§ With the fall in output resulting from the shortage of energy, there will be some automatic fall in private demand as incomes fall because of short-time working and temporary unemployment. But without a deliberate act of Government there would be no such fall in demand by the public sector. It would be quite wrong for the public sector to continue unabated its demands for goods and services and its consumption of energy, leaving the private sector to bear the whole of the brunt of the energy shortage.
§ Despite the small rise in public expenditure which was planned for each of the next three years, I am sure that it is right that the main weight of the action I am taking should lie not on persons or private sector industry but on public expenditure. To do that will make for a more tolerable level of personal consumption and release resources for exports and for private industrial investment.
§ It is important to be clear about the purpose of reducing public expenditure in a situation of energy shortage. Shortage of energy and constraint on economic growth are bound to lead to a rise in unemployment. That cannot be avoided. It is inherent in the situation. But the direction of the cuts in public expenditure must be such as to avoid, as far as is humanly possible, a reduction in employment in the public sector being added to the inevitable unemployment created by the energy shortage in the private sector. It is the consumption of fuel and power by the public sector that has to be reduced, not its employment of people. There would be no point, in the wholly unique situation we face, in saving public expenditure by deliberately reducing the numbers of public servants.
§ The particular reductions in public expenditure must, therefore, be directed 964 not just, as elsewhere, to cutting the demand for energy in the form of heating of buildings, use of cars and lorries, and so on, but, and of far greater significance, to cutting the indirect demand for for energy by reducing public construction programmes and public purchases of supplies of all kinds.
§ The Government have, therefore, decided that public expenditure on building and construction, on plant and equipment, and on supplies of all kinds will be reduced, and, subject only to a very few exceptions, the reductions will apply in respect of all programmes which use resources in this way.
§ There will be no reduction in investment in the energy industries themselves, or in public sector house building.
§ The Ministers concerned are accordingly making arrangements for a reduction of one-fifth in the total of their capital programmes, and of one-tenth in the total of their procurement of supplies and other current expenditure on goods and services, excluding staff costs. Somewhat lower reductions will apply only where essential supplies—for example, for the National Health Service—would otherwise be jeopardised.
§ In implementing this decision, the Ministers concerned will determine the priorities within their own programmes. The Ministers concerned will make every effort to avoid adding to unemployment in cases where work could otherwise proceed because supplies of materials are adequate. Cases of special difficulty will be considered within the Treasury, but the renegotiation of contracts in certain cases cannot be excluded if we are to make sure that work which is of a lower priority does not pre-empt resources needed elsewhere—for instance, to maintain exports or important household needs.
§ These decisions on public expenditure will entail a reduction in the total of the current expenditure which was accepted by the local authorities in England and Wales in the recent rate support grant discussions, and a reduction in the amount of grant previously envisaged for 1974–75. Corresponding arrangements will be made in Scotland.
§ The usual detailed annual White Paper on Public Expenditure, which was due to 965 be published this week, was prepared before the developments which have caused this statement. Although it does not take account of these decisions, it will still be published as a base line for the reductions which I have announced.
§ The reductions in 1974–75 will total some £1,200 million. A table will be circulated in HANSARD setting out the reductions in the various programmes and the effect on the totals of public expenditure which had previously been planned for next year.
§ This is by far the largest reduction in public expenditure for a succeeding year which has ever been made, both in absolute and in relative terms. It is bound to mean curtailing and deferring many desirable projects, to which we had been looking forward, but I think that the British people will prefer this way to the alternatives which I have rejected at this time.
§ The result will be that, whereas public expenditure on goods and services had been expected to rise by nearly 3 per cent. next year, it will now fall by over 3½ per cent., and whereas total public expenditure was expected to rise by under 2 per cent. next year, it will now fall by some 2 per cent.
§ As immediate action will be necessary to fulfil these decisions, there will in consequence be a reduction also in this year's public expenditure.