HC Deb 20 February 1969 vol 778 cc779-91
The Chancellor of the Exchequer (Mr. Roy Jenkins)

With permission, Mr. Speaker, I wish to make a statement.

I am now able to report progress to the House on the management of public expenditure for 1968–69 and 1969–70, and to indicate the Government's further plans for 1970–71.

I told the House on 25th November and 2nd December that public expenditure for both 1968–69 and 1969–70 was running within the totals announced by the Government just over a year ago. After taking into account the spring Supplementary Estimates for 1968–69 and the Vote on Account for 1969–70, which will be published later this afternoon, I can now give this indication greater firmness, precision and detail.

For 1968–69, I estimate that aggregate expenditure will be £15,870 million at forecast outturn prices, as against an aggregate of £15,165 million for 1967–68 at the same price level. This is an increase in real terms over the previous year of 4.6 per cent., satisfactorily within the announced figure of 4¾ per cent.

For 1969–70 in accordance with the Government's announcement in January of last year, the increase in public expenditure over 1968–69 will be held to 1 per cent. in real terms. The present estimate puts the aggregate for specific programmes at £16,360 million, at 1969–70 Estimates prices, with £75 million available for contingencies making a total of £16,435 million. This is an increase on almost exactly 1 per cent. over the 1968–69 target.

I shall be making the text of this statement available as a White Paper, which will also include details of the latest estimates of the various main services and programmes.

I have explained that the figure for 1968–69 takes full account of the Supplementary Estimates which are being published today. Of the total of £165 million for which supplementary provision will be sought, taking Civil and Defence Estimates together, only £81 million represents an increase in public expenditure in real terms. The remainder relates to two elements: first, transfers within the public sector and other transactions which add nothing to public expenditure, amounting to £22 million; and secondly, pay and price increases amounting to £62 million.

As the House knows, the conventions which govern the form of Supplementary Estimates preclude them from showing the full extent of under-spendings on Votes; and these under-spendings will be substantially greater than the Supplementary Estimates now being presented.

Figures for 1969–70 similarly take account of that part of central Government expenditure for which provision is made in the new Supply Estimates, which will be published in summary form today with the Vote on Account.

It may be helpful if I explain briefly how Supply expenditure fits within the framework of the planned 1 per cent. increase in public expenditure at constant prices. The net total of the Supply Estimates for 1969–70 is £11,571 million, and making the crudest comparison with the net total of Supply Estimates for last year's Budget this represents an increase of 7.9 per cent. before discounting price increases. But as much as a quarter of Supply expenditure is not public expenditure. On the other hand, public expenditure includes a number of large items which are not voted annually by the House. Thus the total and make-up of public expenditure are very different from those of Supply expenditure; and consequently, comparing 1969–70 with 1968–69, the increase in public expenditure is also very different from the increase in Supply expenditure.

Taking all the steps in the reconciliation—and these will be found set out in the White Paper—and making the necessary adjustment to discount the effects of price changes, the estimated increase in public expenditure in 1969–70 in real terms is the planned figure of 1 per cent.

The mere fact that the relationship between the Supply figures and the figures for public expenditure requires this explanation is one of a number of unsatisfactory consequences of procedures for handling the Vote on Account which were devised for another age. I hope that by the appropriate processes of the House it may be possible during the course of the coming year to devise some simpler and more informative arrangements.

To complete the picture, I should tell the House that capital expenditure by the nationalised industries, the B.B.C., the I.T.A. and Covent Garden Market Authority in the current year is now expected to be at least 6 per cent. at constant prices below the level expected a year ago, and to continue at about the current level in 1969–70. In 1970–71, it is provisionally estimated to revert to around the higher 1967–68 level, though firm figures have not yet been approved.

The Government have now completed a review of public expenditure for 1970–71. I shall give details of the specific programmes in the White Paper, but, as with the original figures for 1968–69 and 1969–70, the amounts given there must be read as subject to such marginal adjustments, within the overall total, as may from time to time be needed to ensure that the expenditure plan as a whole is adhered to. The aggregate of the specific programmes in 1970–71 is planned to increase by about 2 per cent. above total public expenditure in 1969–70, plus a further margin of up to 1 per cent. which will be available, if required, to meet whatever contingencies may arise.

