PUBLIC EXPENDITURE

HC Deb 07 February 1973 vol 850 cc458-590

Mr. Speaker

Before I call the Chief Secretary to the Treasury to move the motion, may I inform the House that I have selected the amendment in the name of the right hon. Member for Huyton (Mr. Harold Wilson) and his right hon. and hon. Friends, in line 1, leave out from 'House' to end, and add: whilst paying tribute to the work of the Expenditure Committee and its Sub-Committees, condemns the Government's public expenditure policy since 18th June 1970; especially regrets the initial cuts, followed by belated and unplanned increases, which together with its taxation, social and industrial policies have led to the present economic crisis; and further deplores priorities in Command Paper No. 5178 which reduce expenditure on housing whilst increasing that on defence.

3.40 p.m.

The Chief Secretary to the Treasury (Mr. Patrick Jenkin)

I beg to move, That this House takes note of the White Paper on Public Expenditure to 1976–77 (Command Paper No. 5178). I am opening the debate in what is a very thin House, at least on the Opposition benches. I understand that the Opposition intend to divide the House tonight on their amendment, so it is a little surprising that there are precisely five Labour back benchers present—six with the arrival of the right hon. Member for Battersea, North (Mr. Jay). This is a bit thick.

In opening this debate, I want to do four things. First, I shall deal briefly with the presentation of the figures in the White Paper, noting some of the changes we have made—mostly in response to proposals put forward by the Select Committee. Next, I shall say something about our priorities on public spending as reflected in the various programmes in the White Paper. Thirdly, I shall put the totality of our spending plans in an economic context and seek to show that over the medium term they are consistent with our overall objectives. Finally, I want to say something, perhaps in a more reflective vein, about the problems of controlling public spending in the context of all the pressures and demands to which modern democratic Governments are subjected.

I shall refer in passing to the Opposition's amendment. If my hon. Friend the Minister of State catches the eye of the Chair he will be able to reply to some of the specific points that the hon. Member for Ashton-under-Lyne (Mr. Sheldon) will no doubt make.

The House will realise that for good reasons the debate is happening somewhat later in the parliamentary cycle than usual, while the Budget is coming much earlier than usual. Right hon. and hon. Members will understand that anything I say about the general short-term economic situation is bound to be heavily circumscribed. This is a pity, but I fear it is inevitable.

The public expenditure debate is the only occasion we have for considering the totality of public spending plans for this and the ensuing four years, and it is obviously in principle desirable that we should be able to debate it in a proper, full economic context. The delays occasioned by the tripartite talks and the need for the White Paper to take account of their consequences has of necessity pushed this debate too near the Budget for Treasury Ministers to be able to speak as freely as they would wish.

Nevertheless, the debate provides an opportunity for the Government to put their policies and priorities before the House and for the House to express its views and, it may be, its criticisms.

This year, in distinction from last year, we are having only a single day's debate. While this accords with the recommendation made in the Expenditure Committee's Sixth Special Report, the timing has meant that we are debating the White Paper after the Committee has had a little time to begin to review it although it has not yet had time to report on it. It published yesterday, as minutes of evidence, some memoranda it has had from the Treasury and from its special adviser, Mr. Wynne Godley. Hon. Members may wish to draw on those memoranda in their speeches, but, because I suspect that most will not have had time to study the very detailed figures fully, I do not intend to refer to them.

Mr. Robert Sheldon (Ashton-under-Lyne)

The document is important.

Mr. Jenkin

That is right, but it was published only yesterday, and it would be a little difficult for hon. Members to take much account of the figures in the intervening time.

Nobody could claim that our public expenditure debates in previous years have been an unqualified success. I think that those of us who took part in the first debate in January 1970 have been somewhat disappointed that our earlier hopes in this respect have not always been realised. But we remain anxious to try to find the best method to deal with this enormously important subject on the Floor of the House. In some ways perhaps these continuing difficulties reflect a fairly widespread uncertainty as to how the House can most usefully and effectively scrutinise public expenditure and fulfil its functions in this regard.

But of one thing we can be sure—that it is to the Select Committee, and particularly to the General Sub-Committee, that we must first look for the solution to these specifically parliamentary problems. Here I can endorse the opening words of the amendment: whilst paying tribute to the work of the Expenditure Committee and its Sub-Committees". I wholly associate myself and the Government with that tribute. The Committee undertook a great deal of valuable work in the last session of Parliament, and is now producing a steady stream of reports, some of which the House will no doubt wish to debate in due course.

This is perhaps the moment, too, to express the Government's thanks to my right hon. Friend the Member for Taunton (Mr. du Cann), who, with the tact and ability to which we have become accustomed, piloted the Expenditure Committee through its early years, and to offer my congratulations to my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) on taking over the chair of this key Committee. It is a fitting climax to a long and distinguished parliamentary career.

I hope, too, that I shall not be misunderstood if I pay a brief tribute to Dick Taverne, who brought a considerable knowledge to the job of Chairman of the General Sub-Committee, and whose recommendations have considerably influenced the format and content of successive White Papers. I gladly offer my best wishes to the hon. Member for Ashton-under-Lyne on succeeding to the chair of the Sub-Committee. He, too, has shown a deep interest in the subject, and we wish him well.

I believe that each successive White Paper has greatly benefited from the suggestions for improvements made by the General Sub-Committee, and that it is fair for the Government to claim some credit for the prompt and full response we have made to those proposals. I shall not rehearse again the changes made in earlier years, except to say that the wider coverage and greater detail, the improvement of the constant price figures, and the introduction last year of the further step of expressing the figures for spending in terms of their demand on resources, were all valuable innovations.

This year the most obvious new development is the inclusion of Table 1.2, the medium-term resources table. It owes its presence almost entirely to the recommendation of the General Sub-Committee. Governments of both main parties have hitherto taken the view that the balance of advantage was against publication of anything like the medium-term assessment. I gave evidence to that effect to the General Sub-Committee last year, but anyone who has studied the evidence will realise what I mean when I say that there were strong arguments on both sides. For this reason my right hon. Friend the Chancellor has decided that this year as an experiment we should produce a table which goes a very long way to meet the substance of the Com- mittee's request. I shall return to a fuller explanation of the table later on.

In addition to the resources table we have extended the commentaries on individual programmes and included further material about the purposes of the expenditure and what it achieves. In this connection we have studied the Eighth Report of the Expenditure Committee with very great interest. The Committee has there suggested that the next White Paper should include tables showing the relationships between expenditure and output.

The Committee thinks that the public have a right to know not merely what is being spent but what they are getting for their money, and whether the Government are laying it out in the best way, given the needs and wishes of the country. I wholly endorse this aim.

The problem is to find figures which which really illuminate these questions. Sometimes, as the Committee has shown, this is possible in fairly simple form—the relationship of expenditure on nursery places to the number of children in the age group and the number of places provided. The committee's other example was prison expenditure and the expected prison population. We can try to provide that sort of information for a good many programmes. I hope that we can make a start next year.

However, we may not be able to bring the real issues into the open. To take the two examples which I have quoted, that information does not help to answer the question, "Were the Government right to decide to expand the provision of nursery places?" or, "Should we be providing new prisons or exploring other methods of dealing with offenders?"

The Government and Select Committees go into the questions at great length, and a variety of ways of presenting material is needed. Tables of the kind which the committee propose may help, but I do not think that they will throw a great deal of light on the real options that we face. We shall certainly aim to draw together expenditure figures, economic analysis and the explanation of policies in the text of future White Papers. But we must not expect too much from that. I do not want the House to confuse the measuring of physical output, like the numbers of nursery places, the miles of motorways built, or even factories built in assisted areas, with the measuring of the success of these programmes in meeting their policy aims.

Mr. Frank Allaun (Salford, East)

Is it not more important than the options on nursery schools, and so on, that this document shows a 13 per cent. cut in public housing expenditure and a 10 per cent. increase in defence expenditure? By this document are not the Government tying their hands for nearly four years hence, and tying the hands of the Government which will follow in their early years?

Mr. Jenkin

On the first part of the hon. Gentleman's question, I will say a word about housing in a moment. On the second part, I do not think that the Government are tying their hands. Inevitably there must be flexibility in the management of these programmes. They are a projection of spending on present policies.

When we talk of measuring the output from a spending programme, it is not so much the quantity of assets produced or the number of people served that matters as the extent to which one is contributing to the overall policy aim—for instance, less crime, a better educated people, more efficient transport and the optimum use of manpower resources. It is in assessing results in those terms that the real problem of measurement emerges.

One difficulty in all this, of which I and I am sure other hon. Members who have taken part in these debates over the years must be very conscious, is that there has been a tendency for the management and scrutiny of public expenditure to be regarded increasingly as an esoteric exercise understood and participated in by relatively few experts. In part this is due to the intrinsic complexity of the subject, which, indeed, there is bound to be in the spending of some £25,000 million a year. But in part it has been due to the amount of technical explanation which previous White Papers have included both in footnotes and appendices. Yet at the same time all these technicalities have not necessarily been enough to enable laymen coming fresh to the subject to understand what the figures mean and how they have been compiled. We have pursued an idea which was evolved in discussion with the Expenditure Committee and have produced a separate handbook on methodology. I commend it to the House as a small, but nevertheless worthwhile exercise in open government. Apart from other advantages, it has helped to make the presentation of Part I of the White Paper a good deal shorter and simpler than in previous years.

I can assure the House that this process of improvement of the presentation of expenditure figures has by no means ended. The next important step is to reform the presentation of the Estimates so as to relate them very much more closely with the five-year projections in the White Paper. A great deal of work has been done on this in Whitehall and we shall shortly be submitting proposals both to the Expenditure Committee and to the Public Accounts Committee for their consideration. The main thrust of this reform, if it proves acceptable to the House, will be to present the Estimates on the same functional basis as we present the five-year projections. I believe this will be of help to the House in considering the whole question.

Let me now turn to the substance of the White Paper. Although these White Papers do not announce new policies, they do bring together all the changes made during the course of the year, as well as the revised costings. These are reflected in the distinctive and deliberate profile of spending projected over the next five years. The overall picture that emerges—and this is most clearly shown in the figures in paragraph 5 of Part I of the White Paper—is the sharp increases in expenditure this year and next, followed by very much smaller increases in the later years. As we made clear in the White Paper, this profile so far from being "unplanned", represents specific decisions taken for specific and defined purposes—[Interruption.] I think that I am entitled to take the Opposition's amendment at its face value.

Last year my predecessor explained the introduction of counter-cyclical measures——

Mr. Joel Barnett (Heywood and Royton)

I am sure that hon. Members opposite will be interested to know whether the whole of this is the original plan of June 1970.

Mr. Jenkin

I am coming to deal with that as the Select Committee has dealt with it. I was referring to the counter-cyclical measures and the fact that my predecessor last year explained them to the House. The White Paper shows them to be over £400 million in 1972–73.

That increase is explicable under this head. It is comprised of a number of specific measures intended to last for a limited period and undertaken for the purpose of increasing demand and reducing unemployment mainly in the assisted areas. I take the point made by the hon. Member for Heywood and Royton (Mr. Joel Barnett) in his intervention a moment ago. He is reflecting what appears to be an implied criticism of the counter-cyclical system which is reflected in the figures in the White Paper. But surely he has not forgotten—perhaps I can have his attention for a moment—that in the Expenditure Committee's Seventh Report some comments were made on the use of public expenditure for the short-term management of demand. It said: We think that the use of public expenditure to correct short-term deficiency of demand is an essential element of policy. That is what the Expenditure Committee think, and so do I. If the hon. Gentleman disagrees, perhaps he may have an opportunity to explain why.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Will my hon. Friend tell the House where the Government have got to in the cycle?

Mr. Jenkin

I appreciate the reasons for my hon. Friend's question. Immediately we run into the difficulty which I outlined at the beginning of my speech. Treasury Ministers cannot at this time be drawn on the question of short-term forecasts. That is a matter for my right hon. Friend the Chancellor of the Exchequer, who will be opening his Budget in just over four weeks' time.

Mr. J. Bruce-Gardyne (South Angus)

I understand that my hon. Friend cannot be drawn on that aspect. However, can he enlighten the House at this stage about the extent to which the counter-cyclical programmes contained in this year's White Paper and in last year's White Paper are up to schedule? My experience in my area is that they are months and perhaps years behind schedule. Those that were designed to make an impact on unemployment 12 months ago are only beginning to make any impact.

Mr. Jenkin

I cannot answer my hon. Friend in the terms in which he asks his question. There must be a wide variation in the extent to which the various short-term increases in expenditure have taken effect within the time-scale envisaged. However, I have taken a careful note of what he says about his own constituency.

Mr. Joel Barnett

This is very important. Many people will be concerned about what the hon. Gentleman has said. I should be obliged if he would clarify it, although I take the point of what he said about the Budget. The hon. Gentleman was asked about the counter-cyclical nature of some programmes, and he replied that everything depended in the short term on the Budget. But in Table 1.3 of the White Paper we are told that counter-cyclical measures will total £177 million in 1973–74. Will the hon. Gentleman clarify whether what he has said was intended to mean that that sum will not now be spent?

Mr. Jenkin

I did not mean anything of the sort and I am sure that the hon. Gentleman is quite aware of that. A good deal of the counter-cyclical expenditure was in last year's White Paper.

What the Select Committee recognise, and what the Government acknowledge, about this kind of use of public expenditure is that it does involve very great problems and difficulties. Indeed, some of these are touched upon in an interesting leading article in The Guardian today. The Select Committee suggested that we should undertake a detailed study of the processes and the time lags involved—and perhaps my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) will agree that this meets his point—in undertaking counter-cyclical spending. I agree that we should examine our existing procedures in the light of recent experience, and such an examination is in hand.

Other new policies have been introduced to meet industrial and regional development. They are not limited to the short term because we regard it as essential that these policies should be implemented in time to contribute to the short-term measures to increase demand, while at the same time and in the longer term they will help to strengthen the industrial base of the economy.

From that distinctive profile, I turn to the priorities reflected in the White Paper. In all the Press clamour which greeted publication of the White Paper—there was more of it than in the previous year—there was, like the dog which barked, or, perhaps, did not bark in the night, virtual silence when it came to criticising our priorities between programmes. I shall come later to deal with the attacks which have been made, and no doubt will be made, about the totality of the programme, but on the whole the priorities as between programmes seem generally to have been approved, at any rate until today.

The White Paper shows the importance we attach, for instance, to education. We have a high and rising level of expenditure, rising, indeed, at twice the rate of public expenditure as a whole. Furthermore, this programme reflects the changing priorities within the education budget as recently set out in the White Papers by my right hon. Friends the Secretaries of State for Education and Science and for Scotland.

Again, the programme for health and personal social services is expanding at much the same pace. The reorganisation will pave the way for a more efficient and effective National Health Service, and within the overall programme special emphasis will continue to be given to meet various special needs, including those of the mentally and physically handicapped.

Again, priorities have also been reviewed within the programmes for which my right hon. and learned Friend the Secretary of State for the Environment is responsible. As the White Paper shows, he is devoting a greater share of his budget directly to the improvement of the environment, and it also shows a slight reduction as compared with last year's White Paper in the rate of growth of spending on roads.

Mr. Douglas Jay (Battersea, North)

Some of us have expressed an opinion about priorities for roads. Has the hon. Gentleman seen the excellent report of the Sub-Committee on Urban Transport Planning, which argues that our spending on urban motorways is excessive and invites the Government to re-examine all existing schemes? Are the Government doing so?

Mr. Jenkin

I have read the report and I agree that it contains many interesting points. In time the Government will give their observations on it. I leave it there for the moment.

The hon. Member for Salford, East (Mr. Frank Allaun) drew the attention of the House to housing. We know his views. They are to some extent, although not wholly, reflected by the Opposition generally. The Opposition want massive and indiscriminate subsidies irrespective of ability to pay, coupled with inflated national targets without regard to what councils either need or want to build. But, of course, the Opposition are quite right in one sense—it would cost a very great deal more than our programme if that sort of policy were to be put into practice. But it would be spending with very little relevance to priorities or to need, or, I suspect, to the real desires and ambitions of our people. However, this subject was extensively explored in yesterday's debate, so perhaps I may leave it there.

Still on priorities, and perhaps more controversial on this side of the House, are the measures we are taking to encourage the expansion of industry, particularly in the regions. We are determined to make a better use of the manpower and other resources available in the less prosperous parts of Britain, and the new range of industrial and regional development measures introduced last year were designed to achieve this purpose. Indeed, in terms of spending, these are the biggest changes which have been made since last year's White Paper. Indeed, since the election, with the exception of spending on social security, they represent the biggest overall changes and reflect the Government's determination to reduce unemployment and to stimulated and sustain the growth of the economy.

Mr. Tam Dalyell (West Lothian)

Does not the hon. Gentleman recognise that the single most important thing that he could do to achieve that objective would be to undertake in the Budget that the regional employment premium will be continued in the foreseeable future?

Mr. Jenkin

Obviously, I cannot discuss the Budget; but my right hon. Friend the Chancellor of the Exchequer will have heard what the hon. Gentleman said.

On the smaller programmes also, the White Paper reflects our priorities. Expenditure on law and order, for example, planned to grow at nearly two and a half times the rate of growth of public expenditure as a whole, is a measure of our concern for the protection of the citizen from crime and violence and for the effective treatment of the offender. I believe that these are priorities which commend, and rightly so, if not universal support, then at any rate wide support in the House.

Mr. Gwynoro Jones (Carmarthen)

Would the hon. Gentleman care to comment on what sense of priorities the Government have in reducing housing expenditure by £134 million while increasing defence expenditure by over £300 million?

Mr. Jenkin

The hon. Gentleman should recognise that although people do not contribute directly on their own to the defence of the country, a very large number of people spend their own resources, rightly and properly, on providing their own housing, and are quite prepared to do it.

I want to turn now to the subject which has attracted most attention in the Press and which will do so, I suspect, in the debate. This is the criticisms of the overall magnitude of our plans for public spending. I believe that there has been a good deal of misunderstanding on this and I hope to clarify the position.

In the first place, the overall growth rate over the five-year period as a whole is not excessive. Despite the new policies to which I have referred, the average annual growth rate in terms of demand on resources is only a little over 3 per cent. That hardly spells the economic ruin that some commentators have predicted.

Secondly, as I have pointed out, after 1973–74 the planned rate of increase is very much slower than in the earlier years. These are costed programmes on present policies. There has been one suggestion that—as one commentator put it—the "hump" is bound to move forward. There is no reason why the "hump" should be bound to roll forward.

Thirdly, as Table 2A indicates, these low growth figures overall include in the last three years the largest contingency reserves ever provided. These rise from £350 million in 1973–74 to no less than £700 million in 1976–77.

Mr. Bruce-Gardyne

Why?

Mr. Jenkin

Because this is prudent management of public money.

Mr. Bruce-Gardyne

No.

Mr. Jenkin

Of course it is. [Laughter.] I do not know why hon. Gentlemen opposite should jeer at that. All Governments have seen the need for a substantial contingency reserve. All we are saying is that, as the years go by, as experience grows, if we can contain a contingency reserve, as we have done, within an overall growth rate which is acceptable in the medium term, that is no more and no less than prudent management of public expenditure.

Mr. Bruce-Gardyne rose——

Mr. Jenkin

I have given way a great deal. Perhaps my hon. Friend will catch Mr. Speaker's eye.

It is our aim that the changes needed for counter-cyclical and other purposes should be effectively contained within a moderate rate of growth over the period.

The main weight of criticism has been that the overall level of spending is too high and it is this that is inconsistent with our other objectives of a healthy balance of payments, rising investment and private consumption. I wish to answer this criticism and I refer the House again to table 1.2, the resources table. What the table illustrates is the consistency of the programme for public expenditure with our other economic objectives, taking a range of growth assumptions and a range of investment assumptions over the medium term as a whole.

Perhaps it would be helpful if at this stage I explained to the House exactly what table 1.2 means. I have described it as a resources table. It shows what the growth of resources and the claims upon those resources over the period from 1971 to 1977 would be on the various different assumptions set out in the table. The figures in the table represent the average annual changes over this period and, on alternative assumptions, in the several factors mentioned. Thus, the top line of figures shows the average annual change in the total resources at the country's disposal on the two alternative growth rate assumptions—3–5 per cent. per annum and 5 per cent. per annum. I should perhaps explain that these two hypotheses are those being used for current work by the National Economic Development Office which is studying the prospects of some selected industries over this period.

There has been some criticism that both these assumptions are unrealistic in that even the lower represents a higher growth rate than we have been able to sustain in the past while the 5 per cent. figure is even more ambitious. I think that these criticisms are misplaced because, although one cannot tell precisely what growth rate will be achieved during the period when we are taking up the slack in the economy, it is clear that over the period as a whole expansion should, on any reasonable prospect, be considerably faster than the average in the last ten years. The higher assumption of 5 per cent. annual increase over the whole six-year period was put in in order to reflect the possibility that there might be a breakthrough to sustained faster growth. I would, however, stress that these growth figures are not forecasts, they are not targets: they are simply hypotheses.

The rest of the table sets out the claims on the increases in resources thus postulated. There are four main items, and I will say a brief word on each.

First, private investment. As Governments of both parties know, this is something that cannot be accurately planned; but on the basis of past experience one can form a view about the rate of investment associated with different rates of economic growth. So the table postulates two variants for private investment, thus giving four alternative results.

Next, the balance of trade. The figures show the resource movements out of and into the balance of trade in such a way as to be compatible with a sound, overall external position in 1977. It is here, I think, that the table has been misunder- stood in some quarters. A minus figure in this line means a slower growth of exports relative to imports so that, taking both together, more resources become available for other uses. Conversely, in the higher growth case, the rise of exports has to exceed the rate of increase in imports, and the balance of trade therefore uses up some of the extra resources becoming available.

Heading 3 is simply a translation of the growth of public expenditure programmes in the White Paper into calendar year terms, and adjusted to express their effect in terms of their demand on resources. Thus in line e. the 31 percentage figure which goes through the table is compatible with the figure of 3 per cent. mentioned in paragraph 12 of the White Paper, which is in financial year terms.

Finally, the last line shows the total of national resources left available for privately financed consumption, and by that I mean consumption not financed from benefits and other State payments which are part of public expenditure.

What the table shows is that on the various hypotheses this residual—this last line—increases at rates close to the rate of increase in national resources—somewhat lower for the lower growth rate curve, somewhat more for the higher growth rate curve.

The implication which we seek to draw from this table—and this is the purpose which the Select Committee clearly had in mind in urging on the Government the inclusion of a table—is that when one assumes the public expenditure programmes set out in this White Paper and considers their implications for the management of the economy in the medium term, there should be no serious difficulty about the management of the overall demand on our resources in the medium term. Of course, it will be necessary to watch how the economy develops from year to year, and of course the Government must always be ready at any time of the year to take necessary measures up or down including measures affecting public expenditure, to maintain the steady and balanced progress of the economy over the period. But the central message is clear beyond peradventure. Those who argue that the public expenditure programmes, over the full five-year period as set out in this White Paper, are incompatible with our other policy objectives for growth, investment, balance of payments and a reasonable prospect for private consumption, do not make out their case.

Before leaving the resources table, I stress yet again that this does not purport to be a forecast. In the Treasury we talk about "the medium-term assessment". What it is in fact, as I told the Expenditure Committee last year, is a statistical construction based on hypotheses I apologise for the jargon but that is an accurate description of what it is. We can refer to it as a resources table and know what we mean. As such a statistical construction, it can only be as valid as the assumptions on which it is based. It is not a prescription of policies for the future; its use is simply to test the implications, in various circumstances, of the policies that have been adopted.

I believe that the Expenditure Committee recognised these limitations but felt that despite them the inclusion of such a table would be worth while and would help the Committee and the House to judge whether the Government's programme of expenditure was compatible with our other objectives. I hope that the House will feel that in meeting the Committee's wish in this regard I have also been able to satisfy it that the table establishes the propositions which I have claimed for it.

