§ Mr. Speaker
Order. Before calling upon the Minister to move the Motion, I should tell the House that I know of 25 right hon. and hon. Members who wish to speak in the debate. I hope, therefore, that speeches from both the Front and back benches will be reasonably brief.
§ 7.26 p.m.
§ The Chief Secretary to the Treasury (Mr. Maurice Macmillan)
I beg to move,That thie House takes note of the White Paper on Public Expenditure 1969–70 to 1974–75; (Command Paper No. 4578).In the debate last year on the first White Paper of this kind the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) rightly forecast that it would affect the whole manner in which discussions on public expenditure, programmes and policy are conducted in this House.
The late lain Macleod, welcoming the advance represented by that White Paper, regretted that at that time there was no follow-up. At the same time he hoped that a consensus would grow between the House of Commons and the Executive on the way in which these matters should be debated.
This year we can say, as a House, that we have achieved both. The House returned to the problem with the debate on the Green Paper, Cmnd. 4507, presented by my right hon. Friend the Leader of the House in October. I think that the House will wish me to express gratitude to the Leader of the House, to my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), to the Select Committee on Procedure and, indeed, to many Members on both sides whose efforts have enabled us to reach a consensus, and a follow-up has been organised with the new Select Committee on Expenditure established in Standing Orders. I congratulate my right hon. Friend the Member for Taunton (Mr. du Cann) as its first Chairman.
The work of this Committee, and its sector sub-committees, is essential especially in view of the nature of these White Papers on Public Expenditure, for they are essentially published versions 118 of working documents giving very full and detailed information both of the whole public sector and demands on the economy and of the individual programmes within it.
It is not an economic plan; nor, indeed, as the right hon. Member for Stechford pointed out in last year's debate, should it be allowed to take us into the wider issues of economic management and forecasting. It is necessary, therefore, that the programmes and expenditure contained in the White Paper should be examined in detail in a way which cannot be done properly and effectively in debate in this Chamber on the White Paper as a whole. I think that it requires the Select Committee on Expenditure going beyond the Select Committee on Estimates, just as the Government, in successive White Papers, have gone beyond simple cash requirements. I am sure that the whole House will wish my right hon. Friend the Member for Taunton and his colleagues well in the important task which they are taking up.
The programmes set out in the White Paper, Cmnd. 4578, have already been seen in "New Policies for Public Spending", Cmnd. 4515, which gave figures for the individual programmes for the years 1971–72 and for broader groups of programmes for 1974–75. In both cases it related them to the programmes of the previous Government as at the time of the General Election.
The White Paper that we are now considering gives a fuller presentation of all the programmes in each year from 1969–70 to 1974–75. It differs considerably from the previous Administration's programmes, as set out in their White Paper—Cmnd. 4234. The changes are set out in detail in Appendix A to our White Paper. We distinguish between the changes made before and those made since the present Government took office, by showing the programmes as they were at the time of the publication of Cmnd. 4234 and, under the heading of "previous programmes", as they had become by June, 1970, with the alterations made in Cmnd. 4515 and, finally, the changes since then as set out in the present White Paper.
Before I go further into the details of these programmes and their presentation I want to touch upon the objectives that they are designed to achieve in relation 119 to the Government's policy in the public sector generally and our ideas for further changes and developments. The purpose underlying our policies is set out in the Introduction to the White Paper, which says:When the Government took office last June they carried out an immediate review of public expenditure up to 1974–75 in order to concentrate the activities of public bodies on the tasks which they alone can perform, to reduce substantially previous plans for public spending and to permit taxation, including personal taxation, to be reduced. The individual can then expect to keep more of what he earns and has a greater incentive to productive effort. A similar prospect, and a greater freedom of decision, is opened for industry and commerce. This is the way to faster growth of the nation's resources; while more resources are devoted to meeting the essential needs of the public sector.Hon. and right hon. Gentlemen opposite ought not to object to these objectives, for the need for such a policy was implied by the right hon. Member for Stechford when, speaking in last year's debate, he said:But if expenditure, with anything like its present composition, were to grow appreciably faster than the national output other claims to our resources would have to give way continually, and this would primarily mean personal consumption. There is a limit to what is feasible or desirable in this respect. If, on the other hand, we were to keep the growth of public expenditure down to a significantly lower level—as we had to in the period immediately following devaluation—we should before long find the standards of public service falling back.He then referred to some of the tasks that only public bodies can perform, and to the fact that a rising population means an increase in public expenditure. He continued:But one cannot allow the increase to be unrestrained and to assume that the required resources can be found when the time comes by preventing their use in the private sector without limit by higher taxation. The balance between the provision of services by the community and the right of individuals to spend their income as they themselves prefer is at all times. as I have pointed out before, a difficult one to maintain. Taxation raised on the scale that our society now requires affects a very wide range of people, and we must be realistic in realising that they are concerned both with the standards of the public services and with their own personal standard of living—not with either to the exclusion of the other …"—[OFFICIAL REPORT, 21st January, 1970; Vol. 794, c. 527.]It is a pity that the right hon Gentleman's policies were not framed to prac- 120 tise what he preached; instead, in last year's debate he assumed that public expenditure had been brought under control on the basis of the December, 1969 White Paper, whereas when we took office six months later, in June, it was clear that it had risen sharply enough to make it necessary to cut it back to avoid a probable need for further tax increases if the previous Government's programmes were to be maintained unaltered.
It was clear, too, that even as the right hon. Gentleman spoke in that debate, the process had already started that wrecked the underlying assumptions of his calculations. Even then industrial investment was falling off as profit margins were being more tightly squeezed. Even then the wages explosion had started and ever more inflationary wage settlements were pushing up prices, creating bigger deficits in nationalised industries, and helping to reduce company liquidity still further. It is no wonder that the "balance" referred to by the right hon. Member for Stechford in introducing the previous Government's White Paper had gone so wrong. It was in order to restore that balance that we carried out an immediate review of public expenditure up to 1974–75.
§ Mr. Peter Shore (Stepney)
The hon. Member is making a reasonable point in terms of the relationship between the growth of G.D.P. and the growth of public expenditure, but he cannot blame my right hon. Friend if the growth of G.D.P. falls when he and his colleagues are pursuing policies aimed at keeping down the rate of G.D.P. and justifying lower public expenditure targets on that basis. Why has he not put in the White Paper some of his own estimates of G.D.P. for the next five years?
§ Mr. Macmillan
If the hon. Member will allow me to make my speech in my own way we shall spend less time and get to the point just the same. I am not justifying reductions in public spending by recent falls, and the troubles that I have described. This is what happened in the last six months of the last Government. The difference between the situation as forecast by the right hon. Member in January and as it turned out in June was one of the biggest and relatively unexpected difficulties that this Government had to face on first taking office. 121 The White Paper that we are now debating gives a picture of our plans for future public spending. First, for industry and industrial investment public spending should not seek to undertake what could and should be left to individual organisations. It should be adjusted to the requirements of Government policy and should be really effective in achieving its object. In the White Paper the share of total public expenditure going to help industry and commerce is reducing from 8 per cent. this year—including investment grants—to about 4 per cent. by 1974–75. This is due in part to structural changes in agricultural support and investment incentives, and in part to other changes, by which other spending is falling at an average of about 7 per cent. a year.
The general schemes of support, including investment grants and regional employment premiums, were taking large sums, and there was little evidence that they were proving in any way cost-effective. I am inclined to agree with the hon. Member for Heywood and Royton (Mr. Barnett). His views on the subject are known, and he will doubtless forgive me if I quote what he said in the debate in January last year. He said:I have always made clear my opposition to the R.E.P. It is money for which we do not get an adequate return. My experience—and the figures confirm this—is that it is not justified.He felt similarly about investment grants. He said:The biggest figure relates to investment grants … This would be cheap socially and economically, if it did the job; if, for example, it produced more employment in the regions, and more investment both in the regions and elsewhere. But there is very little evidence that it is doing that."—[OFFICIAL REPORT, 21st February, 1970; Vol. 794, c. 640.]I entirely agree with that, as would my right hon. and hon. Friends. It is for this reason that our new policies are designed to relate investment grants in the form of tax allowances to profitability and have been reinforced at the same time by a start on reduction of industrial taxation.
Second, we are applying to nationalised industry the same criteria of cost-effectiveness as we are seeking to apply throughout the whole public sector, and indeed the private sector, too. As I said in the debate on 5th November: 122… industry and commerce feel, with a certain amount of justification, that public sector investment and wasteful public help for private lack of enterprise is taking too much; with the result that the private sector takes the burden in falling profit margins and credit squeezes while the public sector remains relatively unchecked and sometimes inadequately controlled."—[OFFICIAL REPORT, 5th November, 1970; Vol. 805, c. 1303.]One cannot ever judge public sector investment entirely by the same criteria as one would seek to apply to the private sector. That is obvious. But this does not mean that the investment programmes of nationalised industries must remain sacrosanct or that their needs can be judged purely subjectively and regardless of the state of the economy. so that they are exempted from all the pressures falling on the private sector. The old false claim that what is good for General Motors is good for the United States does not become true because the industry concerned is nationalised.
I know that we have so far made relatively little progress in this direction which can be described in the White Paper, but we are not considering plans which are static. As paragraph 4 in the White Paper says:Changes will continue to be made in the programmes as the review of Government functions and other public sector activity progresses.The Government's approach was described in the White Paper "The Reorganisation of Central Government". The investment needs of the nationalised industries represent a significant demand on resources and a review of their activities has therefore been put in hand to complement the review of the Government's own functions. Forward expenditure plans will reflect the outcome of these further reviews, the results of which will be made known as decisions are taken.
In considering our policies after the review of public spending, and in setting them out in these White Papers, we had a third thing to do. We had to regain control of public spending, to reduce the previous expenditure plans without damaging the essential programmes which the Government alone can carry out. This, indeed, was a considerable change from past policies.
Public expenditure has been growing at a rate so wildly out of step with the growth of G.D.P. that the cuts from right hon. Gentlemen opposite, when they came, 123 were sharp indeed. In the four years 1965–66 to 1969–70 successively—this is excluding investment grants, selective employment premium and regional employment premium—public expenditure was rising by 6.6 per cent. and the gross domestic product by 1.8 per cent. in the first year; public expenditure was up by 9 per cent. and G.D.P. by 2 per cent. in the second year. Then came the cuts. In 1967–68 to 1968–69, public expenditure rose by only 1.6 per cent. and the gross domestic product by 2.4 per cent. In the last year, there was no increase in public expenditure and the increase in G.D.P. was down to 1.7 per cent.
So there was no growth, and the effect of the cuts can be shown by the fall in the purchase of resources net of charges. In the first two years, the increase in the Government's direct purchase of resources was as much as or greater than the increase in public expenditure as a whole. In the last two years, there was an actual decrease. This meant that the programmes themselves—programmes which only Government can carry out—were, as we all know, reduced and their continuity damaged.
As a great contrast, as we describe in the White Paper, we increased spending which we considered too low—on primary schools, hospitals, services for the care of the old, and help for the low-paid families in full-time work. We have changed other policies to concentrate the help, often increased, on the various free services, benefits in kind and subsidies for housing, where need is greatest. Indeed, as I said in the debate on our previous White Paper, our savings have not reduced the resources available for main line activities, nor do they cut capital programmes. We are increasing the real resources, public and private, which will be devoted to education, health and welfare.
This question of the use of real resources is nothing new, as Mr. Peter Jay implied in The Times, commenting on Mr. Godley's analysis. Indeed, in table 1.4 in the White Paper, the point is made quite clear, that this policy involves, between 1970–71 and 1972–73, an increase in the purchase of resources by an average annual rate of 3.3 per cent., compared with the rate of growth of public expenditure as a whole of 2.6 per cent. The calculations which have been done beyond 124 those years cannot have been derived from the White Paper itself, because no information has been published of the composition of programmes, for the simple reason that, for a number of them, the relevant decisions have not yet been taken.
Nor indeed, can one—as Mr. Jay did in The Times—compare the steady increase shown in Table 1.4 with 1965–66 to 1970–71, a period which includes the three years post-devalution, when the Government reversed the public expenditure trend. So any average of those years is the result of two years massive direct claims by Government on resources, followed by two years when claims were actually reduced.
But there is one comparison—and only one—which takes into account all the programmes published. It is between last year's White Paper, the programmes as they stood when we took office, and the programmes as they stand now. That comparison can be made only for 1970–71 to 1971–72.
If one looks through that change at the increase in the purchase of resources at constant prices by the Government, one will find that, in the programmes set up in Cmnd. 4234 the previous Government's White Paper, gross of charges, the rate of increase was 3¾ per cent. per year. At June, 1970, the rate of increase of these programmes was at 4 per cent. a year. In this White Paper, they are 3¼ per cent. Net of charges, the figures are the same for the previous Government's programmes and reduced by ¾ per cent. for our programmes.
§ Mr. David Marquand (Ashfield)
I been trying to follow the Minister, and it it is a little difficult. Can he say now, definitely, whether Mr. Godley was right about the last two years of the five-year cycle, in saying that the public sector's claim on resources will be rising more rapidly in the last two years of those five years than in the first three?
§ Mr. Macmillan
My hon. Friend the Financial Secretary will hope to develop this, among other points, when he speaks later. In the meantime, I will not comment on Mr. Godley's analysis. He is making an assumption on matters of policy which the Government have not yet decided.
He may think he knows what we shall do, but it is not possible, as I have said, 125 to make such a calculation involving the rate of increase in the purchase of resources from the information contained in this White Paper beyond 1972–73, because no information on the composition of programmes beyond that point is published in the White Paper. Thus, any calculation which anybody makes, be it Mr. Godley or anyone else, must be his own and cannot be derived from the information in the White Paper.
§ Mr. Joel Barnett (Heywood and Royton)
Is the Minister saying that Mr. Godley is wrong in his estimate because the figures given in the White Paper relating to the period beyond 1972–73 are meaningless?
§ Mr. Macmillan
Mr. Godley has drawn some conclusions from assumptions he has made based on an analysis which is entirely his own. It is not a conclusion that can be drawn in any way from the White Paper and it must have been drawn from information which is not published in the White Paper, since no information so published in it would enable him to make such an assumption.
It is, therefore, open to virtually anybody to make that sort of assumption about the future; and the judgment of any person must depend on that person's skill and ability to forecast. But it cannot depend on any link that is made between that judgment and this White Paper because the necessary information is just not in it. There is, therefore, no connection between the two.
Mr. Godley has made his own mediumterm assessment and has published the result of that, relating it to the White Paper in a way which implies that the White Paper is also a medium-term assessment. However, this White Paper, like that produced by our predecessors, is not. We have made it as clear as hon. Gentlemen opposite did last year that this document does not contain the material necessary to make such an assumption.
As the right hon. Member for Stechford said, it does not include material to adduce a balanced argument about economic judgments or management. This is why I cannot give an opinion, based on this White Paper, of Mr. Godley's judgment; simply because, as I have said several times, the information 126 on which to do is not contained in this White Peper.
§ Mr. Macmillan
I will not give way. I have given way quite enough.
This comparison of the change in the purchase of resources shows that despite keeping our main programmes intact, and increasing some, the purchase of real resources by the Government is now running at a reduced rate of increase. It is less than that of the previous Government, as published in the White Paper, and as the position stood at the time of the last election. This is true both taking charges into account and ignoring the effect of them. Reductions in expenditure on the direct use of resources are not solely due to increased charges, as has been suggested—[Interruption.] This was the clear implication of the line taken by Mr. Jay in The Times.
I have gone into this detail because there has been a misunderstanding, perhaps a wilful misunderstanding on occasions, on this issue. The fact that Government purchases of real resources, though rising faster than public expenditure as a whole, have been slowed down, is a factor which is being ignored.
If hon. Members are seeking to find in this some prospect of forecasting the Chancellor's Budget judgment, then I must remind them that we are in agreement in saying that such a use cannot be made of this White Paper. The prospect of tax reductions depends not only on—[Interruption.]—resources but on public expenditure as a whole and on the whole prospect of the economy.
§ Mr. Sheldon
Is the hon. Gentleman so dependent on his brief that he cannot depart from it for a moment and give way to me?
§ Mr. Macmillan
Whatever the hon. Gentleman chooses to say, my hon. Friends and I know his motive. I will not be put off by what he says and I will not give way.
§ Mr. Deputy Speaker (Sir Robert Grant-Ferris)
Order. It is obvious that the Minister has no intention of giving way. That being so, the hon. Member for Ashton-under-Lyne (Mr. Sheldon) must not persist.
§ Mr. Macmillan
The point I made in relation to resources is also important in the light of our new approach, which is, first, to consider the need of public expenditure and for what it will be required—how much is needed and for what it is needed. We are doing this first, rather than trying to predict the rate of growth of total output and then seeking to justify the rate of growth of public expenditure in reference to it.
It is partly this new approach which has led to a number of changes in the presentation of the White Paper. For example, it is partly for this reason—because it would have been inconsistent with our new approach—that we have left out the revenue table. We have taken this line for other reasons as well. Our predecessors made ambitious plans on the basis of optimistic and unrealistic assumptions about the rate of growth of output and this led successively to disillusionment and crisis cuts in expenditure. We do not intend to follow that road. We are not in favour of presenting forecasts when there is no reasonable basis for them. For this reason there are no revenue projections in this White Paper.
After all, revenue projections depend on taking a view of a whole range of future developments, including the future rate of growth of real resources, the rate of growth of wages and salaries, the future level of profit margins, the movement of world prices and of individual savings, investments and so on. We believe that no Government should make the sort of assumptions which have been made hitherto about these developments, and when the right hon. Member for Stechford was Chancellor, he did not make them, either. It is difficult, in any case, to judge such projections on their merits. In a static situation it is hard enough to complete this exercise. In the present situation of inflation, with a very 128 wide range of possibilities being plausible, it is even more difficult.
It is not surprising that past projections constructed in this way proved to be unsound. It is not surprising that revenue projections are liable to be wholly misleading. In view of the policy which we have announced—of making major changes in the tax structure—such projections, which depend on the tax structure being unchanged, would be likely to be even more irrelevant.
I think that the whole House appreciates the reasons which led to this innovation in last year's White Paper. I must say that I think that it was a fine idea, but I do not believe that it really worked. We have tried to make the public expenditure picture clearer in other ways, by a careful comparison with past programmes, as I described at the beginning of my speech, by carrying through the relative price effects into individual programmes, by trying to provide even more detail than before, and by setting out programmes for a lull period with varying degrees of firmness for the later years rather than dividing them into two sections, firm for the first two years and provisional thereafter.
A word now about these aspects of the White Paper. I think that the setting out of programmes at constant prices is a convention which tends to distort their cost in terms of the calls which they make on the nation's resources. It pretends, as it were, that public sector prices do not move at all or that they move all together in step with one another and with the economy generally.
It has long been recognised that some adjustment was required to reflect the position more accurately. In last year's White Paper, the innovation was made and this adjustment for the relative price effect was made to the totals of public expenditure. This year, we have been able to go a step further and carry through the adjustment to individual programmes, whenever this is practicable, though in some cases—for instance, overseas aid, housing and agriculture—it is not possible to do that.
I hope that the House will feel that this provides the more realistic detail which, I think, is especially appropriate in the year in which the distinction has 129 been abolished between "decided programmes" and "provisional allocations". I am glad that we were able to do this, because there was always something a little unreal in the contrast, with one section of programmes which it was hardly possible to modify from years one to three, then suddenly becoming open to change, as it were.
I think that the distinction of "decided" and "provisional" is a great deal clearer on paper, than it is in the real world. In fact, all the programmes set out in the White Paper are open to discussion, although, as is said in paragraph 7 of the White Paper:Subject to the points in the previous three paragraphs the totals given in this White Paper for various programmes are those which the Government have decided upon for the purposes of managing public expenditure up to 1974–75. In general there is scope for greater flexibility the further one looks towards the end of this period.That is obvious. The firmness of the figures is clearly indicated in the White Paper. It has been suggested to me that this system gives less opportunity for right hon. and hon. Members to discuss the programmes, but this is not so, because in the White Paper a lot of trouble is taken to make plain exactly what is the status of the particular programmes concerned, either in the introductory passage or in the individual chapters.
This change is in line with the change of approach which I referred to earlier and which we intend to develop further. Admirable though the system of controlling public expenditure is as it has been developed over the years, it is not yet an effective system for considering expenditure in terms of the objects of particular programmes in relation not only to the particular policy or particular need but also to other objectives and other needs.
We are determined to make improvements in this method of handling and managing public expenditure, and the first step is a scheme of programme analysis and review for selected programmes, designed to improve the basis of public expenditure decisions. My right hon. Friend the Prime Minister announced this in the House last month, and I understand that my hon. Friend the Financial Secretary, if he catches the eye of the Chair later, will refer to that aspect of the future in more detail.
130 I hope that this method of programme analysis and review, and the various improvements which we have made in the White Paper, will be part of a continuing process of improving arrangements for public expenditure and clarifying the methods by which programmes are put before the House in the White Paper. I am sure that a number of refinements can still be made. I have no doubt that this debate and future discussions by the Select Committee will bring out many suggestions, and I look forward to hearing and seeing them. Meanwhile, I commend the White Paper to the House.
§ 8.6 p.m.
§ Mr. Dick Taverne (Lincoln)
When last year's White Paper on Public Expenditure was debated for two days, it was universally agreed on both sides, I think, that similar debates in the future would last two full days and would be one of the two main economic debates of the year.
No doubt it was to be expected that it would take time before the House recognised the full significance of this debate. and before it attracted the attention and attendance of a Budget debate. Budget debates are, after all, part of a long tradition, with their special drama and their own ritual, with some hon. Members arrayed in special sartorial display. Moreover, they are more immediately controversial because the Chancellor's tax proposals give rise to divisions on party lines.
But many of us feel that this debate is potentially far more important even than what is debated at the time of the Budget, for we are here looking five years ahead at decisions which determine the spending of something between one-quarter and one-third of the goods and services which the country produces. We are looking at the pattern of social development which is laid down for many years ahead. We are looking at the major determinants of the quality of our society. It is, after all, from public expenditure that the basic standards for a large section of our population are provided, and it is on public expenditure that the majority of the population depend for some of the most important things in life.
Again, the decisions which we are considering today are decisions which themselves create in future years the framework within which the Chancellor of the 131 Exchequer has to operate. Moreover, while what is done in the Budget can be reversed through the use of the regulator, it is far more difficult to alter the decisions on public expenditure in the short term. One cannot, therefore, overemphasise the importance of the sort of debate upon which we are now engaged.
In these circumstances, it is utterly deplorable that we are restricted to one day and, owing to unfortunate circumstances, to the tail end of the day, ending at one o'clock in the morning.
