so on? Is not this treating Parliament with great discourtesy? Will he cause an inquiry to be carried out?

The Prime Minister

On the first point, we are discussing with the United States Government the position of the offset sales. There is no reason to think that offset sales already made need necessarily fall as a result of the cancellation of the F111A. I fully recognise that it places a sharp limit on the expectation of further offset sales in future. We think that this is justified. This is one of the costs of what is an important decision, which was not easy to take, but had to be taken against that background. The hon. Gentleman will recognise that this is a matter we had to consider at great length. Very many issues were affected when we took our decision—not only finance and savings, but bigger issues than those.

As to the statements which the hon. and gallant Gentleman has seen in the Press, I, too, have seen them. I regret them as much as he does, though I have noticed that—[Interruption.] I do not think that anybody particularly enjoys making a statement in the House on the basis that a lot of it has in bits and pieces appeared in the Press. Quite the contrary.

The hon. Gentleman will probably realise by now, as I knew all along, that a large number of quite specific statements in the Press were speculative and some, we now know, were wrong. Among a long list of matters some were accurate, but there were some very inaccurate ones even in this morning's papers.

Mr. John Hynd

Will the Prime Minister realise that, while accepting, in general, the package that he has offered to the House, the grave resentment throughout the benches on this side over prescription charges is due to the fact that this is one saving which falls only upon the sick people? No one will be required to pay these charges unless and until he is sick. Can we take it from the Prime Minister's last answer on this issue that the consultations that are going on with the medical profession about the possibility of working out a proper form of exemptions will be dependent upon a form of exemption which will be acceptable to this House?

The Prime Minister

I agree with what my hon. Friend said about the way in which any prescription charge system must work. This is why we attach so much importance to the question of exemptions, which is designed to secure for half the population, at any rate, half the cost of the prescription exemptions, because these are the least able to bear any charge at all. The chronic sick, the old or young, are less able to bear the charges than, for example, my hon. Friend and myself if we are sick. This is a question of priorities. We believe these are the right priorities. Therefore, we attach great importance to being able to get a workable system of exemptions which, as my hon. Friend said, can be commended to the House.

Sir Richard Glyn

Will the Prime Minister tell the House whether there are to be any cuts in overseas aid and, if not, why not? Would he agree that this country pays heavy interest on some of the enormous sums that we have had to borrow? Does he think that Britain can still afford to give away money or lend it interest-free to countries which show little gratitude for receiving it?

The Prime Minister

I find it a little inconsistent for hon. Members to say what they have and obviously strongly feel about the Commonwealth, and then to make that kind of comment about the aid programme. The aid programme in cash terms will be retained next year and the following year at the same figure as in 1967–68, but the hon. Gentleman will realise that certain costs have risen substantially in some of our overseas aid expenditure because of devaluation. Those increased costs will have to be borne within the total figure of, I think, £205 million. In other words, in cash terms the aid programme remains the same, but in real terms it involves a reduction.

Mr. Manuel

Is my right hon. Friend aware that his statement about prescription charges will be received with intense indignation throughout the whole Labour movement? Could he tell the House whether the figure he gave accruing from these charges is a net or a gross figure?

Is he further aware that in our propaganda to get rid of these charges we said that the collection would make it not worth while? Surely it is not worth the indignation and the sorrow and the trouble it will cause in the country to placate a few bankers either at home or abroad.

The Prime Minister

What I said in the way of propaganda was that the cost of collection and necessary exemptions would not yield the figure stated. Our estimate is that it will be £50 million. If there were only the exemptions provided for in the regulations to which I referred, that £50 million is reduced to £25 million. Hence the 6d. stamp necessary to pay for those exemptions.

I do not agree with all the strictures of my hon. Friend, strongly though I feel about the issue. I ask my hon. Friend to realise with me that our expenditure on health now at current prices is running at several times the figure it was at the time we last argued these matters in 1951. The health programme is expanding and by the end of the period covered by my statement the total expenditure will be running at something very similar to the total expenditure on defence.

Mr. Manuel

That is the fault of the doctors.

The Prime Minister

I do not see how anyone can say we are betraying, emasculating or attacking the Health Service when we have increased total expenditure at that rate.

Mr. Bellenger

On a point of order, Mr. Speaker. Will it be possible either to ask my right hon. Friend the Leader of the House, or perhaps you, Sir, how we are to conduct our subsequent debate if we are to have an orderly debate? So far, we have got only a synopsis from the Prime Minister about global cuts. Will the Minister of Health, for example, be taking part on behalf of the Government?

Mr. Speaker

The right hon. Gentleman might ask the Leader of the House when he makes his Business statement.

Mr. Walters

The Prime Minister will remember that a couple of months ago he sent a Minister to the Persian Gulf to reassure the Rulers or Government there of his Government's long-term intentions. After his statement this afternoon, what faith does he believe any Government can put in a visiting Minister belonging to his Government?