However, there will be those—and I respect their views—who will argue that, despite all that, even in the medium term, and even accepting the distinctive profile of the pattern of expenditure over the five years with its big rises this year and next, although the rises thereafter are small, that the total of our public spending is too high. They say that the public sector is too big, the private sector too small. I will acknowledge this criticism from those—and I suspect that they are very few—who can put their hands on their hearts and say they have never pressed for more to be spent on any public service. To the rest, my reaction must be a somewhat wry smile.

Do not we constantly face the dilemma, as indeed does every democratic community, between, on the one hand, the desire, expressed daily in a thousand different ways, for spending more on projects and programmes close to the hearts of their supporters—and, on the other hand, the need to ensure that the totality remains at acceptable levels? No one can be more conscious than those who hold my office of the perennial schizophrenia of those who always want more spending in particular, but more economy in general.

It is this dilemma—which seems to become more acute as the years go by—which prompted the setting up of the Plowden Committee in 1959, which led to the establishment of the PESC system in the early 1960s, which prompted the decision of our predecessors to embark on the series of annual public expenditure White Papers, which persuaded the present Government of the need to establish the Expenditure Committee, and which has led us to the development of the PAR system for scrutinising on-going programmes and challenging the assumptions on which they are based. It is this dilemma which inevitably dominates the annual debates on public expenditure.

Whatever the institutional arrangements, whether in Government, Parliament or elsewhere, which we create to strengthen the hands of those who recognise the need to contain public spending within acceptable limits; whatever the measures of self-discipline which Cabinets try to impose upon themselves; all these will be to no avail if individuals, whether as citizens, local councillors, Members of Parliament or pressure groups, do not themselves recognise the dilemma to which I have referred, and exercise some measure of self-discipline in the extra demands they make for more spending.

It is simply not enough to demand economy on 7th February, but spend the rest of the year pressing for still more money for schools, hospitals, technology, agriculture or whatever it may be. Still less defensible is it to ask for more spending one day, lower taxes the next, and then complain about the size of the borrowing requirement on the third. I shall be told that it is for the Government to convince people that resources are limited, and of course this is right. It is our job. But in the revolution of rising expectations it is becoming less and less easy, and Ministers do need the constant and consistent support of those who see the dangers of trying to do too much too fast.

But what is clear is that the Opposition simply do not recognise the dilemma. Their recent joint policy statement with the TUC postulates massive new public spending in what I can only describe as a monstrous spasm of profligacy. Further, on Monday evening we had the astonishing sight of one of the Opposition's "Shadow" Treasury spokesmen, the hon. Member for Birmingham, All Saints (Mr. Brian Walden) reacting to warnings that the cost of the indiscriminate food subsidies, to which his party now seem to be committed would be open-ended by saying that that was not a phrase that would break his heart. Open-ended food subsidies go back to 1951 when consumer food subsidies accounted for 10 per cent. of public spending as a whole and were costing the Government more than the whole of the cost of the National Health Service.

That is what the hon. Member said on Monday. On Wednesday the Opposition have the effrontery to chide us for "unplanned increases". By contrast this White Paper is an honest document, reflecting sound priorities based upon careful decisions about the nation's needs and resources over the medium term. As such I commend it to the House.

4.22 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: whilst paying tribute to the work of the Expenditure Committee and its Sub-Committees, condemns the Government's public expenditure policy since 18th June 1970; especially regrets the initial cuts, followed by belated and unplanned increases, which together with its taxation, social and industrial policies have led to the present economic crisis; and further deplores priorities in Command Paper No. 5178 which reduce expenditure on housing whilst increasing that on defence. In his initial remarks the Chief Secretary was right to point out the difficulties of holding a debate at this time, so shortly before the Budget. Ideally, we should like to see the White Paper published in November and a debate around the turn of the year, preferably after the General Sub-Committee has had an opportunity to prepare a report for consideration by this House, which would he of great value to it in discussing Government plans.

I suppose that there is one small compensating advantage in the present arrangement in that it concentrates the mind very powerfully upon the connection between the White Paper and the Budget. For too long we have looked at these problems in isolated compartments, one compartment headed "revenue" and the other labelled "expenditure". It gives us an opportunity at least to think of the implications of one for the other, even though we note the reluctance of spokesmen from the Treasury to discuss these matters.

The other point mentioned by the Chief Secretary in which I would wish to follow him was his praise for the work of the Expenditure Committee and its Sub-Committees. May I add my voice to the gratitude that has been expressed, for both the past work of the right hon. Member for Taunton (Mr. du Cann) and the present work of the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). We have been much encouraged by their application to the work of the Expenditure Committee as a whole and in particular of the General Sub-Committee. We look forward to seeing it play a more useful rôle as we come to understand the way in which we can make use of our work in this House.

May I also add my tribute to the specialist adviser to the General Sub-Committee, Mr. Wynne Godley, both for the speed with which he has acted in the face of a late White Paper on expenditure and for the assistance he has given to the General Sub-Committee.

A word about the sub-committees. I believe that it will be necessary for them to examine the White Paper in closer detail in future. They will need to examine the expenditure priorities, to see which priorities the Government have selected and at what cost. It is only when we see these other sub-committees taking a close and detailed interest in these matters, as well as issues which were formerly the province of the Estimates Committee, that we can get the scrutiny of public expenditure which is so much required.

I must also thank the Treasury for the production of Table 1.2, the table of resources and claims which is something towards the medium-term assessment for which the General Sub-Committee has asked. We thank the Treasury for this information but must make it clear that this is only one step along the road towards much greater information for which I am sure the Expenditure Committee will ask in future. I would be surprised if the General Sub-Committee were satisfied with much less than the equality of information which alone will enable it to understand the workings of the Government and to play a constructive rôle.

Mr. Patrick Jenkin

I recognise the importance of what the hon. Gentleman said, but in one sense the Select Committee will never be satisfied. It must be realised that limits must be set at some stage, not only on the volume of material which Departments are asked to provide but also upon the extent to which the detailed probing of Select Committees can go. We cannot reach the point at which a Select Committee is in effect sitting at the desks of the Treasury Ministers and peering over their shoulders. I hope that the Select Committee when it considers these requests, which I understand, will bear in mind that to some extent there must be a degree of self-restraint, as in many other things.

Mr. Sheldon

I understand the point but perhaps the Chief Secretary did not understand mine. What I was asking for was not an increase in the questioning of Ministers beyond what is reasonable. Anyone can see that there must be a limit to that. What I am asking is that that information which is possessed by the Government, which forms an integral part of the work of Government, which is the foundation of much of their economic decisions, must insofar as it impinges upon public expenditure, be made available to the General Sub-Committee and the House.

What I would like to see—and this is one of the figures about which the Government have formed an opinion but which is always denied to the General Sub-Committee—is the current assessment. I refer not to the range of assessments but to the assessment made by the Government about the present level of productive potential. This would be most valuable since it underlies so much of the Government's plans and strategy.

The kind of information we hope to receive eventually includes the tax implications of all of this. This last matter is the subject of undue sensitivity in my view. Because of that it will be one of the sets of figures that will come rather later in the day. These are matters to which we shall certainly wish to turn at some stage in the future although obviously not the near future.

There are two parts to a speech in any debate about the Expenditure Committee. There is the part relating to the work of the Expenditure Committee as a whole and its detailed examination of Government spending. Then there is the second part which relates to the different choices which can be made between the priorities selected by the Government at any time. These two aspects are reflected in the Opposition's amendment to today's motion.

There are those who believe that perhaps today's debate coupled with the Opposition amendment might be considered to be an undesirable way in which to find the work of the Expenditure Committee progressing. The amendment results in the introduction of considerable party controversy. However, those who are interested in the proper examination of public expenditure ought to welcome this. If our work has any relevance and is seen to be relevant it will mean automatically that it becomes the very stuff of party controversy. It is only when it is detached that one can adopt an aloof attitude and discuss the technicalities alone. I have always seen the General Sub-Committee as the provider of ammunition and information for others to use to bring pressure to bear in any given direction.

The Opposition amendment points to the belated and unplanned increases in public expenditure referred to in the White Paper. We see the nature of those changes. We have had three White Papers—in January 1971, November 1971 and December 1972. We see in the first White Paper that according to Treasury figures there was a reduction in public expenditure of £942 million. That was in January 1971. It was the period of standing on one's own two feet and the abolition of lame ducks. At that time we were about a million miles away from the present Counter-Inflation Bill.

In November 1971, when the Government's confidence was not quite so obvious as it had been previously, we were faced with a decline in industrial investment and an increase in unemployment of unmanageable proportions. As a result, the Government began to nibble at the apple of intervention. They increased public expenditure by £482 million.

Then we come to the situation in December 1972. We see an increase in public expenditure of £1,213 million. These are all figures of expenditures in the year 1974–75.

I am reminded of the forcible feeding of a Peking duck. The amount of food going into this previously unmanageable animal is reaching serious proportions——

Mr. Bruce-Gardyne

In fairness to the House the hon. Gentleman should explain the attitude of the Opposition at this stage. Is the hon. Gentleman saying that they are in favour of overall reductions in the level of public expenditure? If so, surely the hon. Gentleman should say that that is the view of the Opposition.

Mr. Sheldon

The hon. Gentleman ought to read the latter part of the Opposition amendment which deals with the choices as we would have them and makes proposals for precisely the kind of situation where, if one is in favour of a certain kind of expenditure, it is necessary to illustrate just what it is that one wishes to cut, as the Chief Secretary pointed out. We have done that in the second part of our amendment, to which I shall refer in due course.

Mr. David Price (Eastleigh)

The hon. Gentleman was talking about support for industry. The amendment talks of spending less on defence and more on housing. However, it says nothing about support for industry, and that is the very point on which he is at present attacking my right hon. and hon. Friends. Does the hon. Gentleman think it right to give more money to industry?

Mr. Sheldon

I am surprised to hear that the hon. Gentleman expects to see every single item in an amendment of this kind——

Mr. Price

The hon. Gentleman made a point about it.

Mr. Sheldon

This is a matter of proper economic development. We would deal with a situation in a way that provided better prospects for growth because we should not be spending the initial period of our time in office trying to bash the trade unions and creating the kind of industrial difficulties that right hon. and hon. Gentlemen opposite have had. We would create better opportunities for industrial expansion and would not squander them as right hon. and hon. Gentlemen opposite have done.

Mr. Price

That is not an answer to my question——

Mr. Sheldon

I do not intend to give way any more. I have a great deal to say, and a considerable number of right hon. and hon. Members wish to take part in the debate——

Mr. Price

The hon. Gentleman has not answered my question.

Mr. Sheldon

The hon. Member for Eastleigh (Mr. David Price) must understand that his Government squandered their first two years in office making asinine cuts in public expenditure and, as a result, they now have to execute an about-turn and pour in money to compensate for their errors. It is too much to expect every incoming Government to do the same.

Mr. Barber

May I ask the hon. Gentleman one simple question? At this stage are the Opposition in favour of more or less public expenditure?

Mr. Sheldon

Public expenditure will always be high under a Labour Administration—[HON. MEMBERS: "Oh."] We have never denied that, and we stand by it. However, it would be a planned increase in public expenditure. [HON. MEMBERS: "More."] It would not be subject to the mistakes committed by an over-adherence to outworn philosophies such as that we see in the present situation.

Mr. Price

Now perhaps the hon. Gentleman will answer the question.

Mr. Sheldon

I have answered the question. If the hon. Member for Eastleigh had been listening he would have followed my argument. He cannot assume that the errors of the present Government will be repeated by an incoming Labour Government. We have always committed ourselves to a high level of public expenditure, but to a planned increase of public expenditure. The main burden of my case is the totally unplanned nature of the public expenditure increase that we have seen. It has not been a response to the kind of arrangement which the Government had in mind. Rather it has been a response to the errors that they themselves have made.

It is obviously a difficult matter to use an increase in public expenditure as a method of managing the economy. However, that is not what the Government had in mind when they decided to use public expenditure in this way. Looking at the figures which the Treasury has provided, we see that in the next financial year, 1973–74, public expenditure is scheduled to increase by £1,159 million. It means that in November 1971 the Government had one figure in mind for public expenditure and in December 1972 they had in mind a figure of £1,159 million greater than that which they had planned for the year 1973–74. There was already an increase in that year because there was some remnant at that stage of steady increases in public expenditure year by year. This is an increase upon the increase of public expenditure of £1,159 million in the 1972 survey prices. The Government have increased the amount of public expenditure in that year in that way.

If this had been a counter-cyclical device because the Government had made a mistake on investment and on the level of unemployment and had then panicked and poured money in to deal with the management of the economy in the short term, it might be more understandable. But one thing that the Public Expenditure (General) Sub-Committee understands is that most public expenditure for these purposes is rather difficult to arrange. It is not easy to build roads and drop building them six months later when the counter-cyclical reasons have ended. It is not easy to deal with a level of unemployment which might occur at a particular time or to deal with a level of low manufacturing investment at any particular time. It is not easy to find those programmes which can be put into effect, carried out, and then switched off. There are few programmes of that kind.

The Public Expenditure (General) Sub-Committee examined the criteria for introducing expenditure of this kind in its 7th Report. In this report we see that accelerated projects must meet three particular criteria. It must be possible to bring counter-cyclical expenditure to an end mainly within a period of two years. These are the criteria which the Treasury, when asked, produced. The criteria for counter-cyclical projects are that they can be started, that they can be undertaken within a limited time scale and then be stopped, and that they will in practice have an effect. Dealing with the particular problems of 1971–72, the Committee said that it must he possible within the period under consideration to bring the extra expenditure to an end, mainly within a period of two years on current plans. It is not intended that the present extra measures should lead to increases in public expenditure over the whole five-year period covered by Cmnd. 4829. We see the definition of the use of public expenditure being given by the Treasury itself. If we look at the £1,200 million that is given in Command 5178 we see that in Table 1.3, as my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett) pointed out, there is less than £200 million of that for counter-cyclical reasons. So when the Government panicked and committed themselves to an extra increase in public expenditure for 1973–74 of £1,200 million, only £200 million of that was to have an effect on either reducing unemployment or increasing investment in that period. So we have this massive unplanned distortion of public expenditure. For the sake of £200 million the Government have increased public expenditure by £1,200 million and then failed utterly to carry out the injunction provided by the Treasury in the use of counter-cyclical forms of public expenditure.

When we compare the use of this money with what happened previously—the period when they were busy ending free school milk, when they were cutting down the costs of art galleries by imposing absurd admission charges, raising the cost of school meals and abolishing the Consumer Council—we find that not much more than a year later they are pouring money into projects which have nothing to do with the ending or reduction of unemployment or with the raising of industrial investment.

The figures showing the cuts in January, 1971, slightly restored in 1971, and then massively increased in December 1972, provide the arithmetical record of the Government's failure in their competition policy to bring about the changes of our economy to end unemployment that they tried in the summer of last year and the stimulation of investment. The business men of this country, having failed to heed the incentives, are also failing to heed the exhortations being pumped into the air by the Prime Minister at this time.

The lesson to be learned from this debate is that the country is paying a heavy price for the education of this Government who are producing these unplanned increases, changes and fluctuations in public expenditure which can only be a disadvantage to the country and cannot accord with either the spirit of the Public Expenditure (General) Sub-Committee or the proper control of public expenditure in Britain today.

The specialist adviser, Mr. Wynne Godley, has made some calculations as a result of the information given in the White Paper. Referring to Table 1.2 he has estimated that with a growth rate of 5 per cent. the increase in personal consumption would be 2½ per cent. Although I have the whole derivation of the figures here, it is not possible in the confines of the debate in the House of Commons to go into a close examination of them because of the way that we conduct our debates. Mr. Wynne Godley is probably the most prominent expert in this country on these matters. We have had the benefit of his help for the past two years or so now and I have the greatest confidence in him and pleasure at being able to work with him in these areas. I can only give these figures baldly, but certainly in later reports we shall be attempting to justify some of them.

Mr. Bruce-Gardyne

Does the hon. Gentleman nevertheless agree that it would be desirable in this debate on the Floor of the House to make it clear that the Treasury, in public evidence, emphasised that the estimates on which Mr. Wynne Godley based his forward projections of potential consumer expenditure were based on his estimates of the outturn in 1971–72, which were not cur- rently quantifiable, and that the Treasury had considerable reservations about them?

Mr. Sheldon

As a member of the General Sub-Committee, to which he made a valuable contribution, the hon. Member for South Angus (Mr. Bruce-Gardyne) knows that the Treasury felt unable to comment on these matters because we were virtually in the area of politics. It was said that the matter was more suitably dealt with by the Minister. The conclusions were deducible, but it was not easy for a Treasury official to give us the reasons why this happened. These questions are relevant to the debate, and I hope that they will be answered when the Minister replies to it.

With a growth rate of 5 per cent. during 1973 and 1974, personal consumption is likely to increase by about 2½ per cent. With a growth rate of 3½ per cent., the increase in personal consumption would be about zero. If we consider the possibility, which is now becoming a reasonable probability, of a growth rate of about 4 per cent., the increase in personal consumption is a bare 1 per cent.

The importance of all this is that although these figures are deducible from those in the White Paper on Public Expenditure, they are not as easy to deduce as they would be if we received the further information for which we have asked, and for which we shall be asking again. The information that we are able to deduce has massive implications not only for public expenditure as a whole but also for the Government's economic and counter-inflationary policies and for the trade unions who, when they begin their discussions, will have before them a figure for the increase in personal consumption rather below that which they are being led to believe will be the result of such negotiations. It is therefore right to ask the Minister to deal with this aspect of the work of the General Sub-Committee.

I turn from the management of public expenditure to the priorities within it and particularly to those that have been chosen by the Government. The Opposition have selected one issue for debate, but there are many others which could have been chosen. The Government's poor performance in so many respects could have produced, and will, I hope, eventually produce, a great deal of controversy in the House. The one aspect about which we feel strongly is that of defence spending compared with spending on housing.

The figures speak for themselves, and I shall not do much more than quote them. Yesterday we debated the Government's housing record. During the period 1964–65 to 1969–70, when the Labour Government were in office, defence expenditure fell each year by 1 per cent. In the period 1972–73 to 1976–77—the period covered by the White Paper on Public Expenditure—defence expenditure is estimated to rise by 2½ per cent. per annum on the basis of cost. Under the Labour Government expenditure fell by 1 per cent. a year, while under this Administration it is increasing by 2½ per cent. a year. This extra £300 million is of enormous importance because of the other uses to which it could be put.

When one considers the housing situation, one sees what the Government are trying to save there. During the period 1964–65 to 1969–70, under the Labour Administration, there was an annual increase of 2½ per cent. in housing expenditure. Under the Conservative Government, up to the period 1976–77 housing expenditure is to be reduced by 3 per cent. per annum. We increased it by 2½ per cent. per annum, the Conservatives are reducing it by 3 per cent. per annum, at a loss to housing of £170 million.

Mr. Frank Allaun

Is it not a fact that even as things are we are top of the league table among industrialised nations in the proportion of the GNP being spent on arms?

Mr. Bruce-Gardyne

What about the Russians?

Mr. Allaun

They have to be counted with the Americans who have an even higher figure. Among our NATO allies —France, Germany, and so on—we are top of the table for arms spending. For housing, on the other hand, we are at the bottom of the table. I think I am right in saying that this survey will mean that we shall lead the arms table by an even greater amount and drop even further down the housing table.

Colonel Sir Harwood Harrison (Eye)

The hon. Gentleman is being unfair about defence expenditure. He should remember that the biggest proportion of the defence budget is spent on pay for men in the Services. Recruiting has increased, and that has accounted for a lot of the extra money.

Mr. Sheldon

The hon. and gallant Gentleman will have to find a remedy for that. Other countries have their own problems and will have to deal with them in their own way.

The Opposition do not accept the Government's priorities, and I shall deal with the international comparison to which my hon. Friend the Member for Salford, East (Mr. Frank Allaun) referred. He is right when he says that these priorities do not apply in Western European countries. A study of the figures shows that as a proportion of the GNP spent on defence the figure for France is 3.1 per cent., for Germany it is 2.8 per cent., for Italy it is 2.6 per cent., while for the United Kingdom it is 4.7 per cent. The comparable figures for residential constructions are: France, 6.9 per cent.; Germany 5.4 per cent.; Italy 7 per cent.; while the United Kingdom figure is 2.9 per cent. Those figures are an appalling indictment of the Government.

Faced with the situation that we are spending so much more as a proportion of GNP on defence and so much less on housing, the Government are making the situation much worse by increasing the amount to be spent on defence and reducing still further the amount to be spent on housing. This is the wrong way round. The Government must understand this. When the hon. Member for Eastleigh interrupts to ask what my solution is and I say, "You are going the wrong way; turn round", that is an answer. If he fails to understand that answer, he fails to understand what the heart of a public expenditure debate should be. I must tell him that it should be about the misallocation of resources by the Government and about their proper use by an incoming Administration which would choose their priorities in a different way.

Mr. David Price

With great respect, the hon. Member has not answered my original intervention which was about the increasing expenditure by the present Government on support for industry. This argument is irrelevant to the point on which the hon. Member was speaking when I interrupted him. He was complaining that the Government were spending too much money, suddenly, upon intervention in industry.

Mr. Sheldon

The hon. Gentleman has such a short memory. He forgets that it was the previous Administration who introduced investment grants which were spent on getting the highest level of investment for the last decade, that the present Government reversed that policy and we have had the lowest level of investment and are now at a level that is even lower than that which existed in 1964. That is the indictment of the Government and of the manner in which they choose to spend the money accorded by the country.

As a country, we have entrusted to us each year nearly £30,000 million by the people who give us this money to spend. It is absolutely crucial that we give them good value for it, and that we bring this matter into the political debate to discuss what it is that should be spent and what it is that should be reduced. That we shall try to do. We shall try to make sure that the value that the people get is that to which they are entitled and which is enshrined in the amendment.

5.2 p.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

The hon. Member for Ashton-under-Lyne (Mr. Sheldon) started his speech in an atmosphere of great brotherly love but was able to dissolve it fairly effectively by the end of his speech. I do not complain about that, because we get better audiences for a debate of this sort if it has a political head attached to it. However, I thought that the hon. Gentleman did his side fairly well, in that because of the length of his speech he made it unnecessary for many of his supporters to follow him.

His point about defence was very weak, because he appeared to have omitted to see the report of the Defence and External Affairs Sub-Committee of the Expenditure Committee, which was published just before Christmas. I should like to remind him that this is what it says: In our previous Report we recommended that consideration should be given to removing expenditure on health, married accommodation and, especially, education from the defence budget. We said that we believed that to include them in the defence budget was misleading … This recommendation was rejected by the Secretary of State for Defence. The figure (£259 million) is substantial and must obscure the actual defence figures. It is clear that it not only obscures the actual defence figures but obscures the finest attention of the Members of the Opposition who drafted the amendment.

If we are to have a debate on housing every day, I for one should welcome it, because I want to hear a great deal more about the municipalisation of rented accommodation about which, as the weeks pass, we shall hear more and more, because it was about the only thing which was certainly a great encouragement to those of us who fought the General Election in 1959.

We start off by saying that an agreeable atmosphere contributes to good chairmanship. I am in a strong position to do that, because I inherited this distinguished Committee with its distinguished membership from my right hon. Friend the Member for Taunton (Mr. du Cann) who made such a great contribution to it. I must also pay my tribute to the hon. Member for Ashton-under-Lyne, who has been a most assiduous and effective chairman of the General Sub-Committee. I am grateful to him for the attention he gave to these affairs. I should not like there to be any doubt on that point.

The House might like to know some details of the assiduity with which the General Sub-Committee has pursued its studies. The White Paper on Public Expenditure to 1976–1977 was published just before the Christmas recess. The sub-committee met again immediately after the House resumed, on the 24th January. It received Mr. Wynne Godley's note on Cmnd. 5178, and it had evidence from the Treasury on that date, 24th January. Furthermore, the Treasury gave us a note on the estimates contained in Mr. Wynne Godley's contribution. So the sub-committee had in front of it four separate papers, which it has dealt with very effectively and satisfactorily.