§ Mr. Kenneth Baker (St. Marylebone)
It is not the Government's responsibility that we are beginning this debate at seven o'clock and going on till one o'clock in the morning. The responsibility lies with the right hon. Lady the Member for Blackburn (Mrs. Castle). Is it not usual for members of the Opposition Front Bench not to move the Adjournment under Standing Order No. 9 but to take a half-day on Supply? That is the way it should have been done, and in that way we could have taken full advantage of our time on this important subject.
§ Mr. Taverne
A very urgent matter had to be raised, and it could not be postponed and taken under the ordinary Supply Day procedure, The reason why we have to go until one o'clock today is that we are restricted to one day instead of the two days which should have been allotted.
§ Mr. R. H. Turton (Thirsk and Malton)
One cannot allow that to go uncorrected. The rules of the House always allow for an emergency half-day on Supply to be taken by the Opposition when they want a debate to come on quickly. My hon. Friend was alluding to that. That is the normal behaviour for the Opposition Front Bench.
§ Mr. Taverne
It was nevertheless in order to get a quick debate on the subject that we had to break into this debate, and we have been restricted to having this debate at this time because we are not to have the two days which it was originally envisaged would be devoted to a debate on public expenditure.
The reason why we have not had two days is that the Leader of the House said that we had already had two days on the November mini-budget, but that is 132 not even the beginning of an excuse, because in November the debate inevitably concentrated on the immediate impact of the Government's measures, on the tax cuts and spending cuts then announced, and their relation to this debate is much the same as that of an autumn Budget to the main Budget, and it certainly has never been used as an argument to restrict the debate on the main Budget that there has been an earlier debate in the autumn.
In future, there may well be announcements in the autumn when not only budgetary measures, but changes in public expenditure are announced. If the Government are to follow the policy of the Labour Government and encourage a full and considered discussion of the future patterns of public expenditure, they must help to build up the debate, not down-grade it.
§ Mr. J. Bruce-Gardyne (South Angus)
As the hon. and learned Gentleman is making such a meal of it, would be acknowledge that the Leader of the House has already undertaken that in future there will always be a two-day debate?
§ Mr. Taverne
It would have been more appropriate if we had started with two days on this occasion. This is not a very encouraging atmosphere in which to build up a debate which must be built up in importance in the course of time.
There is one thing which we will all welcome as the Chief Secretary welcomed—the setting-up of a Select Committee on Public Expenditure. I am sure that future debates and future White Papers will gain enormously from the work of that Committee. It will enable the House to play a greater part in the consideration and formulation of public expenditure plans, and I believe that it will assist the Treasury.
Personally, I have only one reservation. Because of the restricted size of the Committee, the scope given to its specialist sub-committees is far too wide. Some will have an enormous range to cover, and with only eight members it will be difficult if not impossible adequately to cover all that they have to cover. I appreciate that the Leader of the House had qualms about the burden on back-bench Members if too many were appointed to the Committee, but there are many hon. Members on this side of 133 the House, and I am sure that there are many hon. Members opposite, who would have been only too glad to have been added, and I hope that as soon as possible the Leader of the House will see fit to enlarge the Committee so that its job may be done properly.
Before coming to the specific details of the White Paper, I should like to make some general comments, as did the Chief Secretary, about the proportion of public expenditure to the gross national product as a whole. It is the constant theme of the Government that public spending in Britain is far too high and should be urgently reduced, and in the White Paper they have boasted that they have considerably reduced it. I shall return to an examination of the boast.
Contrary to popular belief, it is a surprising fact that this country does not devote a particularly large part of its gross national product to public spending. It is true neither of spending on goods and services nor transfer payments. International comparisons are somewhat difficult and possibly misleading because different items appear under different headings in national accounting systems which different nations use, but a careful analysis published by Professor T. P. Hill in the National West[...]inster Bank Quarterly Review of February 1969 shows clearly that public spending is higher in countries like West Germany, France, the Netherlands, Norway and Sweden than it is here. That article was published some time ago, but its main point is still perfectly valid. Those countries spend a higher proportion of their total national wealth on education, health and the social services. The only areas in which our spending is relatively high are defence and servicing the National Debt. In Britain we spend a larger proportion of our national wealth on consumption.
The picture of Britain as a country where far too much of our national wealth is spent for us by the State, a picture which hon. Members opposite are so eager to create, is therefore totally misleading. It is true that investment takes too small a proportion. It is also true that the total which goes on providing the basic needs for those who have less than average or average incomes compares unfavourably with most advanced countries in Europe.
134 The limiting factor, of course, is the rate of growth. It is far easier to follow a policy of redistribution in a climate of expansion than in one of relative stagnation. It may be tolerable to limit the rate of expansion of consumption below the average rate of the growth of national wealth if the latter is going up fast and still leaves room for a considerable increase in personal wealth. There are enormous difficulties in the way of increasing the share of public expenditure if as a result the ordinary person's expectation of a rising standard of living is severely disappointed. A recent O.E.C.D. report shows that public expenditure grew fastest, both in absolute and relative terms, in those countries where the overall growth rate was fastest and so growth must be our top priority at the moment.
But to create a civilised society it is essential that we seek to influence public attitudes to public spending, and everything the Government have said has had the opposite effect. The boast of the White Paper is that they have cut public spending for the next few years but when carefully analysed this is seen to be vastly overstated. In all their speeches and propaganda they seek to turn the public away from a civilised society which requires a high level of public spending and they propagate individual enrichment as the main purpose of the social life.
I come to the particular contents of the White Paper. First, I should like to welcome one new development, the inclusion of the relative price effects in the estimates for the individual programmes to which the Chief Secretary referred helps us a great deal, because it enables us for the first time to make a proper comparison between future growth rates and past growth rates of particular programmes. It is an important advance and it is fair to congratulate the Government upon it.
But the main difference of presentation between this year's White Paper and the last, as most hon. Members on the backbenches would agree, is regrettable and it is to leave out the public sector receipts and the balance between receipts and expenditure. The Chief Secretary said that it was necessary to do so because the forecasts of these receipts were inevitably unreliable, because the Government did not wish to make forecasts of a kind on 135 which we could not rely. But the whole of the Budget is based on uncertain forecasts and the Treasury has medium-term assessments and there is no reason why forecasts of this kind should not be published. Not having them leaves our discussion of public expenditure as a whole in a kind of vacuum.
We are left to guess or to rely on outside estimates for a broad measure of the buoyancy of the revenue. We have no indication of the kind of borrowing requirement in the public spending programme on the basis that present policies for taxation would imply We are in a poor position to judge whether the overall view of public expenditure would enable it to be increased, or would require its further reduction. We are without the tables which were published last time and which the House found useful, tables 1.2 and 1.7, which appeared in last year's White Paper and which helped us to assess the implication of the public expenditure projects therein contained.
To get the proper picture of the demand effect, one needs the medium-term assessment itself, and this has always been one of the pieces of information which the Treasury has been reluctant to impart. It has been afraid that the debate would become a not so much a public expenditure debate, but a general economic debate which would include consideration of future levels of taxation. Whether or not there are reasons for not going the whole hog, it seems regrettable that we now take a huge step back and that the Government are to withhold information which could of itself be useful. The Chief Secretary said that the assumptions must be arbitrary and uncertain. But they never did represent Government commitments and explicit Government decisions. This was all fully set out in the last White Paper, at paragraphs 18–21. Everybody knows that there will be tax changes, but at least the receipts gave us some sort of guide to what effect public sector operations would have on real demand.
If uncertainty is the reason, then the whole White Paper is riddled with uncertainties and arbitrary assessments. The figures for the saving on assistance for housing are not even published. An 136 overall figure of £150 million is given. The whole increase in social security programmes is specifically and rightly said to be based on certain projections which in the event will not be realised. There are constant references to previous programmes, which refer to long-term costings which represented not firm decisions by the previous Government but the kind of projections on the basis of no change in policy which the receipt projections were based on. This is a most regrettable regression, and not an advance.
I now come to the nature of the cuts. Paragraph 8 proclaims that public expenditure for 1974–75 is… over £1,500 million lower than the previous programmes as they stood when the Government took office.That was the message that obviously featured very prominently in the Lobby briefing given by the Chancellor when the White Paper was published. But the figure is a phoney. The savings have to a large extent been falsely claimed, and the right hon. Gentleman must have known it when he briefed the Lobby to that effect. Indeed, we can see from the White Paper that it is a totally unrealistic figure. First, part of the £1,500 million is accounted for by shortfall. "Shortfall" is simply a way of stating that in practice the money allocated to a particular programme is never fully spent when it comes to the end of the year. There is always some over-estimating. It is not a cut but simply a reflection of the money that would not have been spent in any event. To claim that it is a cut is to mislead. The Government are again guilty of the kind of misleading of which they were guilty at the time of the November mini-budget, when they said that they had cut back expenditure for the year 1971–72 by £350 million, when in fact £100 million of that was the latest estimate of shortfall. The same kind of claim is again made now.
Next, it is noteworthy that the claim of a £1,500 million saving over the programme for 1974–75 is a comparison with so-called previous programmes of the Labour Government. But in fact no firm estimates had been made by the Labour Government for a period after 1971–72, which was year 3 in the last White Paper, and no figures of any kind were published for a period after 1973–74. 137 As far as I know, no Treasury Ministers ever considered the 1974–75 figures as a whole. Of course, individual Departments had their plans, and officials in those Departments may nor may not have submitted them to their Departmental Ministers, but until comprehensive figures have been considered by the Public Expenditure Survey Committee and submitted to Treasury Ministers and decided by the Government, there is no programme for the year in question. To claim that these were savings on 1974–75 is to mislead. Indeed, when dealing with the article by Messrs. Godley and Taylor, the Chief Secretary is now at pains to emphasise that there have been no decisions for 1974–75. There have been no firm decisions for that year, yet it is claimed that £1,500 million has been saved on the 1974–75 figures over the previous programmes of the Labour Government.
This operation is most blatantly obvious in the case of defence. It is claimed that there is a saving of £132 million on Labour's defence budget for 1974–75, which in fact did not exist. Once again, the last two firm estimates of the Labour Government covered the years 1970–71 and 1971–72. No figures were decided for 1974–75, even in outline.
To discover the truth we must look at Table A.7 in Appendix A, where we find the words "previous programmes" marked with an asterisk. That is at the top of page 67. The asterisk takes us to the small print on the next page, that is to the asterisk at the top of the page. which refers us in turn to the foot of page 5 of the October statement, which shows that what is referred to islong-term costings of defence policy.That is a very long way from definite decisions taken by the previous Government. In the Government's own defence projections for 1974–75 we find the total exceeds by over £100 million the last agreed firm figures for three years back.
Where are the policy changes that have produced the cut of £132 million? Where are the decisions about cancellation of equipment, or the reduction of the number of Servicemen? Programmes are cut not by juggling with figures but by policy decisions.
We find, first, in Table A.7 that the total savings under "Expenditure" add 138 up to £1,267 million. However, we must add to that the £150 million which is postulated for housing subsidies, making a total of £1,417 million. But the major part, from which we must deduct £132 million for defence, is made up by the substitution of investment allowances for investment grants, which accounts for do less than £600 million of the total. In real terms the saving on balance between the end of grants and the introduction of allowances is very small. We learn today that it is even smaller than had been supposed. The Government should be clear about the kind of assistance they are giving industry. On Thursday we heard from the Prime Minister that the new measures for special development areas would add another £25 million. But a correction is to be issued which makes a difference for this year of the complete £25 million, since there is no expenditure for this year. Far from an extra £25 million, there is to be an extra £2 million for next year, rising eventually to £10 million. These are not minor differences but represent a major mistake, and I hope that a major apology will be made pretty soon.
But the main point is that this major cut of £600 million is no cut at all. This is recognised at the end of the White Paper, where the effect of replacing investment grants has been discounted. We are left with some figures for a cutback in nationalised industries' capital expenditure, some reduction in the expenditure on roads, research councils and "other expenditure on agriculture", and otherwise, with reductions in purchases of assets, the increases in charges, and, above all, with the two biggest items, the replacing of the agricultural subsidies by levies and the reduction of the housing subsidies. Of the total of over £1,500 million claimed, if one deducts the shortfall, the changes in estimates, the £132 million phoney saving on defence and the £600 million saving on investment grants, one is left with some £500 million, most of it a straight redistribution from the poor to the rich. It is a transfer from taxation to consumption, and that is the true story behind the much boosted cuts.
So what we are discussing in the programme outlined in the White Paper is, over all, a programme of cuts mainly concentrated in the transfer category of public expenditure. There are some savings 139 in the assets category, such as the ending of the I.R.C. and the Land Commission. But what, after we see the true nature of the cuts, are the implications for future levels of taxation? We know from the first Green Paper and the previous White Paper that public expenditure on the acquisition of assets has little effect on demand. We also know that the demand savings of cuts in transfer payments are limited and have little effect on resources. The amount spent on council house rents after all will not be lower; council house tenants will just have to pay more—a great deal more, because, in addition, some of the less money available will go to private tenants. Somewhat less, I suppose, may be spent on food because those worst off may be less able to afford food, but basically the substitution of agricultural levies for subsidies transfers the burden from the taxpayer to the housewife. School meals will still be served, but what the taxpayer is saved the parents will have to pay instead.
The crucial category of public spending in its effect on demand—the room it allows for private investment, exports and consumption—is that of spending on goods and services, and here there are no cuts. How far, therefore, do the plans of the White Paper allow room for the lower level of taxation on which the Government have set their hearts? I come to the article to which the hon. Gentleman referred, by Messrs. Godley and Taylor.
In the first article, the authors have done some of the calculations which one might have hoped to get from the Treasury. They certainly cannot provide hon. Members opposite with any great joy. They point out that the public sector's claim on resources has not been reduced and is likely to rise faster. The Chief Secretary said that there were no decisions for after 1972–73, but Messrs. Godley and Taylor say:…the Government have been at great pains to show in detail how their plans relate to those published by the Labour Government in December, 1969, … and also to show the consequences for tax revenue of their own expenditure decisions to date.So they have done a comparison with Labour's plans. They state:As the economic classification contained in Cmnd. 4234"—140 that is the Labour Government White Paper—is a very detailed one, it has been possible by using information from both White Papers to construct an economic classification for the whole period to 1974–75.That is the point which the Financial Secretary will have to answer. If one combines with that the fact that there is a drop in shortfall—and this is probably largely to be attributed to the public use of resources—one comes to the conclusion that there is a rise in the public use of resources which is going to continue at a much greater rate than the growth of the national product envisaged.
But the omens are less favourable than that because the Government seem to regard a rise in unemployment as an important part of the anti-inflation campaign and the prospects of a recession cannot be discounted. The signs are ominous for growth rate over the next few years. What does the analysis imply? That the level of taxation will not be reduced or that we are likely to see a far more drastic reduction in public spending, particularly in the goods and services sections, than anything we have so far envisaged?
I have not dealt with any of the particular items in the projections, and no doubt many of my hon. Friends will deal with them in detail. I have not dealt with the question of the Policy Analysis and Review or the Central Capability Unit. The issues which should be discussed are numerous and this only emphasises how inadequate is the time we have been allotted this year. The form of this White Paper, despite some progress, is, on balance, a step backwards. The savings which are claimed by the Government by their policies embodied in the White Paper are, to a large extent, a sham and an illusion. The implications of the White Paper seem to be that the Government must either abandon their promises of further tax cuts or make far more damaging cutbacks in public spending.
Lastly, the purposes of the civilised society are not served by a Government who whip up public opinion against public spending, and whose main changes from the previous programmes have been to transfer wealth from the worse off to the better off.
§ 8.35 p.m.
§ Mr. R. H. Turton (Thirsk and Malton)
To revert, if I may, to the early part of the speech by the hon. land learned Member for Lincoln (Mr. Taverne), I think we are in danger of misunderstanding the position about the two days on the White Paper, because I, and other hon. Members who were members of that Select Committee on Procedure which recommended a two-day debate, had understood it to be one day provided by the Government and one day on the Vote on Account when we should be reviewing the work of the Select Committee on Expenditure we were recommending being appointed.
As that Select Committee has just been appointed, and as we had a debate in November on public expenditure, I think we can be fairly content with the allowance of one day this year, when we have got the promise of two days in future. However, I should like to know, when my hon. Friend winds up, whether it is intended that the second day in future will be a day on the Vote on Account or whether that recommendation is not being adopted.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
Perhaps I may be allowed to intervene to say that I gave my right hon. Friend the undertaking that in future years the Vote on Account would be taken at the same time and would be, as it were, debated at the same time though the Question would be put separately. Whether it means in fact a day on the Vote on Account, which is purely an arithmetical figure taken from last year's Estimates, is, I think, very much open to question.
§ Mr. Turton
That was the recommendation, and I mention it only because there was in the House last Thursday a passage which led people to think that there had been some change. Today it is unfortunate that we have to debate this so late in the day and so early in the morning.
What I would draw to the attention of the hon. and learned Member for Lincoln is that Standing Orders provide for the Opposition at 24 hours' notice to demand a half Supply Day on a matter of urgent importance. It is quite additional to Standing Order No. 9, which is designed for the use of back benchers. It is a pity, 142 I think, that the right hon. Lady the Member for Blackburn (Mrs. Castle) did not exercise her prerogative and ask for that half-day. The Opposition is allotted one half-day in each quarter of the year.
Let us move away from that, though, as there is little time, because I know that many hon. Members want to speak and I want to limit my remarks to the bare minimum.
First let me take up the matter of the form of the White Paper. The Select Committee, of which I was a member, during July, 1969, recommended seven changes in the then form of the White Paper, and I should like to pay my tribute both to this Government and to their predecessors for adopting four of those changes. In particular, this White Paper which we are discussing has a far better comparison in detail with the previous White Paper and the changes of policy than has been done hitherto. That was a recommendation of the Select Committee and is an advantage.
The other advantage of this White Paper is that we have capital expenditure by function, and we pressed for that in our Report, and I think that it enables one to see a very good picture of the capital side.
May I touch on two points where we have not been met; or, in one case, we have not been met, and, in the other, as the hon. and learned Member for Lincoln said, there has been a withdrawal. First of all, on expenditure overseas, we have pressed that there should be a table showing overseas expenditure so that the country can see exactly how far Government expenditure is affecting our balance of payments. We raised this with the then Chief Secretary, before we made our recommendation, and Lord Diamond, as he now is, said:The frank answer is that the purpose of this document is not to assist hon. Members in their understanding of the balance of payments problem.This strikes me as—
§ Mr. Turton
—as the hon. Gentleman says, a typical Treasury answer. When I renewed the appeal I was hoping that this would help all hon. Members and the public. We must remember that White Papers are designed not only for 143 our special delight but also to help the country to understand public expenditure. Whatever differences we may have, we are all concerned about the effects on the balance of payments of Government expenditure overseas. I beg the Chancellor of the Exchequer to reconsider this unanimous recommendation of the Select Committee and a future White Paper to introduce it.
My one great regret about this White Paper has already been touched on. Unlike its predecessors, it is completely silent on the future of receipts. It is an extraordinary position. We are told that this is so because anything on the receipt side looking forward is bound to be an arbitrary assumption, but so is everything else in a public expenditure White Paper. We are told that it is misleading, paragraph 30 of the Green Paper "Public Expenditure: A New Presentation", Cmnd. 4107, states:The third change will be to present, along with expenditure, projections of all receipts from taxation, contributions and charges … The main purpose is to overcome the problem that public expenditure figures may always be misleading so long as the revenue side is not presented at the same time.I should have thought that that still holds I feel sure that errors have been made in the past, and I hope that whoever replies to the debate will lift the curtain a little on how far the public expenditure receipts in the White Paper Table 1.2 were wrong last year. I should have liked more detail to be given in that table. We have no detail at all, and it is important that we should have. I am not asking for any disclosure of a Budget judgment but merely, with the tax system as at present, what is the Chancellor of the Exchequer's estimate, the Treasury estimate, of what the receipts will be one, two or three years ahead. I can see that there is difficulty in going to the fourth and fifth year, although the Select Committee did ask for that information.
§ Mr. John Nott (St. Ives)
I am sorry to interrupt my right hon. Friend, but I should like to make this point: we have to go to today's Defence White Paper to get the Treasury's estimates for inflation next year. If it is possible to put these figures in the Defence White Paper, we should have them in this White Paper.
§ Mr. Turton
I hope that my hon. Friend will be able to make that point. I want to be as short as I can. He seems to be agreeing with me, which is a delightful occasion.
To come from the form to the substance of the White Paper, here I part company with the hon. and learned Member for Lincoln. I find no difficulty in understanding the Government's reductions in expenditure both in the present year and in the five years ahead. The White Paper surely gives the picture of the effect of a decision to make certain cuts. For the current year there will be a reduction of £469 million, but the full effect of the reductions in expenditure will not be seen until five years forward, when the figure increases to £1,500 million the year 1974–75. What was the Labour Government's policy for 1974–75? They had no such policy and nobody would accuse them of having one. Obviously that would have been unwise since they knew all along that they would lose the election.
§ Mr. Turton
The expenditure and the consequences of growth are being cut by that amount. The hon. and learned Gentleman said that it was improper to bring in a shortfall, but it must be remembered that that shortfall is an element of £100 million out of £1,500 million. It may be a wrong thing to put in, but it does not affect the matter.
The decision of the present Government to cut expenditure by roughly £500 million means in effect that in four years time the figure will rise to £1,500 million. It is an extremely small cut when one realises that public expenditure is now running at a rate of £21,000 million. This, to me, is the worrying aspect. I do not know from what source the hon. and learned Gentleman got his brief, but I understand that the proportion of gross national product now going in public expenditure is in the region of 51 to 53 per cent. Those are the figures I have seen published and I believe them to be correct.
It is interesting to note that in the last seven years public expenditure has risen from £12,000 million to £21,000 million—that is a £9,000 million increase. This has meant hat the share of G.N.P. taken 145 by public expenditure has gone up from 44 to 53 per cent. I take that figure from the I.P.G. Paper on Taxation. How can we reduce this percentage? My right hon. Friend the Chancellor has taken certain wise steps. Although he has increased the capital expenditure in the social services, he has managed to cut administration and also to cut such things as regional employment premium and investment grant.
We are faced with the fact that since 1956 there has been a change of policy. Up to that date capital expenditure for the nationalised industries and local authorities was raised in the market, but now the vast sum of £3,600 million is taken out of taxation. I believe that we must reconsider the decision of 1956. I appreciate that it would not be easy to raise money for certain nationalised industries on the market today, but there are others, such as the Central Electricity Generating Board, in which savers would be ready to invest their money. That would have the great advantage of cutting the huge sum of £3,600 million of public expenditure raised by taxation. This is particularly true of local authority capital expenditure. I regret that the old system of borrowing by local authorities has been changed. We should take a lesson from what is being done in other parts of the world where, to give the ratepayer or citizen more pride in his locality, the Exchequer gives tax inducements to ratepayers who lend their money to local authorities. This is done in most of the States in America where an investor gets the advantage of tax-free loans to local authorities provided they are at a reasonable rate of interest.