It is the firm intention of the Government to manage public expenditure in 1970–71 within these limits, which have been selected as fully consistent with attainment of the Government's declared objectives for social progress, economic advance, and, as the first priority in present circumstances, the required switch of resources to the balance of payments.

Mr. Macleod

Is the right hon. Gentleman aware, particularly in view of the confusion that arose a year ago about the Vote on Account, that his statement, although lengthy, is very welcome? Secondly, is he also aware, if I take him aright on a point he made earlier, when he seemed to be suggesting that the collective wisdom of the House or that part of it which takes a close interest in these matters, might help him to devise some simpler arrangements, that we would very much wish to play our part in that?

As the right hon. Gentleman will be aware, these matters and the papers he is laying today require careful study. No doubt there will be opportunities for debate, but may I raise a point of clarification? We now have the out-turn for 1968–69 at 4.6 per cent. We have the forecast for 1969–70 and these, as the Chancellor said, are more or less in line with the forecasts a year ago.

Am I right in thinking that those forecasts a year ago, and, therefore, the forecasts today, are basically still the forecasts of the National Plan? As that plan postulated a growth which has not been achieved in five out of the six years that we have experience of it, this shows, on the Government's own criterion, that public expenditure is still too high.

Mr. Jenkins

I am grateful to the right hon. Gentleman for having been patient, along with the rest of the House, throughout my necessarily long statement, and for his expression of gratitude for it. As I said, I believe that the fact that it is necessary, as I think it was, to make such a complicated explanation, shows that there is something wrong with the system in which we present our accounts. It is certainly the intention of the Government during the course of this year to lay before the appropriate authorities suggestions for greater simplification in future. I believe that this will be generally welcome.

I am glad that the right hon. Gentleman accepts, which is the case, that for this year we are a little below target. For next year we are at the moment exactly on the target which we laid down in January, 1968—a target about which I may say the right hon. Gentleman the Leader of the Opposition expressed some scepticism, even at the time of the Budget.

So far as the relationship with growth is concerned, 1968 has been a year of strong growth, a year in which the growth of public expenditure will not be very different from the growth of national income. In 1969, on our target figures—and I have every reason to believe, from our experience of last year, that we will stick to them; we are determined to do so—the growth of public expenditure, for the first time for many years, should be well below the growth in the national income.

Mr. Macleod

I understand that, and I am sure that the House does, but the right hon. Gentleman did not answer the specific point I put to him. The figures today, which I concede are in line with a year ago, are also in line with the National Plan. When the plan came out, and I have the quotation here, it was said that the level of public expenditure must depend, in turn, upon the level of growth.

Does the right hon. Gentleman dispute that, and, if he does not, will he agree that the level of growth, not just taking this last year, but over the past five years, did not justify the level of public expenditure which we have reached?

Mr. Jenkins

It depends on the period we take. If we start from the beginning of 1968–69, from the statement of my right hon. Friend in January, 1968, the growth of public expenditure—we are now halfway through this period—in this year and next year will be well below the growth in the national income. If we take the period going back to the beginning of the plan, it will be approximately the case, as the right hon. Gentleman said, that the growth over that period will be broadly equivalent to that laid down by the plan.

Mr. Barnett

Would my right hon. Friend resist the attempts of the Opposition to persuade us to cut public expenditure in the way in which they would deliberately do so, that is, to cut personal living standards among the less well-off sections of the community? Will he accept the congratulations of some of us, at least, for his efforts to simplify the method of presentation? Could he not also achieve a higher level of public expenditure, particularly in the social area, where it is very much needed—despite the high level of public expenditure—by aiming for a somewhat lower level of balance of payments surplus, from the £500 million he has stated he needs for some years?

Mr. Jenkins

I am grateful to my hon. Friend for those remarks. I will certainly resist all unreasonable demands for cuts or restrictions in public expenditure. I am bound to say that what I hear from the Opposition is more demands for increases in public expenditure in detail than demands for cuts—cuts in general and increases in detail.