I should like also to congratulate the son of the right hon. Member for Battersea, North (Mr. Jay), Mr. Peter Jay, on what I thought was a very good article in The Times today, which was based on either a very quick reading of these papers or, possibly, a leak—I should not like to guess which.

We must get this point clear. I have written it down and I want to make it absolutely clear. Granted all the assumptions that have to be made in dealing with these problems, which are forecasts, and forecasts of policy, and allowing for all the approximations, committed as we are to a high growth rate, the investment that is required to sustain it without impairing the balance of payments will require that the growth in personal consumption must be restricted to less than the rate of increase in production. A 5 per cent. growth rate will allow us an annual increase in personal consumption of about 2½ per cent. If the annual growth rate is only 31½ per cent., it will allow for an annual increase in personal consumption of about 1½ per cent.

This is nothing to be ashamed of. It is right that this should be put before the public. I thought that it was ungrateful of the hon. Member for Ashton-under-Lyne to belabour the Treasury so violently, because the Treasury produced a vast amount of information which has been the material for the debate. Without it, we certainly could not have had the informed debate that we have had. Nor should we have been in a position to make this forecast, which is a perfectly fair forecast and one with which we can and must live. If we aim at this very high growth rate, something has to go, and we have to accept the curtailment of the normal increase in personal consumption. We are not curtailing personal consumption. We are curtailing an increase in personal consumption and getting it down to about a 2½ per cent. annual level. That is the price we have to pay.

The Government have to draw some lessons from this. I have argued that there is always a moment when someone who has jumped off the top of the Post Office Tower is at the same level as someone else who is going up in the lift. But there is no comfort to be drawn from the fact that both are at the same level. The question is 5—in which direction are they bound? There is always time to do the right thing, and, thanks to this debate and these papers, the Government can see what the right thing is. It should be a little clearer to the Government after the debate than perhaps it was before.

We do not need to indulge in those periodical outbreaks of financial masochism to which we as a nation, and particularly we as Members of the House of Commons, are so prone. There is no need to go back on action already taken.

My attention was called to a letter in The Times last week from Sir Malby Crofton. He is not a gentleman of my acquaintance, but I naturally have a vested interested, as you have, Mr. Deputy Speaker, in the advancement of members of our order. The first time I heard of Sir Malby was when the dustmen failed to collect the refuse in the Royal Borough of Kensington and Chelsea. However, I read Sir Malby's letter with great interest.

Sir Malby's advice to the Government runs as follows. First, reduce immediately the increase in the money supply to a nil year-on-year rate Secondly, limit and fund the £4,000 million borrowing requirement. Thirdly, bring in at least a neutral budget on 6th March giving not one single penny away to anyone—not even to dustmen. Fourthly, the Chancellor of the Exchequer should instruct his colleagues to halve the totally unrealistic 10 per cent. per annum projected growth in the social services. Fifthly, we should withdraw immediately from the Concorde project. Sixthly, we should scrap all plans for the building of a third London airport.

That may appeal to the masochistic nature of some of our colleagues, and no doubt it does, but it does not disguise the fact that it contains some good advice. We do not have to panic. We do not have to go in for a freeze. We do not have to stop all forms of future economic activity, as the letter rather suggests.

As my hon. Friends on the Treasury Bench are only too well aware, the increase in the money supply is something for which they have a good deal of responsibility. They add to the increase in money supply if they finance Government expenditure, not by long-term borrowing but by increasing the short-term debt, because Treasury bills in the hands of the clearing banks, where they eventually end up, become cash in the till available for lending to approved borrowers.

I have analysed the borrowing requirements and, as far as I can see, there is only £1,000 million of maturing debt to be repaid, and presumably the great bulk of this is in the hands of the National Debt Office already, so this is not a problem. According to the White Paper, there seems to be a borrowing requirement this year by the central Government of £2,338 million and by the public corporations, mainly the nationalised industries, of £2,276 million. I take this from Table 3.3. This makes a total of £4,614 million. Adding debt redemption of £1,000 million it makes £5,600 million not a negligible figure. In addition, there is local authority capital expenditure of nearly £2,600 million foreseen for 1973–74.

The Government will realise that if they do not look after the gilt-edged market—I do not mean by buying vast quantities of debt—the local authorities will he up against it as much as are the Government.

What I urge on the Government is that the Chancellor of the Exchequer and his colleagues should have a new look at the nationalised industries, because the 1963 directive on which they work—namely, that they should break even taking one year with another—has simply broken down. The nationalised industries do not break even. One of the reasons for this lies in our hands, because they are constantly interfered with in the use of their commercial judgment by social considerations. I am not saying for one moment that the nationalised industries should avoid social considerations. I am saying that we must think very hard about their financing which makes a huge claim on our available resources.

The other thought I give the Government is that one of the best ways they could have of raising money in current conditions would be to offer the public a long loan, perhaps irredeemable, with a small coupon—say, a 5 per cent. coupon but with a built-in cost of living stabiliser; in other words, the return on the loan would vary with the cost of living. If the Government are genuine and determined in their attempts to avoid inflation and destroy it, this stabilising clause would cost them nothing.

Consideration should be given to such a method. Years and years have passed and the Bank and the Treasury have always shut their faces against it, but at this moment we are reaching what I have described in the past as "South American borowing conditions". Governments have had to borrow at 10 per cent. or more. These are not the finances of the great financial centre of the world. These are the finances of a banana republic. This has to be taken seriously by the Government. That is why we have these debates.

The Government must scratch their heads and not accept the various refusals that their officials will give them for not adopting such innovations. Other countries have cost-of-living stabilisers in their borrowing and they are thus enabled to borrow much more cheaply than they would he in the absence of stabilisers; and in the long run it does not cost them anything.

I stress the necessity for a new look at the nationalised industries.

The inflation situation we are in is world-wide. I am sure that a month or two gained is profit in an international situation. We must tell the public that the path we have chosen—that of growing productivity—is aimed at the future, that it is a hard path to follow, and that it does not necessarily lead to the promised land, if in fact there is a promised land.

We have taken a decision in favour of betterment, wider opportunities and better conditions for those who follow us. It is certainly not an easy option. If we really mean it, we should accept the implications of this policy which are so clearly exposed in this series of papers. If we do mean it, we have the consolation that we have adopted this course voluntarily. We have not reduced our standard of living, but we have kept the degree of its improvement under control, and we have done this for a purpose—not to get out of a temporary mess, but because thereby we are achieving a proper foundation for the future life of this country. For those reasons, the White Papers that we have considered have done a considerable service.

5.20 p.m.

Mr. John Pardoe (Cornwall, North)

Without taking up the very detailed and amusing points which the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) made. I take some issue with his feeling of optimism about the effect of these White Papers. Perhaps the House will never be in danger of being mesmerised by its own success. Undoubtedly, the publication of these forward projections on public expenditure was a success when they were first introduced, but now one has to say, in the light of experience, that they are only a qualified success. Although that may be churlish, nevertheless the White Paper is not an adequate weapon by which Parliament can control the executive or the executive's power over public expenditure, and this is still true despite the changes which the right hon. Gentleman the Chief Secretary to the Treasury mentioned, many of which I wholeheartedly welcome.

One can consider public expenditure in a variety of ways. One, not yet expressed perhaps but which, no doubt, will be expressed by some hon. Members opposite, is that it has increased and is increasing and ought to be diminished both absolutely or as a proportion of GDP—a rather theological approach to public expenditure as a kind of sin. I do not make value judgments of that kind. Public expenditure versus private expenditure does not seem to me to be conceivable as an argument in moral terms. If I had to make a choice between the two, I would be biased in favour of public expenditure on the ground that if one cuts too hard, inevitably one will end up with private affluence and public squalor.

Therefore, I do not think it is helpful to compare that public expenditure with private consumption or, indeed, to consider it as a proportion of the total physical resources available. I do not see how it is possible for a Member of Parliament or a member of the public to realise what effect an increase in personal consumption of, say, ½ per cent. per annum over five years will have. I do not think it is possible for any individual to make that kind of comparison. It means nothing to the individual but it means about £1,000 million over five years to the amount available for public expenditure. I therefore discount that approach entirely.

It is unfortunately an approach which we have endeavoured to follow and it is the approach which lies behind the publication of these White Papers. It would be much more valuable to compare total forecast public expenditure with total forecast tax revenue. This is not new. It has recently been argued by Sir Richard Clarke in the Penguin publication, "Taxation Policy".

The White Paper debate, as the right hon. Gentleman said, is rather closer this year to the Budget debate, but even if they had been both on the same day, the Budget is concerned with a period of only 12 months ahead, even if the Government are lucky. What we need is a forecast of both public expenditure and revenue which can be compared. We can then tell the public what level of public expenditure goes with what level of taxation. Alas, we do not and shall not have the information, even when the Budget comes, on which to make this type of comparison.

I must admit that I sought rather clumsily to elicit that information—it was a long shot and I thought the Treasury would react as it did—in two Questions last week. I will not bore the House with the actual Questions, which were rather detailed, but the answers were not entirely untypical—first, Reliable estimates could not be provided without a disproportionate amount of time and effort".—[OFFICIAL REPORT, 31st January 1973; Vol. 849, c. 413] and secondly, It is not possible to make any useful estimates of the revenue for future years on the basis asked for by the hon. Member."— [OFFICIAL REPORT, 30th January 1973, Vol. 849, c. 344.] I am well aware that the Questions were probably as indaequate as the answers because it is exceedingly difficult to phrase those Questions. I hope the Treasury will be more forthcoming in the future. What we need to know is what will volume growth do to tax revenue and what will inflation do to tax revenue I accept that, by trying to ask the Treasury to assume a rate of inflation, it is almost tantamount to asking the Treasury to say that that rate of inflation will take place. The right hon. Gentleman answered that point himself this afternoon when talking about the different rates of growth in Table 1.2 in the White Paper on Public Expenditure.

We need to consider revenue as well as expenditure for five years ahead, because without a long-term policy towards taxation comparable to a long-term policy towards public expenditure, without a long-term statement of expected tax receipts comparable to that in the White Paper on Public Expenditure, we cannot usefully make that choice which we all have to make and which the Government have to make—a choice between higher public expenditure and lower taxes.

Another advantage would be that it would enable Government supporters to assess whether Government policy is aimed at promoting the Government's stated aims in taxation. It would have been very interesting to have had a forecast of the Government's expected tax revenue when they came into power. I wonder whether any right hon. or hon. Member opposite would have thought it possible that between the last year of the Labour Government and the latest year for which the Conservative Government have been responsible, taxes on income as a proportion of all personal incomes would have risen from 13.1 per cent. to 14.1 per cent. Of course what happens in the Budget next month may well change the position. But if the Chancellor wants to change those figures he has to give a lot of money away.

An interesting feature of Tory tax reforms over the years has been that Inland Revenue taxation rose by 22.2 per cent. whereas total taxation rose by 10.9 per cent. The Government's tax reforms have actually taken an opposite direction from their original intentions, which would presumably have been stated in a White Paper forecast on taxation revenue when the Government came into power. I hope we can have one now so that we can compare it with their promises and with these forecasts on public expenditure.

If one leaves aside the question of the totality of public expenditure—whether that is right or wrong vis-à-vis total physical resources—we can consider the priorities. I should like to ask a few questions on some aspects of this White Paper. I should like to refer to the table which the right hon. Gentleman proudly presented to us, Table 1.2 on page 10, which is an attempt to relate the growth of public expenditure to the growth in the economy. At least, that is what I thought it was. Perhaps that is not what it was intended to be.

Is it intended to relate the growth of public expenditure to the growth in the economy? If so, to what rate of growth of the economy is the present programme of public expenditure related? The extraordinary point is that the only thing in the table which does not change between the two proposed rates of growth is public expenditure. That is highly unlikely. Public expenditure is the one thing in the table over which the Government have direct control.

Surely, the Government cannot be satisfied with the level of public services, with the quality or with the number of public services. One assumes that they must want more and better public services if only they could afford them. I recognise the argument about whether we can afford them, but, surely, the rate of improvement in hospitals, schools and so on is limited only to what the growth of the economy can provide.

Why, therefore, does public expenditure remain the same irrespective of the growth in the economy?

Mr. Patrick Jenkin

I am trying carefully to follow the hon. Gentleman's argument, and I think he is misunderstanding the nature of the resources table. Naturally, I shall not repeat what I said in opening, but I ought to point out that the reason for public expenditure being the same all the way across is that it represents the spending programmes in this White Paper. Whatever assumptions one makes about growth and about investment, the figures are those in this White Paper. I entirely accept that, if one found oneself on a different growth path, there might well be changes and in a future White Paper the figure might be higher or lower. But what it is intended to show here is the figure in the White Paper in relation to a number of different assumptions about growth and investment.

Mr. Pardoe

I am grateful to the right hon. Gentleman. Although I was under a somewhat different impression, as, indeed, were others when they saw the table, I thought that that was so from the right hon. Gentleman's earlier remarks, and he has now amplified them. But in that case all I can say is that the bottom line in the table shows a totally meaningless figure, because it is impossible to suppose that, if one had a 5 per cent. growth rate over five years, even a Conservative Government would not substantially increase the amount of money going into the public services. At least, I take it to be incredible. Perhaps this Government might decide that there was some absolute level, though I think that highly unlikely. Therefore, private consumption is not likely to be able to rise by as much as the table tends to indicate.

In deciding what the Government can or cannot afford, we need also to know —we do not get this from the White Paper—not only what programmes were adopted but what programmes were discarded. In addition, we need to know which of the programmes adopted will be deferred if economic conditions necessitate, and which of those discarded will be taken off the shelf, dusted down, and brought back into the programme if conditions are better than the Government predict.

In assessing each programme, wt need to know the underlying assumptions. In one Government White Paper, it is impossible to give all the underlying assumptions behind every figure. For example, I am aware that there is a Command Paper on education which, to a certain extent, gives the underlying assumptions behind the changes in priorities which the right hon. Gentleman brought to our notice. But here I refer, first, to the table on Post Office expenditure. I am not aware of any Government document which gives the underlying assumptions behind the increased projections of expenditure on telecommunications. I am aware, however, that there is market research information available publicly which tends to show that the growth of demand for telecommunications in this country will be about 15 per cent. to 20 per cent., that is, nearly twice as fast as the expenditure figures indicated in the White Paper. That means either that an awful lot of people who want telephones will not be able to have them, or that the Government will have substantially to increase that figure in the years ahead.

Next, I turn to the table on trade, industry and employment. We see here an admission of the nonsense of the lame duck policy. The bogus cuts in the total of public expenditure announced in 1970 and 1971 have had to be reversed. This is amply demonstrated in that table. I should have thought that common sense would tell the Government that one cannot suddenly withdraw £1,000 million from industry without causing disaster. At least, we now have a more credible programme.

I find it odd that there is nothing shown against the item, "Selective assistance general powers", that is, non-regional assistance. It occurs to me—it may well occur to the right hon. Member for Battersea, North (Mr. Jay) when he returns—that this is so because such general assistance would not be possible under our terms of entry into the EEC.

According to the item "Nationalised industries special assistance", the nationalised industries will not need special assistance after 1975. What will be done? The nationalised industries are building up enormous losses as a result of the Government's freeze on their prices. Presumably, at some point or other, those losses will have to be recouped, unless they are to be written off through the taxation system. Perhaps that is it, and the taxpayer will be asked to do it. But to imply, as the table does, that there will be no need for special assistance in direct grants to subsidise the nationalised industries after 1975 is very odd.

Also in the table on page 34 we see the phasing out of the regional employment premium. It is not good enough to say, "We intend to phase out all types of incentive to labour in the regions". Inevitably, the Government will find that it is necessary for cash grants to be made specifically to encourage employment in the regions, rather than just capital incentives. I doubt the suggestion inherent in the item on the regional employment premium, and I should not mind betting that there will have to be further provision in some other way.

I turn now to the table on surface transport, page 52. I find disturbing the implication here that support for nationalised industries on such things as the unremunerative branch lines of British Rail, which are desirable on social grounds, is assumed to decline, the £112 million in 1972–73 becoming £68 million in 1976–77. It is most unlikely that the number or cost of such services will diminish. It is almost impossible to imagine that that will happen, and in the natural course of events the cost is likely to increase.

The implication here is that the Government are planning a drastic cut in such services, that they will simply phase out all the marginal loss-making unremunerative branch lines. Perhaps the Government would care to come clean about it. Are we to take that from the table? I can see no other implication in the figures.

Mr. Patrick Jenkin

I am sorry to interrupt again, but, with great respect, the hon. Gentleman is drawing a number of conclusions which are not well founded. I am sure that he has read the paragraphs underneath the tables, which explain a great deal of the matters to which he is referring. For instance, paragraph I on page 52 shows that the make-up of that figure of £112 million includes a great deal more than the so-called grants to unremunerative lines. The conclusion which the hon. Gentleman draws cannot be drawn.

Mr. Pardoe

All right. But that is a different question. The Government may say that I should not draw these conclusions from the figures given here. But I have drawn them, as I am entitled to do, and the only way they can counter the point which I have made is by saying specifically that they do not intend to cut back that part of the figure which goes to unremunerative transport services. The right hon. Gentleman did not say that. I hoped that he would. Very intelligently, if I may say so, he refrained from denying the point. Perhaps it will be denied in the winding-up speech.

I turn next to the table on page 74, social security. These figures, like all the others, are at today's prices, and the increases shown are simply demographic increases—in other words, multiplied up by the number of people who are likely to be receiving such services. As far as I can see—the right hon. Gentleman may correct me if I am wrong, though I assure him that I have read the small print—there is no provision for increases in real value. In other words, in this table we are concerned simply with increases necessary to maintain or restore purchasing power, but we are not given those increases which will give those receiving these benefits, particularly national insurance pensioners, a rising share of the resources available.

Mr. Bruce-Gardyne

Would it not assist the progress of the hon. Member's speech if he recognised that this public expenditure White Paper, like all others, makes the assumption that existing policies will be pursued in the future, and that it makes no assumption about future policy changes?

Mr. Pardoe

That is a fair point. Unfortunately that is one of the fallacies of the White Paper approach because no Government can assume that they will not raise the real value of pensions. I have pressed consistently in debates in the House that the Government should have a policy for increasing progressively the real value of the old age pension. If there was such a policy it would be taken into account in these figures. I have the same reservations as were expressed from the Opposition Front Bench, about the increasing share given to defence and the decreasing share given to housing. It is an extraordinary commentary on the Government's priorities.

It appears that the rise in estimated total expenditure, which is sharp in the short term—4.6 per cent. in 1973–74—and will reduce thereafter, is based on an over-optimistic assumption by the Government. It assumes that the Government's plans will be entirely successful but industrial investment is still highly depressed and if we are to get the economy going and if the Government's counter-inflation policy works, it is virtually certain that far more of our resources will have to be pumped into public expenditure. That is a major reservation which must be expressed in any discussion of Government forecasts on public expenditure at present.

5.42 p.m.

Mr. Edward du Cann (Taunton)

Most of the points raised by the hon. Member for Cornwall, North (Mr. Pardoe) seem to be questions addressed to the Government and soliciting answers from the Minister of State, and are therefore not necessarily matters to which I should refer. However, I shall take up one of his comments. He said that perhaps we underestimated the importance of the relationship between revenue and expenditure. I agree entirely. I hope if the Select Committee on Public Expenditure under the distinguished chairmanship of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has an opportunity to study the matter more deeply, in addition to its other heavy labours, that we shall all benefit considerably from that study. The Chief Secretary has already paid tribute to my hon. Friend. I was shocked to read in the newspapers a day or two ago of his impending retirement from Parliament. I am sure that we all feel that Parliament will be a poorer place when he is no longer with us.

He was right when he said that this, the fourth of the series of White Papers, with its supporting documents, was one of the best we have had. Great credit is due to the Chief Secretary for that and for all the hard work that he has put into it. The White Paper is a notable advance on its predecessors and the House may well pay tribute also to the handbook on methodology which will be of substantial use in illuminating and setting a pattern for our debates in the future.

One other document is worth acknowledgment. My hon. Friend the Member for Walsall, South referred to the hard and devoted work which is being done by the General Sub-Committee under the new chairmanship of the hon. Member for Ashton-under-Lyne (Mr. Sheldon), to whom we all wish success. I am sure that he will be the first to acknowledge the hard work of all the Members on the Expenditure Committee and that politics apart, much is due to his predecessor, Mr. Dick Taverne, who did a fine job.

I start from the profound and unshakeable belief, which is fortified by experience, that the power of the executive has increased and is increasing. It should be contained and we as Members of Parliament have a duty to contain it. I am sure that I carry all my hon. Friends with me and I hope to carry the support of the Liberal Party also in that. Judging by a recent speech by the Leader of the Opposition I am glad to think that I have his powerful support also.

Before we go lecturing our European Parliamentary counterparts on how to behave it would be as well to devote a deal of attention to putting our own house in order. Any competent administration should welcome such a process. No criticism of efficient and effective government is intended thereby, only its reinforcement, its surer success.

One of the refreshing features of the debate is the feeling that I have that the Chief Secretary and officials of the Treasury agree with that view. I hope that my hon. Friend the Member for Walsall, South will agree from his experience that the Public Expenditure Committee had no better allies than the Chief Secretary and the officials and Ministers at the Treasury, in doing its work.

I am no disciple, as I have remarked in other contexts, of the great Dr. Pangloss about whom Voltaire wrote. I do not believe that: all is for the best in the best of possible worlds. Now I do share the opinion of the cynic who says that all Governments are bad and that some are merely a great deal worse than others. I put it more positively. I think that no Government is so good that it cannot be improved upon, and good though the present administration are, that certainly applies to my right hon. Friends.

Parliament is more often consulted after the Government have made a policy decision than before. That is wholly wrong. Take, for instance, the rise in total expenditure which is set out in the White Paper. The figures for 1972–73 show an increase of more than 6 per cent. over the previous year. Measured at constant prices the increases presupposed for 1973–74 will show a rise of over 5 per cent. over the previous year. I do not recall a proposition to that effect ever being put to the House in that form. I do not recall a proposition to that effect ever being agreed by the House.

Our debates here are more often post mortems than evaluations and discussions of future programmes. We usually have too little analytical information in front of us in spite of the advances which are being made and to which I have already paid tribute. This White Paper is the exception rather than the rule.

Parliament lacks the ability to follow through individual programmes as they mature and the ability to measure in modern terms—and measurement is a complex matter, as any prominent industrialist will confirm—their true effectiveness.

As my hon. Friend the Member for Walsall, South was commenting, we have an immense funding requirement. The public have the impression, quite wrongly as we all know, that Government expenditure is out of control. That is not so. As my hon. Friend the Chief Secretary said, the reasons for its growth are legitimate and honourable, but it has grown much faster than expected. I have no hesitation in expressing the purely private and personal view that the total of expenditure is rising too fast, and that it is too great a proportion of the gross domestic product.

The substantial continuing rise in Government expenditure that the White Paper discloses may look small enough in proportionate terms, as my hon. Friend the Chief Secretary said, but it is pretty big in absolute terms. It has profound implications, one of which was mentioned by my hon. Friend the Member for Walsall, South. It will be necessary to cut back on consumption. It may be necessary to cut back private expenditure of a number of different kinds, and possibly even to increase taxation. I do not know, but it may be possible, and that is one of the matters we require to have brought out in the debate.

There are two needs, as I see it. One follows from the other. First, Parliament should be better informed about these matters. Second, the Executive should be made more responsible to Parliament.

The question is, how? Should there be new tools for Parliament? Some are perhaps appropriate. For example, a Select Committee on taxation has been recommended. I think we can learn another lesson from Europe, that we should use some of the existing tools much better than we do. What is the point of having power if we do not use it? The truth is, alas, that we do not use it as effectively as we might.

The way to command the despot, however benevolent, however well-meaning, is as history has taught us, to control the purse-strings. Every child remembers the struggles to that end that are the matter of our Parliamentary history. But that is just what our modern Parliament does not do. To debate a money resolution is the exception, when it should be the rule. Debates ostensibly about supply are not about supply; rather, in our voting the money for supply, they are merely debates about current policy. That may well be important and significant, as we saw yesterday, but they are not debates about money.