I ask my right hon. Friend the Chancellor to consider this matter, because here is a way in which we could encourage thrift. I believe that we could get a good deal of new savings from where they are at present into local authorities. At the moment, I am told, £27,000 million of liquid savings is available. I therefore suggest to my right hon. Friend that in his next Budget, he might allow every rate payer to lend to his own local authority up to £2,000 free of tax, provided that the rate of interest was not higher than the rate which is paid on National Savings bonds. That would give the citizen an attractive rate of interest. I believe that by this means we 146 could cut a great deal of the present public expenditure.
I think that it would also achieve something more important than that. This situation may be altered when the local government White Paper becomes policy, but I believe that throughout the country there is a feeling of remoteness between the citizen and his local authority. If the ratepayer could feel that he had his money in the local swimming baths or the local old people's hostel, that would do a great deal of good in creating an awareness of the involvement of the citizen with his local authority.
§ Mr. Turton
Perhaps the hon. Member will allow me to finish. He usually gets plenty of opportunities to express his views.
I think that in his Public Expenditure White Paper, except for the omission on the receipts side, my right hon. Friend the Chancellor of the Exchequer has given a clearer presentation than we have had before, and I thank him for it. In his policy, he has started the difficult task of reducing the proportion of the gross domestic product which is taken by public expenditure. He has to go much further, however, and to encourage more thrift. I believe that one of the ways of doing it is by altering the policy of raising capital for nationalised industries and local authorities.
§ 8.53 p.m.
§ Mr. Edmund Dell (Birkenhead)
The right hon. Member for Thirsk and Malton (Mr. Turton) referred to certain respects in which, in the White Paper as compared with its predecessor, there is a reduction in information. I should like to devote my speech to expressing regret, and, indeed, deploring the fact, that there is a reduction in information in the White Paper and in what the Government are providing outside the White Paper in respect of aid to development areas.
I drew this fact to the attention of the Financial Secretary to the Treasury in a debate in November last year, when the hon. Gentleman replied to me in these terms:We shall certainly consider the right hon. Gentleman's suggestion as to how far we should go in producing further statistics on investment allowances. I hope that he will 147 take that as sincerely intended."—[OFFICIAL REPORT, 17th November, 1970; Vol. 806, c. 1112–13.]There is certainly nothing in the White Paper that helps us in that respect. The Government say that they will consider the effectiveness of their development area policy, and yet there appears to be no information, either in the White Paper or prospectively, as to the basis on which they can consider it.
Nevertheless, I will put before the House certain propositions which I derive from the White Paper and associated information which the Government have provided which seems to me to indicate that the situation concerning public aid to the development areas has seriously deteriorated as a direct result of the present Government's policy. My view is that total aid to the development areas has been heavily reduced.
The Government have refused to answer questions on this subject. The questions are not answered by the White Paper. When I have asked Treasury Ministers to provide me with figures of total aid to development areas, they have refused to answer. In a letter of 17th December last, the Minister of State, Treasury, gave me two reasons why he refused to answer. The first was that:it is impracticable to give a total figure for the benefit to the development areas under the new system.It is interesting that he said that, because on Friday there was a debate in the House on aid to the Northern Region. In replying to that debate, the Under-Secretary of State for Trade and Industry said:I tell him …—that was my hon. Friend the Member for Sunderland, South (Mr. Bagier)—… clearly that the Government consider that the N.E.D.C. is quite wrong about the question of cash inflow into the Northern Region. Our view, broadly, is that it is the same as a result of the October measures. The measures announced yesterday are additional."—[OFFICIAL REPORT, 19th February, 1971; Vol. 811, c. 2390.]So the Minister of State for the Treasury is saying that it is impossible to give figures and the Under-Secretary of State for Trade and Industry is not merely giving figures but stating specifically that broadly it will be the same.
148 I hope that when the Financial Secretary replies he will make clear exactly what the position is, because he must repudiate either his colleague the Minister of State or the Under-Secretary of State for Trade and Industry.
The second reason why the Minister of State refused to answer questions about aid to development areas is extraordinary. He said in his letter:… discussion of incentives in the context of regional policy normally centres on the value of the differential arrangements. The extent to which the development areas get benefits which are not available elsewhere is the only meaningful basis for measuring the aid which is given to them.With deep respect to the Minister of State—I have considerable respect for him—that statement is nonsense. The total level of aid to development areas, as well as the differential, will determine whether investment will take place. The number of postponements and cancellations of investment projects which we are seeing at present is evidence of the fact that the reduction of aid is having an effect on investment. It is not just a matter of redistributing a given level of investment in favour of development areas but one of the absolute level of investment in the development areas. That statement by the Minister of State is nonsense and ought not to have been made. I hope that the Financial Secretary will be able to give us better reasons for refusal to provide the sort of information which we need.
The differential, which, according to the Minister of State, is the only thing which is important, and to which the Government have referred again and again as having been unchanged by the October measures, quite clearly has been changed.
To clear a misunderstanding which may arise, I make my first point by quoting from the investment incentive White Paper of last October, at page 5, paragraph 15:It is also estimated that the differential benefit provided to the development areas by free depreciation in conjunction with these additional grants and loans will be broadly equivalent to the present cost of the regional differential in the investment grant scheme,The words which I emphasise are "the present cost". There is no suggestion that the differential will rise proportionately with any increase in investment. This point was emphasised in the letter from 149 the Minister of State which I have quoted, in which he said:The Government have never claimed that the value of the regional differential under the new measures is expected to keep pace with the rate of increase which might have taken place had the system remained unchanged.It is clear from that alone that, even on the Government's estimate, the proportional differential will fall. This fact at least is shown by Answers given in the House. On 6th November, 1970 the Minister of State for the Treasury said that the regional differential element in 1973–74 under the investment grant system would have been £130 million. That has to be compared with an answer given by the Chief Secretary on 24th November, 1970 when he said that the regional differential element under the new system will, in 1974–75, that is a year later, be £110 million, including the additional £25 million under the Local Employment Acts. That is clear evidence of the reduction in the differential.
The second point to be made about the differential is that what the Government are saying, though they never admit it, is that the way in which they are measuring the differential is in terms of the cash flow to firms which invest in part or in whole in the development areas. Therefore, in calculating the differential, they are including investment grants which they are paying on contracts entered into before 27th October, 1970.
§ Mr. Patrick Jenkin
I cannot understand why the right hon. Gentleman should be so surprised. I told him that in my reply to the debate on the Clause in the Income and Corporation Taxes Bill.
§ Mr. Dell
I know that the hon. Gentleman told me that, and it may be that in my case the surprise is wearing off. At any rate, the House should be aware of the fact that the calculation of the differential which leads the Government to say that it is unaffected includes large sums of investment grants paid on contracts entered into before 27th October, 1970, which, from the White Paper, we know extend as far as 1974–75 and beyond.
How anyone can claim that it is differential incentive to investment in the development areas that one has invested before 27th October, 1970, I cannot 150 imagine. Nor can I imagine how the Government can say that the differential is not altered when they are saying that, because people invested before 27th October, 1970, and will be receiving cash, that will be an incentive to them to invest further in development areas.
This money goes to firms which do not even have their headquarters necessarily in development areas. The money can be invested or distributed where those firms like. There is no incentive here to invest in development areas at all.
§ Mr. Bruce-Gardyne
I was under the impression that the right hon. Gentleman had been a Minister at the Ministry of Technology. If that is so, surely he must have noted that investment grants are attracted not only by investment which had taken place before the terminal date but by investment which was in a stream related to investment which was planned before that date but had still not taken place and would take place in the future.
§ Mr. Dell
The hon. Gentleman should know that what is involved here is proof that contracts have been entered into before 27th October. Where such proof is available, investment grants will be paid. However the fact that those contracts have been entered into is no incentive for future investment in the development areas.
It is nonsense to talk about the differential in this sense. The statement that the differential is unaffected is totally misleading. If I thought that the Chancellor of the Exchequer understood these matters, I might accuse him of deliberately misleading the House. But the fact is that the statement is not merely misleading. It is totally meaningless. I say that not simply because the differential is calculated to include these investment grants on contracts entered into in the past but also for the reason that I have given already, that the money goes to firms which can invest it anywhere in the country. The question which is decisive is what are the current incentives to investment in the development areas.
My next point concerns this additional £25 million worth of expenditure under the Local Employment Acts. Whenever hon. Members on this side of the House draw the attention of Ministers to the fact that the differential in effective terms has 151 been reduced, the additional £25 million of expenditure under the Local Employment Acts is trotted out. The first thing to be said about it, although it has been revealed since and is shown by the White Paper, is that it was not stated in the original statement by the Chancellor on 27th October that this additional £25 million is not reached until 1974–75.
The situation here is very interesting. If one looks at the increase in expenditure under the Local Employment Acts under the Labour Government, one finds, according to an answer given by the Minister for Industry on 24th November, 1970, that it increased from 1964–65, when it was just over £27 million, to 1969–70, when it was just over £58 million. I take it that these are gross figures against which should be netted certain repayments of loans.
That is a higher rate of increase of expenditure under the Local Employment Acts than is proposed in the White Paper, which says that the figure will go up from 1969–70 when it was £45.6 million—I take it that that is net—to 1974–75 when it will be £74 million. These figures not merely show a lower rate of increase than took place under the Labour Government but a lower rate of increase than was stated in the Labour Government's White Paper on Public Expenditure last year. To put it at its mildest, to regard this as an additional £25 million expenditure under the Local Employment Acts over what would have taken place under a Labour Government has yet to be justified. On the evidence with which we have so far been provided, it does not exist.
My next point concerns the announcement last Thursday about special development areas. We now know that the Prime Minister got his figures mixed up. The right hon. Gentleman gallantly apologised about that today. An apology from the Prime Minister for making a mistake is such an historic occasion that I do not think we should dwell too long on it. The right figure is an additional £10 million, not £25 million, as the Prime Minister said.
The right hon. Gentleman re-asserted today that this meant that the special development areas would be better off than they were as development areas 152 before 27th October, 1970. The right hon. Gentleman professedly based that statement today and on Thursday on the premise that the differential was unaltered. I have already shown that the statement that the differential is unaltered is meaningless and misleading. The Prime Minister is entirely wrong in stating that the new special development areas will be better off as a result of the decision on Thursday than they were before 27th October, 1970.
I intervened in the Chancellor's speech on Thursday to suggest that the new proposals regarding special development areas merely brought them back to their position before 27th October, 1970. That was an immediate reaction. Having considered the matter further, in the light of such information as I have been able to obtain, I think that I did the Chancellor of the Exchequer too much honour. I think that those areas will still be worse off than before 27th October.
One thing is clear. Merseyside is clearly down-graded as a result of the decision which has been taken. Merseyside—an area with increasing redundancy and unemployment—has not been selected for this benefit. Therefore, its relative attractiveness, compared with the new special development areas, is clearly down-graded.
I turn to a subject which we shall discuss in more detail on the Finance Bill—namely, the argument that all this aid, though smaller in quantity, will be more effective. I refer to this matter because of what the Chief Secretary said today. The proposition that it will be more effective appears to be based on the idea that to relate incentives to profitability is more effective than outright grants. If the Government have any consistent philosophy—in so many spheres, for instance their disengagement from industry, they have shown that they have no clear philosophy—I wonder how their actions can be consistent with that philosophy.
Let us consider the assistance given to special development areas on the principle whether it is related to profitability or is an outright grant unrelated to profitability. The new tax allowances are related to profitability. The following forms of aid—rent-free factories for up to five years, increased building 153 grants, removal and training grants—are grants unrelated to profitability. Operational grants for wages of people employed in special development areas are unrelated to profitability.
The difference between the incentives introduced by the present Government and those introduced by the last Administration is that it is a different mix of tax allowances and grants. There is no evidence that the lower level of assistance, plus the lower differential of assistance, will be more effective in any way.
I come, therefore, to my conclusion, on the case that I have argued. First, there has been a reduction in aid to the development areas; secondly, the statement that has been repeatedly made by the Government that the differential is unimpaired is meaningless and misleading; thirdly, the statement concerning the £25 million additional expenditure under the Local Employment Act is, to say the least, of doubtful validity, and has yet to be proved—the White Paper does not prove it—and fourthly, the new special development areas will be worse off under the new proposals than were the development areas before 27th October, 1970.
Finally, there is no reason to believe that the methods introduced by the Government will be more effective than those employed by the last Government. I am afraid that this White Paper's implications for the development areas are a continuing if not increasing level of unemployment.
§ 9.10 p.m.
§ Mr. Peter Hordern (Horsham)
One difference between this debate and the last debate on public expenditure is the absence of Lord Diamond. The late kin Macleod used to say "Labour Chancellors come and Labour Chancellors go, but diamonds are forever." The fact that Lord Diamond is now in a different setting does not prevent my wishing him the best of luck and saying how much his contribution to this debate is missed.
The hon. and learned Member for Lincoln (Mr. Taverne) referred to the absence from this White Paper of a revenue statement of the kind that was included in the White Paper produced by the previous Administration. I did 154 not feel that that was a very strong point, if for no other reason than that that revenue forecast was based simply on a projection of the same rate of taxes at a growth of 3 per cent. I submit that that was not a significant projection. The essential point to remember is that taxes cannot reasonably be expected to stay at exactly the same rate, or even that we shall have the same taxes throughout a period of five years. Therefore, the hon. and learned Member's criticism that there is no revenue projection in this White Paper is not a strong one.
I do not know why, but it seems to be a matter of some surprise on the part of hon. Members opposite that expenditure on resources by a Conservative Government should exceed that proposed by the last Labour Administration. Instead of spending only £13 million on new primary school buildings in 1972–73, we shall be spending £44 million. We shall be spending £110 million extra between 1972 and 1975, concentrating on facilities for the elderly and mentally handicapped. Surely no hon. Member could deny that these are essential priorities. We can all think of examples in our own constituencies that bear out this proposition. But it is even more important that the distribution of expenditure should not fail once it has been decided to increase the global amount.
I submit that rural areas are not receiving the standard of services to which they have been accustomed in the past. Too often the argument is trotted out that the demands of medicine make it essential to have large and comprehensive hospitals. That argument has been used to justify the closure of small rural hospitals, such as Petworth Hospital, in my constituency. There is also a suggestion that the casualty department at Horsham Hospital should be closed. I recognise such an argument for the total nonsense it is. It cannot be denied that a withdrawal of a service to which a community has become accustomed represents a real decline in standards. There is no use pretending that it does not.
I naturally welcome the fact that we propose to spend an additional £110 million, but that expenditure will be closely watched, to see that the country areas suffer no further deterioration. If, therefore, it is a fault that we propose to spend 155 more on resources than did our predecessors, we should plead guilty.
That brings me to Messrs. Godley and Taylor, and Mr. Jay of The Times. I hesitate to suggest that if The Times had printed Table 1.4 of the White Paper it might have saved itself a lot of trouble and expense, but the essential information is all there. The question is what one makes of it.
The Godley argument, if that is not as big a misnomer as the hon. Member for Erith and Crayford (Mr. Wellbeloved), is that the share of resources taken up by public expenditure is growing rather more quickly than resources themselves. But they have no idea how fast productive capacity or output will grow in future. We object absolutely to the notion that any realistic assessment of future growth can be based on the experience of the last five or six years. Between 1966 and 1968, public expenditure grew 6.7 per cent., 6.8 per cent. and 9.0 per cent., while growth of the G.N.P. averaged well under 3 per cent. The inevitable result was that the share of resources taken up by the public sector rose very fast, as did taxation, to pay for it. Increases in corporation tax, income tax, purchase tax, fuel duty and the wholly new tax of S.E.T., amounting in all to £3,000 million, meant that the private sector was driven to the wall.
We should recall the position last June, when the party opposite were driven from office. The hon. and learned Member for Lincoln in a debate on 15th April, said:First, we were quite right to avoid a pre-election boom that could be seen to be a pre-election boom …".—[OFFICIAL REPORT, 15th April, 1970; Vol. 799, c. 1410.]How right he was. What happened was that inflation was already completely out of hand, and the right hon. Member for Birmingham, Stechford (Mr. Jenkins) was himself responsible as Chancellor for pumping as much money into the economy in the three months before the election as he previously proposed to increase it by in the course of a full year. One does not need to be a disciple of Milton Friedman to accept the enormous boost to inflation which this action would bring.
The party opposite, who had already surrendered to the trade unions, had 156 neither the will nor the capacity to do anything about inflation. Nothing was then as incredible as the Leader of the Opposition, except possibly the opinion polls, and neither of these will ever fully recover.
It is strange that the Leader of the Opposition and the right hon. Member for Stechford should be forming a mutual admiration society in agreement about only one matter, and that is that we are wholly to blame for the present situation. But I have no doubt that had they been re-elected taxes would have been increased still further and the burden on companies would have become even more intolerable. We are inclined to accept the position as it seemed to be on 18th June, but the damage to companies had been done years before and I fear that it will take a long time to retrieve this position.
Industrial profits fell every year from 1967 onwards, and 1970 was the lowest for any year since 1965. If industry was merely to keep pace with other sectors of the economy, industrial profits should have risen by about 50 per cent., and by another 25 per cent. if price inflation were to be taken into account.
But the position is even more serious than that. Industry employs net assets of about £28,000 million. If one deducts depreciation and stock appreciation, trading profits were about £3,000 million before tax, or about 10 to 11 per cent. on assets employed. That is about the same as it would cost those same public companies to raise money on the capital markets, so there is virtually no incentive for industry at present to invest in new plant and machinery, when it could get just as good a return from investing in loan stocks, always assuming that it had the money to invest in the first place. No wonder investment intentions are as they are.
The first priority, if we are to get the growth on which our future public expenditure depends, is to encourage profits. That is why the cut in corporation tax is welcome and why the change from investment cash grants to investment allowances is also welcome. Under the old system companies received grants whether or not they were profitable, and if ever there were a misallocation of resources it was there. 157 In the past five years, industry has been like a man banging his head against a brick wall. The difference now is that we have taken the wall away. Although he is still wandering about slightly bemused, the chances are that he will soon wake up to find that it is no longer considered anti-social to make higher profits. Corporation tax and income tax have been cut for the first time in 11 years. The I.R.C., the P.I.B. and the Ministry of Technology have gone and there is not a moist eye to be found. I do not think it will take businessmen long to see the change, and I expect that the Budget will help them. What is so refreshing is that growth no longer depends on the fulfilment of some grandiose national plan but on the natural inclination of business and industry to earn higher profits.
It is the gross total of public expenditure in the next four years and the ability to change taxation and monetary policy that will really determine what growth we shall achieve. Over this period, expenditure is to be £1,500 million lower than the cost of the programmes which the Government inherited, and it is to grow by a significantly lower rate than the economy itself.
A word on what I regard as the new tyrant of the age. I refer to technology. We are often told that if we do not build, for example, Concorde, give further aid to the computer industry or take over Rolls-Royce, we will be out of the aerospace, aero-engine and computer race. We are told that if we do not give shipbuilding grants, we will be out of the ship building race. These races are never won. The target and the winning post always seem further away. It is like a perpetual egg-and-spoon race with the egg always larger than the spoon-and the biggest humpty-dumpty of all is the right hon. Member for Bristol, South-East (Mr. Benn).
What studies are now being made of the scale of international competition in these various technological spheres? What, for example, is the state of computer technology in the United States and in other parts of the world? What real justification is there that resources can be devoted to these technological industries? Unless we make a thorough survey of what is being done in other parts of the world, we will, I fear, continue to support all these objectives simply because 158 we are told that unless we do so we shall be out of their respective race. I would like to run in far fewer races.
This White Paper reflects the Government's determination to get growth and to concentrate resources where they are needed, and it is therefore to be welcomed.
§ 9.23 p.m.
§ Mr. David Marquand (Ashfield)
That speech of total and undeviating loyalty to the Government from the hon. Member for Horsham (Mr. Hordern) was, I suppose, impressive in the circumstances, though I thought that even he allowed a small note of rebellion to creep in towards the end of his remarks.
I shall refer later to some of the subjects to which the hon. Gentleman referred, but I hope that he will forgive me if, at the outset, I return to the argument which was occupying the debate earlier, and that is whether there should be a two-day debate and precisely what the Procedure Committee recommended. I do not want to go over too much sterile procedural ground, but it is important to get clearly on the record the fact that the Procedure Committee specifically stated in paragraph 25:Your Committee recommend that the Expenditure White Paper, to be published in November, should be debated by the House for two days. No prior select committee consideration should be necessary if a full narrative in explanation of the figures, which was proposed by the Chief Secretary in evidence … is supplied, expanded on the lines proposed by the Committee.That was clear and categorical and I trust that there need be no misunderstanding about it.
There have been many criticisms made by my hon. Friends about the form of the White Paper and the fact that in some respects it marks a step backwards from last year's White Paper. I agree with what was said by my hon. and learned Friend the member for Lincoln about the failure to publish a forecast of the receipts side of the exercise, and I will not go over once again the ground which he covered. I do, however, want to underline the complaint he made about the failure of the Government to make an assessment of the prospective growth of the economy, which is a somewhat different, though related, point.
The Chief Secretary clearly failed to understand the argument on this point. I 159 am sorry that he is not here at the moment. Can he and the Conservative Party really be saying that, under the Conservative, no medium-term economic assessment is now carried out in the Treasury? Do they pretend that the Treasury itself no longer makes these assessments and that the whole P.E.S.C. exercise is conducted in a vacuum?
In fact, of course, it is not. If one had sufficient research assistance, which few hon. Members have, or additional staff in the Library to carry out the work, it would be possible, I dare say, by reading between the lines of the White Paper, to ferret out a medium-term economic assessment, for many of the predictions about public expenditure in the White Paper cannot possibly be made except on some view about what will happen to the economy as a whole over the five-year period.
I am sure that the Financial Secretary agrees with me there. He knows that that is right. Why not come clean, then, and publish at least as much as the rather inadequate forecasts of the growth of the economy which were published by the previous Government in their White Paper? It is just not good enough. I hope that the new Select Committee on Public Expenditure, many of the members of which are present here tonight, will view as one of its first priorities the task of forcing the Treasury to come clean on this matter. I am sure that, if the Treasury witnesses to the Expenditure Committee are given a thorough and effective grilling, next year's White Paper will be rather more frank than this year's has been in that respect.
There is another weakness in the White Paper. But I do not criticise the present Government alone for it since it was a weakness in the previous Government's White Paper, also. The purpose of this whole exercise—Committee scrutiny, debate in the House and publication of the White Paper itself—is to enable Parliament and the public to play a greater part than before in the debate over priorities between different items within the total of public expenditure. That is the whole purpose of the exercise, and it is a purpose which I passionately believe in and support.