As to the latter part of my hon. Friend's question, I do not for a moment believe that it would be right at present to give a lower priority to an improvement in the balance of payments than that which I am giving—the first priority.

Mr. Boyd-Carpenter

Can the Chancellor say what changes the figures he is announcing this afternoon involve over the next few years in the level of grants to local authorities, and what effect on rate poundages those changes are likely to involve?

Mr. Jenkins

The grants for the next two years have already been announced. There is no change, beyond what I believe my right hon. Friend has already told the House, involved in the figures I have given. I could not, without notice, give the right hon. Gentleman the rate poundages.

Mr. Albu

Would my right hon. Friend accept that we on this side congratulate him on bringing public expenditure under control, as it was in such a completely chaotic state when the present Administration took over from the previous Conservative Administration? Is not the answer to the question by the right hon. Member for Enfield, West (Mr. Iain Macleod) that if we get an adequate balance of payments surplus this year, and in the following years, as I am sure my right hon. Friend intends to do, the question of the rate of increase of public expenditure is completely dealt with, because the level at which my right hon. Friend intends to keep it is adequate?

Mr. Jenkins

I am grateful to my hon. Friend for his expression of support. I would certainly say that I believe that the two main objectives we should seek to follow at present are, first, an adequate surplus of the balance of payments, and, secondly, as good a rate of growth as we can achieve compatible with that. That requires, in the first instance, considerable restraint upon public expenditure which we are here achieving, but in the slightly longer term it makes it possible for public expenditure to grow at a reasonable rate.

Mr. Turton

To complete the picture, can the Chancellor give us figures for the demands on the National Loans Fund for capital expenditure by local authorities for the same period?

Mr. Jenkins

It is not normal, as I think the right hon. Gentleman probably knows, to publish this before the Financial Statement. It will be published then.

Mr. Sheldon

Will my right hon. Friend accept warm congratulations on bringing public expenditure under control? May I also congratulate my right hon. Friend the Chief Secretary, who has presumably played his part in all of this, for which we are extremely grateful? Will my right hon. Friend also accept that the next stage to be tackled is to define the choices open to us, realistically, so that we know in advance what they will cost?

Mr. Jenkins

I am particularly grateful to my hon. Friend for mentioning the Chief Secretary, because although it falls to me to make this statement it fell to him to do the extremely detailed work of public expenditure control throughout the year.

By publishing these figures for 1971 in considerably greater detail than hitherto —and I would be surprised if even my hon. Friend the Member for West Ham, North (Mr. Arthur Lewis) saw the details of these figures published previously—it will enable the House to improve the standard of rational debate about what are sensible priorities.

Mr. Richard Wainwright

May I ask the right hon. Gentleman two questions? First, as to his welcome promise to devise some more informative arrangement for giving the House a clear picture of the probable levels of public expenditure, will he include in this new picture provision for depreciation and obsolescence of Government assets, which he will recognise is part of expenditure? Secondly, does he agree that the required switch of resources to the balance of payments, of which he spoke, is substantially less than the loss of national income, which has been forgone forever as a result of particular Government measures taken recently?

Mr. Jenkins

I do not quite know what the hon. Gentleman means by the last part of his question. We have had a very high rate of growth during 1968, not as high as one might have liked to have seen, but certainly the highest rate of growth, combined with an improving balance of payments which we have seen in this country for well over a decade.

I will consider what the hon. Gentleman has said in the first part of his question.

Mr. Dickens

Will the Chancellor confirm that, whereas the level of private consumption is relatively the highest of any advanced industrial country, the level of central and local government spending is proportionately lower than that in West Germany and America?

Secondly, is my right hon. Friend aware that the sort of restrictions on public spending he has announced this afternoon for 1969 and years henceforth would have been totally avoidable if he and the Cabinet had pursued a policy of rapid economic expansion after devaluation, and put that first, instead of trying to achieve an unattainable surplus on the balance of payments?

Mr. Jenkins

I do not agree that it would have been then, or would be now, a sensible policy to ignore the balance of payments. Putting this right is the major priority for the country. I stick most firmly to that point. I cannot believe that it would be sensible to take another point of view at all.