The Prime Minister

I fully recognise, as we all do, the difficulties in which my hon. Friend the Minister of State was placed. It is a fact that it is only two or three months ago that he was there discussing what we announced last July. But this is one of the costs of a decision which had to be taken. We have had to go further than we did last July. I believe that it is right to do it and that we should also explain the implications of the new situation to those with whom we discussed t last year.

Sir M. Galpern

In view of the widespread, catastrophic damage suffered by house property in Scotland during Sunday night's hurricane, will my right hon. Friend reconsider his decision to effect a cut in the house-building programme, and in its place recommend a substantial increase?

The Prime Minister

I think that everyone in the House has heard with deep shock what happened in Glasgow and other parts of Scotland on Sunday night. Government Ministers have gone there to see what is needed, and to discuss the situation with the civic administration. Obviously the Government must look at this as a disaster problem, and not as a question of the housing allocation for two years ahead.

This is a disaster problem, and, like every other disaster which we have unfortunately had in this country, it must be treated by the Government and Government Departments alike on that basis. I do not think that it is in a sense to be related to the long-term decisions announced this afternoon.

Mr. Maude

The Prime Minister said in his statement that for several years the people had been living beyond their means. Will he tell the House whose fault he thinks that is, whether he has only just discovered it, and if not, why he did not do something about it before?

The Prime Minister

I think that everything I said in my statement refers to what has been happening under successive Governments. The hon. Gentleman can draw his own conclusions from that.

Mr. Barnett

While congratulating my right hon. Friend of giving up the self-imposed rô1e of world policeman, and accepting that some help is to be given to the lowest income groups, may I ask whether he will accept that for the lowest-paid workers there will be real harm both in the package and in the general post-devaluation situation due to increases in prices? Will he therefore consider doing something about basic food prices, through the marketing boards, either by stabilising those prices or by reducing them?

The Prime Minister

My right hon. Friend the Minister of Agriculture, in conjunction with the trade, is doing everything possible to hold down the increase in food prices to the absolute minimum required by increased import costs, with much more success than one sees in many places. There has been fine co-operation between these trades and my right hon. Friend in this matter. Publicity is given more to the small items in respect of which there have been big increases, but on the basic foods there has been fine co-operation between the trades and my right hon. Friend. This will continue, and my hon. Friend will be aware of the other ways, some of which I have indicated today, in which we intend to help those who are affected by any price increases resulting from devaluation.

Dr. Bennett

As the right hon. Gentleman has now annihilated the rô1e of the Royal Navy above and on the surface, and is largely abolishing it below the surface, may I ask what plans he has for the Royal Dockyard ports, to which he promised so much in 1964?

On the more general point, as the right hon. Gentleman's programme of cuts seem to amount to about half the overspending annually of this squandering Government, does the right hon. Gentleman think that this will commend itself sufficiently to our new Chancellor of the Exchequer—I mean, of course, M. Pierre-Paul Schweitzer—when he considers our Estimates next month, and whether we shall now, on the strength of that, get a renewal of our drawing rights, or have a second Wilsonian devaluation?

The Prime Minister

In relation to the Navy, neither my right hon. Friend the Secretary of State for Defence nor I accept as in any way accurate the words used by the hon. Gentleman to describe the rô1e of the Royal Navy from now on.

With regard to the dockyard ports, my right hon. Friend will progressively, over a period, give more details as these decisions affect the individual Services. The hon. Gentleman might like to know that the dockyards have, I think my right hon. Friend said, £200 million worth of naval work at the present time, and, therefore, the hon. Gentleman will expect fuller reports about that.

With regard to the last part of the hon. Gentleman's question, I thought I heard from him, as I have heard in most of the interruptions from the other side of the House, the suggestion that our cuts in expenditure are far too small for what is needed, and yet there is opposition to every item, except about two, of the cuts that I have made. As far as I can judge, there is total opposition from the party opposite to the defence cuts, and yet, having said that, they say that the cuts are not enough.

The debate of the next two days, with which my right hon. Friend the Leader of the House will be dealing in his Business statement, will give hon. Gentlemen opposite a chance to explain how they would get bigger cuts than I have announced, because they are committed to reducing taxation while at the same time avoiding the cuts which we have announced, and to which they object.

Mr. Pavitt

Is my right hon. Friend aware that by taking £25 million from the Health Service, not from the superstructure from which, with difficulty, it could be taken, but by way of prescription charges, he hits at the very basis and principle on which the Service was established? Is he further aware that this reverses the pledge given by Hilary Marquand on 1st May, 1952? It makes a charade of the fight that we had in this House during Februry, March and April, 1961, and not only destroys my confidence in the Government, but destroys the faith of a lifetime?

The Prime Minister

I am sorry to hear my hon. Friend talk in those terms. Everyone knows how, for the past generation, he has dedicated himself to the work of the National Health Service. The statement by Mr. Marquand on 1st February, 1952, was a pledge to remove the charges which had been introduced in 1951, and it is only fair to say to my hon. Friend that such has been the problem that we have faced that we have not ourselves removed those charges which were made on teeth and spectacles in 1951. I do not see how my hon. Friend can say that today's announcement represents a fatal breach of principle.