Plainly, one cannot have a sensible debate about the priorities within the public 160 expenditure programme unless one has in the background a much more thorough analysis of the needs which the various components of the public expenditure programme are supposed to satisfy than has been put forward either in this or in the previous year's White Paper. How can we say whether more money should be spent on universities than on hospitals, or whether more money should be spent on the capital investment of the electricity industry than on housing, unless we have some idea of the extent and acuteness of the needs which these various items of expenditure are supposed to meet?
It is true that in some of the item-by-item discussion in Part 2 of the White Paper there is a small amount about, for example, the demographic changes which affect expenditure on education so acutely, but there is nothing like enough. I believe that the reason why there is nothing like enough is that the Departments themselves do not know. They have not done this kind of analysis.
I strongly urge, therefore, since this affects the whole mechanism of public expenditure control, that the Treasury should force the spending Departments to carry out that kind of analysis, and here, too, I believe that the Expenditure Committee has an important rôle to play.
We have discussed the strategy which the document implies, and I say "implies" rather than "states" because of the misleading and dishonest fashion in which so many of the figures have been presented and the fact that it has been necessary to carry out a piece of Sherlock Holmes economic detection to find out what it really is saying. But when that is done, as it was in Mr. Godley's articles in The Times and in the speech of my hon. and learned Friend the Member for Lincoln (Mr. Taverne), it is fairly clear what has happened.
What has happened must be a source of some surprise to Conservatives who before the election were clamouring for cuts in public expenditure. I hope that at least one or two of those Conservatives who are present tonight will have the honesty to admit that they are somewhat surprised and that this is not what they meant by the philosophy of Conservatism or by setting the people free from Socialist extravagance. It is clear that the public sector's claim on resources will grow at 161 as least as rapid a rate as it did under the previous Government, and, to put it no higher, possibly at a slightly faster rate in the last two years of the five-year period than before.
§ Mr. Nott
The hon. Gentleman is confusing two things. There is the public sector's claim on resources and, to use his term, setting the people free, which is a commentary on transfer payments. The Government's actions on the transfer of payments, setting the people free, to use the hon. Gentleman's expression, has been radical and far-reaching.
§ Mr. Marquand
The hon. Member for St. Ives (Mr. Nott), who understands these things, may have interpreted his party's propaganda and rhetoric in that fashion, but I hope that I shall not sound too disrespectful if I say that I do not think the same is entirely true of, for example, the Chief Secretary, to judge by his speech this evening.
This is item one in the strategy, very much the same, or perhaps a slightly faster, rate of growth in the public sector's claim on resources. Item two is a fairly severe cut-back in transfer payments, as the hon. Member for St. Ives said. Why has this come about? Why have the Government, having proclaimed their belief in cutting expenditure, cut it in this odd way? Why have they been obliged by their political position to engage in the sort of statistical subterfuges which my hon. and learned Friend probed so effectively'?
There are two reasons. The first is that, now that they are in power, even the Conservatives have been forced by the facts of life to realise that those items of public expenditure which involve a large claim on resources are, in terms of the needs they cover, at most running hard to stay in the same place. This is because it is clear that the demographic changes currently taking place in our society are imposing heavier and heavier burdens on these parts of the public expenditure programme in particular.
The steady increase in the number of elderly people, both as a proportion of the population and absolutely, and the increase in the number of children who have not yet entered the labour force, in themselves impose heavy and increasing demands on all the social services. It is clear therefore that to reduce the rate of 162 expansion in the social services significantly enough to allow major cuts in taxation would result in a catastrophic fall in standards which are already grossly inadequate.
To do it credit, the Conservative Party has so far flinched from this, and I am glad. It knows that the effects on British society, on social cohesion, would be cataclysmic. One of the main reasons for the violence and social strife in the United States is the inadequacy of its public-expenditure-supported social services. A recipe for reproducing the same kind of violence here would be to carry out really swingeing cuts of the sort that would be necessary to cut taxation in the way the Conservative Party thought it would be able to do in those heady days before it came face to face with the realities of power.
But its members made the promises, talked the rhetoric and, alas, convinced themselves that the rhetoric was true. I do not think that they were trying to deceive the electorate, but they deceived themselves. Therefore, when they came to power they found themselves caught between two pincers—one being increasing demand on public expenditure and the other being the promises they had made and the expectations they had aroused among the party faithful. To get out of these pincers they have cut down transfer payments in a way that is bound to be regressive, to increase the gap between the majority of the population and the rich, to increase the gap between the less prosperous parts of the country and the more prosperous parts, and to make it much more difficult than it is already to achieve the satisfactory rate of growth without which all our social objectives cannot possibly be realised.
This is where I take issue with the hon. Member for Horsham. It has become clear over the past few months that the Government have been forced to hold down the economy because of their inability to achieve any kind of incomes policy. It is no longer the balance of payments that is forcing them to hold down the economy. We have a massive balance of payments surplus. If the Chancellor had nothing to consider but the balance of payments I am certain that he would have reflated a considerable time ago. What is worrying the Chancellor is the rate of inflation, and he 163 is right to be worried about it. That is why he is holding down the economy. We have entered a completely different phase from the phase before 1969. It is inflation now and not the balance of payments that is holding us back.
If a Government cannot, or will not, embark on an incomes policy, the only way in which they can hope to deal with inflation is by deliberately creating unemployment and holding back the economy. An incomes policy is a precondition of growth in the kind of situation we are now in. But—and this is where the White Paper fits into the whole argument—it is apparent that they cannot hope, and do not deserve, to get an incomes policy as long as they are carrying out deliberately regressive policies over the transfer payments, as in the White Paper.
The problem of how we obtain a satisfactory rate of growth is as important for this period in British history as the problem of mass unemployment was between the wars. It should be a matter or great regret to us all, of whatever party, that neither party has succeeded for the past 20 years in obtaining a satisfactory rate of growth. What I find so deeply depressing about the strategy embodies in the White Paper is that it guarantees that that failure will continue for at least the lifetime of one more Parliament.
§ 9.40 p.m.
§ Mr. J. Bruce-Gardyne (South Angus)
We always listen to the hon. Member for Ashfield (Mr. Marquand) with considerable interest, partly, perhaps, on this subject. He was one of those hon. Members opposite who consistently, I believe, supported the Labour Government in their curious attempt to achieve an incomes policy over the years. Where most of us on this side would part company with him is in our view that this search was inevitably doomed to failure and that the idea of an incomes policy based party on the concept that the trade union leadership was prepared to forgo the purpose for which it sees itself existing was, in practice, a will o' the wisp and was bound to remain such.
I want to express my thanks to my right hon. Friend the Leader of the House for extending the period of this debate 164 following the debate on the Post Office strike. It is what I asked for. I thought that the hon. and learned Member for Lincoln (Mr. Taverne) was a little less than generous in his comments. Whether because of the hour or whatever reason it may be, the Chamber is rather fuller than it was for the two-day debate on last year's White Paper, when one of the leit motifs was to deplore the small attendance.
I think also that we should express our thanks to my right hon. Friend for the establishment of the Select Committee of Expenditure. I have some sympathy with what the hon. and learned Gentleman said on that subject, particularly in relation to the size of the Committee. but I hope that the establishment of the Committee will promote a more open discussion of the scope and impact of the activities of the public sector than we have had to date. In last year's debate, Lord Rhyl, whose contributions we miss so much, suggested that there was a danger that the Committee would find itsfragrance dissipated on the desert air".because the records of Select Committees show that they compiled earnest Reports which do not receive very eager attention from the body of the House. I hope that this tradition will not be followed in the case of the Public Expenditure Committee.
There has been much comment on the evidence given to the Wilberforce Committee by the Treasury and on the desirability or otherwise of submitting distinguished civil servants to the sort of cross-examination which the Treasury representatives had before that Committee. I thought that the evidence they gave was par excellence the sort of evidence which should be given in future to the Public Expenditure Committee. Indeed, I feel that perhaps the Public Expenditure Committee would be a more suitable atmosphere to which to subject the Civil Service. Clearly, the detailed cross-examinatiton of Sir Douglas Allen and Sir Donald MacDougall about economic prospects in the coming year should form the kernel of the work of the Public Expenditure Committee. Therefore, I hope that, whatever comments may be made about its experience before the Wilberforce Committee, the Treasury will not allow itself to be deflected from offering to the Public 165 Expenditure Committee the sort of assistance it offered to the Wilberforce Committee.
§ Mr. Dick Douglas (Clackmannan and East Stirlingshire)
I am not sure that I follow the hon. Member's trend of thought here. Is he envisaging that the Expenditure Committee should pronounce on the national interest in relation to wage settlements?
§ Mr. Bruce-Gardyne
I am afraid that that does not seem to me a very constructive intervention. The point I was making, as I am sure the hon. Gentleman must realise when he thinks about it, was that these senior Treasury civil servants were revealing, under cross-examination, their own projections or forecasts of economic performance in some detail over a year ahead, and it is that, of course, which I am suggesting would be suitable material for the Public Expenditure Committee.
One other preliminary. I join my hon. Friend the Member for Horsham (Mr. Hordern) in expressing our appreciation of Lord Diamond for his part in launching this series of White Papers. I have always thought that Lord Diamond has a great deal to answer for to his discredit in the last Government, but in this respect I think that his legacy is very much on the plus side.
I should like now to turn for a few moments to one or two points which are raised by this year's White Paper. I am bound to say that, like various others, amongst my hon. Friends and hon. Gentlemen opposite, I am not totally convinced as yet by the explanation which the Chief Secretary gave to us for the decision not to repeat the publication of projections of public sector receipts. Of course, we accept that there is a large element of hypotheticality—dreadful word! I hope it is all right—a large element of uncertainty: let us be safe. But then, as several hon. Members have pointed out, there is an element of uncertainty about all these projections, and I hope that, when the Financial Secretary replies, he will deal with the point brought up by my hon. Friend the Member for St. Ives (Mr. Nott) in his interjection, when he drew attention to the figures published in Annex B of the Defence statistics, which show that the Treasury is operating in anticipation of 166 a price inflation of somewhere about 9 per cent. These figures may well be misleading, but I hope that my hon. Friend will deal with that point when he sums up, because it seems to me that if this sort of projection can appear in the Defence White Paper there is perhaps rather less reason why it should not appear in the White Paper we are discussing tonight.
On the other hand I think that an enormous amount of rubbish has been talked by Wynne Godley and the hon. and learned Member for Lincoln about the extent to which the only changes in public sector activities which provide scope for tax reductions are those which involve net reductions in public sector purchases of real resources. I do not think that that argument stands up to any close scrutiny at all. I thought that it was effectively demolished by the Chief Secretary and does not need any comment beyond that.
There are, however, two or three substantial points in relation to some of the detailed Tables in the present White Paper, and about those I hope the Financial Secretary will be able to give us further enlightenment. The first relates to a comparison between Table 1.3 on page 9 and Table 2.7. I say at once that I may have got my figures wrong, but I notice in line 7, at 1970 Survey prices, on trade, industry and employment, that the average annual percentage decrease over the period 1970–71 to 1974–75 is given as 6.9 per cent. and this, it is clearly emphasised, is exclusive of investment grants.
In Table 2.7 we get the details. According to my calculation, this appears to show that the reduction on the same basis, net of investment grants, is from £601 million—that is £1,174 million less £573 million—to £467 million—that is, £532 million less £65 million—Over the five-year period. According to my calculation, this amounts to about 22 per cent. over the five years which is a good deal less than the 6·9 per cent. per annum rate of reduction suggested apparently on the same basis in Table 1.3. There may be a simple explanation for that, but I am not clear what it is.
My second query relates to the full effect of the recent announœment of the establishment of special development 167 areas. There seems to have been a certain amount of controversy about the figure which my right hon. Friend the Prime Minister gave last week. Is the latest figure we have been given—the £10 million—the net effect of all the changes in development area status, the special development area extensions, including that in the west of Scotland, and the establishment of additional intermediate areas?
Thirdly, I should like to know whether the figures in Table 2.7 under the heading, "Ministry of Aviation Supply" allow for such policy changes as the Rolls-Royce situation and the escalating costs of Concorde. Are these fully taken into account in the figures in Table 2.7?
I will turn from points of detail to the main theme of the debate. My right hon. Friend the Chief Secretary quoted the first sentence in the White Paper which sets out clearly the Government's whole philosophy towards Government expenditure. I find the attitude of the Opposition on this matter somewhat hard to understand. To them public spending is a virtue per se. The hon. and learned Member for Lincoln said that a civilised society requires a high level of social spending, yet, at the same time, the Labour Party believes, apparently, that public spending is properly treated as ballast which should be jettisoned overboard, in one of those splendid nautical metaphors so beloved of the right hon. Member for Cardiff, South-East (Mr. Callaghan), when we are blown off course. To tackle public expenditure for reasons of strategy and purpose as opposed to dealing with it as a ballast that can be picked up or thrown overboard according to whether the ship is on course or off course, the Labour Party regards as utterly unforgivable. The main assault on my right hon. Friends last August was that they were attempting, when we were not "off course" to reduce public expenditure by choice. This was regarded as unforgivable.
It seems to be regarded as particularly heinous to be in favour of reductions in public expenditure if one comes from north of the Border. My hon. Friend the Member for Uxbridge (Mr. Curran) said many years ago that the Socialist idea of Utopia was a mink-lined soup kitchen. I sometime get the impression 168 that to hon. Gentlemen opposite Scotland is nearing this Utopian state; that it is an area where one receives the "gravy train" without ever having to contribute to the contents. This is utter nonsense. In reality, when one examines the consequences of a rising level of public expenditure and the need to finance it in recent years, one can see that Scotland frequently has suffered perhaps more from the consequent increases in taxation than theoretically it has benefited from the consequent increases in aid.
I give three simple examples. One of the ways in which the Labour Administration expanded public sector expenditure was by the establishment of the Highlands and Islands Development Board, but more money was taken out of the Highlands and Islands by the Selective Employment Tax than was put in by that Board. Equally, we had to sustain a doubling of road taxation, which had a disproportionate effect on business in Scotland since, as compared with its English competitors, it is further removed from its markets and sources of supply. This tax increase, too, was needed to finance the steady increase in public sector expenditure. Finally there was the penal taxation of family companies which was needed to promote additional revenue to finance the expansion of public sector expenditure. That penal taxation led time and again to the merger of smaller companies operating in Scotland into larger groups with their headquarters in the south, which have all too often thereafter been deflected from the pursuit of their operations in Scotland.
I have no apologies for being a Scot who, by inclination, is opposed to the endless expansion of public expenditure. That leads me on to my fundamental criticism of the present White Paper. Hon. Gentlemen opposite have been talking as though there have been cuts in public spending. There are, of course, no cuts in public spending. Indeed I go some way with the views of the hon. Member for Ashfield who sought to argue that the rate of growth in public expenditure in regard to its call on real resources would appear to be broadly maintained.
I appreciate the dilemma of any Government in this respect. We have in the past tended to under-estimate it. All 169 Governments have tended to underestimate the difficulty of restraining the momentum of public expenditure growth. We should fairly recognise that the biggest single item in the reductions in the call on public sector resources in the 1950s, which must have gone a considerable way towards providing the offset for the impressive reductions in taxation by my right hon. Friends during that period, was the very large reduction in expenditure on defence following the end of the Korea emergency. We must recognise that this time that sort of economy is not available to be made.
If one takes this line, one has some obligation to outline one or two of the areas where substantial cuts and further reductions in the rate of increase in public expenditure could and should be achieved. The first of these is in the sphere of education, which for some reason has become something of a taboo, a sacred subject, on both sides of the House. I am not at all clear that the case for pursuing the raising of the school-leaving age on schedule is made out, not least because of the huge increase in the demand on real resources for the public sector which it is bound to imply.
I also see no good purpose to be served by the pursuit of the vast expenditure on the Concorde programme. When I see the right hon. Member for Bristol, South-East (Mr. Benn) going off like a sort of Aimee Semple McPherson of the technological age, with his band of angels in the form of shop stewards from Bristol, to hold a prayer meeting outside the State Assembly at Albany to ensure that no awful curses are imposed by that body on the Concorde programme, my belief in this matter is somewhat strengthened.
I think that we should take a harder look also at the budget of the Department of Education and Science, particularly in further education. I hope that the Public Expenditure Committee will do this. I have a nasty suspicion that over the years we have allowed ourselves to be somewhat mesmerised by what I would describe as the academics' lobby in this place and outside.
There is another major programme which is growing very fast and in which I believe that substantial economies could be made, not so much perhaps in purchases of resources, but certainly econo- 170 mies in what would amount to the establishment of new forms of transfer payments. I refer to the main road programme, and in particular the motorway and trunk road programme. I believe that this should now be financed by tolls as it is throughout the Continent. It is time that we sent some of the civil servants in what used to be called the Ministry of Transport to go and look at road systems on the Continent and see that the problem of numerous entries on to trunk roads is not the obstacle that they make it out to be to the establishment of toll systems in this country.
Those are simply a few of the lines in which we should pursue vigorously the programme on which the Government have said that they have embarked to bring public expenditure under more effective control and to ensure, as we have not yet done, that the rate of growth in total public expenditure in the years ahead decelerates to the point at which we can be quite sure that the public sector's total claims on the national resources reduces and does not continue to increase.
§ Mr. Speaker
Order. In about two hours 40 minutes, we have managed to get through seven speeches. I still have the names of at least a dozen hon. and right hon. Members who wish to speak. I hope that those who catch my eye will remember that there are others.
§ 10.4 p.m.
§ Mr. Douglas Jay (Battersea, North)
Unlike the hon. Member for South Angus (Mr. Bruce-Gardyne), I thought that the Chief Secretary was today singularly unconvincing in attempting to reply to the arguments by Mr. Wynne Godley. The Chief Secretary appeared to say that Mr. Wynne Godley should not have presumed to speculate about facts and figures in 1974–75 because we had no knowledge of them. As I understand the White Paper, it sets out figures for the Government's expenditure intentions up to 1974–75. Presumably, either those figures are meant seriously, in which case it is reasonable to base calculations upon them, or, if they are not made seriously, I do not know why the Government have published them in the White Paper. 171 This debate is supposed to be an exercise in priorities, a chance to argue that the balance is wrong between this programme and that. A great deal of official time and skill has been exercised in giving us the material with which to do it. But when we come to the debate one tends to hear a great deal more talk about the system than the relative priorities. Even when individual programmes are mentioned I always notice that there is a tendency to be more willing to say which programme should be increased than to say which should be decreased. I am always more impressed—here I have sympathy with the hon. Member for South Angus—by demands for one or another programme to be increased if they are accompanied by some mention of where the money is to come from. I should like briefly to be unconventional also and to mention one or two programmes on which we are spending too little, and one in particular on which relatively we are spending too much.
The present balance would be greatly improved if we spent a good deal more, particularly capital expenditure, on housing, on development areas, and on mental hospitals, for instance, and financed it by spending rather less for a time on the new road building programme.
Looking at the table on page 8 of the White Paper, for instance, one sees that the roads programme is mounting at a rate, to use the Chief Secretary's words today, which seems to me wildly out of step with other programmes in the document. The roads programme is intended even by this Government, who are supposed to be devoted to public economy, to rise from £700 million in 1969–70 to £1,035 million in 1974–75. That is an annual average increase of 7 per cent., the highest of any of the programmes with one exception, and it compares with an annual average fall of 0.4 per cent. in expenditure on housing over the same years. That is a glaring contrast. I do not see how anybody could deny that bad housing is a much greater social evil than lack of roads and that new housing is a much greater social need. Yet we are now proposing a far more rapid increase 172 in the road programme than in housing. That cannot be right.
We must have more road building, especially in development areas, for instance, which urgently need new industry and employment. But we have gone far beyond that point. The present relative allocation for roads is leading in some cases to outright extravagance. In particular, the 75 per cent. Ministry of Transport grant is pressurising local authorities to embark upon urban motorway schemes in some cases against their better judgment. Portsmouth is an example of that. The whole policy of forcing urban motorways into the heart of our cities at enormous cost has never been rationally justified or defended in the House. It ought now to be entirely reconsidered, both for the sake of the threatened cities and for the sake of housing and far more important programmes.
We have reached a point where entirely different criteria are being applied to road building finance than to all other forms of expenditure. For example, according to the White Paper, the Government are to spend £7 million a year on the famous family income supplement, which is supposed to abolish poverty all over the country. The Greater London Council, one local authority, is proposing to spend, over the next twenty years, £1,600 million on primary and secondary roads in London alone. To put it in a picturesque way, the annual cost of the family income supplement is equal to the cost of about 600 yards of one of the proposed four London motorways. I find it very hard to believe that that can be the correct balance.
If I might take another example, we know that our mental hospitals are desperately in need of reconstruction and re-equipment. Admittedly, it is finance which stands in the way. The cost of the G.L.C.s proposed Ringway One alone, which, incidentally, is ardently opposed by a large section of public opinion, is now put at £20 million a mile. The total that the Secretary of State for Social Services proposes to spend additionally on the mentally handicapped all over the country in the coming four years is £40 million, and the right hon. Gentleman is very proud of that 173 increase. However, it represents the cost of only two miles of the Ringway I in London, and the total cost of that ring-way at £500 million would be more than enough for what we need to reconstruct and re-equip all our mental hospitals.
To take another and even more extraordinary example of the Government's present relative priorities, the Government decided, purely on the ground of budgetary economy, we understand, not to sustain Rolls-Royce and the RB211 contract, with all the consequences that that decision may have for British industry and exports. So far as one can follow the Government's rather conflicting statements about Rolls-Royce, the net cost of a rescue operation appears to be between £60 and £70 million. That is the cost of about three miles of one of the London ringways. Does anyone really think that this is a correct priority? For the sake of carving these three miles through London residential areas, apparently we are willing on present priorities to sacrifice the British aero engine industry, to risk the aircraft industry and a good deal of the reputation of British industry overseas and, incidentally, some hundreds of millions of pounds of foreign exchange earnings. That is a most extraordinary judgment of the priorities.
The whole of those interests of British industry which have been put at risk could be saved by the sacrifice of only one section of one of the proposed urban motorways. It is an extraordinary policy. But, since we have been told that these decisions have been taken for budgetary reasons, it follows from the budgetary arithmetic that we have in the White Paper that that is what the Government are proposing.
I hope that today's debate will not be a purely academic or statistical exercise a purely academic or statistical experience but will lead to a drastic review of some of these programmes, especially of this inflated road programme. I have some experience of this from the Government machine, and in my view that programme has been extended from one year to another almost automatically without any critical examination of its value or its real priority compared with housing, hospitals and some of the other programmes which, as a result, have been starved quite unjustifiably.
§ 10.14 p.m.