As to my hon. Friend's first question, I would not like absolutely explicitly to confirm his figures, because there are so many different ways in which they could be presented. I would agree with his general proposition that it is, in general, the case that the level of private consumption in relation to other advanced countries is higher in this country than the level of expenditure.

Mr. Frederic Harris

Do the Chancellor's figures on the step-up of public expenditure of £75 million take fully into account the considerable increase in local government expenditure, much of which is incurred because of the dictation of the Government, and which subsequently has to be recovered from the ratepayers in higher rates?

Mr. Jenkins

Yes, it does, and that was a most important part of the reconciliation which I endeavoured, recognising the opaqueness of the subject, to explain to the House. It is an important difference between public expenditure and Supply expenditure, which are dealt with at this time of the year. I am not sure that I would agree with the general judgment the hon. Gentleman makes.

Mr. Cronin

While the objective of local authority expenditure should be brought into my right hon. Friend's policy, would he ensure that the Government have a more flexible attitude towards applications for loan sanctions from local authorities, as the rigidity which sometimes occurs causes economic disorder and some hardship?

Mr. Jenkins

I am all against rigidity and in favour of effective overall control, but the point which my hon. Friend raises is primarily one for my right hon. Friend the Minister of Housing and Local Government, who will, no doubt, take note of what he says.

Mr. Buchanan-Smith

In view of the priority which the Chancellor of the Exchequer gives to the balance of payments and, in particular, import savings, can he give us an assurance that in his estimate of expenditure full account is taken of the expansion of home agriculture as detailed by his right hon. Friend the Minister of Agriculture, Fisheries and Food last November?

Mr. Jenkins

It is certainly the case that just as in Cmnd. 3515, published in January, 1968, expenditure arising from the Farm Price Review was left to be taken into account later, as it has been in our accounts for this year, so in future this will be dealt with in approximately the same way.

Mr. John Fraser

Would my right hon. Friend concede that it would be possible to achieve a greater rate of public capital expenditure on the social services in general and housing, in particular, if he were able to achieve a greater switch from personal consumption to savings? Will he not rule out the possibility of a further increase on the Estimates he has given if he is able to achieve that switch from personal consumption into savings?

Mr. Jenkins

I am fully aware of the importance of improving the savings ratio, even though this remained relatively good, during 1968, contrary to views put forward at a certain stage; but there is room for improvement and I would like to see it improved. Were it improved, a number of things would flow from it and a number of competing claims could be taken into account.

Mr. David Howell

While the Chancellor feels satisfied with the level of public expenditure, would he not agree that there is still much to be concerned about in the rising cost of many public programmes? Would he not accept that, until the Government install new budgetary control methods in government, there will still be no room for complacency? Will he ensure that Departments have formal and specific cost reduction targets to bring savings as a habit into government?

Mr. Jenkins

I do not feel complacent about public expenditure, its methods of control, or its method of presentation, but it is easier not to feel complacent than to know exactly how to improve matters. None the less, I hope to make some improvements in the course of the coming year.

Mr. Whitaker

On the allocation of public expenditure, is it not a fact that the proportion of G.N.P. we are spending on defence is still far above the European average? As the Government were twice elected on a mandate of reducing the proportion and increasing the proportion of G.N.P. spent on overseas aid, what progress can we make in this reallocation?

Mr. Jenkins

I do not believe that this is so. I believe that we shall find that the proportion of the gross national product going on defence is coming down below 6 per cent. for the first time for a very long time and that we will see a substantial improvement from my hon. Friend's—I think sensible—point of view in our relationship with other European countries. We will also see a position in which defence expenditure is more below estimate, as it was last year, than any other major item of expenditure; and it will fall next year.

Mr. Nott

Will the Chancellor say why he leaves the estimates for the Price Review out of these figures? Would it not be a fact that if he brought the Review within the figures this could have a radical effect on them, assuming the Government intend, in due course, to go for agricultural expansion?