Last year's debate on the White Paper played to a nearly empty House. I remember a book written by a former young editor of The Times, young like today's editor of The Times, a book called "Opportunity Knocks Once". That title is profoundly relevant to most forms of human endeavour. Fortunately, in Parliament and in parliamentary matters we often have a second opportunity. Each year, in effect, we have a new chance. I hope that we shall take it.

The tone of the speech of my hon. Friend the Chief Secretary set us off extremely well. If I may repeat what I said last year, this debate should be the most serious event in the political calendar. I suggested then that perhaps if the debate is a discussion of the Government's whole strategy and priorities it is appropriate that the most senior Ministers should introduce it and be present at it. I still believe that to be true. It is right, as the article by Mr. Jay in The Times today pointed out, that many people are put off discussions of money matters because they think that they are complex and difficult to follow and understand. They realise that modern techniques of measurement are extremely complicated, and they do not want to be bothered.

I sometimes think that in this modern age politics have become too much a question of figures. To me, politics are matters of the heart and ideals just as much as of practice. It is exactly these philosophical matters and attitudes that we should be discussing today as well as the naked figures.

Mr. Dalyell

May I be forgiven the observation that, if the right hon. Gentleman thinks that the most senior Ministers should be present at this debate, he happens, fortuitously or otherwise, to be in a position to require it? If anyone can get a Conservative Prime Minister to come to a debate, it must be the Chairman of the 1922 Committee. Therefore, may we as politely as possible express the gentle hope that next year the Prime Minister will be called upon by the backbench Committee to be present?

Mr. du Cann

Our procedures evolve, and I have no doubt that we shall continue to make progress. But perhaps I might ask for help from the hon. Gentleman. If he thinks that the general gist of what I am saying is sensible right and wise, and I flatter myself that perhaps he did, judging from the tone of his intervention——

Mr. Dalyell indicated assent——

Mr. du Cann

—next time such a suggestion is made in this Chamber and is then ridiculed by that ordinarily most wise and sagacious writer in The Times, David Wood, I hope that the hon. Gentleman will leap to its support in the correspondence columns.

If we are debating national priorities over the next five years; the Government's strategy, whether they are right to spend so much on defence and, as has been suggested, so little on housing—that is part of the gravamen of the Opposition's complaint; and if in every aspect of the national endeavour we are discussing what we spend and do not spend, it is important to emphasise that the debate is a matter of the highest importance.

Of course, if we are to have a meaningful discussion we cannot in such a debate touch upon each detail of the Government's activity as measured by expenditure. But we can, and I believe should, establish a two-tier precedent. It seems to me that that is what we are working towards, and I welcome it. In this annual debate we should demand from the Government of the day an explanation of their strategy, their philosophy, and the chief directions of their policy. We should examine and discuss the justifications for its direction and compare the policy with the alternatives. Then the detail—the comparison of this alternative with that, the measurement of success or failure, the comparison of out-turn with prediction—would be delegated to the Select Committee on Public Expenditure.

The hon. Member for Cornwall, North said that we cannot expect the public to be really concerned about a movement of half a percentage point here and half a percentage point there. I am not sure that I agree. I would certainly agree if the hon. Gentleman said that one of the worries we all have is about the public's apparent lack of interest in the democratic process, our failure perhaps to involve the public more with our proceedings. I believe that to see senior and informed distinguished back benchers, like my hon. Friend the Member for Walsall, South, and other hon. Members on both sides, quizzing the Treasury Knights and Ministers would be a first-rate public spectacle, something to which we might even consider introducing the television cameras as an example of Parliament effectively at work. Be that as it may, the two-tier division is the thing I am chiefly recommending.

It is a matter for my hon. Friend to decide, but there is a need for that Select Committee to be backed by an adequate staff. The Committee has had devoted service from its servants, but I would measure them not in twos and threes but in tens and more, with all the machinery that it needs to do its technical work. Then its reports must be allowed priority in debating time in the House.

The control of expenditure is the foundation on which the power, such as it is, of Parliament rests. Each of us fights many battles in this House. The hon. Member for Ashton-under-Lyne was implying that the most relevant battle is always the party political battle. I am not sure I agree with that. The Government of the day versus the Opposition of the day is, I suppose, the most obvious of the battles. But so trivial is much of the reporting of this place that the public might be forgiven for believing that nothing else occurs.

I suggest that the shared objectives which unite the back benchers in the House are more significant in the parliamentary scene than those items which divide us. Should we not chiefly in this debate note, recognise and register our determination to impose our will on the Administration of the day in order to enhance its effectiveness? If that is what we do, I shall well rest content.

6.1 p.m.

Mr. David Marquand (Ashfield)

It is a privilege to follow the right hon. Member for Taunton (Mr. du Cann), not simply because of the distinguished office which he holds in his party but because of the part he has played in making the experiment of parliamentary control of expenditure, which has been going on only for a very short time, as effective as I think it has been.

It is a great mistake for people to imagine that, because attendance at these debates has not always been as large as one would have liked, the whole experiment of the Expenditure Committee has in some way been unsuccessful. On the contrary, as the right hon. Gentleman said, the real point of the exercise was for Parliament to be able to get in on the act earlier, before the decisions were preempted. That can be done only by effective committee investigation. In a way the debate is less important than the work of the committees. However, it is far too soon to write off the debate. The debate will become more effective as time goes on, as we have more information flowing in from the committees.

I was disappointed by the tone of what the Chief Secretary said about probing on the part of some of the committees. It is true that there is a limit to the amount of information available for which they can properly ask and which can properly be obtained for them. There is a limit to the resources and manpower available in the Civil Service to deal with their inquiries. We know that. But it is ludicrously wide of the mark to suggest that that limit has anywhere near been reached. We are a long way away from having enough information. It was premature of the Chief Secretary to make that point. If he meant it seriously, it casts rather a pall on the whole exercise and has disturbing implications for the future.

The Chief Secretary was somewhat cavalier in refusing to comment on the memoranda of Mr. Godley, which were published in the minutes of evidence to the General Sub-Committee of the Expenditure Committee yesterday. It was unsatisfactory to say that as they had come out so recently he did not want to say anything about them. The memoranda which Mr. Godley produced to the General Committee, and which were printed in the minutes of evidence, have demonstrated just how gigantically the Government have changed course since they took office.

It is a shattering and astonishing state of affairs that a Government which came into office pledged to cut down the rate of increase in public expenditure at the very least, and probably to cut down the absolute level of public expenditure as well, should now be about to spend next year £700 million more than the Labour Government had planned to spend in that year. That is a fantastic change of course. It is ludicrous of the Chief Secretary to attempt to brush it aside.

I do not think that any of my right hon. and hon. Friends will quarrel with the Government for increasing public expenditure. One of the central divisions between the two parties in the past has been that we on this side have been in favour of larger expenditure and the Conservative Party has been in favour of less. But the way in which the increase has taken place justifies the terms of the Opposition's amendment. First there was to be a swingeing cut of £700 million in the total for 1974–75. In the last two years we have had an amazing increase of £1,400 million to be spent in that year. That cannot be right. It cannot be right in one year to decide to cut down expenditure by £700 million and three years later to be increasing expenditure by £700 million. That cannot be sensible and it must be damaging to the proper planning of the economy and of the public sector.

However, it is not enough to cast party brick-bats at each other in a debate of this kind. We should inquire why the change of policy has come about and what the implications are for the future. In my view, the implications of the change of policy affect not only the Government but, just as much, the Labour Party. Indeed, I should say that the Labour Party is affected in a very deep sense, as is the whole future of democracy in this country.

Why did the change of policy take place? Why is it that the Government, who were elected to cut down public expenditure, are now increasing it faster than did a Government who believed in increasing public expenditure? Why has there been this change? Part of the reason is that the Government panicked during the recession. However, I do not think that that is the main reason or the most important reason. The most important reason is a much deeper one than a panic which afflicted Ministers in the course of last year.

The fundamental reason is that when they were face to face with the responsibilities of office and the facts of life, Ministers discovered that it was impossible to keep down the rate of increase in public expenditure unless they were to damage irreparably the social fabric of the country. They discovered that the needs which public expenditure has to satisfy are growing inexorably as a result of demographic factors alone. They discovered that simply to stay in the same place public expenditure has to keep rising, and that if standards, which we all know from our constituency experience to be grossly inadequate, are to be raised, the rate of increase in public expenditure has to be even faster that it has to be for standards to remain at the same level.

That was what the Government discovered when they came into power. They discovered that there was no escape from the facts of life. I hope that we shall now he able, as a result of publication of the White Paper, to stop debating the general question of whether public expenditure should increase. We are all now agreed that it will increase and that that is a feature of the society in which we live. We can now stop the rather sterile debate as to whether it is good or bad to have a large public sector. We have got one and we shall continue to have one.

I think that the Labour Party also has to do some deep thinking as a result of the White Paper. We have to examine some of our assumptions about the public sector and its role in and its relationship to the rest of the economy. In the first place we have to ask ourselves—this is what the debate between the two sides ought to become in future—what public expenditure is for and how satisfactorily it meets the objectives. If it does not meet them, we have to ask what changes are necessary to make sure that it meets them in future.

I put forward two general propositions on that issue. First, I believe that it should become part of the philosophy of the Labour Party that public expenditure should be used deliberately to increase equality in our society to diminish the inequalities which exist between different regions and different social groups. It sounds like a platitude. Most people would probably say that this is what the public sector does already, but can we be satisfied with the extent to which public expenditure carries out that objective? I do not think we can.

Any hon. Member who believes that the programmes described in the White Paper are effectively diminishing the inequalities between different regions should come to my constituency and compare the schools there with the schools in a more prosperous part of the country; he should compare the size of the doctors' lists in my constituency with the size of doctors' lists in the South East; he should compare the rate expenditure per head of population that local authorities in my constituency can afford with the rate expenditure of local authorities in more prosperous parts of the country. If he does that, there is no question but that he will find that, to a frightening degree, the money which the Government spend in the name of the public does not diminish the gap between the better-off regions and the better-off sections of the community and the poorer ones but keeps the gap as large as it was before.

Take the interesting figures in the report of the General Committee of the Expenditure Committee dealing with the expenditure per head of population by different regional hospital boards. They appear on page 97. They show, to take an example at random, that the Sheffield Regional Hospital Board, in whose area my constituency lies, spent £16.6 per head of the population in 1971–72 whereas the South-East Metropolitan Hospital Board spent £21.8. Yet one would imagine that the needs of the Sheffield region in terms of poverty and deprivation must be greater than the needs of the South-East Metropolitan region.

That is only one small example of how public expenditure, so far from being operated in an egalitarian fashion, is in some cases, actually widening the gap between the more and the less prosperous parts of the country. There is no doubt that the same pattern would be revealed by different spending programmes if the information were available. But to be sure of this we have to have far more information. I hope that the appropriate Sub-Committees of the Expenditure Committee will continue to press for this. The work done by the General Committee on the relationship of expenditure to needs is only a small beginning. We need to have the same kind of information for all the other spending programmes.

My second general proposition is that the public expenditure programme ought to be used far more than it is at present consciously and deliberately to protect the quality of life and the quality of the environment. Here too it seems to me that the present pattern of priorities is utterly unsatisfactory. It cannot be right that there should be such an enormous disparity between the projected expenditure on road building and expenditure on the railways, both by way of the nationalised industries' capital investment and in other forms. This cannot be right from the point of view of protecting and safeguarding the environment. We have had an excellent report from a Sub-Committee of the Expenditure Committee on the problems of urban transport. So far as one can see from the White Paper, nothing that it said has had any heed paid to it. Perhaps it was too soon to expect its recommendations to be reflected in this year's White Paper, but I hope very much that we shall see a major change in the priorities as regards road and rail in next year's White Paper.

The last implication that emerges from the White Paper and the various commentaries on it is more worrying. As I have said, it seems to me clear that public expenditure under either party will continue to rise rapidly. I also think that there is little doubt that over a longish period it is likely to rise faster than the gross national product as a whole is likely to rise. As society advances new needs are created which have to be satisfied by public spending rather than by private spending.

But we are now living in a society in which there are enormous pressures to increase private consumption. We have one set of pressures to increase public expenditure, and another set of pressures, generated by advertising and other forces, to increase private consumption. But we cannot satisfy both. If we try to do so, the result is inflation, stop-go and all the other horrors we have become accustomed to. Yet if we curtail the rise in public spending, the result must be, to quote the well-known aphorism, "private affluence and public squalor" and an even greater demand for public expenditure in the future.

It seems to me inescapable that we are approaching a situation where Govern- ments must deliberately offset the continuous pressures from advertising and so on which lead to demands for ever more private consumption. This is now one of the central priorities facing us. We cannot go on trying to have our cake and eat it. More and more the cake we have to eat has to be a public cake and therefore we cannot eat as much of the private cake. That means that we have to restrain the forces which constantly push for increases in private consumption. It will be a very difficult job.

6.20 p.m.

Mr. David Price (Eastleigh)

The House will forgive me if I do not follow the interesting arguments of the hon. Member for Ashfield (Mr. Marquand). I want to make a contribution of my own, and I do not want to detain the House for too long. The constructive part of the hon. Gentleman's speech can be summed up in the words of George Bernard Shaw: The lack of public money is the root of all evil". Many of us are grateful to the Government for the wealth of information which they are giving us in the annual White Papers, upon the forward projection of Government expenditure. I am particularly pleased that the Government, for the first time, have published their assessment of the average annual change of resources and claims over the next five years. Hon. Members generally should be grateful to our colleagues on the Select Committee of Expenditure for having pushed the Government into publishing this assessment, and to the Government for having responded so rapidly. The assessment makes these debates much more meaningful.

Over the years there has been a big improvement in the amount of information given by successive Governments on their forward expenditure. I think that my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), who came into the House at the same time as I did, will agree that in the 18 years we have been here there has been a big improvement.

The question arises how the House can best handle the increasing wealth of statistical information coming from Whitehall. In my judgment, a White Paper of this nature lends itself better to careful examination by a Select Committee than to general debate on the Floor of the House. That is not to say that I regard an annual debate upon the Expenditure White Paper as being inappropriate or unnecessary. But the success of the debate depends not only upon the existence of the Select Committee, but upon the quality of its work.

I am not a member of the Select Committee, but I pay tribute to colleagues who serve on it for the time and energy they spend on our behalf in the detailed examination of Government expenditure. This is done quietly, technically in public but out of the main arena of Parliament which is this Chamber. I suspect that those of our colleagues who serve on it get less credit than those who intervene at Question Time with supplementary questions. That is a pity, but the public judge the work of Parliament on the more ephemeral matter of intervention on a supplementary question, ignoring the enormous amount of work that is done in Select Committee. I pay particular tribute to those who chair the Select Committee and the sub-committees, and add my tributes to those which have been paid to my right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Walsall, South.

The benefits which flow to Parliament in its attempt to control the executive from a permanent Select Committee rather than an ad hoc committee are twofold. First, it ensures that the examination of public expenditure is a continuous process and, secondly, the Select Committee can develop its own management philosophy about public accountability. I shall come later to this desirable feature.

The Opposition amendment refers to belated and unplanned increases in public expenditure. That public expenditure is increasing more rapidly than was forecast a year ago is indisputable, and should not be a matter for divisison between the two sides of the House. According to the latest Treasury figures on page 34 of the Expenditure Committee's report of 24th January, which slightly update the figures in the White Paper, the change in the change between 1971–72 and 1973–74 is put at £1,354 million. To get this figure into perspective, we must view it in the context of the total level of public expenditure for 1973–74 which amounts to £29,182 million. If my mathematics is correct that is an increase of about 4.6 per cent. over the earlier estimate. The Treasury figures make clear that the increase is due to deliberate policy changes rather than to serious mistakes in estimating or, as might be suggested, a general bumbling along. That view is supported by Mr. Godley, the specialist adviser, in his report to the Sub-Committee.

That shows that the techniques of estimating future public expenditure are a good deal better than is generally imagined and are now certainly better than they have been. That does not exactly support the Opposition's argument that the Government have acted imprudently and without due deliberation. To challenge policy changes is perfectly fair but to say that this has occurred in a haphazard manner is far from the truth.

From table 1.3 in the White Paper, which gives a breakdown of the increases for 1972–73, it can be seen that most of the increased expenditure was due to additional counter-cyclical measures, greater expenditure on regional development, further assistance to the nationalised industries and improved social security. All this the Labour Party wishes to condemn. From the speech made by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) I assume that a Labour Government would not use public expenditure as a counter-cyclical device. My attempts to question the hon. Gentleman—

Mr. Sheldon

Will the hon. Gentleman say what I said? I have said nothing against the use of public expenditure as a counter-cyclical device. I pointed out the limitations, as described in the 7th Report of the General Sub-Committee and said that the use of the device by the Government did not satisfy the requirements laid down by the Treasury.

Mr. Price

When I first intervened in the hon. Gentleman's speech he was criticising the Government for increasing expenditure under the headings I have mentioned, which are all in the broad category of counter-cyclical measures.

Mr. Sheldon

That is £200 million out of £1,200 million.

Mr. Price

With great respect, it is substantially more. If the hon. Gentleman looks at table 1.3, he will see that it is a great deal more than that.

Mr. Sheldon

If the hon. Gentleman looks at table 1.3 he will see that the counter-cyclical measures account for £177 million for 1973–74, the year under discussion, and that the total is £1,256 million. Our specialist adviser came to the conclusion, taking into account one or two other matters, that the counter-cyclical measures amounted to about £200 million out of a total of £1,200 million.

Mr. Price

I am taking an earlier year, 1972–73. If the hon. Gentleman will look down table 1.3, he will see that the next heading "Industrial and regional development policies" which accounts for £81 million in the current year and £294 million next year is certainly part of a broad counter-cyclical strategy.

Mr. Sheldon

No.

Mr. Price

Of course it is. I will argue with the hon. Gentleman afterwards, and convince him that I am right and he is wrong. The effect of giving regional aid is not a counter-cyclical policy because the very point the hon. Gentleman argued, and which I have argued, of regional disparity——

Mr. Sheldon

It has nothing to do with it.

Mr. Price

Of course it has.

Mr. Speaker

Order. This is debate not an argument. The arguments should take place elsewhere.

Mr. Price

I find it difficult to argue with an hon. Member who says it is one thing and then says that it is the other.

Mr. Speaker

Order. All I am in favour of is a little counter-cyclical brevity.

Mr. Price

I find it difficult to understand how the Opposition can object to the increases that have taken place in Government expenditure over the period in question. It seemed that any criticism that might arise would come from this side of the House rather than the other. We all have reason to be concerned about the steady march for- ward of public expenditure. We are in grave danger of creating a situation in which public expenditure increases march ahead of increases in real resources.

If I am right then we must accept the logical conclusion, namely that we shall not control this irresistible march forward by the illusion that somewhere there are cheese-paring techniques in detail which will make a major impact on the rate of increase. This is an illusion. If any hon. or right hon. Gentleman wishes to bring restraint into these matters it is at the policy level that the influence and power of the House must be exerted. I remind the House that if our continuous and collective influence upon Ministers in charge of spending Departments—and nowadays no doubt for admirable reasons are not all Departments spending Departments?—is to spend more we must not complain if public expenditure continues to rise both in absolute and proportionate terms.

We must have the courage to face up to the consequences of simple addition. Equally, if we feel that public expenditure is in danger of increasing too rapidly then it behoves us to oppose at least some of the individual increases in departmental programmes.

I realise that there are some hon. Members who have strong ideological views about rising public expenditure. They believe that is either per se good or per se bad. I must admit to taking a more agnostic view which will vary according to the circumstances of any year. Obviously my judgment will depend upon the content of any individual programme, the sum of which produces the global figure for public expenditure. It will also depend on the state of the economy, the resource demands of public expenditure and the Chancellor's total budgetary position. Nevertheless, all experience shows that Ministers and Departments have to work very hard to contain the increases in public expenditure within manageable proportions.

Within this continuous review, by Departments and Parliament, there is a real danger of public expenditure running away with itself. We are all exposed to the revolution of rising expectations. The cause of public economy is not popular these days in the House. That is why those few hon. Members—I admit that I am not one—such as my hon. Friends the Member for South Angus (Mr. Bruce-Gardyne) and for Oswestry (Mr. Biffen), who are ever vigilant about increasing public expenditure, play such an important part in our affairs.

I admit openly that I am not naturally a good economiser because I prefer doing things to not doing things. Doing things for the public nearly always seems to require further public expenditure. I suspect that many of us support the broad concept of containing public expenditure but are reluctant to apply that concept to the particular. In this I am reminded of the famous saying of St. Augustine, "Give me chastity and self-restraint, but do not give it to me yet." That is so frequently our attitude to increased public expenditure. In principle, we wish to restrain it, but when it comes to the particular, we want rather more of it. I admit to being as guilty as any one.

That takes me briefly into the question how we can judge the validity of individual programmes and whether they are achieving their objectives. For some years I have felt that some system of input-output accounting tied to programmed objectives was necessary, in addition and supplementary to, the traditional public expenditure accounting methods.

I am in complete agreement with the views of the Expenditure Committee in its Third Report. More particularly, I was pleased that the General Purposes Sub-Committee had been following this up and, as I judge it, getting some response from the Treasury. I hope that we shall have some indication in the windup to the debate that the Treasury is taking this seriously. The hon. Member for Ashfield suggested that there was considerable merit in this method of aproaching public accountability.

I turn to resource demands and join in the praise which has been accorded to the Treasury for introducing for the first time the information contained in Table 1.2. In a perfect world these projected increases in Government expenditure over the next five years would he entirely containable within a target of zero inflation. Whether they are containable in an inflated economy is highly questionable.

As I read it the average increase in the average income of the average person in whole-time employment over the five years in question should not be more than about £1.25 per week per year if inflation is to be halted. Is this likely to happen? It is a cautionary thought upon which the House should reflect. I suspect that in our generation we are in grave danger of entertaining material expectations that are far beyond the most optimistic chance of economic reality.

We may excuse ourselves by saying that we are suffering from a well-known condition called lack of money, but in the harsh light of reality that excuse simply does not wash. It is no use expecting some mythical "they" to curb inflation unless we, the masses, start curbing our own demands upon society. Most of us are sinners. I personally plead guilty and I shall in subsequent debates do my best to pay public penance by exercising restraint.

6.38 p.m.

Mr. Gwynoro Jones (Carmarthen)

The hon. Member for Eastleigh (Mr. David Price) said that he is not a good economiser. That is somewhat dubious bearing in mind that he was the Minister responsible for the abolition of the investment grant system.

Mr. David Price

I had nothing to do with it.

Mr. Jones

If I remember rightly the hon. Member was the Minister in charge of that Bill during the Committee stage at which I was present. However, I will not go into that at the moment. All I know is that the hon. Member was a very good economiser in early-1971.

The right hon. Member for Taunton (Mr. du Cann), in a purposeful and important speech, paid a great deal of attention to the valuable contribution of the Expenditure Committee and in particular to the Committee of which my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is now chairman—the General Sub-Committee—for the way in which it is able to delve deeper into the thinking and attitudes of the Treasury towards public expenditure. It is able to do this better than ever before. As a new member of that Sub-Committee but not of the Expenditure Committee, I have found it an experience not to be missed. Indeed, such scrutiny is something which should be extended to cover most Departments of State.

A fact of life is that Members of Parliament are asked far too often to investigate events and policies after they have happened. We are asked to study policy-making decisions rather than policy-making proposals. As the right hon. Member for Taunton quite rightly said, in effect we are holding a postmortem on Government decisions rather than taking part in the policy decision-making process and scrutinising intentions and alternatives. To some extent the Select Committee is beginning to play a more useful part in that direction. Clearly there will be a need in the years to come for a greater balance between the executive and the legislature, and between the facilities available to Ministers, with the tremendous agencies that they have at their disposal, and the way in which Members of Parliament have to rely upon their own individual research and study rather than being backed by a staff to provide them with the necessary information in a big way, in order to combat the ever-increasing power of the executive. Indeed I should welcome the day when every Department had a Select Committee investigating its decisions, priorities, policies and expenditure. After all, we are here to make sure that the Government spend their money in the most efficient way and in the best interests of the people, choosing the correct priorities.