I hope that my hon. Friend will recognise what has been provided for the National Health Service, and the great increase in resources which we as a Government have devoted to it over the past three years. I hope that he will recognise the great provision in real terms in the hospital building programme, which remains intact. I hope that despite his disappointment on this one aspect my hon. Friend will not feel anything but that we are maintaining the main structure of the Health Service. If my hon. Friend has economies to suggest, on top level administration, or anything like that, no one will be more glad to hear about them than my right hon. Friends the Minister of Health and the Chancellor of the Exchequer.

Mr. McMaster

In view of the distressingly high unemployment in Northern Ireland, the frequent assurances given by;he Prime Minister and other Ministers that they would protect development areas, and the savage effect of the defence cuts on Northern Ireland where we depend a great deal on providing development defence equipment, will the right hon. Gentleman consider a slight increase in public expenditure, rather than a reduction of it, to offset the unemployment which this will cause?

The Prime Minister

As the hon. Gentleman knows, it is the practice that Northern Ireland expenditure should, wherever possible, following particular categories of expenditure in Great Britain. We are spending more on development areas in Great Britain, and obviously this will be the position in Northern Ireland. Therefore, on the unemployment side, I think that the hon. Gentleman can expect an increase there, but there are certain spending programmes in Northern Ireland which must be reduced and phased in the same way as spending programmes in Great Britain as a whole. It is this to which I was referring this afternoon.

Several Hon. Members

rose—

Mr. Speaker

Order. I must disappoint a number of hon. Members, but we have had an hour of questions to the Prime Minister.

Following is the table:

PUBLIC EXPENDITURE 1967–68 TO 1969–70
(The figures in the following table shows the results of the announced decisions on the basis of present estimates and forecasts and are expressed in terms of 1967 Survey prices.)
£ million (1967 Survey prices)
				1967–68	1968–69	1969–70
				Total(1)	Total as at 31.12.67	Reductions	Revised Total	Total as at 31.12.67	Reductions	Revised Total
Defence Budget(2)			…	2,218	2,167	—	2,167	2,250	-110	2,140
Civil Programmes:
Social Security(3)		…	…	2,909	3,106	—	3,106	3,126	—	3,126
Education (including local libraries and museums)				1,989	2,103	-39	2,064	2,205	-58	2,147
Health and Welfare (with welfare foods)		…	…	1,619	1,672	-29	1,643	1,737	-31	1,706
Housing	…	…	…	1,018	1,098	-27	1,071	1,124	-55	1,069
Roads	…	…	…	560	632	-53	579	679	-69	610
Other transport (excluding British Rail Deficit Grant)	…	…	…	110	126	-2	124	139	-5	134
Home Departments Services (excluding Home Defence)	…	…	…	472	506	-6	500	532	-12	520
Home Defence		…	…	22	27	-14	13	27	-20	7
Civil Technology		…	…	234	223	-10(4)	213	233	-15	218
Overseas Services(5)			…	338	371	—	371	367	—	367
Investment grants		…	…	189	440	-80	360	380	—	380
Agriculture(6)		…	…	374	388	—	388	388	—	388
SET additional payments and REP		…	…	170	156	—	156	131	—	131
Enviromental Services			…	732	797	-26	771	839	-27	812
Other expenditure(7)			…	1,433	1,566	-2	1,564	1,396	-14	1,382
Civil Service manpower(8)				—	—	-12	-12	—	. .	. .
Contingency allowance			…	—	—	—	—	75	—	75
Total	…	…	…	14,387	15,378	-300	15,078	15,628	-416	15,212
Increase in Health Stamp (treated as revenue in national accounts)			…	—	—	-25	—	—	-25	—
Total Savings			…	—	—	-325	—	—	-441	—
Nationalised Industries' Capital Expenditure			…	1,676	1,695	—	1,695	1,564	—	1,564
ֵIndicates not available.
(1) Estimate derived from 1967 public expenditure survey.
(2) The figures for both 1968–69 and 1969–70 exclude transitional expenditure, e.g., cancellation charges, etc.
(3) The figures for 1968–69 and 1969–70 have been estimated on the basis of existing rates of benefits taking account of forecast changes in the number of recipients.
(4) In addition there will be £3 million saving on defence research and development expenditure.
(5) Includes military aid.
(6) The amount for agricultural support included in the figures for 1968–69 and 1969–70 is on the basis of the 1967 Annual Price Review and takes no account of determinations at future reviews.
(7) These figures will be adjusted in order to reflect the decisions on major programmes listed above. They include expenditure on other military defence apart from military aid.
(8) These savings, which will be spread over a wide range of programmes, exclude similar savings already taken into account against some individual programmes. It is not possible to make an estimate of the corresponding savings in 1969–70.