§ Mr. Kenneth Baker (St. Marylebone)
The hon. and learned Member for Lincoln (Mr. Taverne) and his right hon. and hon. Friends find themselves in something of a dilemma in that there are two arguments which are creditable and credible for right hon. and hon. Gentlemen opposite. One is that the Socialist Government, either by design or probably by accident, found themselves in their last year in control of Government expenditure for the first time in six years; that they laid down the broad lines of public expenditure for the next five years; and that all that we are doing, the hon. and learned Gentleman suggested, is tinkering with it or deliberately misleading by falisifying shortfall and matters of that sort. That is one possible argument. The other argument is that we are hard-hearted villains making substantial cuts of a significant nature motivated by political prejudice. But whichever line of argument the Opposition wish to take, they cannot have both.
I know which argument I shall ride. I think that the Government are to be congratulated on their success—I agree that it is a modest success—in making some cuts in Government expenditure—in particular, in containing the rise in Government expenditure to an average of 2.6 per cent. over the next five years. That compares with the Labour Government's estimate of a rise of 3 per cent. to 3½ per cent. on their costings. I accept the argument on costings. The difference between 2.6 per cent, and 3 per cent. to 3½ per cent. is significant. Comparing the anticipated performance of 2.6 per cent. not with the Labour Government's forecast of 3 per cent. to 3½ per cent.—which is their horoscope, as it were—but with their record—which is their pedigree—and looking at what they achieved in six years, we find that they achieved an increase of 5.9 per cent.
The only way in which the present Government have so far been able to make any significant reduction in expenditure is by making major policy changes—investment allowances, housing subsidies, agricultural support, and abolishing the I.R.C. It will be agreed on both sides that these are significant changes of direction in Government policy. It is only through these significant changes that we 175 can expect significant cuts in Government expenditure. There will be a saving of £302 million in the current financial year rolling over to, net of investment grants, of nearly £1,000 million in 1974–75. By making these cuts the Government have given themselves room to manoeuvre and to spend relatively more on certain basic social services.
Paragraph 14 of the White Paper makes it clear that the three categories of social services, transport and community local government welfare services, which constitute 58 per cent. of total Government expenditure this year, will, by 1974–75, constitute 62 per cent, of total Government expenditure.
Of the increased expenditure for social purposes of £110 million, I particularly welcome the hospital spending including hospital building, some of which money the Secretary of State said will be spent on mental hospitals; the extra £44 million for primary schools; and an extra £13 million for Government training centres and additional training over the next our years.
As the White Paper states on page 38, if we look only at the next two years, 1971–72, the increase in our provision for hospital services will be 5.2 per cent., which is very much larger than the 3 per cent. anticipated for that year by the Government on expenditure as a whole. The provision for community health and welfare for 1971–72 will increase by as much as 9.7 per cent. Those figures indicate the priorities of the Conservative Government.
I shall be turning to the articles in The Times. In effect I go along with their conclusions, because they re-emphasise the Government's case that the expenditure upon resources—at items which I have just mentioned—rather than transfer payments is our recognition that we are determined to maintain and to improve the basic fabric of the social services and of our other public services.
I have some misgivings about one aspect of the White Paper. I believe that, generally, it underestimates the tendency of local government expenditure to rise. This is the burgeoning area of Government expenditure. Paragraph 5 states that there is some imprecision in the figures from 1973 onwards of local government expenditure. Even so, in 1970–71 local 176 government expenditure will go up by 3 per cent. and in the next year by 4.1 per cent. I suspect that those are likely to be underestimates. Why? Because one problem in the 1970s and 1980s will be the renewal of urban city centres. This problem affects not only my constituency, in the centre of London; it affects the centres of other cities, such as Glasgow and Birmingham; indeed, it affects all capital cities. It is a problem in New York and Tokyo. A vast amount of capital will be required to build new underground lines.
The White Paper mentions the Heathrow link—the extension of the Piccadilly line to the airport. Towards the end of the period covered by the White Paper1974–75—subject to Government approval work will be started by the G.L.C. on the Fleet Line, at a cost of £90 million, and there is a possibility of improving the line to Wimbledon. These projects involve the expenditure of substantial sums of money. The capital programme of the G.L.C.—ringways and inner London motorways apart—is likely to be about £2,000 million during the next 10 years.
This presents a great dilemma, with which the White Paper does not deal—the question how to finance these projects. The dilemma facing the G.L.C. is that the rateable value last year rose only by 1£ per cent., whereas expenses rose by 12 per cent. There has been an underestimate of local government finance.
As to the survey in The Times this morning and last Wednesday, by Messrs. Godley and Taylor, I agree that their methodology can be faulted, but I do not disagree fundamentally with their conclusions. The Chief Secretary was right to point out that their extrapolation into the years 1973, 1974 and 1975 is extending matters a little, and making certain assumptions—which both Mr. Godley and Mr. Taylor admit in the article. Nevertheless, the demand on resources will be higher than 2.6 per cent. As the White Paper says, we expect that in the first few years it will be 3.3 per cent. It is a question of argument whether it will be as high as Messrs. Godley and Taylor says, namely, 4¼ per cent., but if they are right about that the lesson for the Government is that we must redouble our efforts to save on certain resource expenditure. 177 I can suggest two areas where the Government could make savings. First, there could be a saving in the general level of manpower in the Civil Service. I am not making a hustings speech; I am talking about an increase in the numbers of civil servants. The hustings are some way away from 1970. Apart from the Land Commission, the one major Department of State that has made a significant reduction in manpower is the Ministry of Agriculture, Fisheries and Food. As I understand it, as a result of various changes announced by my right hon. Friend the Minister of Agriculture just after Christmas, there may be a saving of between 1,000 and 1,500 civil servants.
Each Department of State should look again at its manpower and ask, "What is the function of each part of my Department?". The question is not "Can they do their work better?" but "Should the work be done at all?". Only by reducing the function shall we eventually reduce the numbers.
Nine months ago we took into Government service a considerable number of businessmen. I understand that they were to contribute particularly in terms of procurement and staffing in the Civil Service. I feel that substantial savings could be made here. The Government recognise this in the White Paper. Paragraph 23 of Part 1 says that we expect the administration of local authorities to be more efficient, to the extent of £25 million in 1972–73. I support the Government in that.
The second area in which there could be a reduction of a sort, in terms of the demand on resources, is in capital expenditure by the nationalised industries. This now amounts to about £1,500 million a year. Paragraph 4 of Part 1 of the White Paper states that a review is in hand. Perhaps the Financial Secretary will be able to give us some information about the review.
But to the extent to which that capital expenditure can be met by the private sector, it reduces the demand on the resources of the State and allows the State to spend more money on hospitals, schools, roads and the basic fabric of the community services. One has only to look at the capital expenditure of the Post Office, which is now becoming a 178 big spender—£461 million next year, nearly £2 million a day. One must ask whether there are ways of providing some of that money from the private sector. I believe that there are.
First, one must split off the postal side from the telecommunications—[Interruption.] No, the hon. Member must not be quite so crude as that. There are more subtle ways of attracting private capital than nationalising the telephone business of the country—and more effective ways as well. The split must be made and private money should be provided to finance much of that expenditure.
Why, for example, cannot the citizens buy their own telephone instruments, instead of the Post Office buying them from the suppliers at enormous cost—enormous considering the number of instruments—holding them in stock and then renting them out? Why cannot private suppliers provide PBX's down to five lines, instead of the Post Office buying them from suppliers and paying good hard cash, which could be spent on hospitals, roads and schools, taking them out of stock and renting them to customers? These are methods whereby we could save considerable capital expenditure on the resources element.
I also hope that the Government have not lost sight of their function on coming into office of de-scaling the rôle of the State as regards the nationalised industries. When one has to suck in Rolls-Royce, it becomes even more necessary to push more out, because, by 1974–75, there will be more of the productive growth of our country nationalised than there was when we came into office. This necessitates the Government being more determined to find ways, particularly with the two major airlines, of returning them, either in part or in whole, to the private sector.
I believe that the Government must keep up the pressure to reduce expenditure, to try to save money in these ways or in others. There is a great tendency for public expenditure to rise under any Government, particularly at local level. If public expenditure continues to rise at above the rate at which the gross national product rises, the decelerating effect on the growth of the economy is intensified, because public expenditure rising at above the gross national product rise absorbs too much of the nation's 179 resources and limits the increase in personal consumption.
This is evident from the last six years of Labour Government. This is exactly what happened—Government expenditure rose by 5.9 per cent. over the whole period, while the growth in the economy averaged about 3 per cent. The net 180 result was that personal consumption suffered over their six years. That is one of the major reasons that they were turned out of office.
The Government have got off to a good start, but, however well they have done so far in the area of public expenditure, I believe that the opportunity to do better in future is even greater.
§ 10.30 p.m.
§ Miss Joan Lestor (Eton and Slough)
I am sorry that the hon. Member for South Angus (Mr. Bruce-Gardyne) has left the Chamber, because I wanted to take up a point which he made. I, too, am interested in the question of allocation of resources, and it always amuses me that, when hon. Members opposite talk about cutting public expenditure by cutting back on education, mainly on further education and the raising of the school-leaving age, they limit their attention to those areas of education in which the disadvantaged and, perhaps, the deprived are likely to benefit, ignoring other sectors in which the advantaged and privileged are having money heaped on them by the taxpayer and ratepayer, a point never mentioned in Tory speeches.
Before turning to the question of education, however, I wish to draw attention to one aspect of the Defence Estimates. It may not be generally known, because one has to dig it out, that the Defence Estimates show that we spend £6.5 million on maintaining military bands. I do not believe that there has been any cut there in the last few years. Whatever sweet music those bands may put forth, a few of us—if the House will pardon the analogy—would like to hear the music of percussion bands in more nursery schools which some of that money could provide.
It is worth noting that we spend more on military bands than has been allocated for the four-year programme of the urban aid project, and the Government have already made clear that they do not intend to build on or add to the urban aid programme. If we should be talking about priorities and the allocation of resources, I can only say that there is something wrong with some of the value judgments expressed in the House tonight.
If hon. Members opposite are really concerned to find money by cutting education expenditure, they can look to the public schools—public only in name—and the independent sector of education. The 1968 Budget changed the rule which enabled tax to be avoided on fees paid to public schools. I think that I am right in saying that, as a result of that new rule governing the aggregation of a child's income with that of its parents, we 182 brought about £25 million back into the nation's resources. This affected, in particular, minors whose fees were being paid by grandparents or others who made gifts to them and thus avoided higher rates of taxation.
There are those of us who do not believe that the public or independent sector of education should continue, but, if it is to continue—and we have no reason to think that it will be abolished within the next five years—then, on public expenditure grounds, let us make it truly independent and make it finance itself. If people defend the public and independent sector of education on the ground that parents should have the right to choose and pay for the schools to which they send their children, very well, but let us make them truly independent, and financially independent of the taxpayer. Let those who believe in "one nation" and "standing on our own feet" apply those principles to themselves.
At the end of 1967, out of the 1,500 independent schools in England and Wales recognised as efficient 900 were registered as charities, including, I believe, most, if not all, the public schools. Charitable status confers certain fiscal and other privileges on the body so registered. Charities enjoy exemption from tax on their income other than their business profits. A school which is a charity enjoys the same privileges and has tax exemption in respect of any profits made from the running of the school.
I have tried hard to find out the amount of tax which these schools would have to pay on their income from fees if they were not registered as charities, but no one is able to give me a figure which matches what is calculated as being lost to the public purse.
It is important to know, because there is no public accountability for expenditure in this sector of education, as there is elsewhere. Charities pay half rates to local authorities and some public schools are relieved of between £5,000 and £10,000 a year. A few weeks ago, the Secretary of State for Education and Science made it perfectly clear that there would be no change in the charitable status of public schools. In the last year for which figures are available, rate relief for the public and independent schools amounted to more than £1 million. Half 183 of that went to the public schools, an average of £5 per pupil. That is a generous family income supplement for which no one has to prove poverty, for which no forms have to be completed and for which need does not have to be shown. Charities are entitled to the repayment of S.E.T. and the repayment to public schools in the last year for which there are figures amounted to £2.52 million.
If hon. Members are concerned about allocating resources, as they should be, they should look more closely at this sector of education and consider reallocating this money.
§ Mr. Hordern
I completely accept that public schools would find life a good deal more difficult if they did not have the benefit of being classified as charities and so get rate relief and tax relief on the fees paid by parents, or whoever pays them, but the alternative is that the children would be educated by the State. That would necessarily involve a great increase in public expenditure and I take it that the hon. Lady is not altogether recommending that.
§ Miss Lestor
If I thought that by doing what I am suggesting, which is to make public and independent schools thoroughly independent, the Government would bring children into the State schools, I should be delighted, because some of the money saved would go towards educating them in the State sector. But that is not the argument. Conservatives are constantly saying that parents have the right to pay for the education of their children and to choose the school to which they want their children to go. I am arguing that they are not now paying for it, that the taxpayer and ratepayer, through public expenditure, are paying. Moreover, in this instance there is not the public accountability and scrutiny of accounts which are undertaken by local authorities and Parliament over education expenditure, because most people are not aware of the relief and other help given to those whose children are educated in the private sector.
Newspapers often carry advertisements by insurance companies and other firms offering facilities through payments in advance for the payment of school fees. For example, endowment policies are 184 quoted and the Public Schools Commission Report demonstrates that the payment of £4,200 in respect of a child of five will secure full payment of fees of £4,300 at prep. or public school, together with a cash return after schooling of nearly £4,000. This information was sent to me because I asked for it. The same advertisement says that income tax and surtax relief may as much as double the estimated cash return. I am talking about the allocation of resources to education. The nursery schools for which I have fought and which were promised in the Conservative manifesto and the play groups which have had to bridge the gap do not enjoy such privileges. They go to people who already have the advantage of money and this is building privilege on privilege.
There are all sorts of other examples I could give, such as the way in which local authorities pay £5½ million a year towards fees in public and independent schools, which is not very clear unless one goes into the Estimates.
Let us take the argument of hon. Members opposite at its face value. If the private sector of education offers free choice, let it pay for it. Let it train its own teachers, where the schools have trained teachers—and many have not, and stop pinching teachers whose training has been paid for by taxpayers' and ratepayers' money. All these things contribute to the astronomical amount of money going into this sector of education, money that we could do with in the State sector to help some of the children in deprived areas and children not already receiving the full benefits of education.
Hon. Members will no doubt argue that it is right that the concession should be given because parents of children educated in the private sector are paying twice, because they pay for education through rates and taxes as well as fees. I think that that is what the hon. Member for Horsham (Mr. Hordern) was getting at. But we all pay for services that we do not use. Just because I do not use the public library where I live does not entitle me to subsidised books at the bookshop. I hope that that puts Conservative hon. Members off using that argument.
Parents who are paying for their children to go to pre-school play groups are 185 contributing towards the upkeep of the nursery schools to which they cannot send their children because there are not enough such schools.
I believe that I have made out a case, short but I hope full of ammunition, to show that in terms of public expenditure the allocation of resources to the areas that need it most does not in the few years ahead depend entirely on getting growth. What it depends on is values, and the fact that there could be a reallocation with a fairer distribution of resources.
The State sector of education is closely controlled and subject to scrutiny both locally and nationally. This is not so of rate rebates, tax concessions, including S.E.T. concessions, and so on to the public schools. It is an indefensible use of the taxpayers' money when all parts of State education are severely restricted and controlled. I hope that the Government will consider this matter and make new proposals on how the money can be reallocated to the educational priority areas, to the urban aid programmes and those children desperately in need of nursery schools.
§ 10.43 p.m.
§ Mr. John Pardoe (Cornwall, North)
I do not wish to take up the detailed arguments of the hon. Member for Eton and Slough (Miss Joan Lestor) too closely, but would merely point out that the money about which she is talking is not expenditure but money that has never yet been income. Probably it should be talked about in the context of the other side of the balance sheet. I also remind the hon. Lady that she was a member of the Government that refused to accept an Amendment I moved in the late hours of debates on the selective employment tax to remove the public schools from the charitable concession on that tax. I had no support from her then or from her Government.
I, too, want to deal with the part of the White Paper concerned with education. Perhaps it is useful to discuss education in the context of public expenditure. At any rate, it is an excellent discipline.
A great deal has been made of the suggestions that the White Paper does not reduce the rate of increase of expenditure on education. We can see in it that there will be an increase in the edu- 186 cation share of public expenditure from 12.3 per cent. to 13.8 per cent. Whether it is more or less, and whether it is a greater or less proportion, is not my question tonight. I want to ask, is it enough to pay for the education commitments that the present Government have made?
My concern arises from speeches I have made in the House on the matter. In past education debates I have challenged the whole concept of the broad-front approach to education expenditure. I received no thanks for telling the Labour Government that they would not be able to raise the school-leaving age by 1970 as had been intended. The decision not to raise was not made in order to cut public expenditure, although it was disguised as such. It was taken because the previous Government which had made that commitment had not made the correct forecasts as to the cost of increasing the school-leaving age by 1970, and the preparations were very far behind schedule. I warn the Government now that either they must change their education policy or they must allocate more money than they allocate in this White Paper. They cannot pay for the policy and its commitments, into which they have specifically entered, with the money allocated, and to go on pretending that they can is tantamount to fraud.
I am not in the least neutral about the choice which the Government should make. I retain a faith in education as one of the most powerful weapons in developing the human personality and building a compassionate society, in spite of what some people would say was the evidence to the contrary around us. The view I express that the allocation in the White Paper is not sufficient to pay for the Government's education policy is not mine alone. It is backed up strongly by Sir William Alexander, that hard-headed Scot, who heads the local education authorities, writing in Education on 5th February, when he said:The plain fact which seems to emerge can be stated in simple terms. The education policies which have been approved and which it is hoped to carry into effect cannot be carried into effect within the limits of the resources which the Government is prepared to make available.That was his comment on the White Paper. 187 What ought we to be spending on education? That is really as difficult to answer as, "How long is a piece of string?" The fact that other countries spend a higher proportion of their gross national product on education may not be absolutely relevant, but if one looks at what we have spent in the past one comes up with an extraordinary situation, Professor West, in the Economic History Review of April, 1970, dealing with the resources allocation and growth of early 19th century British education, showed that, in 1833, we were spending 0.8 per cent. of our net national income on the education of children below the age of eleven. In 1965, we were spending 0.86 per cent. on the education of children under the age of eleven. In other words, in primary education we had not upgraded the priority which we gave out of our total national income between 1833 and 1965.
Of course, if one looks at the figures for children of all ages, the picture is different. But it is not all that different. In 1833, we were spending about one per cent. of our net national income on the education of children of all ages, and in 1965 twice as much—two per cent. That is not a very substantial increase. Then again—and this follows from the remark of the hon. Lady the Member for Eton and Slough—if one compares the present level of expenditure in the State sector with other education expenditure within our own society—particularly, of course, the private sector—one can see some remarkable comparisons. On 12th January, in a Written Reply, we were told that the current cost of educating a primary school child in 1970–71 is esimated at £97. My researches into the cost of private education would certainly reveal a figure of something over £200, and in most day preparatory schools for boys the fee would be approaching £300 a year—in other words, three times as much as we make available in the State sector. In secondary education, in 1970–71, the State is spending £186 per child, and I would think that for day boys in private schools the figure is nearer £400 a year. So by any standards, whether the standards of the past or the standards of our society today, I maintain that we are spending too little on education.
But—and this follows a point made by the hon. Gentleman the Member for South Angus (Mr. Bruce-Gardyne)—even 188 if we spend a higher proportion there will still be a need within the total allocation to set priorities and to make choices. I shall come on to develop, very briefly, the theme which the hon. Gentleman set out, when he referred to universities in somewhat disparaging terms, and the allocation which they have within the total. I think he has really put his finger on the problem.
Let us look at the essential commitments which I say the Government cannot pay for out of the money allocated in the White Paper. The Government are committed to giving top priority, as everyone knows, to primary education. The Secretary of State for Education and Science, speaking on 28th October to the annual conference of the Association of Education Committees, went so far as to say:I am making no promises"—a good way to preface any statement on education!—but my hope is that over the period of five years from 1972–73 we shall be in sight of the elimination of the primary schools built before the end of the nineteenth century.The noble lord, Lord Belstead, writing in a letter dated 7th January to me, followed that up by saying:This statement does not, of course, constitute a commitment"—he can say that again—but it makes clear the intention to proceed as fast as possible with the improvement of our primary schools.Of course it did not constitute a commitment, and the plain reason why it did not constitute a commitment, is that the right hon. Lady did not know, when she made that promise on 28th October, how many primary schools were built in the nineteenth century. I can illustrate this point by referring to the County of Cornwall. There are 172 schools which were built before 1903 in the County of Cornwall. Are they really going to be replaced by 1978? Of course they are not. We are going to have two replaced this year and three next year.
Explaining why this was Lord Belstead said:We now realise that … a number of education committees have obviously not provided us with a complete list of schools.They are very short of being complete, and the Government are not even going to begin getting these schools replaced 189 by 1978, or even by 1988, if the figures in the White Paper are adhered to.
We move on to the latest allocation for school building. For replacing unsatisfactory primary school buildings there is £38.5 million, but that is only the equivalent of what the right hon. Lady would have needed to provide new schools if there had not been a fall in the primary population. So it is no great shakes. Is primary education to receive top priority or not? The answer is, of course, that it is not.
Some startling figures emerge from the table on page 36, if one does some percentages, and one has to look at percentages rather than total figures in assessing this Government's expenditure policies. If one takes the five-year period from 1970–71 to 1974–75 one can see the current expenditure on primary education is going to increase by 13.5 per cent. as against current expenditure on secondary schools of 30.8 per cent. If one looks at universities one sees that current expenditure on universities in the same period will increase by 38.6 per cent. compared with an increase of 13.5 per cent. on primary education. So where is the priority? If one takes capital and current expenditure together for those years one sees that the total capital and current expenditure in the five-year period on schools is going to increase by 15½ per cent., on universities by 31 per cent., and on further education by some 6.3 per cent. This is why I deny that any real priority is being given within these figures to primary education. Far too great a priority is being given to the development of universities over and above primary education, and over and above the development of other further education, particularly vocational and part-time courses.
§ Mr. Nicholas Scott (Paddington, South)
Might not part of the answer be that the primary school population is expected to increase by 3 per cent. in the period, whereas that of secondary schools is expected to increase by 27 per cent.?
§ Mr. Pardoe
I am not quarrelling too much about the comparison between primary and secondary. As the White Paper says, the major part of these increases is related to the relative increases in the number of pupils. But I quarrel very 190 much with the forecast of the increase in expenditure on universities in comparison with primary schools. We can to some extent control the numbers going to university, we can divert them to other forms of further education.
Universities are obstinately middle-class, and the money is largely going to middle-class people and not to the children of manual workers. In 1926 approximately 25 per cent. of undergraduates in universities were children of manual workers. In the Robbins Report the proportion was 25 per cent. What will it be by 1980? Tyrrell Burgess recently estimated in the New Statesman that it will be 25 per cent. We are making no impression on this proportion. The expansion of universities is very nice, we all like it, but, if it is at the expense of other sectors, can we afford it? We should think in terms of cutting the university expansion programme and piling that money into primary schools and further education, particularly vocational and part-time courses. I know the hon. Member for South Angus would like to cut it and hand the money back to the taxpayers, but I am not in that business. I say we must increase the educational opportunities for people in the lower income groups.