In passing, naturally I should welcome a Select Committee on Welsh Affairs. The Welsh Office was established in 1964 with an expenditure of £200-odd million. That will grow by 1974 to £518 million and it will continue to increase. At present we have a Question hour, a Welsh Grand Committee, which to all intends and purposes is mainly a debating arena, and the occasional Welsh debate. But that is the extent of the ability of hon. Members from Wales to question the vast amount of expenditure by one man, the Secretary of State for Wales. The total public expenditure in the Principality has increased over the past 10 years from about £300 million to well over £900 million, yet the facilities available for hon. Members to scrutinise that expenditure are limited. It is true that there is the presence and experience of the Expenditure Committee. But the amount of time that we can devote to the expenditure and policy decisions of every Department is small, with the result that we tend to look at a global figure and over a larger canvas.

Today's speech by the Chief Secretary was amazing. Indeed I congratulate Ministers in the present Government, for I cannot comprehend how they can come to this House month in and month out telling their supporters that everything has changed. Their cry before the General Election was that public expenditure was too high, that the Labour Government were spending too much of our resources in the public sector and that if ever a Conservative Government were elected they would prune public sector spending effectively and efficiently.

We used to hear Government supporters talking in terms of investment incentives for industry and of the cash grant system being a waste of resources and administratively costly. We heard their criticisms of Labour's prices and incomes policy. They were policies that a Tory Government would not dream of adopting, so the present Prime Minister said before the election. However, in the past two years Ministers have made announcement after announcement of policy changes in such a way as to lead their supporters to believe that they were natural steps to take. The result has been that right hon. and hon. Members on the Government side have been able to speak, as a number have today, as though the policies now being pursued were after all those which their Government intended to pursue.

Reading previous public expenditure debates I am not sure whether we should not attribute those speeches to another Parliament rather than to this one. On 22nd February 1971 the present Secretary of State for Employment said that when the Government took office in June 1970 they carried out an immediate review which was urgent because we were spending far too much. He said: … the Government … carried out an immediate review of public expenditure up to 1974–75 … to concentrate the activities of public bodies on the tasks which they alone can perform, to reduce substantially previous plans for public spending. … [HON. MEMBERS: "Hear, hear."] I hear the echoes of "Hear, hear" from right hon. and hon. Gentlemen opposite. More was to come.

The right hon. Gentleman went on to quote a speech that he had made in November of the previous year in which he said: … 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, 22nd February 1971;l Vol. 812, c. 119–122.] We shall see at ten o'clock whether those cries of "Hear, hear" become crosses. They rarely do in this House, but we shall see what happens.

Clearly we are at the stage where, with the economy being administered in the way it is, something has to give. We have a rapid increase in public expenditure and a rapid increase in inflation, even though it is not on the scale that it was at one time last year. We have an increase in private consumption, and clearly we are heading for a balance of payments deficit in a big way. All this is clear to everyone, and therefore this debate is important in the sense that something has to go.

If the Government intend to restrain personal consumption by increasing taxation, they will come face to face with their prices and incomes policy and any squeeze that they put on personal consumption will probably be unfair in the light of that policy.

The other option is to cut public expenditure. The Chancellor of the Exchequer increased it rapidly at the end of 1971. Surely he does not intend to say to his backbenchers, after asking them to vote as they did, "We have somersaulted so many times that one more will do no harm."

I am sure that my hon. Friend the Member for Ashton-under-Lyne was not criticising the growth in public expenditure. The burden of our case on this side of the House is that there has not been a planned growth of public expenditure. Our complaint is not that public expenditure is too high. It is that the Government came into office, did untold damage by reducing public expenditure and now wish to increase it. Indeed, I believe that the Conservative Party's announcement before the election that cash grants to industry would be abolished did tremendous damage to regional development.

True to their philosophy, at the beginning of 1971 the Government carried through a major reduction in public expenditure. We had £1 million being saved as a result of the imposition of museum charges. We had the measly, paltry sum that the Government announced they would save on free school milk and school meals and various other social service charges which were said to be crucial to our economy. In their panic over the past two years, the Government have been obliged to spend hundreds of millions of pounds more than they ever thought would be necessary and which they never intended. That is the burden of our criticism of the Government. They came to power determined to reduce public expenditure but have been obliged through force of circumstances to adopt a very different attitude.

One has only to look at the situation today and at what is still needed to see why public expenditure will continue to increase. We have problems of slum clearance and derelict land clearance. We need major environmental improvements. We need to correct the imbalances between the regions, between the different sectors of our community, between our urban and rural areas and in the facilities that are provided. As the Government have discovered in the past two years, reductions in public expenditure are not the right way to proceed. So we have the astounding change of heart leading from a reduction of £942 million announced in 1970 to an increase in 1971 of £482 million and in December 1972 to a still further increase of £1,213 million. The Minister of State must tell us the reason for the drastic change of course and he must also say whether it is his Government's intention to continue on those lines.

Mr. Ian Lloyd (Portsmouth, Langstone)

Since the problem which the hon. Member is describing—and in this context his attack is fair—is common virtually to the free democratic societies in the West, would he not be tempted to conclude that our problem, as in all such societies, is that the powers and the pressures behind public expenditure of all kinds are infinitely greater than those powers which any Government, whether of his party or of mine, use in an attempt to apply restraint?

Mr. Jones

Both my hon. Friend the Member for Ashfield (Mr. Marquand) and I made quite clear our view that this trend will continue for many years. One cannot foresee the time when those pressures will ease, but the present Government, on coming to office, did not take that view, whatever they may say now. It is an irony of life that my party when in Government while genuinely believing in public sector expenditure was forced, due to economic constraints and the major economic problems with which it had to contend in most of those years, to curtail its desires in that direction, while the Conservative Party, whose members believe that public sector expenditure is too large for the economy and are committed to a smaller public sector has relied on public expenditure to solve its problems of rising unemployment and falling investment.

Whatever view we may take of the "contingency reserve", and whatever aspect of change in Government expenditure we may consider, the major reason for the tremendous increase in public expenditure now—and as it will continue for the next few years—is totally attributable to the Industry Act. Regional grants up to 1976 will take £738 million and selective regional assistance over five years will take £150 million. At the same time investment grants, which the Government inherited from the Labour Government, will take £646 million. The total is over £1,500 million and I shall direct my attention for a moment to that total because clearly such a massive figure cannot be lightly dismissed.

Coming as I do from West Wales which is dependent on cash assistance for industry, I do not say that this sort of policy is not needed but the Minister must tell us why his Government changed their minds. The policy is of cash grants of £850 million over the next four or five years, but when the Government came to office their basic aim was to stop such cash grants. The Minister must tell us why cash grants are now considered to be one of the best ways of solving the present problems, because the cash grant system is a major ingredient of the increase in public expenditure.

I will not indulge in a mass of quotations, but we know that in 1970 the Chancellor of the Exchequer was kicking up a fuss about cash grants, speaking of their administrative complications, their cost of operation, the number of civil servants involved and so on. He showed, at least to his own satisfaction, that the tax system was much better. I point out again that the hon. Member for Eastleigh as a member of the Standing Committee concerned defended the policy of abolishing cash grants, so I am sure that he as well as I will expect to be told why the Government now think that cash grants are better. I am sure that the hon. Member will be very interested to know, because the explanation could well tip the balance in determining how free-minded hon. Members vote later this evening.

I believe it to be quite clear that one of the main requirements at the present time is a deep and thoroughgoing study of regional development assistance. For far too long we have relied far too much on giving cash grants to the manufacturing sector, yet it can be seen that over the last 20 years the job-creating sector has been the service sector. In the last 20 years it has provided 2 million more jobs while in the same period the manufacturing sector has provided only 200,000 jobs in the United Kingdom. Therefore, if regional development and improvement is to mean anything it means that we must redirect our assistance or bring in assistance to the service sector.

Mrs. Elaine Kellett-Bowman (Lancaster)

Was that why the hon. Member's Government penalised the service sector by the imposition of SET?

Mr. Jones

The hon. Lady is making a very fair point, but my argument is that no Government have hitherto made an effective and efficient study of regional development so as to make sure that the way in which we spend this vast sum of money is the best way available. I wish not only that the manufacturing sector be considered as a means of regional development but that the service sector also should be used as a weapon of correcting regional imbalance.

The reality is that when talking of regional imbalances we should bear in mind that over the last 20 years the service sector has been the biggest job creating sector and yet, as The Guardian said a few months ago, Existing and new office work is overwhelmingly concentrated in the south-east which, with about 38 per cent. of the employed population of England and Wales, has 59 per cent. of all the people employed in insurance, banking, and financial services, 52 per cent. of employees, and 57 per cent. of those in other professional services. It will be seen that the imbalance is heavily in favour of the South-East and when we consider the problem in terms of regional imbalance that fact must be brought back into consideration.

The £1,500 million which is the present total figure for attracting industry to development areas may well have to go much higher after a study of methods, because we are now confronted with various other factors over the next four or five years. We have, for instance, the British Steel Corporation's proposals. There are 18,000 jobs in jeopardy in Wales. Although that involves north-east and south-east Wales, the significant point is that it is a crushing blow to the whole economy of the Principality.

Being a Member for west Wales, I know that although the Labour Government spent £1½ million a week to attract industry it did not come into west Wales as it should have done. That was probably at an easier time of employment prospects than now. If no industry would come then with that sort of incentive, how much more difficult will it be now for north-west and south-west Wales to attract industry when there will be footloose labour available in south-east and north-east Wales as a result of the major redundancies in the next few years? Therefore the Government will have to consider spending more in Wales to attract industry, set up a regional development bank and introduce other policies.

There must be a major reconstruction of this massive figure of aid for the regions. We must think in more radical and positive terms. Indeed it would possibly save money if the Government dispersed their own factories and offices to the regions. The Labour Government did that and thereby created 11,000 new jobs in Wales. That, by the way, is more than the present Government have created in the last two and a half years with a tremendous increase in expenditure.

There are many other aspects of this matter on which one could speak. However when the Minister replies I hope that he will devote his speech to telling us not only that we are on the right tracks, but why in his opinion the Government thought it essential to start on a massive programme of public expenditure reductions, and then, in the last two years, to go berserk to the point where it seems that they do not know what they are doing.

7.2 p.m.

Mr. Hugh Fraser (Stafford and Stone)

I should like to turn to the aggregate question of the Estimates rather than the particular on which the hon. Member for Carmarthen (Mr. Gynoro Jones), with great fluency, displayed a real Welsh non-political attitude in his powerful attack on SET, brought in by the Labour Government, and its effect on the service industries in particular.

The hon. Member for Ashfield (Mr. Marquand), my right hon. Friend the Member for Taunton (Mr. du Cann), the Chairman of the 1922 Committee, and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) raised the great question that this debate is of importance not just for the figures, but for the moral and ethical objectives which should be set out by the Government.

Looking at the White Paper, although we have some idea of the amount of work which went into it, the problem is that a lot of these thoughts and deliberations come from a period when the true problem of the country was not fully revealed either to Ministers or to the public in general.

I believe that ethically and morally the greatest danger to the United Kingdom today is not unemployment, but inflation. The problem is not of public squalor against public affluence. The real issue is the danger of the public and private disaster.

It is now 26 years since I last addressed the National Assembly of Uruguay. I had the honour so to do with the right hon. Member for Fulham (Mr. Michael Stewart), the former Member for Wednesbury, who alas is no longer with us but was famous for being called "featherbed Evans". We had the honour of addressing that great assembly at the time that the Socialist Government devalued the £ for the first time since the war. So we addressed it in difficult circumstances.

At that time, inflation in Uruguay was running at a rate of 10 per cent. Between 1962 and 1972 the rate of inflation accounted for a rise of 6,400 per cent. in the cost of living.

Last year the rate of inflation in this country was probably running at 11 per cent to 12 per cent. My right hon. and hon. Friends on the Treasury Bench may not be prepared to admit it, but it was in that region.

Yesterday we discussed housing. If one projects now a gentleman or lady who is fortunate enough to buy a council house, its value in 60 years will probably be £200,000 at the present rate of inflation. It is in these terms that we should discuss the qualitative judgment of the Government's proposals.

One of the Government's objectives is to reduce the rate of inflation to about 7 per cent. or 8 per cent. As a target, 7 per cent. or 8 per cent. is not good enough. Unless we have a much lower target it is conceivable that we shall move into the sort of area of public finance and of public and private squalor to which my hon. Friend the Member for Walsall, South referred. I can give the Government some good views on how to raise money in South America. There are many methods when bank rate is running at 23 per cent., and that just about makes up for the inflation rate.

It is only proper that we should look at some of the implications of the White Paper on Public Expenditure. Our inflation problem is obviously of a cost-plus and demand-pull kind. Our inflation rate is also greatly influenced by our inevitable importation of inflation from overseas because we are so dependent on world primary products and on the prices of imports. Therefore, the demand-pull effect of Government should be most seriously considered. Undoubtedly, it does and must add to the rate of inflation. We need more justification for the idea that we should have a rate of Government expenditure rising over these first few years of about 6 per cent. When we carry forward the programmes which were not spent last year the rate this year will be about 6 per cent., not dropping at the rate which is expected next year, again because of the non-expansion and pushing forward of programmes even further. This rate needs more justification than it has had so far.

It would be helpful if the Government were to do two things. It is very important, when we talk about a net borrowing requirement, that there should be a clear division between investments which are in the national commercial interest and those on which there can be no economic return. I refer to investments in the nationalised industries, whether in coal, steel, telephones, and so forth. This borrowing requirement should be separated, because it is an essential borrowing requirement. If it were not for the effect of nationalisation, a great deal of this money could be raised from the private market or from overseas. Perhaps my right hon. Friend will tell us how much is being raised overseas for the finance of nationalised industries. When the Labour Government were in office I did something to facilitate this in trying to raise—and I did raise—money for various councils which borrowed abroad. I believe that there should be this division in the account between what I call purposeful economic investments and investments which are part of the State and on which there can be no economic return.

I know that the Treasury is brilliant as an accountant, but it is not a manager, and one of the things that we are missing today, both in public and in local authorities, is management. The amount of waste that goes on in both local and national expenditure is extraordinary. This has been shown up to some extent by men like Sir Derek Rayner and others who have come in to help the Government in their purchasing of military equipment. There should be built up a class of civil servant and local authority officer who understand purchasing and procurement, because at the moment there is great wastage in these matters.

Having made those two suggestions to the Government, I return to the question of aggregate demand. The aggregate demand proposed by the White Paper is too high and must have an inflationary effect which can only tend to feed the flames of inflation which is coming from the cost push of union or labour demand and the imported inflation cost which we see inevitably driving up the rate of inflation.

We must look at this again. I shall not go into the detail of the programmes, because here again there comes the question of choice and, as General de Gaulle rightly said, to choose is to govern. What we have to decide is whether it is morally right to subsidise the nationalised industries, or whether it would not be more effective to use that money to subsidise food. Those are questions that need to be debated.

A great deal more money is to be spent on the police force. Whether it is right or wrong to arm the police, and whether it is right or wrong to bring back hanging, are issues that have to be debated. They are moral issues—I shall not say whether they are right or wrong—in the same way as are the issues of subsidising food or steel. We have to decide on the aggregate quantity expenditure, and I suggest that that proposed by the Government is far too high.

Before I conclude what I have to say I should like to advise right hon. and hon. Members on both sides of the House to look again at what Keynes said in one of his "Essays in persuasion" published in 1930. The nation faces a number of moral problems. The destruction of so many parts of our society and the distrust between groups are the things that face us today, and the Government's proposed public expenditure should be viewed in this light, because this is the greatest moral issue facing the country.

Tomorrow we shall have an example of Government expenditure which is difficult to justify with any certainty. I am interested not so much in the saving of the Brent geese as in the saving of some geese nearer home. Until there is far greater justification the House of Commons should stand back before it permits this sort of money to be spent.

For a moment I turn to what I believe might be called political. To date, I have tried to be fairly non-political. If phase 1 owed something to President Nixon, I see no harm in phase 2 or 3 echoing his latest determination to get Big Government off the people's backs. That was the Prime Minister's original intention. By the end of this year it will be time for him to return to it. Of course these changes cannot be made at once, but we simply cannot go on with an annual net borrowing requirement of more than £3,000 million or with local and public authorities taking more than 51 per cent. of the GDP. The Government themselves are the first source of waste and demand-pull inflation, and there must be some moderation of this programme.

Although these things cannot be achieved overnight, we should set ourselves a target, and that target should be as follows. First, by 1975 the Budget must be in balance and during 1973 and 1974 it should be moving in that direction. Secondly, the White Paper on public expenditure, which undoubtedly will be rewritten—it had better be, because circumstances have changed—should be rewritten in such a way that the maximum overall increase in expenditure does not exceed the increase in the GDP, and that is about 2 per cent. rather than the 2 per cent. to 3 per cent. given here. Thirdly, Parliament's control of Government expenditure must be tightened, as must national control of local expenditure.

My right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) talked about the need for better machinery, and this machinery has been referred to by hon. Members on both sides of the House. My right hon. Friend said that parliamentary control of supply is the only way in which the, executive can be brought under control. It is no good discussing the sort of moral issues that I was discussing a moment ago. There is nothing like the rope to concentrate a man's mind, and nothing like the axe to make the Government take the right decision.

What is needed is for Parliament to exercise the simplest and most effective mechanism, and that is to control supply. This is feasible. The time has come for humble back benchers to educate their masters and restore a little of our political honour and demand retrenchment and reform.

7.17 p.m.

Mr. Ronald King Murray (Edinburgh, Leith)

I agree with the right hon. Member for Stafford and Stone (Mr. Hugh Fraser) that in discussing a White Paper of this kind we have to remember that the background is a series of priorities and that these in turn depend on moral issues and moral decisions.

I follow the right hon. Gentleman to some extent in what he said about the evils of inflation, but in this debate it is important to point out that while we on this side of the House favour public expenditure and welcome the White Paper as representing the Government's conversion—although a death-bed conversion—to the right approach to the running of the economy, we do not have any different view from the right hon. Gentleman about the need to cut down waste. Indeed, a Socialist Government would be, or should be, the first to ensure that public expenditure is not wasteful, and that is common ground between the two sides of the House.

I am rather worried about what the Chief Secretary said in opening the debate. I am worried partly because of his reply to the hon. Member for Cornwall, North (Mr. Pardoe) who said that according to Table 1.2 the only expenditure which does not increase during the five-year span is public investment. I say to the right hon. Member for Stafford and Stone that not all expenditure is inflationary. Capital investment is not to be regarded as inflationary in the same way as consumer expenditure. For that reason I am troubled by the profile which Table 1.2 seems to suggest. It is a profile in which private investment increases, on the 3½ per cent. growth, by 60 per cent. or more—and on the higher rate of growth of 5 per cent. it doubles—while public investment remains static. That worries me.

I think that both sides of the House would agree that one of the difficulties in achieving the growth targets set by successive British Governments has been the lack of adequate investment in new industrial capital. The one part of the economy over which the Government have direct control as to investment policy, whatever their ideology, is the public sector. If we are to have a profile of this kind, in which the Government renounce the most important weapon they can have for the recapitalisation of industry, it seems that we are not adopting the correct profile.

It is in those terms that I criticise the White Paper. It is not for the increase in expenditure, because I regard the Government as prodigal sons in this matter, but I welcome them to the table.

I turn to consider a matter raised by various speakers in the debate, and a line I should like to pursue. That is the need for better methods of controlling and monitoring public expenditure, on the one hand, and taxation on the other hand. As the right hon. Member for Taunton (Mr. du Cann) pointed out, in what I thought was a very acute observation, there is something wrong with the parliamentary procedure—I think that is what he implied—in which the income aspect is divorced in debate and scrutiny from the expenditure aspect. I agree with his suggestion that there should be a Select Committee on taxation. I should make the further point that any Select Committee on taxation ought to have some kind of combined task of scrutiny in association with the Select Committee on Expenditure. I hope that the future may lie in improving the methods of parliamentary control and scrutiny of these matters.

The first leader in The Guardian of today pointed out, as the Chief Secretary mentioned, that the White Paper has given rise to a certain amount of discussion now although it did not when first published. As The Guardian points out, the White Paper now seems to be regarded as an alarming record of failure in the kind of control I have been talking about over public finance, and also seems to foreshadow the possibility of crises to come.

As has been said already, the present Government came to power on a platform offering instant cuts in public expenditure and a long-term programme of tax relaxation as the master stroke which would put the economy to rights. But of course, it did not. After unemployment had grown, and after inflation had grown, a time came when the Government could no longer conceal their failure. By then the policy was overdue for reversal—two years overdue, I should have thought.

Perhaps I may say in passing that criticism has been focussed from the Government side of the House on the wording of the Opposition amendment. But no criticism can be made of the word "belated". The Amendment refers to "belated increases". If Conservative hon. Members complain about insufficiency or waste, what about the waste of these two years during which capital grants were abolished and had to be restored, to mention only one vital aspect of regional policy in which the Government's failure is writ large.

Concerning the words "unplanned increases", again, the absence of Ministers on the Government Front Bench for the debate is eloquent. If these increases had been planned, the Government Front Bench would be overflowing with Ministers who would be only too proud to be godfathers of the policy which had led to this result.

There can be instant reversals of policy, but there cannot be instant reversals of economic trends. As all post-war Governments ought to know by now, public expenditure has a momentum of its own, and changes in direction involve a delay of about a year to make any economic impact. In the result, the Government's course of action has meant that in a time when maximum differential effect is necessary in order to obtain close control over an economy dominated by the present counter-inflationary exercises, the Government find themselves saddled with long-term commitments spelt out in the White Paper in public expenditure which have been undertaken in panic measures designed to reflate the economy when the recession of the past two years was rampant and dominant. The Government's hands are tied, therefore, by a target for public expenditure substantially higher than that set two years ago. There is the "unplanning". That proves it. Their hands are tied not just for the short term but for a five-year term. This growth of expenditure will be supported not merely in economic terms but, what is more important, in social terms, only if there is a high and stable economic growth rate maintained throughout the five-year period.

That brings one to the importance of dealing with inflation. Governments can change their policies. The fact that the White Paper is published and debated today does not commit the Government to maintaining the policies adumbrated in it. They are hypotheses which are worked out. The logic of those hypotheses is giver, in the tables. The Government can change their course again.

I would put the key point not on the question of inflation or the large amount of public expenditure but on the need for more flexible methods of controlling the economy. It seems that better management of these matters would turn upon more accurate forecasting of economic trends and upon more responsive instruments for raising and reducing the tempo of economic activity. What is certainly clear is that the Tory recipe of instant expenditure cuts and promises of tax concessions is a proven remedy for failure.

It has been said from time to time when matters of this kind have been discussed that the Treasury has examined many times the possibility of more flexible methods of management, but has always tended to the conclusion that the scope for doing that is limited. Certainly the Treasury does not like the kind of scope which is extended by, for example, admitting a rival in the field such as the former Department of Economic Affairs. Nor does its thinking appear to have gone very much beyond the traditional regulators.

The question is, what is the recipe for success? Possibly the question ought to be, is there a recipe for success? But it would be a matter of despair if one did not think that something better could be done in these matters than is already being done. Much though I admire the suggestion that there should be closer scrutiny by the House, which would help greately, matters would progress a little faster if a really powerful investigation were made by an independent body into the need for better forecasting and better and finer instruments of control of the economy.

It is probably a hackneyed suggestion to make to suggest that a Royal Commission should investigate this sort of matter. But if the House feels that the matter is of such importance that it should review its procedure for scrutiny and do so anxiously, if at the same time a Royal Commission or committee of inquiry of substantial power and independence took on that task, it might be possible to probe some of the secrets of the Treasury which do not otherwise get disclosed and to unearth a mechanism which might not be perfect but would at least be better for enabling the kind of control which has been so lamentably absent during the past two and a half years, to come into operation.