Mr. Jenkins

I leave the Review figures out of the statement for the good reason that they have not yet been decided on and that it would not seem a very sensible way of approaching the farming community to announce to them in a general statement what had been decided for them.

Nor do I accept the view that this in any way invalidates the figures, because last year we were in the same position when we announced our general statement. But that has not prevented us—this metaphor is always a little difficult —being a little below target at the present time so far as 1968–69 expenditure is concerned.

Mr. Emrys Hughes

In view of the urgent need to reduce public expenditure, would it not impress the man in the street and give a spendid example to local authorities if the Government looked again at the very big expenditure on the Investiture of His Royal Highness the Prince of Wales at Caernarvon and decided to postpone it?

Mr. Jenkins

I note that a somewhat different view is taken by my hon. Friend and the noble Duke, the Duke of Norfolk, on this matter. I am not quite sure which of them is the man in the street in this case.

Mr. Biffen

Can the Chancellor of the the Exchequer confirm that throughout he has been using figures he describes as "real terms"? These do not relate to the expenditure in the currency of any one particular year. In so far as public expenditure is very often very labour-intensive, and, therefore, will respond particularly sensitively to movements in wage rates in the public sector, can he say what, in actual terms, he expects will be the levels of expenditure in 1969–70?

Mr. Jenkins

I gave precisely that information in my statement. It is reasonable to give figures in real terms because the importance of Government expenditure in our national economy is essentially the call upon resources which it makes. But even if I were not arguing from that point of view, I could argue that the reason for treating it in real terms stems from the Report of the Plowden Commission, which was set up by the previous Government in 1961. That Report was published in a White Paper and governed the conventions with which public expenditure has been treated, at least since the publication of the Vote on Account, 1962–63.

Mr. Arthur Lewis

I congratulate my right hon. Friend on confirming the details that were published by the political correspondent of the Daily Express yesterday, including the fact that my right hon. Friend would be making his statement today. Will he investigate how the Daily Express got this information, or will he support the Motion which I put on the Order Paper yesterday, calling for a Select Committee to go into this?

Mr. Speaker

Order. The hon. Gentleman must put the last part of this question to the Leader of the House at Business Question time.

Mr. Arthur Lewis

Then may I ask the Chancellor whether he will inquire how the Press got all this information and the fact that he was to make his statement today, which was published in the newspaper yesterday? It can only have got the information from my right hon. Friend's Department.

Mr. Jenkins

I noticed one or two inaccuracies in the article. I can assure my hon. Friend that, if he studies the White Paper, he will see that it contains a great deal of information which, had it been published, would have covered not one column but half of the Daily Express yesterday.

Sir Ian Orr-Ewing

Is the right hon. Gentleman aware that the House will remember the Prime Minister saying in January, 1968, that many sacred cows would have to be slaughtered? The Chancellor has now told the House that public expenditure went up £705 million this year and is to go up £500 million in the coming year, which will be a great disappointment to the taxpayers who will have to meet the bill. Could he tell us what sacred cows have been slaughtered during the last 13 months?

Mr. Jenkins

Yes, the policy decisions which have been announced and the difficult decisions which have been taken. There would have been greater disappointment to the taxpayer if the defence policies which the hon. Gentleman advocates so frequently in speeches and letters to The Times were carried out, which would involve much higher levels of public expenditure.

Mr. Julius Silverman

Are we to understand from my right hon. Friend's statement that the rate of investment in the public sector will be declining, whilst the level of investment in the rest of industry is increasing? Are the Government satisfied that this rate of growth in essential public industries can sustain what is needed not only in that sector, but in the services that they maintain in the rest of industry?

Mr. Jenkins

My hon. Friend is broadly right in his assumption for the next year or so, but I am satisfied that this is a sensible development at present, because we have recently been through a very heavy period of investment, particularly in the electricity industry, which is now tailing off for natural reasons. Then, after a year or so, there are certain other public industries in which investment will grow. It is not a decision taken in the interests of holding down the total, except that we always want value for money, but as a natural result of the demands laid upon the nationalised sector.

Several Hon. Members rose——

Mr. Speaker

Order. I must protect the business of the House.