What estimate has been made of student grants? What estimate has been made of teachers' salaries? Is it the £225 million that the N.U.T. is claiming, the £152 million the N.A.S. is claiming, the 15 per cent. the N.U.T. has tumbled down to, or the management offer? Nothing is said about this in the White Paper, and I suggest that the expenditure forecast will be made wildly out of date by student grants and teachers' salaries.
Whatever the figures are, it cannot be denied that the money will not pay for these commitments. This is why I challenge the Government to show that these public expenditure forecasts are an honest attempt to provide the cash for the promises which they have made to the country in their manifesto and in many speeches since. I am aware that the Government are committed to cut public expenditure. They seem to be trying to ape the golden years of the noble Lord, Lord Butler, but he had immense defence expenditure to tamper with and get rid of and, in so far as he cut social expenditure, he allowed Dame Florence 191 Horsbrugh almost to destroy the education service. As the Brookings Institute pointed out—and this is answer to the hon. Member for South Angus—Florence Horsbrugh's ability to cut education expenditure was largely responsible for the low growth rate which we are still experiencing.
§ 11.0 p.m.
§ Sir Brandon Rhys Williams (Kensington, South)
We are talking tonight about a highly important document. It might almost be called "The intelligent back bencher's guide to finance". I wish to congratulate my right hon. and hon. Friends on producing this document so quickly. It contains a great deal of information. It cannot have been easy for them to look as far forward as 1974–75 when they have not yet given us their first Budget.
Though I am full of praise for their industry and enterprise in producing the document, I hope they will not take my remarks in the wrong spirit if I have somewhat critical things to say. Of course it is a guide to expenditure, but it is agreed that it is essential to divide the Government's expenditure into three categories; namely, expenditure on revenue account, expenditure on capital account, and transfer payments. When one tries to analyse these figures under those three headings immediately one begins to lose touch with reality.
It is inevitable of course that there should be a degree of imprecision in the figures, considering the rate of inflation, I am sure that this invention of the relative price effect is an absolute miracle of methodology. I hope that I am never asked to write more than five lines on the subject. When we try to deduce the date of the next election from the paragraphs on law and order, we find that when we come to 1973–74, expenditure on elections disappears to a thin line. In 1974–75 we reach the same conclusion. Something will happen in those years, but we cannot be quite sure what. But the timidity of that judgment has turned up in other much more important aspects of the Paper.
Several hon. Gentlemen have referred to the table detailing forecasts of expenditure on education. To me, it seems very hard to believe that there will be 192 a sharp reduction in capital expenditure on education in total in the year 1973–74 when I thought—I may be misinformed—that we were going to raise the schoolleaving age and that there will be a further sharp fall in 1974–75. It seems to me that Great George Street has given the totals and all else is the work of man, or perhaps in this case of woman, who has added up the current account expenditure and has then had to reduce capital expenditure forecasts sharply to bring the totals to match the figures which have been decreed from the other side. I also seem to hear an angelic voice of compelling power rejecting absolutely the concept of a sharp fall in capital expenditure on education in 1973–74. I wish good luck to that voice.
This White Paper is intended to be only a rough guide to the Government's intentions as of now with regard to expenditure. Hon. Members who take it in any other sense would be asking too much. Yet the format leaves too much to be desired. First of all, in regard to the facts of the situation on capital account. Expenditure is split into expenditure on capital account and expenditure on revenue account, but we are not able any longer to deduce from the information published the extent to which the Government are using taxation to provide for the formation of capital. One of the most controversial features of the last Budget was the extent to which the then Chancellor of the Exchequer made use of taxation as a capital-forming device. Some hon. Members, including myself, felt this was a step away from free enterprise capitalism and towards the nationalisation of the capital market, in that it was no longer felt sufficient for the public to make its own decisions about saving, but that the Chancellor should make that decision for them, to the tune of perhaps £1,000 million.
One of the most important things we want to know about the new Government's plans in regard to expenditure is the extent to which the capital side of the account will be financed from the capital market and how much it will be financed from direct taxation. The omission of the taxation forecasts in the Paper is understandable, because they were bound to be inaccurate, but it is nevertheless wrong. We want to know 193 the Government's intentions in regard to taxation as a way of creating capital, but we cannot deduce this from the Paper. That is a mistake which ought not to be repeated in next year's edition of the guide.
I would like to deal briefly with the question of transfer payments. Here, I feel that we may be up against deliberate obscurantism. Far be it from me to suggest that too strongly. It may be that the trouble is simply sloppy thinking, but I do not like to suggest that either. I therefore fall back on the feeling that this is simply an early edition of the guide and that in future editions we shall learn much more about transfer payments.
Let us, however, see how far the authors have gone in this respect. On page 39, to start rather unfairly by skipping towards the end, one reads thatThe schemes of social security cash benefits make up the largest of the public expenditure programmes.That is obviously a matter of tremendous interest for us. If, however, we look back to page 10, we see thatabout one-third"—I challenge that one-third, but that is what is stated—of public expenditure is accounted for by transfer payments. The recipients, not the public spending authority, decide how this money shall be used.That is very true. We must learn to look at transfer payments, not as taxation, not as expenditure, but instead as, perhaps, a necessary—indeed, possibly highly necessary—form of interference. I do not want that word to be charged with a sense of animosity.
In so far as the State is taking money from people and giving it to others, or, possibly, back to the same people, it is not taxing them or spending public money. It is acting as an impeller in the system. The State is not the only impeller which is acting in this way. There are private forces encouraging people to save, to take out life assurance policies, to put money into buildings, and so on, and there are also forces encouraging people to dis-save. Let us face it, there are forces in the economy encouraging all these movements. The State may be the largest, but in so far as it creating these flows of transfer payments it is not acting in the same way as it is when it is arrogat- 194 ing resources to itself, either on revenue or on capital account. I hope, therefore, that the next edition of the guide will deal much more fully with the question of transfer payments.
It is a happy fluke, which I do not think that I am the only hon. Member to have noticed, that year upon year the proceeds of the income tax, surtax and National Insurance contributions are balanced more or less exactly with expenditure on education, health, welfare and social security. It might, therefore, be said that the direct taxation of individuals and the direct return to individuals of spending power, not only in cash, but also in kind, is a virtually self-balancing system. I suppose that this is a fluke.
If people wish to shoot me down and say that I have forgotten about housing and other local authority expenditure, I would say that there, to, if one adds in rates and housing expenditure, one still comes back to a virtual balance between what the State is taking from people and what it is giving back to them in cash or in kind in the form of transfers of resources.
I would therefore like redistribution of spending power to be taken completely out of the Budget and given separate examination. We want to know exactly who is gaining and who is losing by all this. Does the group of national systems of redistribution of spending power have the effect of conveying money simply from the rich to the poor, or does it convey it from male to female, from young to old, or from South-East to North-West? What is happening about the redistribution of income in our society?
I would like to give two or three examples of ways in which considerable changes might be introduced in the pattern of Government interference—or redistribution—which would produce very odd quirks in the guide which could not be interpreted accurately by hon. Members.
For instance, suppose that there were reversion to the policy of cancelling the child allowance in the tax system and making a commensurate increase in family allowances. Since this Paper is confining itself to expenditure it would appear that the increase in family allowances would constitute an enormous increase in Government outgoings, even 195 though the cancellation of the child allowances might well correspond to almost the precise total of additional expenditure.
I made some calculations—which may have been wrong—that if the child allowances were cancelled altogether and family allowances of about 24 or 25 shillings a week were introduced free of tax for all children, including the first, the net additional Government expenditure would be about £50 million or perhaps £60 million. But the gross additional Government expenditure would be vast. Equally, one could say that the increased taxation would be crushing and overwhelming. That is one example which I offer to the House of the way in which sloppy thinking can come in and appear as a barrier to a highly desirable reform.
On the question of school meals, it might seem that we could achieve a reduction in expenditure if we reduced the availability of free milk and meals, and so on, in schools. But seen from the point of view of national expenditure, one hopes that there would not be any reduction. If there were a reduction it would be because some children would be going without what they were having before. Or possibly the effect would be that there would be less waste, because undoubtedly there is waste in this respect. We must not prejudge the issue but stick to the economics of the argument.
Whether the Government effect a redistribution of spending power by asking people to meet two bills instead of one, one bill for the taxpayer, is a subject that the House ought to examine. The facts ought to be before the House.
To introduce a somewhat more complex situation, let us suppose that a recommendation which I have made on more than one occasion were accepted and there were to be a compulsory increase in employers' contributions to pension schemes in the graduated pension system. Those schemes contracted "in" would be deemed to be making a large increase in tax contributions because there would be an increase in compulsory levies coming into the Exchequer. Yet that money would still remain the property of the public and eventually they would be able to reclaim it. Thus we have the time element to bring into account. This is left out where ultimate 196 commitments of the Government are being built up which do not appear in these tables.
In the case of the contracted "out" schemes, let us suppose that the minimum contribution were raised from the present level of, say, 4½ per cent. over a narrow band of income to, say, 10 per cent. of all income. There would be an enormous access of fresh savings to the private capital market because employers would be obliged to put into the hands of trustees huge sums of fresh money. Would the Government then be able simultaneously to cancel S.E.T. and to reduce corporation tax, because the capital formation going on would enable the Government to finance their expenditure on, say, the nationalised industries, by resorting to the capital market?
These are all recondite speculations, but they arise from a situation which is real. We have no way of making increases in pensions unless we increase contributions. The relationship between expenditure now and in the future and between savings now and in the future, must all be taken into hotch-potch. But it is impossible for the intelligent backbencher to make any calculations of this kind by reference to this interesting document. We know that the House has taken note of the problem and that in its wisdom it has appointed a Select Committee on Expenditure. That is an important step forward, though it seems to me that we are putting the cart before the horse if we study expenditure but do not spend at least as much time on taxation.
I would like to see a Select Committee on taxation. I believe that it is the historical function of the House of Commons to deal with matters of taxation, and only a secondary function to study the way in which the money is spent by Departments after it has been raised. However, if we are not yet to have a Select Committee on taxation, let us hope that the Expenditure Committee will at least set up a subcommittee to examine transfer payments. We shall then be able to look at these contrary movements and decide which are necessary in the national interest, which should be increased, and which should be diminished.
At present, we are going through a crisis in democracy in Western Europe. It is not only in this country that we have 197 this tussle between the elected representatives and the officials for control of the economy, of taxation, and of the monetary system. The Werner Report is a well worked-out document. I think that we should take it into account in our thinking, whether or not we go into the Common Market.
Officials will be setting up central institutions to run the European economy, and it may be that it will include our own. After all these centuries, are we to surrender our interest in questions of taxation, are we to pass to Great George Street or Somerset House the power to decide what happens—or, even worse, to the Commission in Brussels? I am an unashamed Gaullist in these matters.
If we are content year by year with documents as sketchy and incomplete as this one, interesting though it is, we shall lose all credibility as legislators, and we shall deserve to lose our authority.
§ 11.17 p.m.
§ Mr. John P. Mackintosh (Berwick and East Lothian)
It is a privilege to follow such an interesting and sensitive speech as the one that the hon. Member for Kensington, South (Sir B. Rhys Williams) has just made. I will not embarrass him by suggesting that he might be more appropriately situated on these benches in view of some of his attitudes.
Perhaps I might take issue with him on one small point and suggest that, despite his criticisms, this sketchy White Paper is a great step forward won by the work of the Select Committee on Procedure, which extracted it from the Administration and the Civil Service with great difficulty.
There is no doubt that, unless we get a Select Committee on taxation or a sub-committee of the Expenditure Committee, as the hon. Gentleman proposes, then whoever gets the power to decide taxation, it will not reside in any measure in this House either in matters of scrutiny or understanding, apart altogether from matters of actual control.
It seems to me that we have established two major facts about the lack of information that we have been given by the Government on this occasion. They have failed to give us the medium-term economic assessment, and they have failed to give us the estimate of public sector receipts. Why?
198 Taking the first case, they have given no adequate reason for failing to publish the medium-term economic assessment. My hon. Friend the Member for Ashfield (Mr. Marquand) demonstrated with great clarity that it exists. We know that it exists. It underlies the whole White Paper. It is there in the boxes of the Treasury Ministers. We are entitled to ask why they have not published it, and I fear that their continued silence on the matter gives me only one feeling. It is that they would have published it if there was a single note of cheer in it for their Government and their prospects.
The Government have not had the guts to publish the medium-term economic assessment that they have in their possession. As my hon. Friend has said, no doubt we could work out the main points if we had the staff to work on the statistics. But I suspect that the reason it has not been published is that it forecasts in the coming years no growth, roaring inflation, an incipient recession, and possibly even a deterioration in our balance of payments. It will be interesting to see whether the Financial Secretary is prepared to deny that that is what is in the medium-term assessment. Certainly it is what is in the assessments being made by private organisations, and what is in the London and Cambridge Economic Bulletin, which is the latest serious assessment to be issued by the private statistical organisations concerned with these matters. However gloomy this assessment would have been, it would have been better to have published it than to have left us with the even gloomier doubts which we now entertain.
Why have the Government not published the estimates for public sector receipts? We were given an explanation. We were told by the Chief Secretary, who opened the debate, albeit in a somewhat faltering and unconvincing fashion, that it was because there was an element of uncertainty in the calculations of public sector receipts. If so, that is the joke of all time when we look at the uncertainties which have already been published in the White Paper.
The hon. Member for Kensington, South pointed out some of the uncertainties with regard to transfer payments. 199 Running quickly through the document, there is a listed saving on agriculture of £150 million without any explanation of the levies, the estimated future world prices, or the egotiations which will be necessary with foreign countries before we can determine whether any or none of this money will be saved. There is no estimate of the cost of E.E.C,. entry, though assumptions of this kind could have been put into the calculations. Again there is no estimate of the possible increase in social security benefits. We have not wrapped round the necks of the hon. Gentlemen opposite what it would be like if the wealth of this country grew at 2½ per cent. a year for five years and yet at the end of that time people in receipt of social security benefits in real income terms were left where they were at the beginning of the period. We have assumed that there will be some increase, as in past years, but again there is no estimate.
Then there is this peculiar method of calculating a decrease in the financial cost of the public debt because of an assumed rate of inflation. This has been put in as a figure which it is reasonable to estimate; yet it is impossible to give an estimate of what public sector receipts are. We are given a guess at a saving on public expenditure in housing, although the bill and the arrangements by which it is to he made have not yet been revealed or explained.
There is, as some hon. Members opposite have said, a guess that the expenditure of local authorities can he held at 3½ per cent. current and capital. At best it is a guess and no more. Yet we are invited, after these six stupendous guesses at the level of public expenditure, to believe that public receipts are subject to even more hazy guesswork, that they cross some peculiar divide between credibility and incredibility, and we therefore cannot be told.
I believe, in fact, that we are not told public sector receipts, because, if they were published, it would become dreadfully clear that there is no further room for cutting taxation in the present situation. These are the reasons why the Financial Secretary cannot come clean on both these factors.
Now the House has equipped itself with an adequate weapon with which to 200 combat the hon. Gentleman. This House has now got a Select Committee on Expenditure. The great virtue of a Select Committee is that it can summon before it officials and Ministers and extract information. I judge that the first task of this Committee is to get out of the Financial Secretary the medium term economic assessement and public sector receipts because they obviously contain matters of the greatest importance to this House and to the nation. If not, they would have been published
I move to the major issues of public expenditure and priorities. We clearly have two points to consider. The first is the total claim on resources by the Government. The second is the priorities within this total.
I should like to take the second point first: the priorities within Government expenditure at the moment. Again, I am disappointed that the White Paper does not set out more precisely what the priorities mean and involve in terms of education, housing. roads and so on. Again it cannot be suggested that the detailed background to these expenditure totals is not known.
We were told that the expenditure cuts were the product of what I believe the Chancellor of the Exchequer called "the most searching review of public expenditure yet undertaken." This must be a pretty tough exercise, because every Government seems to undertake the most searching investigation of public expenditure that has ever taken place roughly every two years.
If it is not known by now exactly what it means to cut a departmental budget by a certain percentage, the Government must be groping pretty badly in the dark. After this exercise had been done I should have thought that the House could have been told precisely what it means in each case. If that had been spelt out for each departmental budget, the benches on both sides of the House would have been full, because hon. Members would have realised the precise impact these changes would have on their constituents and on the political fortunes of the party making the cuts.
I have one word of comfort for hon. Members opposite. I accept one of their major priorities —the scaling down of Government aid to industry. I repeat the point made by the hon. Member 201 for South Angus (Mr. Bruce-Gardyne) in that I also am not clear where the Government expenditure on the Concorde programme is listed. Looking at the expenditure on trade and industry I do not see under which head it is listed, and I should be grateful for elucidation on that point. I should like to see that among the programmes in which cuts are to be made.
Aid to industry has been scaled down. The claim on resources in respect of the social services is to be held steady, or slightly increased. The areas that come low in the Government's order of priorities are the poorer sectors of the community, the regions and the housing programme. On these sectors, there is a diminution of expenditure. In terms of development areas and housing, Scotland is hit particularly hardly, and I draw the attention of the Minister to that fact. I want to ask a few questions on the point.
On the simple facts in the White Paper I am a little confused about the housing figures. On page 10 it statesThe proposed reform of housing finance will prevent expenditure on subsidies for housing increasing rapidly as it would otherwise have done.It is claimed that an increase will be prevented, whereas in the list of figures in table 1–2 there is a decrease of 0.4 per cent. per annum over the five-year period. I should be interested to know what in fact is the figure for housing.
It is difficult to calculate the total expenditure in Scotland because, as my right hon. Friend the Member for Birkenhead (Mr. Dell) said in an impressive speech, it is difficult to work out how far the differential in favour of the development areas has been diminished. I take the point that it has not been increased but diminished. It is very difficult to work out how much the reduction in Government aid to industry is diffused over the whole country and how much it applies specifically to the development areas.
But I have worked out from the White Paper the increase in public expenditure for all services under the control of the Secretary of State for Scotland. There the increase is 2.15 per cent. per annum, compared with an overall increase of 2.6 per cent. for the United Kingdom. The White Paper shows that the Scottish 202 share of public expenditure is a diminishing one over the five-year period. What bothers me is that the 2.6 per cent. for the nation includes defence which is diminishing. If expenditure on education, housing, health and the other services for which the Secretary of State for Scotland is responsible is compared with expenditure for the equivalent services for the whole of the United Kingdom, the gap will be between 2.15 per cent. and more than 2.6 per cent. so that now public expenditure in Scotland is seriously declining relative to public expenditure in the nation as a whole.
This is a pattern that one would expect. I consider that Scotland has more need of public expenditure in terms of regional development, housing, industrial dereliction and road mileage to be developed. It is one more example of the way in which, under this Government, not only in overall terms but in terms of individuals and areas, the priorities are tilted against the relatively under-privileged.
I do not accept the argument put forward by the hon. Member for South Angus, whose majority is astronomical, and has to be, with his views on Scotland, that Scotland is peculiarly lucky to have lost the regional employment premium, and is now relatively worse off in the loss of its differential advantages in attracting industry and is yet still paying out selective employment tax. I am, in a small way, particularly disappoined that forecasted expenditure on tourism and the Highlands and Islands Development Board is to come down.
These are some points about priorities within the total. I turn now to the total itself and to the public expenditure claim on total resources. What bothers me is that, if one takes as creditable the point made by Conservative Members, that, on the whole, this Government have maintained public expenditure, and if one takes Wynne Godley's estimate that, if anything, public expenditure will increase in the last two years of the five year period, and accepts that the growth rate is the same as or no higher than, this increase, there is very little room left for other factors to expand.
What is particularly hard to take is the Conservative Government's claim that, when they alter transfer payments, they can then decrease taxation by an equivalent amount, because if they 203 decrease taxation, having only altered transfer payments, the claim on real resources is virtually the same. If there is any reduction in the claim on real resources, by virtue of abolishing school milk or by putting up rents and food prices, that is only a reduction in the claim on resources if people eat less or consume less housing. Assuming that they do not do this significantly, if there is then a cut in taxation, any consequent direct increase in the total demand on resources is therefore directly inflationary.
What worries me about this is that it is inflation now which is the main constraint on growth. We will not break out of this tight circle of reduced or static level of consumption, a flagging level of investment and a relatively steady level of public expenditure unless we can get increased growth. The problem which we have now is how to break out of these constraints. The Conservative Government, like the previous Government, are enmeshed in this difficulty and the only answer is some form of incomes policy.
People who criticise and attack this idea, either from the Treasury Bench or the right hon. Member for Wolverhampton, South-West (Mr. Powell), have nothing to offer in exchange except the money supply argument, which is a dignified way of saying unemployment, bankruptcies and continued constraint on the economy. It is not a way out of the problem of constrained growth but a recipe for retaining it until goodness knows what will happen or some method is discovered of getting out of it which has never been explained.
So we are left with this problem, that if we retain public expenditure at the level which the Conservative Government has forecast unless growth can be increased, at the end of five years we will have a static or possibly even a decreased share of private consumption, we will not have had a decrease of taxation as hon. Gentlemen promised the public, and we will not have increased investment.
It will not be bad merely for the Conservative Party if this happens. If, at the end of another five years, another total set of promises is falsified, if as a country we have stagnated in this way, it will not be merely hon. Gentlemen who 204 suffer. The whole credit of politicians and political parties will get into difficulties if we cannot break out of these economic constraints.
I therefore hope that these rigid and doctrinaire views and policies of hon. Gentlemen opposite, who are preventing them from taking the only way forward in this matter, which is a voluntary, or compulsory, agreement on an incomes policy will seen be dumped, with so many of the other things which they put up before the Election.
§ 11.35 p.m.
§ Mr. Nicholas Scott (Paddington, South)
It is with some diffidence that I speak in a debate with so many battle-scarred veterans of Finance Bill debates over the years and last year's debate on public expenditure. As the Expenditure Committee develops its work, under the chairmanship of my right hon. Friend the Member for Taunton (Mr. du Cann), the gap between gentlemen and players in this annual debate will get rather larger and perhaps we shall feel, those of us on the outside, rather more anxious about joining in. But even with that caveat, I am convinced that if we are to have a proper discussion this and many other topics in the House, the development of the committee system is essential. The sheer rate of increase of knowledge in the world has that implication built into it.
There has been much talk about receipts and whether projections of receipts ought to be included in the White Paper. With all the authority of one who has never spoken on this subject before, I say that I find it easier to cope with one side of the picture—public expenditure—at a time and would rather deal with receipts or taxation in a completely separate debate on a completely separate White Paper or Select Committee Report.