That has the added advantage that in time, perhaps, questions such as this might become less of a matter of political dispute involving a wide chasm of difference between the two sides of the House, and the country; it may be that a greater measure of agreement could exist between the opposing parties as to long-term economic planning. No one, on either side of the House, would regard that as a bad objective.

7.29 p.m.

Mr. J. Bruce-Gardyne (South Angus)

I am sure that all hon. Members listened with considerable interest to the measured comments of the hon. and learned Member for Edinburgh, Leith (Mr. Ronald King Murray). He declared himself to be a massive fine tuner, and I admire his confidence. I totally lack that confidence.

When the hon. and learned Gentleman talked about a Royal Commission to investigate these matters, I could not help thinking about the question of a suitable membership of such a Royal Commission. I thought that perhaps Mr. Speaker should be in the Chair, and then I would have Lord George-Brown and Lord Balogh, I suppose; and to give some sort of party balance Mr. Aubrey Jones would be a suitable addition, as I believe that he is unemployed at present, which is unfortunate given the present state of our affairs.

As I hone to explain in the concluding part of my remarks, I should have no more confidence in the verdict of a Royal Commission in these matters than I have in the Treasury's ability to indulge in these antics under our present state of knowledge.

At least I find it a great relief to return to the real world this afternoon after the fantasies of the Counter-Inflation Bill last week.

As a new member of the Select Committee on Expenditure I suppose I should speak almost as a maiden in this debate and plead the indulgence of the House, though from one or two of the things I may have to say subsequently I do not think I will deserve it.

It is surprising that to some extent in our discussions today the view seems to have been taken that this year's White Paper broke new ground. I do not think it did. I thought it was last year's White Paper that broke new ground, because in last year's White Paper we were introduced to what I would call the theme of curvaceous development. In last year's White Paper we were told for the first time that we would have a lumping of public expenditure in the early years of the cycle covered by the PESC review, and hence by our Public Expenditure White Paper last year.

It was last year that public expenditure in a sense could be said to be likened to the lady from "South Pacific" who was "broad where a broad should be broad". The assumption was—nay, the assurance from the Treasury was—that thereafter she would be slim where a broad should be slim.

In this year's White Paper we have an even more dramatic demonstration of curvaceous development in the years ahead. My hon. Friend the Chief Secretary described it as a distinctive profile. Yes, indeed, a very distinctive profile. Contours are mapped out for us in paragraph 5 on page 9 of this year's White Paper—6.2 per cent. this year instead of 3.9 per cent. as projected in last year's White Paper; 5.3 per cent. in the year to come as against 2.6 per cent. in last year's White Paper; 1.7 per cent. in 1974–75; 1.8 per cent. in 1975–76; and 1.4 per cent. in 1976–77: I cannot quite understand why the Treasury did not put in a minus figure for that year. However I will let that pass. This profile for the years ahead is worthy of a bunny girl from the Playboy Club.

Mr. John Biffen (Oswestry)

The Monroe doctrine.

Mr. Bruce-Gardyne

My hon. Friend must elaborate on that in his own speech which we shall all look forward to hearing.

Some of were a little sceptical about the prospective bulges last year. Our scepticism is in no way diminished by the contours described this year. Some of us believed last year that this broad, like other broads, would somehow turn out to run to fat. The distinction is that this year unfortunately we have the proof in the Public Expenditure White Paper itself.

As a number of hon. Members have pointed out, an analysis of the detailed figures in this year's White Paper shows that what is described as "counter-cyclical" expenditure—namely, expenditure to deal with a particular situation such an unemployment or spare resources at the end of 1971, the beginning of 1972 and carrying on through 1972—accounts for a very small proportion, and a rapidly diminishing proportion, of the total of additions to planned public expenditure from one year to the next; and the bulk of the rest of it consists in the programmes for industrial subvention and regional subvention outlined in the activities of my right hon. Friend the Minister for Industrial Development and in the programmes of assistance to the nationalised industries.

The hon. Member for Ashfield (Mr. Marquand) referred to my right hon. and hon. Friends coming up against the facts of life, the demographic forces and the rest. The hon. Gentleman should study the programme more carefully. These massive increases in public expenditure, beginning in last year's White Paper and continuing in this year's White Paper, have nothing to do with demographic patterns. The Industrial Development Act has nothing to do with demographic patterns. It is not concerned with babies. It is concerned with industries in need of artificial resuscitation. Nothing could be further removed from demographic patterns. The hon. Gentleman would have been better advised to have left that argument out of account.

The other major item is assistance to the nationalised industries. Even where this is identified in the tables it is only a very small part of the story, because it does not allow for the subsidisation of the nationalised industries' prices to allow the nationalised industries to participate in our prices control activities. Those apparently are identified, in so far as they are identified at all, in the contingency reserve.

I was fascinated by the phrase that my hon. Friend the Chief Secretary used about the contingency reserve. He said that the increase in the contingency reserve represented a prudent forecast. My hon. Friend forbore to mention that the reason for the increase overwhelmingly was that provision had to be made, so far as the Treasury could make it at present, for that ultimate undefinable—the cost of subsidising the prices of the nationalised industries, an ultimate undefinable which I am interested to see running right through the period which is covered by the White Paper, 1976–77.

I know that we must not make policy assumptions based on forward projects which are entirely intended to reflect existing policy decisions which may be changed in the future. Nevertheless, one has noticed in the past that it has been possible—one sees it again this year—for the forward projects of the cost of, for instance, unemployment benefit to be phased downwards according to assumptions about how present policies may move. We are entitled to speculate about the time span over which my right hon. and hon. Friends intend to pursue a policy of price subsidisation of the nationalised industries in the light of the table in this White Paper.

Mr. Ridley

Has my hon. Friend been able to discover where the interest due on the nationalised industries' capital is shown in the White Paper? In fact, it not being an expenditure but a receipt forgone, I do not think it appears in the White Paper, but it amounts to between £200 million and £300 million, an extra which my hon. Friend should take into account in his argument.

Mr. Bruce-Gardyne

My hon. Friend is absolutely right. All that is provided for in the contingency fund is actual subsidisation. As my hon. Friend rightly says, interest forgone and profit returns related to the targets of the nationalised industries—profit returns forgone—are also not reflected in the White Paper. Therefore, to that extent the White Paper substantially under-estimates what is going on.

There is one further point about the details of the White Paper which I find a little fascinating. I refer to the famous resources table about which we have had a certain amount of comment, Table 1.2. As a new member of the Expenditure Committee, it ill becomes me to say that I sometimes wonder whether the Committee does not calculate the value of information obtained from the Treasury by reference to the reluctance shown to supply it. It therefore doubly ill becomes me to say that that particular comment might apply to Table 1.2. What fascinates me about this table is that it takes two hypotheses—3.5 per cent. and 5 per cent.—neither of which bears any relationship to our historical experience. I should have thought that it would be instructive to have a table which gave us a 2 per cent. hypothesis over the period ahead, which gives a rather closer relationship to our past experience.

The conclusions that I draw from all this is that it takes a certain amount of faith, to put it no higher, to believe that the course of public expenditure over the period ahead, and in particular in the two years immediately to come, is one which we shall find it easy to accommodate within the total of resources available to accommodate it. I must say that every time I read the speeches of my right hon. Friend the Secretary of State for Trade and Industry my anxieties on this score are by no means diminished.

This leaves me with two preoccupations. The first—and this is where we come back to the issue of prices and incomes legislation—is that if under phase 2 we are to experience a restriction of profit margins in the private sector, an expansion of loss margins in the nationalised industry sector and a reflection of higher taxation or higher interest rates to finance the rapid growth of public expenditure in the period ahead, we should be clear that what we should be seeing is a gradual transfer of real resources from the private to the public sector. I must ask my hon. Friends whether they seriously think that this is the right background against which to obtain the sort of improvement in manufacturing investment which we are assured they are so anxious to see.

My second anxiety is about the sort of background which a rapid growth on public expenditure provides for the prices and incomes exercise on which we are engaged. We have no record of such an exercise succeeding elsewhere, but there is no doubt that the example which my hon. Friends have chosen is that of the United States. Well, the one thing that seems to me to be quite clear about the example of the United States is that if the prices and incomes legislative policies pursued by the Nixon Government contributed to the diminution of inflation, they did so only because it was against a back- ground of continuing restraint on public expenditure which made it possible to have a rate of growth in the money stock of 6 per cent. in 1971 and of 7 per cent. in 1972. Nobody could say that we are anywhere near that at the present time.

I must not trespass on your patience, Mr. Deputy Speaker, by trying to outline in any detail what steps I could suggest we should take to deal with this situation, but I must identify just one and that is the issue of price subsidisation in the nationalised industries. In my view, it could be said of this that it benefits all sections of the community regardless of need and, therefore, tend to be immensely costly in Exchequer terms. They are costly, wasteful, and for these reasons, inefficient. They very quickly come to mean a mounting burden of taxation on the great mass of working people."—[OFFICIAL REPORT, 29th January 1973;l Vol. 849, c. 1073.] I do not know whether my hon. Friends recollect those words. They are not my own. They are the comments of my right hon. and learned Friend the Minister for Trade and Consumer Affairs last week, and they refer to the subsidisation of food prices. I think they refer with at least equal force to the subsidisation of prices in the nationalised industries, with this difference: that the impact of continued subsidisation of prices in the nationalised industries and continued interference in the management of nationalised industries have produced a condition of morale within the top management of the nationalised industries and a financial condition from which we shall find it increasingly difficult to escape.

I conclude by commenting on some remarks of my right hon. Friend the Prime Minister last weekend. Speaking in Bournemouth, he told the young Tories there: Most of us have accepted that there is a rôle for Government in running the economy. I profoundly agree, and first and foremost it is in ensuring that the Government's own spending does not absorb an ever-growing proportion of the nation's resources. I hope very much that we shall now go to it.

7.47 p.m.

Mr. William Hamling (Woolwich, West)

The speeches from the benches opposite have fascinated me. They reflect the thinking of the Government Front Bench before June 1970, and they certainly reflect the speeches of right hon. and hon. Gentlemen opposite on public expenditure before the last election. They remind me, too, of so many of the speeches which were made by members of the Conservative Party in the days when we used to discuss the national plans.

It seems to me that this debate has been very much like that. Certainly in listening to the strictures of the hon. Member for South Angus (Mr. Bruce-Gardyne) on the Government forecasting, I was reminded so much of the sort of speech that he used to make in 1965, 1966 and 1967, again from the back benches, but in those days he was supported by almost identical speeches from his right hon. Friends. They used to say the same sort of thing. Their philosophy about public expenditure was identical with his. He has not changed. He is sunk in the past. His right hon. Friends, I suppose, are philosophically sunk in the past, but they are trying on the Front Bench to come to terms with some of the facts of life, however inadequately they perform that task.

The hon. Gentleman spoke about the theme of curvaceous development. I looked with him and the rest of the House at the forecasting of the Government, and anyone who believes the forecasts in the White Paper of the reduction in the increase in public expenditure in the future is a bigger fool than any of us in this House looks, I hope. No one accepts those forecasts. They are quite impossible, unless we are to assume that inflation will not only be checked—there are grave doubts about whether this Government are capable of doing that—but sharply reduced.

That brings me to the interesting speech of the right hon. Member for Stafford and Stone (Mr. Hugh Fraser), who talked about the danger of inflation. It is not the danger of inflation but the reality of inflation that we now face. I was looking at the figures just published in some Government housing statistics giving the estimated value of a pre-war three-bedroom semi-detached house in the South-East in 1970. The figure given gas about £6,200. I do not know who could think of buying that sort of house now in the South-East of Eng- land at that sort of price. In my view, the value today would be about £14,000 or £15,000. In other words, the value has gone up by well over 100 per cent. since this Government took power. That is one index of the inflation over which they have presided.

The right hon. Member for Stafford and Stone assumed that the reason for inflation was the expansion of public expenditure—I shall come to that more exactly in a moment—and he talked about the borrowing abroad for public capital expenditure which is going on at present. I find this astonishing. He stated his view that it was public demand which was causing inflation. Is it public demand, that is, public demand in the sense of demand by public authorities, that is causing the increase in the supply of money? I do not believe that it is.

I draw the attention of the House to the increase in bank advances. Up to the end of November 1972, it was 76 per cent., and the later figures show that in the last 12 months there was an increase in bank advances of over 80 per cent. That is the sort of inflation over which this Government are presiding. No one can blame the increase in public exenditure for that.

Mr. Ridley indicated dissent.

Mr. Hamling

Bank advances to private people? Certainly not public expenditure.

Mr. Ridley

If the Government are unable to finance their large deficit by borrowing from the public and they sell gilt-edged to the banks, that enables the banks to lend large amounts of money to private individuals in order to do exactly what the hon. Gentleman is describing. That is how inflation is started and how the phenomenon he is describing takes place.

Mr. Handing

I am grateful to the hon. Gentleman for taking me to the next point in my notes, the Budget deficit and the financing of public expenditure by deficits. That is precisely the policy to which this Government have resorted since 1970. In 1970, the policy of my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) was that we should finance the bulk of Government advances to the nationalised undertakings out of taxation and not out of deficits, out of the Budget surplus, not by borrowing. In our debate on the Counter-Inflation Bill just over a week ago, I estimated that the turnover in that particular phenomenon is something over £3,000 million in 2½ years—or, rather, in two years, because I have in mind the figures put forward in the Budget for 1972–73. A turnover of over £3,000 million in two years is a real rake's progress.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley), his right hon. Friend and his hon. Friend the Member for South Angus walked into the Lobby behind their Front Bench in support of precisely that policy. So, if they are complaining, they know who to blame. They voted for it. They voted for the policies which have led to this business of financing public expenditure out of borrowing. A great element in the equation was the vast reductions in taxation to the wealthy and to public companies. That was the reason for the Government's change in public finance. They were giving the dividends before they had earned the profit. They were giving tax reductions before their policies had brought in the increased revenue which alone could finance the reductions in taxation without causing the Budget to go vastly into the realms of deficit financing. The culprit for the inflation is the Government Front Bench.

The right hon. Member for Stafford and Stone went on to declare the good old palaeolithic Tory philosophy on public expenditure, that the level of public expenditure is far too high. What policy lies behind that sort of declaration? Behind any declaration of philosophy or belief of that sort, there must be some idea of what the Conservative Party thinks we are about when we engage in public expenditure. Before we spend money, before we can consider the level of spending, there must be some idea why we should do it. why it needs to be done. We had no inkling of that from the right hon. Gentleman.

Spending is a product of a policy, and we were not told what it is, save that the Government should get off people's backs. The hon. Member for South Angus talked about the United States and observed how President Nixon was controlling public expenditure. Astronomical sums have been spent on defence in the United States, far more than we in this country could ever dream of. Perhaps the American Government thought that the expenditure was necessary. The fact is that it took place, and it is no good the hon. Gentleman imagining that President Nixon and his friends were getting the Government off people's backs against that kind of public expenditure. They were not.

Mr. Bruce-Gardyne

My point was that the rate of increase in public expenditure year on year since the introduction of the new economic policy by Mr. Nixon in August 1971 had enabled the United States Government to pursue extremely moderate monetary policies which were a vital background for their counter-inflation policy.

Mr. Hamling

All I can say to the hon. Gentleman is that he ought to go and look at the squalor in public services in the United States before he commends that policy to the House and to this country. All the evidence is that the real breakdown of civilisation in the United States springs from the Government's failure to realise their obligations in social expenditure, especially the provision of social capital. I shall come to that in a moment.

The Tory Government's policy when they came to power in 1970 was that they were pledged to bring about massive reductions in public expenditure. Their right hon. and hon. Friends below the Gangway do not believe that they have done it. I am sure that they do not themselves believe that they have done it, either, and there is no evidence that they knew in June 1970 how they were ever to carry out that pledge. They reduced the taxation of their friends, but they certainly did not fulfil their election pledge massively to reduce public expenditure.

There was much talk about reducing the number of civil servants and one of the results of Government policy has been that the number of civil servants has increased.

When the right hon. Gentleman was dealing with waste, too, was thinking about certain examples, particularly of the aircraft industry. I was thinking about the new space adventures upon which the Government are likely to embark. What a bottomless pit that will be. I hope that Conservative Members who have already castigated the Government will look carefully at that folly and prevent their Government from embarking upon it.

What is the Government's view now about the level of public expenditure and about the social philosophy behind that level and behind the level that they envisage for the next four or five years? As my hon. Friend the Member for Ashfield (Mr. Marquand) said, we on the Labour side believe in a social philosophy. We also firmly believe that the bulk of public expenditure should be financed out of taxation and not out of borrowing. That view was certainly held by my right hon. Friend the Member for Birmingham, Stetchford when he was Chancellor of the Exchequer. Whatever differences of view we might have over some of the minor things that have divided us, we are certainly united on that.

Earlier I referred to the United States and it is interesting to draw comparisons between the philosophy followed there and the sort of philosophy that we should pursue here. I hope that when the Minister replies to the debate he will say whether the Government envisage that the poor of this country will be able to afford to live in decent conditions in our urban communities over the next few years and what steps public policy will take to ensure that they can. If they cannot live in urban communities where are they expected to live? The Government are presiding over a growing number of homeless families, poor families and problem families. There are a great many families in my constituency, which is certainly not one of the poorest, who fall into this category. My hon. Friend the Member for Ashfield referred to the differences between the different regions and he described the South-East as affluent. My hon. Friend the Member for West Ham, North (Mr. Arthur Lewis) knows very well, as I do, that in our part of England there are many poor families who now, in the middle of winter, are without light or heat. Those are the people who are supposed to be living on public funds.

Mr. Arthur Lewis (West Ham, North)

They are sleeping in cars and vans.

Mr. Hamling

Yes, they cannot afford to pay their bills, I know of families where the head of the family is a widow or a deserted wife. There are thousands of such families in the country and many of them are in the affluent South-East. If that happens in the affluent South-East what is happening in other parts of the country? The House should turn its attention to the urban squalor and the danger that if we follow the divisive social philosophy of the Conservative Government it will get worse. The problems include the destruction of homes and of civic amenities by urban road building and the great wealth possessed by some in contrast to the poverty suffered by others.

As for the United States, those of us who have been privileged to watch the Alistair Cooke programme dealing with the history of the United States since the War of American Independence will be familiar with his concluding remarks on the grave social and economic crisis that faces the wealthiest nation in the world. He says that we are only about 10 or 20 years behind the United States in facing the same kind of problems—problems of divided classes, isolated social groups, millions of people who feel that their society does not care about them and who look to the future with no real anticipation of social progress. The problems are of growing violence and crime and of educational and social outcasts.

We already have ghetto schools in London. We know of the problems of schools in places like Tower Hamlets, Hackney, Islington and Southwark. Consider the contrast between those areas and places like Bromley, Beckenham, Redbridge and Wanstead and Woodford—the Chief Secretary's constituency. There are great differences even within the affluent South-East and the philosophy behind our level of public expenditure should be one which enabled us to come to grips with the great divides between the people in our country. That is what lies behind the debate.

I should like to look at some of the figures in the White Paper, particularly those unreal figures dealing with social security payments in the coming four or five years and following on the remarks by the hon. Member for South Angus.

I have one final plea. It is for expenditure on the health service. Some years ago I was parliamentary private secretary to a distinguished Minister of Health, Mr. Kenneth Robinson. I can remember being struck during that period by the contrast in demands for increased expenditure in education and expenditure in the health service. The White Paper contains a niggardly level of capital expenditure on hospitals over the next few years. That must be set against the tremendous squalor in the mental hospitals about which I know some Tory MPs are concerned. It is in that context that we should consider our general policy aims. The Government have a great deal to do if they are to convince the House that they have any real philosophy behind their White Paper.

8.8 p.m.

Mr. David Knox (Leek)

It is always a great pleasure to speak after the hon. Member for Woolwich, West (Mr. Hamling) who is certainly one of the the most popular Members on either side of the House. I am always amazed at the old-fashioned economic views which he holds, particularly about balancing the Budget.

I begin by taking issue with Labour Members on two scores. In the first place, a number of them have said that the Government were elected to office to cut public expenditure. They were not. They were elected to reduce the proportion of the national income devoted to public expenditure, and in support of that proposition I shall quote from a document to which I do not often refer these days. It is called "A Better Tomorrow" and it was our manifesto at the last election. It said that the true problem in social policy is not that we spend too much but that with Labour stagnation we can afford so little. It is only right to put that on record now. [HON. MEMBERS: "Read on."] I do not have the rest of it here just now.

In the second place I take issue particularly with the hon. Member for Ashton-under-Lyne (Mr. Sheldon), who suggested that the difference between a Tory Governmnt and a Labour Government in respect of public expenditure was that a Labour Government planned it and a Tory Government did not. If the July 1966 and January 1968 cuts were planned, the planning of both was very well concealed. The July 1966 measures were introduced in a panic over a weekend when the then Prime Minister was in Moscow and the January 1968 measures were introduced after a great deal of horse trading between members of the Cabinet. Neither party can take particular pride in planning expenditure. I am not altogether sure that planned expenditure in the very long term is necessarily all that desirable.

When our debates on public expenditure White Papers started many hopes were expressed by hon. Members on both sides that they would become one of the two main economic debates of the year. In the debate in 1970 on the first White Paper, the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) forecast that it would affect the whole manner in which discussions on public expenditure programmes and policy were conducted. I do not think it is unfair to say that the hopes of the founding fathers have not been altogether fulfilled. I have the impression that the House is not quite as full today as on Budget Day, for example.

Since I entered the House in 1970, interest in the White Paper and the debate has undoubtedly declined, with fewer willing participants each year. Last year we had a two-day debate in response to demand, yet before the second day was well advanced the Whips were searching in the corridors for speakers.

Hon. Members should not blame themselves too much. In our indifference we represent fairly accurately the great British public. I do not think that the public are very interested, however much some enthusiasts may care to kid themselves. There was hardly a ripple when the White Paper was published. I believe that today's debate will not be covered at any great length in tomorrow's newspapers. I doubt whether beyond a handful of enthusiasts outside the House anyone knows that the debate is taking place.

Perhaps this is all inevitable. My hon. Friend the Member for Rushcliffe (Mr. Kenneth Clarke) made the point last year, and it has been repeated today, that whether we like it or not hon. Members are only to a slight extent involved in the formulation and consideration of policy. Policies are formulated, considered and decided essentially by Government and then presented to Parliament for approval or rejection. They may be modified here and there as they make their way through Parliament, but in general the initiation of policy is something in which hon. Members play little or no part. I am not criticising anyone, but simply stating a fact. I do not think that thus far the introduction of the White Paper or these debates has essentially altered the situation, although it may eventually do so.

When we are considering the White Paper it is a great mistake to become weighed down in too much detail. What eventually happens in public expenditure is unlikely to bear too close a resemblance to what is in the White Paper. This is not necessarily a matter of criticism; it is a matter of fact.

I should like to start by considering briefly the counter-cyclical effect of Government expenditure. The right hon. Member for Manchester, Cheetham (Mr. Harold Lever) dealt with the matter in his speech last year at some length. I found myself largely in agreement with him. Whether that makes him a Tory or me a Socialist is not for me to say. No doubt there will be differing views. It is generally considered that if the economy in general is slack public expenditure should be speeded up, and that if the economy is operating at a high level of activity the reverse should happen.

The question that faces us is whether these counter-cyclical adjustments should be made on capital or current expenditure, or both. I incline to the view that it is better to concentrate on current expenditure, though some adjustment to capital expenditure should not be precluded from consideration. The fact is that capital expenditure is not and cannot be as flexible as current expenditure. Capital investment in the public sector—nationalised industries and public services—like capital investment in the private sector involves a great deal of preparatory work before it is even considered, and far more before projects are actually started. The analysis of engineering problems, financial consequences, market situations and so on, all takes a long time. Large sums of money are often involved, and it is important that the preparatory work should be done properly.

Therefore, it seems difficult to use such investment for counter-cyclical reasons. It would be foolish to use some of the bigger capital investment projects in that way. They would not be properly examined. The advantages of some projects against others would not be adequately considered. Resources would be misapplied.

At the same time, we should not completely preclude capital expenditure, for two reasons. First, the nature of public expenditure is such that we can forecast future demand rather more easily than future demand for consumer products in the more competitive private enterprise part of the economy, where profit is a greater consideration, at least in the short term. For example, we can be as near certain as possible that we shall need an additional M6 in the fairly near future. In theory there is no reason why we cannot go ahead with much of the planning now and be ready to introduce it if at some time it makes sense for counter-cyclical reasons. But although it was undoubtedly true in the 1960s that the motor car industry would eventually expand, it was not feasible or possible for the industry to make that sort of investment, given the market that existed then. I make that distinction between private and public investment.

The second reason why we can use public capital expenditure to some extent as a counter-cyclical measure is that a large number of small capital projects in the public sector can be brought forward quite easily and have a useful counter-cyclical effect. I congratulate the Treasury on its initiative in that respect some 18 months ago. I hope that a great deal of work is going on at present to sort out a large number of small capital projects of that nature that can be used when the economy is slack in the future.

I would conclude that, though I think that it would play some part, I do not think that capital expenditure can be a principal form of counter-cyclical action. Current expenditure can. Time is short, so I shall not go into detail, except to say that it is easier when the economy is slack to increase things like pensions by more than the increase in national output than it is when the economy is operating at a high level of activity.

For the rest of the time available to me I shall devote my attention to the supposed inflationary effect of high public expenditure. A number of my hon. Friends hold the view that it has that effect, but I do not. I believe that it is a myth that public expenditure in itself is inflationary. It is not inflationary—in itself. If public expenditure at no matter what level, taken together with private expenditure, including investment, results in total effective demand falling short of supply potential, or being equal to supply potential, we do not have a demand inflationary situation. It is only when public expenditure taken together with private expenditure results in total effective demand being in excess of supply potential that we have a demand inflationary situation.

The cause of this inflation is not public expenditure. The size of demand is the crucial factor. That does not mean that there may not be other reasons why public expenditure might comprise too high a proportion of the national income, leaving too little for people to spend themselves. Exactly what the correct proportion is difficult to say. It varies from time to time. Public expenditure undoubtedly comprises a much higher proportion of the national income today than it did in 1900, 1800 or 1700. The acceptance by our society of the higher proportion does not do any particular harm. However, there is a danger that the Opposition will allow it to reach too large a proportion of the national income given the circumstances prevailing at any one time.

It is important to recognise that our criticism of the last Labour Government—I have already referred to this but it is worth making the point again—was not that public expenditure under them was too high but that because of the lack of growth, public expenditure was not able to increase quickly enough. Had we had growth we could have had higher public expenditure and a lower proportion of the national income being devoted to it.

I realise that I have been speaking for rather a long time. I appreciate that there are other hon. Members who wish to speak. I would only say that I am not certain of exactly the right proportion of the national income which should go towards public expenditure. It is a value judgement and depends on the circumstances at any one time. However, I would add that it is nonsense to talk in terms of public expenditure being cut in absolute terms. It will always rise and it should always rise. There is still so much in the public sector that we should do. As the nation becomes wealthier it should try to do those things in the public sector rather better than it has done in the past.

I part company with the Opposition in that I want to see increases in expenditure in the public sector accompanied by increases in expenditure in the private sector, and not at the expense of the private sector. That is what the White Paper aims to do, inexact as it is undoubtedly is. As my hon. Friend the Chief Secretary pointed out, the increase in public expenditure will work out at about 3 per cent. a year, and that should be the minimum increase in the gross national product.

8.23 p.m.

Mr. Tam Dalyell (West Lothian)

As others besides myself have been here since 20 minutes to four, and as what I have to say is wholly constructive I hope that the Financial Secretary will not take offence if I put my arguments succinctly and in "shorthand". I first refer to expenditure for sport. It may already be known to the Treasury that Dr. Roger Bannister, Mr. Laurie Liddell, Chairman of the Sports Council of Scotland, and Lieut.-Colonel Henry Llewellyn, Chairman of the Sports Council of Wales, attended an all-party meeting last week which was chaired by the hon. Member for Exeter (Mr. John Hannam) and myself. They outlined to us the ways in which further expenditure on sport, which is a "drop in the bucket" compared to some of the mammoth departmental expenditures, could improve the national well-being. I happen to think that it is a rather bad comparison, but they pointed out that under the last Government the arts did rather better than sport and are still doing so under the present Government. I leave that argument with the hope that sport will keep pace with the arts.

My second short point arises from page 31 of the White Paper on forestry. From the talks that we have had with the Forestry Commission, I am not happy with the reckoning of 55,000 acres. Planting could take place at a faster rate. We are also persuaded by the Highlands and Islands Development Board that if there were more money available it could start certain capital schemes, such as the provision of holiday homes, over the next five to 10 years which would fairly soon pay off, if by "fairly soon" I can talk in terms of a decade and a half. When we talk about regional development that should be taken into account.

My third minor point is about oil. I was lucky enough to have a Consolidated Fund debate and I will not repeat all that. I merely say that expenditure since the oil exploration study in the universities is overwhelmingly financed by the generosity of the Wolfson Foundation. I should have thought, with Heriot-Watt in particular, that the Government might at least have matched £ for £ what has been given by Wolfson for this crucial study. If oil is to be the third industrial revolution in the north of England, the study undertaken by Dr. Smith, Professor Patton and the staff at Heriot-Watt is crucial, and at least the Government could match the private benefaction £ for £.

I now turn to my last minor point. I stress that it is comparatively minor. I do not want to earn the contempt or disapproval of my hon. Friend the Member for Heywood and Royton (Mr. Joel Barnett). The Government have been fairly generous to archaeology. There is a growing demand for excavation funds. On the day that the Henry VIII fountain has appeared in New Palace Yard, something can be said for rather greater expenditure on archaeology. I appreciate that we must be selective. I am not for preserving every site on the M4 or any other motorway. But now that so many major excavations are going on, the Chief Inspector of Ancient Monuments could use any Treasury generosity.

I have three points on major items of expenditure. I do not share the view of my hon. Friend the Member for Woolwich, West (Mr. Hamling)—I am probably in the minority on this side of the House—on aerospace. It may be—I do not know—that those of us who say we should consider participation with the post-Apollo programme are proposing another Concorde. However, many of the things that go with post-Apollo are a good deal more valuable in their objectives than Concorde.

At some stage I should like to know what the Treasury thinks about the long-drawn-out question of participation in the post-Apollo programme. From the Estimates and from the White Paper I see no signs that we are embarking on that road. There may be a sigh of relief from my party's Front Bench. I personally would regret that.

The reactor problem—page 38 of the White Paper—finds us united, but undoubtedly more expenditure must be allocated if we are to concentrate and make a success of the money that has already been spent on the fast breeder system. Those of us who go from time to time to Dounreay have no doubts about the energy requirements of the 1990s. We can only be satisfied that some kind of fast breeder system will be required if we are talking about priorities and not having a post mortem in the way made plain by the right hon. Member for Taunton (Mr. du Cann).

When reflecting in a public expenditure context on the long term for the nuclear reactor programme, by far and away the most important point is that which I put at four o'clock when I interrupted the Chief Secretary.

If the Government are serious about regional policy and regional help, the best thing that can be done—and it can be done at a stroke—is to say in the Budget that for the foreseeable future they will continue the regional employment premium. Anyone who talks to industrialists in the regions must be fully aware that uncertainty, a sense of being "mucked around", is a hindrance to investment. The best thing that could be done for investment—and I need not spell it out further—is a clear announcement that REP will continue for the foreseeable future.

The last issue I wish to raise I shall put in a constituency aspect at the start. I rarely raise constituency matters on the Floor of the House, but I go in this instance from the particular to the general. The particular concerns the major fire at a tip at Fauldhouse in the south-west of West Lothian. This tip is used as a dump by industry from as far afield as Workington, Cumberland and Northumberland right through the central belt of Scotland to Ayrshire. Materials are dumped by a subsidiary of the famous firm of Powell Duffryn near the village of Fauldhouse in my constituency. The dump goes on fire from time to time and on Saturday morning last it was particularly unpleasant when I saw it.

I raise this matter because I think there is both an environmental and a long-term resources case for serious interest in the work of reclamation industries and recycling. The Financial Secretary can heave a sigh of relief, because I shall not go over all that was said about this matter during the proceedings on the Finance Act last year. I am now saying something slightly different. I ask that before the White Paper is produced next year attention should be paid not only to the concept of a gross national product but also to the concept of the gross national well-being. This would involve not only the quantity of money, which does not measure up to all we want, but also the quality of life. This could be significant in the whole context of expenditure for the development and protection not only of the recycling industry but of the environment. If society is prepared to pay, unpleasantness like that at Eastfield tip could be avoided.

We have had various meetings with the go-ahead Reclamation Industries Council, which says that the industry should be cradled and cherished like any other infant industry. In a sense this is an up-and-coming industry. I see disbelief in the hon. Gentleman's face but, as my right hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling) has made clear, it is a tremendous new industry—for example, tyres made into granules, glass into road hole-filling equipment and, indeed, various other ideas that were put forward by the RIC.

I shall not go into the various ideas we have heard in the Select Committee. All I say is that this is neither an eccentric nor an original proposition. Mr. Mosher, from Indiana, the ranking Republican on the United States Senate Science Committee, requires and gets an environmental impact assessment of every American measure. Before the White Paper is produced next year, I ask that we should have added to it some kind of environmental impact assessment. We really have to look at what we are up to.

If we impoverish the land we have to consider the soil report for the West Midlands; if we exhaust the mines we have to look at the sad history of the shale oil industry and its refuse in the North; if we misuse the quarries we must look at Cornwall; if we abuse natural gas there will be difficulty in the North Sea; if we poison the rivers there will be difficulties for angling.

The only measure is the value of the products we get out, plus paid-for services and the incomes of those who produce or render them. Without going deeply into the growth argument, I would like to see this environmental impact assessment in next year's White Paper. We really have a confusion often of the big with the good.

A farmer doing the gross and net return from his acres must do his accounts on the basis that his land, including hedges, ditches and watercourses, is in as good heart at the end of the year as at the beginning. To keep it so is the principle of all good husbandry and a condition of most farming leases. Output reckoned or income gained at the expense of the deterioration of the land is an illusion. Yet this is precisely what we do if we add up the gross national product and derive from it the figures for economic growth.

I was one of the official delegates to the second Inter-Parliamentary Conference on the Environment, which called on national Governments to initiate fiscal studies to consider what help can be given to the recycling industry, what tax can be added to scarce materials such as copper and how the tax system can be worked on this kind of basis. The conference believed that such measures can be introduced only on the basis of international co-operation. I hope that these things will be properly considered in next year's White Paper on Public Expenditure. I leave it at that, in "shorthand", because of the time but I ask for some kind of environment impact assessment in next year's White Paper on Public Expenditure.

8.35 p.m.

Mr. Peter Hordem (Horsham)

Hon. Gentlemen on the Opposition benches have spent a great deal of time this afternoon in referring to the somersaults which the Government have performed in their policy changes. The Labour Party is in no position to talk about such pursuits, especially as they are led by Springheel Jack himself, the Leader of the Opposition.

It is undoubtedly true that the Government's economic policy has changed considerably since June 1970. But I do not think that anyone can hold that a Government's policy must be wholly consistant with the policy worked out in opposition. There are bound to be unforeseen circumstances to which any Government which adopts a sensible policy will adapt. But when those circumstances no longer apply, it is reasonable to hope and expect that the Government will revert to their original policy and original path.

Many people welcome the change in the Government's policies, especially hon. Gentlemen opposite. Some thought that the original policies were too harsh and would antagonise many people. On the other hand, some, like myself, felt that there must be a reduction in public expenditure to make room for growth and that, having achieved growth, we could then decide our priorities in relation to public expenditure. That is what the Government felt when they were returned to power. I refer to the speech of my right hon. Friend the Chancellor of the Exchequer in which he said: In 1964, the public sector accounted for 44 per cent. of the gross domestic product. By 1969 that proportion had risen to 50 per cent. … In our view, this trend is unacceptable."—[OFFICIAL REPORT, 27th October 1970; Vol. 805, c. 38.] That trend must be still more unacceptable now.

I will not refer in detail to the changes in policy that have occurred, as they have been mentioned many times this afternoon, but the largest change was the appearance of the Industry Bill, because it was not just the public sector which was affected by these changes in policy. The private sector also was deeply affected. Of the private sector, my right hon. Friend the Chancellor of the Exchequer said in the same speech that throughout this field, meaning industry, we shall apply strict criteria as to what are proper functions and activities for the Government to carry out or finance, and what should be eliminated, reduced or undertaken by industry itself."—[OFFICIAL REPORT, 27th October 1970; Vol. 805, c. 40.] Those sentiments are wholly admirable and I find myself in complete agreement with them.

In consequence of those sentiments, the IRC was abolished. We now have an organisation known as the Industrial Executive. The Consumer Association was abolished. We now have a Ministry for Trade and Consumer Affairs. The National Board for Prices and Incomes was abolished. We now have one board for prices and one board for incomes. That is not the most scintillating platform on which to fight the next election.

The point about all these measures that were introduced and the changes in policy that occurred is that they followed a crisis of unemployment and, therefore, actions were taken by the Government which they had not originally intended to take. Some of these policies are referred to in the White Paper in table 1.3 as counter-cyclical measures, but it all depends upon what one refers to as counter-cyclical measures.

I would tend to lump in with counter-cyclical measures the whole of the additional expenditure on industrial and regional development policies which appear in the columns below that, particularly those policies related so closely to the Industry Act. There are many who welcomed the change in the Government's policy on the grounds of making "one nation" a reality, as if all that matters is that the means should be acceptable to all.

The trouble is that one can please most of the people most of the time but one cannot please them all for all of the time. What really matters is the ends and whether we have achieved our objectives at the end of this Parliament. That is how we shall be judged, on our record of controlling inflation, on the standard of living at the time, on our record in eradicating slums and poverty. That will be the test, and that is why means are important, too. We judged the means to achieve those ends to be those which achieve growth, which cut the proportion of the gross national product devoted to public expenditure and then we would be able to decide how to select our priorities in public expenditure.

The advantage in that course was that companies and industry could go about their business knowing the areas in which the Government would work. Industry was encouraged to think that public expenditure would take up a smaller proportion of the gross national product. Table 1.2 shows the growth of public expenditure over a number of years. It is worth while looking at the actual experience of the forecasts in public expenditure over the past three years. The White Paper of January 1971 forecast that public expenditure would increase in 1972–73 by 3.2 per cent. The increase was just over 6 per cent. The forecast for next year was 2.7 per cent. and now it is said that it will be about 5.3 per cent. We must ask how realistic is a forecast of a public expenditure of only 1.7 per cent. in 1974–76. I am convinced that the occasion of the turn-round in our policy was the Upper Clyde crisis, followed so closely by the Industry Act.

Mr. Ridley

May I give my hon. Friend a classic confirmation of what he is saying? Under the National Plan for 1964–70 the gross national product was planned to increase by 25 per cent. and public expenditure by 23 per cent.—which would have been all right. What happened was that gross national product increased by 13 per cent. and public expenditure increased by 33 per cent. That is not all right.

Mr. Hordern

I am obliged to my hon. Friend. That exactly illustrates the trend to which I was referring. The worst aspect of the reversal of our industrial policy is that it stands in danger of becoming institutionalised and thus difficult to reverse, even when the employment situation has improved so much. It should be removed, for all sorts of reasons. The Industrial Executive is empowered to help lame ducks. A successful company in one industry gets no grant. An unsuccessful company in the same industry and the same region can get a grant. I would appreciate my hon. Friend telling us whether such a grant will count in estimating the profit margin which will have to be used in assessing whether that year can be adopted as one of the two out of the five last years. I trust it will not. Otherwise it would be grossly unfair.

It is not just the form of assistance which is wrong. Above all it is the economic consequences. We have only to look at the scale of proposed aid to industry in the 1971 White Paper and compare it with the current White Paper to realise this. The original forecast for 1973–74 was that aid for industry and relieving unemployment would be £648 million. Now it is expected to be £1,817 million. No one can sensibly assume that expenditure as far ahead as 1976–77 will fall to £1,058 million as it is designed to do.

Next year we shall be spending nearly £1,200 million more on industry and relieving unemployment than we said we would spend two years ago. With this money we could have quadrupled the cost of REP which was specifically designed to deal with unemployment. We would still have been substantially better off than we are now. Even this estimate of £1,817 million for next year takes no account of any possible expenditure under Section 8 of the Industry Act. The sum of £550 million has been allowed under the Act.

So far as I can see, no allowance has been made for any escalation in the price of the Concorde or for any future shipbuilding grants which seem likely to be made. We do not know about the effect of any capital write-offs which will be necessary in the Post Office and the steel industry, nor about the effect on the National Loan Fund of the price restrictions on the nationalised industries which must increase the current borrowing requirement. In short, there has been an enormous and fundamental switch of resources to industry which we cannot afford.

It is one thing to help lame ducks but that is not enough for my right hon. Friend the Secretary of State for Trade and Industry or for the Government. My right hon. Friend said in the last debate on industry just before Christmas, The Government intend not just to assist industries with passing difficulties. We also intend to help the potential winners in the British economy."—[OFFICIAL REPORT, 12th December 1972; Vol. 848, c. 266.] Let me say why I object to this as well, not just because no one knows where the Government intend to intervene next or why, nor whether stage 3 will be tougher than stage 2, and these are not the conditions which make for settled expansion in industry. Nor is it the lack of appreciation of one of the real strengths of our economy—the capital market. The real objection is that we simply cannot afford further interventions of this character. Throughout history Government involvement in industry has not been a happy story and, despite all my right hon. Friend's proved commercial brilliance, I do not think that he will succeed. He is likely to lose as much money as quickly as his former colleague Jim Slater makes it. The market is not always right, of course. But it is investors' money which is at stake and not public money. So I hope that the Government will drop that idea.

I do not think that the importance of public expenditure can be exaggerated. It is the one element in our affairs which is totally under the Government's control. But it is not just a matter of what the Government should get involved in and what they should not. It is also a basic requirement of economic policy that if the growth of the national product is faster than public expenditure we can get a faster rate of growth from which we can calculate how best to use our resources. It is also a question of defining our direction plainly so that all can see and follow it if they will.

This is precisely what President Nixon has done. President Nixon, after all, is the head of the largest industrial country in the world. He seems to believe that the American people should be given a clear sense of direction about the economy. He has dismantled controls on prices and incomes at the first opportunity. He has a balanced Budget on the basis of full employment. He has public expenditure firmly and demonstrably under control to leave room for the growth of the gross national product.

We do not know whether it is the Government's intention to remove statutory control of prices and incomes. We do not have a balanced Budget on any formula. We have a large inflationary borrowing requirement. No one knows what public expenditure will be in three or four years. Yet it is not too late to choose. We can choose whether we adopt the American pattern and set a clear path for all to follow. We can afford to be flexible about how much we allocate to industry. There is time to cut back wasteful and unnecessary industrial policies and expenditure. There is time to ensure that public expenditure will grow at less than the rate of the growth of the gross national product. There is time to make room for growth and then to decide how much more can be spent on hospitals, schools and social security benefits.

We can show clearly that we mean people to have more independence, more freedom to choose and more from which to choose. But the choice must be made plainly, and it must be made soon.

8.49 p.m.

Mr. E. Fernyhough (Jarrow)

I am sure that the Financial Secretary must be thinking to himself "Who needs enemies when one has friends like the hon. Member for Horsham (Mr. Hordern)?" I appreciate what bitter reading the White Paper is to the hon. Gentleman and to many of his hon. Friends.

It is amazing how the Government have tried to convey the impression during the debate that they did not promise during the last election to reduce public expenditure. It seems that somehow this is a figment of our imagination—that no such statements were ever made by any Conservative candidate during the last General Election. I know that the Conservative candidate in my constituency made those promises and that I made a contrary promise. I made it quite clear in my election address that in my opinion there could be no reduction in taxation because so many things needed to be done in the social and economic sphere which could not be done on the basis of reduced taxation.

I have always believed that we get a far better return on that which we spend publicly than on that which we spend privately. There will always be a big argument between what I would call the satisfying of the personal appetite and the satisfying of the public appetite. If anyone wants to understand which is the public appetite, let him examine our Order Paper for one week and note the Questions put down in the names of Conservative Members. It will be seen that every day they are asking every Minister to spend more money: individually they want more spent, but when they meet collectively they are all against such expenditure.

Some of the cuts that hon. Members opposite would like to make are anathema to me, but there are some cuts that I would gladly make. As you will know from long experience, Mr. Speaker, I have for over a quarter of a century consistently said that Britain was bearing an arms burden beyond its capacity to carry. For 25 years I have argued that defence took too big a proportion of our resources. Ever since we applied to enter the Common Market—and I have been, and am, against entry—I have argued that we should reduce the percentage of our GNP which is spent on defence to the average spent on it by the EEC countries.

If we have been the sick country of Europe it is not because our workers have not pulled their weight or because our industry has not been efficient. It is because year after year we have spent on defence a far higher proportion of our resources than we could afford and a far greater proportion than that spent by any of the Six in the last 25 years. We could make one substantial economy by saying that we shall spend on defence no more than the average spent on it by the EEC countries. In that way we could save several hundred million pounds a year.

We could make that saving, but I would not like to see that reduced public expenditure reflected in a reduction in income tax, because there are so many other things we have to do. It is a scandal, it is quite indefensible, that the White Paper should envisage a cut in housing expenditure. Conservative Members may not understand it but there is growing up among the homeless and among those who are living in rat-infested hovels—and we read again today of a house where rats as big as cats are running about—a feeling that "If enough of us become squatters the authorities will not be able to do anything about it".

I do not want that to happen, but it will be inevitable if the hopes and desires of civilised people to have homes of their own are constantly denied because of rising prices and frozen wages. If these hopes and desires are constantly denied we can say goodbye to a tranquil and peaceful society. People wanting accommodation will do what hungry people have done throughout the cen- turies: they will, if necessary, steal food if it is available. People who are not enjoying reasonable housing conditions will take similar action. Any money therefore saved on defence should be devoted to housing needs.

There are other needs. One hon. Gentleman was honest enough to say that he would cut public expenditure in the nationalised industries. I accept that the Industry Act gives the Minister more power than Joe Stalin had. It is the most revolutionary Act passed by this House. The trouble is that the Minister will not use those powers to the extent I should like him to use them. If he did, it would mean more public expenditure. But I am prepared to defend that public expenditure. Without this public expenditure hon. Gentlemen on the Government side must realise that they would by now have been out of office. Unemployment would have risen to such a height that it would have been insufferable, people would have been out on the streets in their tens of thousands and law and order would not have been maintained. This gigantic increase in public expenditure has at least enabled the Government to keep unemployment at a lower figure than it would have been, although it is 200,000 higher than when the Labour Government left office.

There are two Catholic schools in my constituency. I do not wish to sound offensive, but I do not think that any hon. Member would allow his child to attend either of those schools. They are a disgrace. It is only the dedication of the teachers that has enabled the children in those schools to reap any benefit from education because of the environment in which they have to work. When I met the Minister to plead for two new schools I told him that I had seen battery fowls living in better conditions than those in which these children were being educated. We are releasing £18 million in 1975 for new secondary schools. That is a fleabite compared with what needs to be done.

I never make promises about reducing taxation. I have said that I would increase taxation to meet the needs of the people, whether in housing, education, health or any other sphere which reflects how civilised or uncivilised we are as a nation.

Galbraith once quoted a phrase which is worthy of repetition. He said that America was a society of private affluence and public squalor. Conservative Members want to reduce public expenditure so that the Chancellor can repeat his offensive tax reductions for the wealthy, they ought to realise not only the kind of future that awaits them but the kind of country that this will be.