When the Plowden Committee in 1959 set us on the path we have taken to the discussion of this Report, they said,Public expenditure decisions … should never be taken without consideration of (a) what the country can afford over a period of years having regard to prospective resources—the rate at which we expect the economy to grow—and (b) the relative importance of one kind of expenditure against another.205 They did not envisage that we should be discussing public expenditure programmes within the context of any projection, however vague, about the receipts which we might have from a given set of taxes.
I start from the proposition that public expenditure for much of the period of the Labour Government was virtually out of control, that this led to a level of taxation which was a positive disincentive to the creation of new wealth, that this growth in public expenditure had to be controlled and that taxation has to be lowered. That is not to say that we shall not be able to expand the expenditure of money on the socially desirable objectives which are welcomed on both sides of the House, and that is not to say that I accept the proposition of the hon. and learned Member for Lincoln (Mr. Taverne) that we have to have a rapidly rising level of public expenditure to ensure a civilised society. A civilised society is not to be equated with a wasteful society.
It seems to me that we ought to be talking about priorities. In the first paragraph of the White Paper the Government have made it clear that one of the priorities isto concentrate the activities of public bodies on the tasks which they alone can perform".On page 12 they spell out another:This largely reflects the Government's policy of maintaining and strengthening the basic fabric of the social and other essential public services, which are large users of manpower and require substantial continuing capital expenditure, whilst reducing the direct financial support to industry.I agree wholeheartedly with both of those premises.
I agree with my hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) when he says that the extent to which the capital demands of the nationalised industries bulk in our public expenditure programmes is considerable. We ought to be looking at ways in which these needs can be met by the private sector, both at home and overseas, reducing the demand which they make upon Government expenditure.
I also hope that we shall look very closely—I understand that in the White Paper the Government say that they have a review in hand—at the work of the various research councils to see to what 206 extent each of the councils is essential and to what extent it is essential that they are maintained out of public expenditure —and to what extent can provide services on a fee-paying basis to industry or there is some other way by which industry can finance the work of the research councils rather than they should be totally financed out of public expenditure. If we can control public expenditure, if we can reduce on inessentials, we can find the resources for the expansion of the services which I regard as essential.
The hon. Member for Ashfield (Mr. Marquand) criticised the Government's policy so far as regressive. It is nonsense to criticise this Government for divisive policies. The introduction of the family income supplement, the shift in housing subsidy policy to achieve a switch in resources from the better housed areas into the areas of our inner cities which need those resources, the provision of pensions for the over-80s, about which I have a strong personal view since my own Private Member's Bill on the subject was talked out by hon. Members opposite when they were on the Government side—all these are the very oposite of divisive policies.
It is from that angle that I look at the White Paper. I was sorry that the hon. Lady the Member for Eton and Slough (Miss Lestor) devoted so much time in her references to education to lambasting the private sector, for I think that there can be a real debate about the way in which we allocate resources within the State sector of education. In view of the differential increase in population as between primary and secondary schools, I maintain that the Government have rightly shifted the priority towards the primary school level.
I take issue with my hon. Friend the Member for South Angus (Mr. BruceGardyne) in his apparent strictures on the increase in further education expenditure. It may be that there is some scope, perhaps, either for reducing expenditure or for increasing charges for non-vocational further education, but, if reductions in expenditure on further education were in any way to hit at the second chance element, the second chance for people to come back into education in order to improve their prospects and widen their horizons, I could not go along with that.
207 One of the most heartening features to me in the Government's approach to education has been that the first announcement by the Department of Education and Science about expenditure on polytechnics, showed that that expenditure had gone up by no less than 50 per cent. in one jump. I regard that as the right sort of priority in further education.
There has not been a reference so far in the debate to the loan-grant element in student support. I do not consider that a switch could be justified at present for first degrees, but I do not close my mind to the possibility that for post-graduate work and second degrees there might be a case for switching from grants to loans.
I am slightly disappointed, since it was my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) who last year attacked the presentation in the White Paper for the way it split some items of expenditure between different parts of the White Paper, to find that Government training centre expenditure is split between expenditure on training and expenditure on common services, that is, the actual provision of the buildings. It is difficult to ascertain exactly how much we are to spend on the expansion of Government training in future years.
I know that the Department of Employment is conducting a review of our whole training programme, but I think it important that the Government training centres should be responsive to and in touch with the needs of industry. I feel that it would be worth considering whether we could do this either by getting some of the money for running the Government training centres through the machinery of the industrial training boards or by enabling them to charge industry direct for some of the training which they do.
On the social services, I wish to contrast two statements in the White Paper, one on page 7 and one on page 39. In paragraph 1 on page 39—my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams) referred to this—it is said:The schemes of social security cash benefits make up the largest of the public expenditure programmes.208 On page 7, it is said:… the social security programme … is simply a projection of the cash outlay assuming the present levels of benefits".We know that the present level of benefit is not to be maintained, for the Government have made various pledges that they will improve the level of benefits. We know that the largest element in the present level of expenditure is the level of benefit. How realistic, therefore, is the overall projection of public expenditure? Ought we not to build into our projections of social security benefits some sort of improvement factor?
I hope that before long we shall have a green paper from the Treasury about the possibility of having a full-scale negative income tax system. This has tremendous advantages in concentrating the money available on those who really need help, and it is automatic or largely automatic in its application. I believe that it could achieve substantial savings in the administration of benefits, and I should like to think that we will have a green paper on the subject from the Treasury in the not too distant future.
No hon. Member who represents a constituency in the centre of one of our cities could be easy about the balance between roads and housing in the White Paper, as the right hon. Member for Battersea, North (Mr. Jay) said. Although I welcome the switch in housing subsidies, the new housing subsidy arrangements which have been announced, I have to enter a query as to whether the projected overall saving in subsidies is realistic.
I believe that the Government have underestimated the demand that there will be for subsidy from private tenants in our city centres, and certainly I query the impact of their policy if they are determined to exclude furnished lettings from any sort of subsidy arrangements. Is there not some way in which, if they want to make an impact on housing in city centres, while they cannot subsidise furnished rents in the same way as unfurnished rents, there could be some basis whereby the subsidy was paid to those living in furnished accommodation up to a certain rateable value?
I hope that the Government will pay great attention to the value for money which they can get if they are prepared 209 to use, even to a greater extent than now envisaged, the voluntary housing movement in our city centres. I do not believe that one can regard the projected .4 per cent. reduction in housing expenditure as satisfactory when one looks at the housing conditions in my constituency and the surrounding areas.
Continuing at this breathless pace, I come to methodology. It was my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) who said that the White Paper ought to be understood not only here, but in the country. I am still not sure about the way in which the relative price effect has been calculated. Last year's White Paper made fairly clear the way in which this factor had been built in on top of everything at the end.
Have the changes, which I have done my best to understand, affected the sums in any way? Or has it simply been a split between individual programmes rather than being applied in a lump at the end? Has the factor of 1½ to 2 per cent. which was applied last year been applied this year? I ask as an amateur groping my way. The rate of inflation which we have been experiencing for the last 12 months appears likely to go on for at least a month or two more. Will the factor be affected by that rate of inflation?
I hope that the professionals will forgive me for my brief and rather hectic intervention.
§ 11.50 p.m.
§ Dr. M. S. Miller (Glasgow, Kelvingrove)
This debate is an opportunity for both sides of the House to put forward their views on the question of public expenditure. It was a very great privilege therefore to listen to the undogmatic and non-doctrinaire views of the hon. Member for Kensington, South (Sir B. Rhys Williams). Perhaps in the view of his own party they were somewhat bizarre. I noticed his Front Bench wincing at some of the things he said.
The whole Government philosophy on public expenditure is amply shown in the very first paragraph of the White Paper.
I must rush my contribution to the debate because of the lateness of the hour, and I want to concentrate on points on parts of the White Paper which require a little ventilation.
210 Only a Tory Government could claim that in this country we dispose of a disproportionate amount of gross national income on public expenditure when it is obvious that we are low down in the league in comparison with the countries of the Common Market. In fact, for national expenditure on welfare and social security and family allowances we are at the bottom. I have no time to give all the figures, which in any case most hon. Members are probably fully aware of.
I share the view of several of my hon. Friends who have spoken that an incomes policy is essential, but it must be an incomes policy and not merely a wages policy, which is something that we on this side set our minds entirely against.
The Government's proposals for old-age pensions are extremely disappointing, to say the least. They are totally inadequate at a time when prices are rising faster than most people have ever experienced. An immediate increase in pensions is needed just to keep up with the cost of living. The question of old-age pensions does not seem to give anyone in this Government, nor, I must admit, any member of our Government when we were in power, sleepless nights.
§ Dr. Miller
I do not think that the matter has given them sleepless nights. In any case, I am concerned about a whole range of pensioners—
§ Dr. Miller
—who do not belong to the elite section of the public to which my hon. Friend refers.
On page 25 of last year's Annual Report of the Department of Health and 211 Social Security there is the bald statement that:Local health and welfare authorities were reminded of the recurring risk which hypothermia presents to the very young and to the elderly.This is the point:They were advised that appropriate staff should be equipped with low-reading thermometers and should be aware of the principles of preventive action which offer the main hope of success in combating the dangers of hypothermia.But it is not low-reading thermometers they want to be equipped with but food, clothing and fuel for the elderly to keep them going, particularly during the winter months.
The present pension is totally inadequate and it is time that the Government —and we have to be satisfied with the only Government we have—turned their minds to a realistic scheme. The pension by any standard should be at least £8 per week, and I shudder to think how far we are away from that level judging by the attitude of hon. Members opposite tonight. A Fabian tract in September, 1899, said:For many years attempts have been made by politicians and social reformers in England to devise a practicable system of Old Age Pensions. Controversy has raged so destructively around every scheme proposed that there is some danger of the public coming to regard the subject with the indifference of despair.There is little difference in the situation today. The tract went on:But while England has been talking, New Zealand has been doing.New Zealand at that time passed an Act giving every man and woman, married or single, over the age of 65 a pension of almost 1s. a day—and 1s. a day in 1899 was worth perhaps 20s. a day in modern terms.
I turn now to the National Health Service aspects of the White Paper. This is an area where the backwoodsmen opposite are dying to have a go. An article in the Daily Telegraph of 18th January, headed "Why not a Tory health service?" said:The philosophy of Selsdon Man provides … a concept: both individuals and companies must take more responsibility for their own actions—that is the essence of the Tory creed.That is echoed by some of the reactionary members of my own profession.
212 The National Health Service needs more money, Forty-five per cent. of our hospitals were built before 1891 and 25 per cent. before 1861. We could, for example, make better use, I believe, of our family practitioner service. I believe there could be greater cost effectiveness here. The family doctor should be doing the work for which he is trained, leaving other duties to those who have different although important qualifications.
I want to conclude with two suggestions whereby money could be transferred from one section of the National Health Service to another. The drug bill at the moment is running at about £180 million to £185 million a year. In looking at the cost of prescribing and the vast number of proprietary medicines which are prescribed, I believe that I could produce a scheme to save at least £50 million a year on prescriptions. This could well be used for the erection of more hospitals for the sick and mentally sick. One of my hon. Friends mentioned this evening the tragedy of the inadequate housing for the treatment of the mentally sick.
Another step which would save a considerable amount of money in the Health Service relates to the £400 million paid out in sickness benefit. Here I accuse members of my own profession. I do not think medical practitioners are playing the game over medical certification. The Government could save anything up to £100 million per year, if they would agree to certification being taken out of the hands of medical practitioners after, say, a week and being passed over to an independent panel.
There are many other aspects of the White Paper I would have liked to have alluded to had there been time. One I must briefly mention—housing. We are used to hearing promises by hon. and right hon. Gentlemen on the other side—and this White Paper is no exception—on the necessity to demolish the slums. That is to talk about the obvious. In my constituency, and in the city of Glasgow in general, we are not eager to anticipate the kind of changes which the hon. Member for Paddington, South (Mr. Scott) spoke of as being beneficial; we do not anticipate them with any eagerness at all. I do not think there will be any improvement on the present system. The demolition of slums and the construction of dwellings is a national problem which 213 is worth more than a mere mention in the White Paper. All we have had from the Secretary of State for Scotland so far is the sale of municipal houses. It does not add a single house to the pool.
The people of Scotland have already shown and continue to show what they think of Tory policies. I suggest that it will not be very long before the rest of the United Kingdom will follow suit.
§ 12.2 a.m.
§ Mr. Joel Barnett (Heywood and Royton)
We have had today a much fuller and better debate than we have had on many occasions on the Budget. I hope I shall be forgiven if I say that some of the contributions from this side of the House have been much better than those from the other side, starting with the very first one. There was an exception, namely, the hon. Member for Kensington, South (Sir B. Rhys Williams), whose speech was a most remarkable one. In all sincerity, I thought it was an excellent speech, which I hope to refer to again in a moment.
Plowden has been mentioned as being the father and mother of these debates, and I quote an extract from that Committee's Report:The best system and the most up-to-date techniques of planning public expenditure will succeed only if public opinion is actively stimulated and enabled to take a balanced view of the alternative uses of national resources that are posed.The publication of last year's White Paper and this year's, with the debates and the setting up of the Select Committee on Expenditure, are certainly great steps forward, and I congratulate the Government on making a move in this direction together with the firm promise by the Leader of the House that we shall have two full days' debate in the future. But we really do delude ourselves if we imagine that public opinion is actively stimulated. The contrast with public interest in the Budget is very marked indeed, and I can only hope that there will come a time when these debates will provide as much interest among the public as do Budget debates. But we must not delude ourselves: we have not as yet got to that situation. It will help when we have longer debates and when they are based on first-class reports from sub-committees of the Public Expenditure Committee.
214 We shall need much more honest White Papers than the one we are debating. In their obsession to show that they are cutting public expenditure, the Government have fiddled the figures and deliberately confused the picture by fictitious savings. As the hon. Member for South Angus (Mr. Bruce-Gardyne) pointed out, there are no real cuts at all.
The Government have adopted five methods. First, as Godley and Taylor in their article in The Times of 17th February said, the Government are talking about public expenditure growing at the rate of about 2½ per cent., when the real resources of public expenditure are growing at about 4 per cent. plus. Secondly, by transferring payments, they are counting as cuts the maintenance of the same or higher public expenditure. The third method is the use of pure bookkeeping entries. The fourth method is incorporating dubious assumptions and deliberately hiding other assumptions.
§ Mr. John Roper (Farnworth)
Does not my hon. Friend also agree that the change in Table A.6 of the relative price effect from 0.6 to 0.8 has made an additional £80 million apparent saving?
§ Mr. Barnett
I am obliged to my hon. Friend. I was coming to the relative price changes referred to in the White Paper. The fifth method, the major omission of receipts and growth projection, has been referred to by many hon. Members. Taking, first, resources, the authors of The Times article does not show how their calculation has been made, but it is about 4 per cent. plus. The Chief Secretary tried to answer this argument, but even his best friend would have difficulty in accepting that he had done so. The Chief Secretary appeared to be saying that after 1972–73 the White Paper figures are meaningless. As my right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out, if the Government do not believe their own figures after 1972–73 it might be as well not to publish them.
If resources are growing at 4 per cent. plus, I do not object, because to safeguard the future we need to spend an ever-increasing proportion of real resources on roads, slums, education, police, prisons, research and investment in the 215 basic industries. The only cut in public expenditure to be suggested by hon. Gentlemen on the Government benches was a cut in education. I doubt if many hon. Members on either side of the House would agree with the hon. Member for South Angus on that. There was also a suggestion that the number of civil servants should be cut.
If we wish to safeguard the living standard of the old-age pensioners, who will grow in number to about 8 million, and the millions of less well off, more money will be needed for social security. If we genuinely want more open discussion, the public must be made aware of the allocation of real resources. The Government owe it to the House to say more clearly than the Chief Secretary did whether or not they agree with The Times article, which contained a serious analysis, and the Government cannot shrug it off in the way the Chief Secretary did.
Secondly, I come to the question of the cuts or so called transfer payments referred to so eloquently by the hon. Member for Kensington, South—or, as he called it, Government interference. I thought the hon. Gentleman put it extremely well. He seemed almost to be taking the place of that well-loved hon. Friend of his who used to speak frequently late at night, John Smith, who amused us no end in many a financial debate. I look forward with great interest to hearing the hon. Gentleman again.
The hon. Gentleman emphasised very clearly the question of cuts transfer payments, in relation to family allowances and pensions. It is important that we should expose the first part of the White Paper which refers to allowing individuals to keep more of what they earn for the nonsense that it is. It would only be true if, as was said by my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh), the transfer from agricultural subsidies results in people eating less. It is possible that some people might benefit from eating less—I am sure the Chancellor does not need that form of diet, though there are others who might benefit from it. But if this is what the Government is saying, then they ought clearly to say so. It 216 would only be true if the transfer by way of a cut in subsidy were to result in less housing, overcrowding and people having to live in slums.
It would only be true if the transfer of a tiny part of Health Service costs from the taxpayer to the point of sickness were to result in a real saving of money spent on drugs, spectacles and teeth. It may be that a little would be saved, but any saving is most likely to result in a detrimental effect on health. It will prove a further economic burden as well in terms of number of days lost through sickness, as well as in the number of extra days people need to spend in hospital through delaying a visit to the doctor.
It would only be true if transfer of payment for school meals and milk from tax to parents results in less being eaten and drunk. It may be our children eat too well, but if that is what the Government believe then they should say so. I have never heard them say it. Again, it would only be true if the transfer from investment grants to tax reductions results in a drop in industrial investment. Tragically, it looks as though that is happening. In 1971 the Government's own figures show a decline in industrial investment of some 2 per cent. Is this what the Government want?
I have said—and the Chief Secretary was kind enough to quote me—that there is a case for looking at grants; but the hon. Gentleman should have gone on to quote me at rather greater length. He would have found that what I was saying was that we should be more discriminatory in the matter of grants. I was not suggesting that we should revert to what the present Government are suggesting.
I hope that the Financial Secretary intends to reply to the point made by my right hon. Friend for Birkenhead (Mr. Dell) about the development areas. Which Minister will he repudiate this evening? Are the Government to spend more or less in those areas?
The hon. Members for Paddington, South (Mr. Scott) and St. Marylebone (Mr. Kenneth Baker) referred to capital expenditure in nationalised industries, and the need for a transfer of expenditure from the public sector to the private sector. Even if this were to happen, this would not be a cut in the real resources of the nation unless there were less spent. It is 217 confusing and misleading to suggest that there is a real cut in national resources it the payments for basic industries are made by the private sector as opposed to the public sector. It does not affect anything, unless it is being argued that the financial discipline of the market—and after Rolls-Royce, I would have thought that we would perhaps hear a little less about the financial discipline of the market—
§ Mr. Kenneth Baker
I think that the hon. Member has misunderstood the case put by myself and my hon. Friend the Member for Paddington, South (Mr. Scott). It is simply that if the capital requirements of nationalised industries, or some of the capital requirements of some of them, are to be gathered from the private sector, there is a choice in the private sector as to whether the investor should invest in more telecommunications, more aeroplanes or whatever it might be. This choice is at present missing. I agree entirely with the hon. Member that one does not increase the total amount of investment, but one subjects the investment in the public sector to more rigorous scrutiny because one asks the investor to get out his cheque book and write out a cheque for it.
§ Mr. Barnett
I do not wish to delay the House, because what the hon. Member has said is precisely what I was saying: one makes no real cut in resources unless one cuts either the capital expenditure in the nationalised industry that is taken over or some other public expenditure. That was the point that I was making, and the hon. Member has confirmed it.
Thirdly, I come to the bookkeeping element to which my hon. and learned Friend the Member for Lincoln (Mr. Taverne) referred, the question of the shortfall. It is ludicrous to say that one has, for example, in 1971–72, £100 million that might not be spent and, therefore, this is a cut and part of the £1,500 million cut in public expenditure.
§ Mr. Barnett
We are talking about the present one. To suggest that that bookkeeping item, which is highly speculative in nature at the least in view of the various Supplementary Estimates that we 218 get from time to time, should be incorporated in a cut—
§ Mr. Barnett
I cannot give way again; I must get on.
There is another bookkeeping item on debt interest. From a quick glance at debt interest, one would imagine that the total interest is intended to fall. This is again a cut or saving. Of course, there is no such cut. The only way in which there would be a cut would be if inflation grew at an even faster pace. In the White Paper, the amount of debt interest as a proportion is shown to be falling. The only way that it would fall even faster would be if inflation grew even faster.
Then, one has the relative price adjustments to which my hon. and learned Friend referred. Clearly, this is a useful thing to have so that one can make comparisons. If, however, one looks at paragraphs 4 to 8 on page 69 on methodology, one sees that, to say the least, it would be pure luck if it turned out to be without substantial error at the end of four or five years. Having incorporated these figures, to say at the end of the day that in five years' time one has particular cuts or savings is, again, purely bookkeeping.
I come, therefore, to my fourth point concerning the assumptions. One of the biggest is the Contingency Reserve. In 1971–72 this is taken at £125 million. In about three weeks, since publication of the White Paper to today, we already know of some considerable commitments that are likely to fall on the Contingency Reserve for this year, let alone for 1971–72 and later years.
We know, for example, that the Treasury was very kind to the Minister of Aviation Supply and allowed him a Bill on Rolls-Royce purchase of quite unprecedented nature whereby the Minister is empowered to spend literally anything. Indeed, as the Under-Secretary said in replying to the debate on Rolls-Royce, if, for example, an American company decides to make a bid, the Minister will simply top it. People in the Treasury must, therefore, be very worried. I should be very surprised if they were not.
We have also heard, again during the last two or three weeks, that the Govern- 219 ment are giving a further £4 million to Yarrow. I do not complain. I am merely pointing out other items that would come on the Contingency Reserve. I.T.V. is being given a £10 million cut in its levy. There will be a very considerable increase in the fuel bill, as we see from the new negotiated settlement of the petroleum companies. We shall be giving an extra £25 million to the development areas —if it ever gets there.
§ Mr. Barnett
I missed that. It has been reduced from £25 million to £10 million in a couple of days. Possibly it will be increased in another couple of days.
In less than three weeks since the publication of the White Paper it is almost out of date before the ink is dry. That is within less than three weeks, so what on earth we can expect in four or five years one shudders to think, especially if ministers concerned with aviation supply have anything to do with it.
I should like to refer to other assumptions in the White Paper. First, redundancy payments and unemployment benefits are estimated to reduce after 1971–72, and they are broadly the same for 1971–72 as for 1970–71. That is very interesting. It is estimated that there will be no increase in redundancy payments and unemployment benefits in 1971–72 despite the fact that we now have 721,000 unemployed and very responsible people making assessments that, tragically, we could reach one million unemployed by the end of the year. Yet it is estimated in the Government's White Paper that there will be no increase in redundancy payments and unemployment benefits. Is the Financial Secretary proposing to reduce them or how will he meet this target in the White Paper?
If it is suggested, as it is at paragraph 10 on page 24, that there will be "increased industrial activity" after 1971–72, with this level of unemployment why is he waiting until after 1971–72? Why is he deliberately leaving this level of unemployment in 1971–72? Perhaps he will tell us exactly what he proposes to do, or will he sit and leave that level of unemployment to rise consistently throughout this year?
I was extremely disappointed about retirement pensions and social security 220 benefits. These are taken on existing benefit levels. At paragraph 6 on page 40 of the White Paper the Government are committed to "maintain at least their purchasing power". If that "at least" means anything at all and is not a cynical abuse of the words, it means that the Government hope to improve on existing benefit levels at some time during the next four or five years. If the increase comes, presumably there would be a further charge on the Contingency Fund. I would have no objection to that, but I would be interested to know the Government's intentions about this subject.
Incidentally, it is interesting to note that on the family income supplement, of which the Government made so much, the total expenditure catered for here is £7 million, out of a total expenditure of £4,200 million. In debates on the family income supplement we were told that there would be a much greater take-up of this benefit, but in the White Paper it is left consistently at the same £7 million.
On the subject of health and welfare, this expenditure, and other expenditure not directly under Government control, must be suspect. The hon. Member for St. Marylebone said that it is imprecise. The Government's policy of reducing financial assistance to local government must seriously affect what councils will be prepared to spend when they are under great pressure. They will try very hard to avoid some of the consequences of Government action. Yet 1972–73, shows a £110 million increase over 1971–72. I ask the Financial Secretary to confirm that this is based on plans before the recent Government statement, or is he assuming that, with new councils to be elected in 1974, the old ones will use all the reserves and leave the kitty bare for the new councils taking over?
On pay, will the hon. Gentleman confirm that he is assuming that there are to be no real increases on existing levels for low-paid workers in the Health Service, local government, police, prisons, teachers and so on, and no change in differentials in the whole of the next five years? One is aware of the difficulties here, of course, but could it be that it is intended to change these through the tax system? The only changes through the tax system that the Government are proposing would hurt those very people more than any others.
221 Then, in housing and agriculture, there are savings of £150 million each, it is said. Is it assumed that there will be nothing for increased social security? From where will they get this £300 million, if they do not intend to increase social security contributions to those worst affected?
In defence, to talk about a £132 million saving by 1974–75 and, especially after listening to the Chief Secretary, to claim that we shall have this saving in four to five years is tempting providence, to say the least. Is it pretended that we shall be saving this money on defence while increasing our commitments in the Far East, which, in effect, is either to risk our troops without adequate reserves, or to insult the intelligence of the nation?
I come finally to growth and receipts, the biggest omission of all. The Government must give us a very much better explanation than anything that we have had so far. As my hon. Friend the Member for Ashfield (Mr. Marquand) said, the Treasury must have these figures. They must have made a projection. Why are they being so coy? Why do not they give it to the House? It is a far from adequate reason to suggest, as the Chief Secretary seemed to suggest, that the reason why he is not giving us the figures is that they might be wrong. Because that is the only conclusion to which we can come. He is not giving them to us because they might not be right or because they are uncertain. The figures of expenditure are somewhat uncertain, and, according to the Chief Secretary, for 1973–74 and 1974–75 they are not only uncertain but positively meaningless. Or is it, as my hon. Friend the Member for Berwick and East Lothian said, that there is implied in the figures or lack of them a need for tax increases in the next four Budgets, and that the position is so gloomy that the Government are not prepared to let us see them?
If that is not the reason, we need better reasons than we have had so far. Without the figures, it is impossible to have a proper public debate about the priorities, about the proportion of the gross national product which will be allocated between public expenditure, private expenditure and industrial investment. Is it that the Government intend industrial investment to continue falling so as to allow private consumption to 222 grow and public expenditure to run at the level forecast in the White Paper? The fall in industrial investment is once again laying the foundation for many years ahead for the lowest possible growth that we could have ever had. If that is not what the Government are doing, are they planning a low level of personal consumption? There is a strong case for it, but that is hardly the aim that the Government are said to be pursuing.
I come back to Plowden in the end, and the need to enable public opinion to take a balanced view. Not only is this not being done in the White Paper. The picture is being deliberately distorted. In the interests of genuine public debate and the more open style of Government about which we have heard so much, I hope that future White Papers will be very much more forthcoming.
§ 12.30 a.m.
§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
The hon. Member for Heywood and Royton (Mr. Barnett) and I debated last year's White Paper, and I am sure that the hon. Gentleman remarked, as I have, not only similarities, but the differences.
One similarity which I have noted, having heard the hon. Gentleman's speech, is that he has managed on both occasions to deliver himself of some very stringent criticisms of the White Paper and of the Government. Governments may come and go; White Papers may come from Governments of either party; but the hon. Gentleman is constant. Indeed, he makes a virtue of his consistency by making plain his dislike of both Governments and White Papers.
On this occasion I think that the hon. Gentleman was a little less than fair. After all, as my hon. Friend the Chief Secretary pointed out, we have now done two or three of the things which the hon. Gentleman criticised so fiercely in last year's White Paper—notably in relation to R.E.P. and investment grants.
One difference which I am sure everyone has noticed is that last year our predecessors had not decided what to do about the recommendation of the Procedure Committee for a Select Committee on Expenditure. As a result, the debate was described by the late Iain 223 Macleod as "a trifle unreal", and he said:… this bridge for the moment leads nowhere."—[OFFICIAL REPORT, 21st January, 1970; Vol. 794, c. 537.]This debate has been conducted, as many hon. Members have recognised, in the context of the existence of a very strong Select Committee which is already at work. I should like to add my congratulations to my right hon. Friend the Member for Taunton (Mr. du Cann). As the Procedure Committee envisaged, and as the Government and the House intend, debates on future White Papers will be illuminated by what I have no doubt will be the trenchant and informative reports of the Select Committee on Expenditure. I argued in favour of this idea last year mainly on the ground that if the House of Commons is to influence the development of public expenditure, there must be the opportunity to probe and to challenge the assumptions and the details more effectively than can be done in a debate such as we have had this evening or at Question Time. I am no less sure of that this year.
It is no criticism of hon. Members or of the exceptionally able team of officials who advise us in these matters that neither the Treasury the House of Commons, nor the Government, has the monopoly of wisdom in these matters. Ministers certainly cannot claim that they have nothing to learn from the House. I believe that by coming down in favour of the Select Committee we are embarking on a reform which will do more to redress the balance between the Government and the House of Commons than anything which has happened for many years.
I turn now to answer some of the points which have been raised in the debate. They fall broadly under two heads. There have been comments and criticisms of the methodology of the presentation of the White Paper—I shall have a certain amount to say about that —and a number of arguments about the substances of the decisions embodied in its tables and paragraphs. I shall deal with them in that order.
I think it is right to avoid being drawn into arguments about the choice of priorities. This seems essentially a matter which should go to the Select 224 Committee. I could defend the Government's choice of priorities and give details, but I think that would be a misuse of the limited time left. Therefore, I hope that the hon. Member for Cornwall, North (Mr. Pardoe), my hon. Friend for South Angus (Mr. Bruce-Gardyne), the right hon. Member for Battersea, North (Mr. Jay), and the hon. Member for Glasgow, Kelvingrove (Dr. Miller) will forgive me if I do not follow them on the priorites which they argued.
A number of hon. Gentlemen opposite have used some strong language about the presentation of this White Paper. The hon. and learned Member for Lincoln (Mr. Taverne) called it phoney; the hon. Member for Ashfield (Mr. Marquand) described it as deceitful and engaging in statistical subterfuges; and the hon. Member for Heywood and Roytion referred to it as dishonest and embodying dubious assumptions.
I refer hon. Gentlemen to the first sentence of a leading article which appeared in a paper not normally friendly to the Government—namely, The Guardian—in which the editor said:The main thing to be said in favour of the new White Paper on Public Spending is that is it scrupulously honest and detailed.I believe that, coming from that source, it is an argument to which hon. Members opposite should pay some attention, instead of flinging these accusations of ill-faith—
§ Mr. Jenkin
The hon. Member says that it is selective. It is the very first sentence in the leading article. I am entitled to select it.
I now come to some of the detailed criticisms made by hon. Members. My hon. Friend the Member for South Angus asked about Concorde. I can assure him that provision for the expenditure appears as the note in paragraph 7, on page 24 of the White Paper. It is included under the heading of Ministry of Aviation Supply.
§ Mr. Jenkin
That is exactly the sort of point that should be properly probed 225 in the Select Committee. All the expenditure for which the Government are now making provision is in the White Paper. There is nothing else outside it.
The hon. Member for Berwick and East Lothian (Mr. Mackintosh) made a point about the share of Scottish expenditure as shown in the White Paper. He drew drastically the wrong conclusion. The table on Scottish expenditure includes nothing either for the relative price effect or the contingency reserve. If the proper adjustments were made to that table—and they do not appear in any other table in Part 2—it would be shown that, far from expenditure on Scotland growing more slowly, it is growing considerably more rapidly than expenditure for the country as a whole. I am informed that it is growing nearly twice as fast. I hope that the hon. Member will accept that.
§ Mr. Douglas
The figures for Scottish housing show a remarkable stability, which is indicative of a cut-back in capital expenditure by Scottish local authorities.
§ Mr. Jenkin
The figures for housing throughout the country show a remarkable stability. The figure of 0.4 per cent. was quoted. This is a classic example of a case where we have had an indiscriminate subsidy. Both my right hon. Friend the Secretary of State for the Environment and my right hon. Friend the Secretary of State for Scotland have made it clear that we propose major changes in this field.
My hon. Friend the Member for Paddington, South (Mr. Scott) asked a number of questions about the relative price effect. I hope that he will forgive me if I do not explain at this hour an immensely complex and sophisticated statistical device. I refer him to Note (l), on page 66 of the White Paper, which shows that the variation is about one-tenth of 1 per cent. as between the successive White Papers that we had last year—Cmnd. 4234, Cmnd. 4515, and this one, Cmnd. 4578.
The hon. Member for Heywood and Royton asked about pay increases in local government. That is exactly the sort of thing that is taken account of in both the constant price adjustment and the relative price effect. The relative 226 price effect is not automatically proportionately divided between the various heads; it is divided relative to demand on expenditure that is rising faster than the general price level under the different heads of expenditure.
Like other hon. Members, I greatly enjoyed the agreeable speech of my hon. Friend the Member for Kensington, South (Sir B. Rhys Williams). Even if the case for his reform of our social security system gains little in persuasiveness with repetition, he always manages to be engaging and provocative. On the treatment of transfer payments generally in the White Paper, I understand the intellectual case that he makes, but I see great difficulties in divorcing transfer payments—especially of the sort that are benefits in kind—from parliamentary scrutiny.
The right hon. Member for Birkenhead (Mr. Dell) asked a number of detailed questions which I shall try to deal with as briefly as possible. I want to concentrate on some of the major issues raised by the White Paper. I would ask him to believe that, whereas it is not possible to give estimates of the amount of total assistance which will go to the development areas, it is possible—this is what the Government have consistently done—to give the relative value of the assistance as differentiated from the rest of the country. This is why we have consistently given figures in that form.
On the question about the Local Employment Acts, the increase between now and 1974–75, £29 million, is identical with the increase in the previous five years from 1964–65 to 1969–70, and this latest increase is on top of the increases in the earlier period.
As to whether the £10 million announced by the Chancellor on Thursday raises the special development areas to have the same relative advantages as the development areas did before 27th October, this is exactly as my first answer said; one cannot state this because it depends entirely on the nature of the take-up by industry in these areas and the division of their expenditure between, say, buildings and plant and operational expenses—
§ Mr. Jenkin
I was not here today and did not hear what my right hon. Friend said, but I was present on Thursday and heard what he said then, and that is what I said to the right hon. Gentleman a moment ago. It is possible to give the relative value of the various incentives which are available to measure the differential in attractiveness between investment in special development areas and the rest of the country.
On the question of methodology, I come immediately to the major point of complaint, namely, the absence of projections of revenue. I welcome the greeting which has been given to the improvements and advances which have been made in this White Paper, in particular the allocation of the relative price effect among the individual programmes, and also the greater detail for the last two years compared with what was in the White Paper last year. The Government believe that this greater detail will assist the process of scrutiny and discussion in the Select Committee. But with regard to the criticism as to why we have dropped the projections of revenue, hon. Members opposite were unfair to my right hon. Friend. I can assure the House that we have left these out not from any desire to conceal anything but simply in order to avoid misleading.
I have gained the impression from some of the speeches of hon. Members opposite that they believe that any figures are better than no figures. I believe this to be profoundly mistaken. Figures which mislead are worse than useless because they are positively mischievous and if that would be the result of including some estimate on some assumptions here, I think that it is better for the sake of us all that the figures do not appear.
I would justify not repeating last year's experiment this year on two broad grounds—one based on the practicality of it and the other on the relevance of the Government's whole approach.
In the present circumstances it must be doubtful whether these projections are practicable in the sense that they would convey useful information. Any such estimates must be based on assumptions about the growth of incomes, level of profits, trends in world trade, the rates of saving and investment and so on, and there is always a very wide range of possibilities. It must be very much wider 228 when one is facing a period, as at present, of very rapid inflation, much more rapid than for many years past—and certainly much more rapid now than when last year's White Paper was prepared.
Further, in order to interpret these projections, the House would need to know the assumptions upon which they were based. The right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) last year did not publish the assumptions upon which his projections of revenue were based, no doubt for the same very good reasons which would inhibit my right hon. Friend from publishing the assumptions this year. The White Paper is not an economic assessment. As the right hon. Gentleman said in last year's debate, estimates of revenue in the absence of any such projections have little meaning. Certainly, taking up the point made by my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), any assumptions which he made last year have been wholly falsified in the event. It is extremely difficult even to compare what has happened with what was then projected. It is impossible to disentangle the consequences of the 1970 Budget from the effects of inflation, the wages explosion, the movement of savings and so on. The Government have therefore concluded that in the circumstances, when economic forecasting is surrounded with so much greater uncertainty than usual. any projection would be much more likely to mislead than to inform.
The second reason makes it rather less relevant than it was last year to include a revenue projection. It arises from the basic difference in approach of the Government compared with that of their predecessors. The Labour Government's White Paper—I quote the right hon. Member for Stechford—relatedthe growth of public expenditure broadly to the expected growth of the nation's resources".He described that asthe central message of the White Paper". —[OFFICIAL REPORT, 21st January, 1970; Vol. 794. c. 526.]Of course, in those circumstances it was essential that the right hon. Gentleman should produce a view of the growth of the G.N.P. and that he should demonstrate that public expenditure would not pre-empt an ever-increasing share of the G.N.P., as had happened so disastrously in the earlier Callaghan years. Therefore, the projections of revenue served a 229 vital purpose to his whole central message. It is, however, noteworthy that in the course of the whole of the two days of that debate only one hon. or right hon. Gentleman referred to Table 1.2 in last year's White Paper, and that was the right hon. Member for Stechford himself. No one else so much as mentioned it.
§ Mr. Barnett
Does the hon. Gentleman intend to let us know the ratio of public expenditure to growth that the Government are considering or will he leave that entirely on one side?
§ Mr. Jenkin
The hon. Member has anticipated the very next point that I intended to make.
Our approach is quite different. Instead of pre-empting for public expenditure as big a slice of the national product as we think we can get away with, we start at the other end; we aim to do in the public sector only those things which can appropriately or conveniently be done in the public sector. We have embarked on a major and continuing review of public expenditure programmes as part of a general policy of making room for tax cuts and creating incentives for higher growth. We have not tried to set precise growth targets, but we have drawn up programmes for public expenditure which will grow overall significantly more slowly than the underlying growth, the rate of growth, of productive potential.
§ Mr. Taverne
The hon. Member says that we first start with certain public expenditure and then see what growth we can achieve. Does that mean that if growth is extremely disappointing, well below the growth of public expenditure, the balance will be unchanged?
§ Mr. Jenkin
The hon. and learned Gentleman is not entitled to make any such assumption. Looking at the programmes of public expenditure which we inherited, it was clearly right to reduce them to a level substantially below what they were before, in accordance with the general philosophy which I have just outlined. In those circumstances, revenue projections, though maybe of interest, have much less importance, and given, as I said, that they are bound to be based on arbitrary and uncertain assumptions, on balance we have thought it better to omit them.
230 I must come to the major points which have been raised in the debate and I will try to deal with them as swiftly as I can. They arise out of the two fascinating articles by Godley and Taylor, who put forward—and these have been repeated on a number of occasions in the debate—five broad propositions.
The first is that, comparing the growth of public expediture on selected programmes for the last five years with the forecast growth for the next five years, they conclude that the differences are not significant.
Second, dealing with that part of public expenditure represented by the direct purchase of resources, they estimate the growth up to 1974–75 at over 4 per cent. compared, they say, with 3½ per cent. over the last five years.
Third, again on the direct purchase of resources, they claim that the growth in our White Paper is "very similar" to the growth in the previous White Paper. Fourth, they say that it accounts for a rising share between now and 1974–75.
Fifth—this is their second article—they say that the net burden of taxation will have to move upwards rather than downwards, taking the period as a whole.
I draw straight away a clear distinction between the first four propositions and the last. [Laughter.] Yes, the first four derive from a study of the White Paper, with other projections of their own for later years for which the figures are not given, but the last proposition the prospects for taxation, as one would expect from an economist of the reputation of Mr. Godley, is based, as it must be, on a whole series of forecasts going far wider than anything contained in the White Paper, including growth, balance of payments, private investment, savings, and so on.
It is right to point this out since some commentators have sought to draw the same conclusion purely from the first four propositions. Anyone who knows anything about this highly technical and difficult subject knows that that is nonsense. Such a proposition simply does not stand up to scrutiny, and I am glad to have the assent of the hon. Member for Farnworth (Mr. Roper) in that.
In last year's debate, the right hon. Gentleman the Member for Stechford made abundantly clear that it is not within the scope of the White Paper on 231 Public Expenditure to deal with such things. Therefore, although this is an interesting and sophisticated analysis, its conclusions are based upon a number of speculative assumptions, each subject to wide margins of error, and they must themselves be open to considerable doubt. I am sure that the House would not expect a Treasury Minister to go further than that, especially at this time of the year.
I shall deal briefly with the first four propositions. I challenge the implications for the most part, although I do not wholly dispute the figures. The last five years include two post-devaluation years when the Labour Government stringently restrained public expenditure and tried to make up for the appalling ravages of the Callaghan years. Whatever we do, we must make sure that public expenditure grows more evenly; it is ridiculous to have 9 per cent. one year and nil two years later.
Second, under the Labour Government public expenditure was aimed to grow in relation to a National Plan which in the event never materialised, and it was, therefore, accompanied by soaring taxation.
Third, as Mr. Godley himself would be the first to admit, those programmes which he did not examine in his comparison of the two periods, such as agriculture and housing, are those in which the Government's policies will involve significant changes in the rate of growth for the future compared with those in the past five years.
Next, on the question of direct purchase of resources, about which Mr. Godley says that growth would be faster over the next five years than in the last five years, this is simply not a conclusion which can be drawn from our White Paper. In the first place, his estimate of growth over the last five years was understated: in fact, it was much nearer 3¾ per cent. than 3½. Second, the figures on which to base the last two years simply do not appear in the White Paper. Our estimates are not in a form which allows him to judge what the direct purchase of resources will be in those years.
§ Mr. Jenkin
No, I have very little time. On the third point, that it is the same as in last year's White Paper, again Mr. Godley has not got the information to make that assumption. All I would point out is that, compared with the programmes we inherited, we have cut out over £300 million of direct purchase of resources in 1973–74 and £400 million in 1974–75.
On the fourth point, that growth of direct purchase of resources will be going faster than expenditure generally—my hon. Friend the Member for Horsham (Mr. Hordern) pointed this out—I do not dispute that for a moment. This is entirely consistent with the Government's whole approach to public expenditure. We want to cut down on indiscriminate hand-outs of benefits in favour of more specific and selective help to those in need and increased expenditure on the basic structure of the social services.
What I find surprising is not that anybody should wonder that this is what is happening, because it is exactly what we promised would happen, but that hon. Members cannot bring themselves to acknowledge the common sense and social justice of this approach. It involves, of course, a shift from transfer payments to direct purchase of resources, but this is something which we always recognised would happen.
I therefore say that the Godley paper is making a number of assumptions—I do not say in the least improperly—perfectly properly, but based on information that simply could not have been derived from this White Paper.
§ Mr. Jenkin
No, I am not giving way.
Similar assumptions were made by Chapman Pincher in this morning's Daily Express, and I must mention them for they were referred to by my hon. Friend the Member for St. Ives (Mr. Nott). I must refute a thoroughly misleading article by Mr. Pincher. Mr. Pincher tells us that Treasury officials have told the Government that living costs will rise by 9 per cent. in the coming year and that in consequence growth will be less than 2 per cent. He said that all this came from the Defence White Paper.
233 I can tell the House that the article is rubbish. It is founded on fallacious arguments based upon a total misunderstanding of the figures in the defence White Paper. The 9 per cent. figure is, of course, not a projection of increased costs but merely an assumption taken from the increase of costs of the previous year. A figure of 5½ per cent. of the national product is mentioned; but the Defence White Paper specifically said that it was "of the order of" and we put it in because we believed that it would be helpful to hon. Members. However, I am bound to say that if journalists make this sort of use of the figures the Government will have to be more careful about what they publish in this White Paper.
My hon. Friends have mentioned the problem of the future search for savings. I can assure them that we have this very much in mind both in the nationalised industries' sector and in public activities as a whole. As my hon. Friend the Chief Secretary said, in the programme analysis review we are making advances which will give us very much better weapons of control.
The House last year gave a warm welcome if not to the contents at least to the form of the White Paper which the right hon. Member for Birmingham, Stechford, introduced. In the first six months of 1970 expenditure intentions increased substantially and inflation got a fierce grip. The new Government therefore inherited spending programmes rising significantly faster in real terms than those approved by the House last January, and did so at a time when costs were rising faster than for 20 years. In October my right hon. Friend the Chancellor of the Exchequer announced changes which not only reduced the programmes from the levels which we inherited but reduced them below the levels of last year's White Paper. The White Paper which we have debated today fills in the details of the programmes as they now stand.
The Select Committee on Expenditure can be confidently expected to subject the White Paper to a searching and rigorous scrutiny which will be of value to the Government and the House. The Government themselves will maintain a restless search not only for greater cost effectiveness in the public sector but for 234 further reductions in the size of the public sector. This is what we promised the country last June, and this is what we are going to carry out.
§ Question put:—
§ The House proceeded to a Division.
§ Mr. More and Mr. Hawkins were appointed Tellers for the Ayes but, no Member being willing to act as Teller for the Noes, Mr. SPEAKER declared that the Ayes had it.
That this House takes note of the White Paper on Public Expenditure 1969–70 to 1974–75 (Command Paper No. 4578).