It is damned dangerous to deny what I call the public appetite. It knows how to demonstrate, and if we are to avoid demonstrations and concentrations it is no good talking about reducing public expenditure. The time may come when it will he necessary to increase it even further in order to provide our people with the kind of society to which they are entitled.

9.1 p.m.

Mr. Joel Barnett (Heywood and Royton)

I know that there have been complaints throughout the day about the unfortunate lack of attendance at our debate, but I do not believe that the size of the attendance can affect the fact that we are debating expenditure of about £29,000 million. It is of paramount importance to debate that kind of figure whatever the size of the audience or how many Members take part in the debate.

I begin by paying tribute to the Chairman of the Expenditure Committee, the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). I know the work that he has done in our finance debates. I always listen with great interest to him, even when he talks about his favourite racehorses. I have noticed the conscientious way in which he approaches his job, if only by his attendance at our small sub-committee dealing with trade and industry. The way that he has started makes it clear that he will conduct the affairs of the Expenditure Committee in the way in which his predecessor did, and I join others in paying tribute to the right hon. Member for Taunton (Mr. du Cann) who conducted the Committee's affairs in a way which I think proved acceptable to both sides of the House.

Some hon. Members have said that they are not sure whether this should be a party battle. I do not understand why anybody should imagine that the spending of about £29,000 million and the way in which it is spent could be anything but part of a public battle. Of course it is necessary to discuss rationally how best to control the expenditure once the Government have decided their priorities, but that there should be, and always will be, major differences of opinion along party lines is not something that we should regret.

I go along with those—particularly the hon. Member for Eastleigh (Mr. David Price) and the right hon. Member for Taunton—who have said that it is a pity our sub-committees are not televised so that people can witness the questioning of Ministers, permanent secretaries and industrialists. Were that done it would provide the community at large with a much greater interest in our proceedings than is provided by the reporting—excessive reporting, perhaps—of the odd-supplementary question at Question Time. But there we are. Our debates are not televised, but I hope that they will be in the not-too-distant future.

I begin with a fairly non-controversial part of my speech and deal first with the work of the sub-committees. I say non-controversial, but I have one minor criticism of the way in which one of the subcommittees has been run. I am thinking of the sub-committee chaired by my hon. Friend the Member for Wolverhampton, North-East (Mrs. Renée Short). I am sorry that she is not here, but I told her that I proposed to refer to her. I agree with everything that she said about the way in which the health service works, in particular in relation to private practice, but it was wrong to use a sub-committee of the Expenditure Committee for that purpose. It would have been perfectly sufficient to take all the evidence, obtain the facts, and then produce a report without drawing the necessarily partisan conclusions. That does not help. It would be satisfactory to take all the evidence there so that any particular political party wishing to take out of it a party point later would be perfectly free to do so.

Let us take, for example, the situation of a sub-committee analysing—as has been done but, perhaps, in greater depth—the aero-engine industry. Let us suppose that the Select Committee looking at that industry, or some of its members, decided that it would be useful to nationalise it. A particular political party might have decided that it wanted to do that—as we have seen during the present Government's period of office. Neverthless, it would have been absolutely wrong for any Conservative hon. Member to have used that Select Committee for the Conservative Party's dogmatic objectives.

A much better way to run these subcommittees would be our way of running the Sub-Committee on Trade and Industry, of which I have the honour to be a member. That Sub-Committee is chaired by my hon. Friend the Member for Stockton-on-Tees (Mr. William Rodgers), who has told me that unfortunately he is unable to be present for the debate. However, hon. Members on both sides of the House who have been members of that Committee will agree that we have approached highly controversial subjects, such as public money in the private sector, yet we have been able at the end of the day to present all the evidence and to draw certain conclusions about the control of public money without presenting a party approach.

I make it absolutely clear that it will be left entirely free in the near future, when the Labour Party is in Government, to do something about the way public money is spent in the private sector. But the purposes of the Public Expenditure Committee are not best served by using it for these partisan objectives.

Mr. Christopher Woodhouse (Oxford)

Perhaps it would not be appropriate for the hon. Gentleman to do so, but may someone from the Government side of the House pay a similar tribute to the hon. Member for Ashton-under-Lyne (Mr. Sheldon) as Chairman of the General Sub-Committee on Public Expenditure?

Mr. Barnett

I am always happy to hear tributes to my hon. Friend, as they are certainly justified.

The question of public expenditure and expenditure committees, equally, works two ways. It will need any Government's action on the recommendations of the expenditure sub-committees.

I should like to turn briefly, again in a fairly non-partisan way, to the point made by the hon. Member for Horsham (Mr. Hordern) and others about public expenditure in the nationalised industries. While I do not agree with the main burden of his argument, I accept that there is a serious problem about the fiscal discipline in the nationalised industries arising out of the present situation. I noted particularly an article in the Financial Times on 31st January. One of the articles commented, The system of financial targets built up gradually during the sixties, which was intended to impose an overall discipline on the management of the nationalised industries while freeing it from Treasury interference in matters of detail, has now collapsed … The result, which has been experienced before, is predictable. With no fixed targets to aim at, management tends to lose heart and the incentive to control costs. I am sure that that is true and that hon. Members on both sides of the House would agree with that. Given the circumstances of the day, equally it was vital for the Government to ensure that prices did not rise in the nationalised industries.

The hon. Member for South Angus (Mr. Bruce-Gardyne) would not altogether agree with my views on the nationalised industries and the way in which they should be financed. But we must return to targets quickly, otherwise the cost will be astronomical in real terms and in terms of efficiency.

I come to the slightly more controversial part of my remarks. The Opposition amendment condemns the Government's public expenditure policy since 18th June 1970 and deplores the priorities in Command Paper No. 5178. There have been many arguments today about whether the Government planned the present situation in public expenditure. The impression that the Chief Secretary gave was that it was all part of a considered plan but that we had tended to forget how it started. Government control of public expenditure has been like a slow foxtrot—slow, slow, quick, quick, slow.

Mr. Charles Loughlin (Gloucestershire, West)

That is a waltz.

Mr. Barnett

I apologise. If it is a waltz, it is a slow one. I thought that it was a foxtrot and I see that the Chief Secretary is agreeing with me. I do not know what kind of dance the Chief Secretary is doing now.

That seems to be the situation, because it began with a slow two years of petty cuts—school meals, school milk, art galleries, health and dental services, the sort of cut which I should have thought and hope that the Chancellor of the Exchequer is now ashamed of in the days when he allowed public expenditure to expand as he has done since. Following the two slow years, the Chancellor recognised that he had got it all wrong and there were two quick years with increases in public expenditure. The Chancellor seems to be giving it away like a man who does not know that money exists, as if it does not matter.

The Chancellor increased the money supply with a gay abandon which appalled the hon. Member for South Angus. It appalled the hon. Gentleman even more when the Chancellor appeared to be using it to carry out a garbled version of parts of the Labour Party Manifesto. I am not quite sure which manifesto suggested the nationalisation of Rolls-Royce, but I imagine that if it had been useful to a Liberal candidate the Liberal Party would have included it. I am sorry that none of the Liberal Bench is present, because a Liberal Member could have told us whether the Liberal Party would have included it in its next manifesto.

According to the specialist adviser of the General Sub-Committee, expenditure has increased in the two years from 1971–72 to 1973–74 by £700 million in resources terms. I do not think that the Treasury disagreed with this. This serves to emphasise the lunacy of the first period of cuts.

We are told now that it is all to be followed by three slow years. It is easy to forecast the further away one is from the years in question. It was forecast in January 1971 that 1972–73 and 1973–74 were to be slow years. The hon. Member for South Angus is smiling. He knows what happened in those two years. They were anything but slow years. During this time there was a lavish redistribution of taxes, and not taxes of the kind advocated by the Labour Party. Those were the days when right hon. and hon. Members opposite were advocating the greatest need for incentives and a free enterprise system.

Mr. Fernyhough

And no help for lame ducks.

Mr. Barnett

The Prime Minister, speaking on Sunday to the National Young Conservatives, said this about free enterprise, But of course most of us have always seen the system as a tool to be used by man, not a god to be worshipped. Sunday seems to be an appropriate day to talk about what should or should not be worshipped, but I am not too sure that an audience of Young Conservatives is the appropriate audience.

It would perhaps be better that the Prime Minister should now tell us just what his policy is on incentives—or perhaps he should tell the 300 civil servants of the Price Commission so that they could tell the 1½ million traders who have the job of working out the best of their profit margins in the last five years. They may not quite understand all this talk about incentives and free enterprise. The result of all this, together with the social policy concerning rents, pensions and social security, as well as industrial policy, has, not surprisingly, brought the present Government and the country to a massive economic crisis.

I want to examine the consequences of what the Government have been doing on growth, employment, balance of payments, industrial investment and private consumption. We have been given in the White Paper a few very carefully drafted words on what we shall or shall not have in the next few years in terms of growth. But the target, from the Chancellor's point of view, is to sustain a 5 per cent. level of growth together with high investment. We see in Table 1.2 in the White Paper what would be the situation if we had a 5 per cent. level of growth together with high investment. We are told that we would need an average of £170 million—that is left-over balance of trade. I will come back in a moment to whether or not that would be adequate.

We are told that 4.8 per cent. would be available for private consumption. I do not know whether we need to believe the report in the London and Cambridge Bulletin. Judging from his grimace, the Chancellor does not appear to believe it. I doubt whether anybody would believe that £170 million a year, certainly in the next couple of years, would be anything like adequate to deal with the likely balance of payments situation. Without necessarily believing that the London and Cambridge Report is accurate—no economist ever gets these figures accurate—I accept that in the short and medium term we are faced with a serious, if not disastrous, balance of payments situation. I refer to the present public expenditure growth set out on page 9 of the White Paper, showing that from 1974–75 to 1976–77 it will be very much reduced to 1.7, 1.8 and then 1–4 per cent. There will be many, not least in local government, who will not be too happy about the idea of cuts of that kind in local expenditure. But more of that later. Clearly there will need to be some reduction in public expenditure in the Government's assistance to local authorities. If that is not the case, there will either be a massive increase in rates—

Mr. Patrick Jenkin

I do not understand what the hon. Gentleman is saying. The figures that he mentioned were increases. Nobody said anything about cuts.

Mr. Barnett

If the right hon. Gentleman will have a word with some of his hon. Friends who have some experience in local government, he will appreciate the difficulty of keeping growth in expenditure in local government to 1.7, 1.8 and 1.4 per cent. He should have a word with those who are trying to deal with the rates this year and who are trying to keep them to something like what the Chancellor is asking them to achieve—a small increase in rates, despite the increases in valuation—[interruption.] An hon. Member says "12½per cent." In Manchester it could be 25 per cent. or 30 per cent. To say to local authorities that they should maintain their growth in expenditure to 1.7 per cent., 1.8 per cent. and 1.4 per cent. is a nonstarter.

Given the right policies, I am optimistic in the longer term, but it is dishonest to say that the present level in the £ might have risen slightly or that we are repaying debts, which arouses great cheers from hon. Members on the Government benches, or to have a great cheer when it is announced that there is a growth of real personal incomes of 7 per cent., when the latter has gone a long way to the heart of what has caused the problem facing the country today.

Something needs to be done about all these problems, but if we are to overcome the short-term problem it will be no use cheering all the repayments of debt, especially when we bear in mind the sort of thing that happened last July and the amount of money which could go out in five or six days. The truth is that there ought to be a cheer when the debts begin to rise again, for there is nothing more wrong with that than a first-class company with strong assets borrowing against them. This country has strong assets both at home and abroad.

The alternative is far worse, for it would mean giving up the 5 per cent. target for growth and full employment. Not that we have yet got full employment—far from it—with 800,000 unemployed. Precisely because industrialists are not cheering what the Chancellor has been doing in the running of the nation to bring it to its present state, industrialists are more realistic than hon. Members opposite, and they have not been investing during the last 2½ years.

The same applies to the question of parity. The danger is that, having got over the temporary insanity of believing that any change is an offence against the Queen and the Union Jack, we may now start believing that regular devaluations will be the answer to all our problems. They will not. I do not know what the right parity would be—1.80 as some have suggested, 2.0 or 2.20—I only know that we need to change the parity whenever the moment is right, while recognising the cost and not holding it to too high a rate as a sort of patriotic virility symbol. I hope that the Government will not be tempted to fix the rate too soon and too high.

I come to the question of investment. If we are to achieve the level of investment needed, we shall require greater confidence in a stable economy, and we have certainly not had that, as the current level of investment has shown. We should need to sustain a high level of public expenditure, and it would be foolish and dishonest to pretend that this would not create a short-term balance of payments problem, for to pretend that would mean that, when it came about, the Government would once more not be ready to face it.

It is dangerous to talk of a high level of personal consumption being possible at this time. Any such suggestion does the greatest possible harm to our democratic structure because, as the Chancellor must know, given the rest of the figures in his White Paper and elsewhere, it would just not be possible. We see from Mr. Wynne Godley's memorandum printed in the House of Commons Paper that it would be doubtful whether the Government could achieve anything remotely like the 4.8 per cent. given in the White Paper. Wynne Godley has argued that even if the Chancellor is to achieve a sustained level of 3½ per cent. growth over the period, with a high rate of investment together with a reasonable level of stock building, there could well be a nil amount available under the right hon. Gentleman's proposals for personal consumption.

That is the situation, and, as my hon. Friend the Member for Ashfield rightly said in his thoughtful contribution, the need is for greater public expenditure. Referring to his own constituency, he spoke of such things as schools, and the same applies in my own and many other constituencies. Our amendment picks out two items of public expenditure, though my hon. Friends could pick out many others. Housing was the subject of a major debate yesterday so I shall say little about it now, but there are many figures which could be cited, given the time, showing the number of dwellings, the millions of dwellings, without basic amenities. In that situation, deliberaately to plan an average annual reduction in housing expenditure of 3.2 per cent. is criminal. Coming at a time when the Government need maximum cooperation from ordinary people, it is criminally stupid.

But if that were not bad enough, the Government are also planning to increase defence expenditure by 2.4 per cent. average per annum. That is from a situation in which we are already spending about 5 per cent. of our GNP on defence. Defence expenditure by our partners in the EEC is at levels nothing like our own. In Belgium they spend 2.3 per cent.; in Denmark 2.4 per cent.; in France 3.1 per cent.; in West Germany 2.8 per cent.; in Italy 2.6 per cent.; in Luxembourg 0.9 per cent.; in the Netherlands, 2.9 per cent. and in Norway 3.1 per cent. It is absurd that we alone should be devoting that degree of public expenditure to defence, at the expense of other desperately needed items of public expenditure in housing, education and many other areas of social need. It is therefore disgraceful that the Government should be considering increasing defence spending.

It is impossible to look at public expenditure in isolation. That is like a one-eyed accountant looking at a balance sheet and seeing only the expenditure and not the income. If the Government wish to win approval for their pleas for pay restraint, whether voluntarily or statutorily, they must adopt a much more intelligent approach to both expenditure and income. If they had that intelligent approach they would not need a statutory policy. But without that intelligent approach a statutory policy does not stand the faintest chance of working.

Turning to the income side, for the last two years the Chancellor has consistently distributed taxation, and his back benchers now complain about an unbalanced Budget. He has been handing out tax concessions to those who are certainly not on the bread line and now he expects those who are on it, or who are not far from it, to accept a voluntary system of restraint. It is vital that the Chancellor must win such acceptance if he is to find the funds for investment. If the truly lower-paid, including the pensioners, are to be cared for and if growth in real incomes and a consistent level of increased public expenditure are to be maintained, he must produce a vastly different tax and social policy.

It is because of what the Government have failed to do in public expenditure, because of the way they have distributed their income, and because of their priorities in public expenditure that we condemn them. I therefore have not the slightest hesitation in asking my right hon. and hon. Friends to support our amendment.

9.28 p.m.

The Minister of State, Treasury (Mr. John Nott)

I shall deal with some of the remarks of the hon. Member for Heywood and Royton (Mr. Joel Barnett) in a moment or two but first I should like to deal with the debate in general.

Last year when the House discussed the White Paper on Public Expenditure several speakers said that the occasion was more important to them than the Budget debate. That view has certainly been echoed in recent Press comment. My right hon. Friend the Member for Taunton (Mr. du Cann) commented along those lines. He also said that he considered the debate so important that it should be conducted from the Dispatch Box by a very senior Minister. It is a matter of regret to me as well as to him that I am not a more senior Minister, but the remedy lies more in his hands as chairman of our back-bench committee than it lies in mine. What we can all agree upon is that today's debate has been of very high quality and has raised many important points.

Public expenditure and our programmes for it are a reflection of every facet of Government policy. I echo the comments of the hon. Member for Heywood and Royton on the Expenditure Committee. It does an excellent job throughout the year under its various chairmen. Under the Committee's guidance it is necessary that the House should act as a sounding board for the nation in making known its view on the priorities implied in the programmes.

It is equally important, as many of my hon. Friends have emphasised today, that the overall total of Government expenditure in the medium term is planned in such a way that it does not exceed the demands that may reasonably be made on our limited resources, that it concentrates on those elements which are best met through the public sector as opposed to the private sector and that it should be shaped so as to assist the wider objective of rapid and sustained economic growth, upon which an improvement in the standard of living of everyone depends. In all those respects I thought that today's debate was excellent. The debate has drawn some critical fire here and there from my hon. Friends but it has been more concerned with the real political issues at stake than with the rather more technical aspects of the White Paper.

I do not have a great deal to say about the speech of the hon. Member for Heywood and Royton, because much of what he said is more appropriate to the Budget debates, which are coming up in a few weeks' time. The short-term prospects that the hon. Gentleman discussed are obviously more appropriate to be discussed then rather than on an occasion when we are primarily concerned with a medium-term programme for public expenditure.

Nevertheless, knowing the policies that the hon. Gentleman's party is developing and having read something of the Press releases put out recently on behalf of the joint Labour Party and TUC team, I must be allowed one reminiscence. I do not know whether the hon. Gentleman remembers but the four Front Bench spokesmen in this debate once made a journey together, when our rôles were reversed. When I think of the torrential volume of public expenditure that is likely to come if, unfortunately for the country, the Labour Party ever has an opportunity to implement anything again, I am reminded of the Englishman who went to Canada and was shown Niagara Falls. A Canadian said to him "You don't have anything like that in England, do you?" The Englishman replied "No, we don't have anything like Niagara Falls, but we have a couple of plumbers who would put it right'. When Opposition Members made their speeches on public expenditure I thought that in a way their would-be Treasury spokesmen were rather like a couple of plumbers—

Mr. Joel Barnett

We would be stopping the hon. Gentleman's leaks.

Mr. Nott

It is clearly necessary, in the light of this debate, to emphasise again that public expenditure must be viewed in two timescales, neither of which should ever predominate over the other. First—and this is the primary function of the White Paper—it is important to see how present policies, many of them of a long-term nature, are likely to develop over a period of years. This ensures that the impact of the public sector is related to the resources likely to be available over a similar period. That is the object of the public expenditure surveys and the related assessment of medium-term economic trends.

At the same time we must be prepared to adjust these plans for short-term reasons. These changes in the medium-term programme may involve a speeding-up of the rate of growth of spending, as they have over the past two years, to curb unemployment. [Interruption.] Opposition Members laugh, but I should like to know—

Mr. Gwynoro Jones

What sort of adjustment is a situation involving a reduction in taxation and public expenditure and cash grants two years ago of £1,000 million followed by an increase this year of £1,200 million and an introduction of cash grants?

Mr. Nott

I was referring to the high rate of unemployment which confronted the country. I do not think that my right hon. Friend, in demand management terms, can be criticised for making tax cuts in those circumstances, quite apart from the fact that they were desirable in any event.

Mr. Joel Barnett

Is the hon. Gentleman really saying that when the first White Paper was issued by his right hon. Friend indicating the level of expenditure in 1972–73 and 1973–74, and when he made his cuts, he always had in mind to increase it to the levels we have now?

Mr. Nott

I can assure the hon. Gentleman that I will deal with that matter.

Mr. Dalyell

Answer the question.

Mr. Nott

That is incorporated in the Opposition's amendment. I will deal with the point. I was saying that it is reasonable in the short term, when unemployment is unacceptable—and every hon. Member on the Opposition side would agree that a year ago the unemployment levels were unacceptable—to have a temporary speeding-up of the rate of growth and of spending. In the same way it would be possible to have a slowing-down of programmes, but these adjustments must always be made with one eye on the medium-term position.

The House will not expect me to discuss the short-term prospects as my right hon. Friend will be making his Budget Statement next month. All I can do now is to underline the dual nature of the targets.

Mr. Sheldon

I do not think that the House would find any objection to £1,200 million being spent, even if it did not lie within the plans of the Government, if its purpose was to provide employment. If it was to provide money for the counter-cyclical reasons, everybody would be happy about that. However, according to the hon. Gentleman's own figures in the White Paper, less than £200 million was provided for the troughs in expenditure, less than £200 million for counter-cyclical reasons, leaving £100 million unaccounted for.

Mr. Nott

Obviously I will deal with that point. The difficulty is that, I anticipate, the hon. Gentleman has been looking at the wrong page throughout the debate. When the moment comes I will draw his attention to the correct page and we will proceed from there.

Successive White Papers often show marked changes in the pattern and total of planned expenditure. A detailed analysis of the more important changes since the last White Paper has been provided to the Expenditure Committee, and within the last day or so it has been published by the Committee for the information of the House.

It seems to me that the policy element in these changes is not as much a matter of surprise, still less of reproach, as some hon. Members suggest. It was extremely wise action for the Government to have taken. World prices, the terms of trade and the rate of growth of productive potential are not directly within the Government's control. Expenditure conditions have to be continuously adjusted to the changing economic environment and not simply in the short term. When viewed in that light the changes between Cmnd. 4829 and Cmnd. 5178 are a demonstration of the Government's readiness to be flexible when that is what the situation demands.

The Government are doing no more than following the recommendations of the Expenditure Committee, which said that the use of public expenditure to correct short-term deficiencies of demand should be an essential element of policy. Although the hon. Member for Heywood and Royton and the hon. Member for Ashton-under-Lyne (Mr. Sheldon) are both members of the Expenditure Committee, they have put their names to the Amendment.

Mr. John Roper (Farnworth)

The Expenditure Committee's report last year made it clear that such counter-cyclical expenditure should only be in carefully controlled items of expenditure which should be of a very short-term nature, and not as done by the Government.

Mr. Nott

At the appropriate moment I shall answer that point. I shall also draw the attention of the hon. Member for Ashton-under-Lyne to the correct page.

Where it is wrong to compare one White Paper with another in the way that has been done is to assume that one is dealing with a static and not a dynamic situation. It is, for example, impossible to imagine that the authors of the White Paper Cmnd. 4324—the Labour Government—would not have used public expenditure to stimulate demand in 1971 and 1972. Are the Opposition seriously suggesting that they would have stuck to the programme outlined in that White Paper in face of high unemployment? Of course not. They would have changed the following White Paper. That is precisely what we did in order to deal with the economic situation.

It might at this juncture be helpful to the House to make a brief comment on the public sector borrowing requirement, because several of my right hon. and hon. Friends have raised the point. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), the Chairman of the Expenditure Committee, my right hon. Friend the Member for Taunton and others referred to it.

The action we have taken over the past 18 months to stimulate the economy and bring down unemployment has inevitably meant a big borrowing requirement for the public sector. This borrowing requirement does not mean that current expenditure is not being covered by current revenue. On the contrary, the public sector has a very substantial surplus on its current account. But this surplus is not sufficient to finance its massive capital investment programmes and the lendings of the Government to other sectors for such things as aid to industry and export credit. For these purposes the sector needs to borrow.

There is nothing profligate in that, because it is sound policy that the borrowing requirements should be high when the economy is underemployed. The essential thing is to ensure that the total demands of the public sector are consistent with the general objectives of economic policy. It has been said that a large borrowing requirement is inflationary because of its effects on money supply. Several of my hon. Friends made the point. There is certainly a danger that this can be so.

But the public sector borrowing requirement is only one element in changes in the money supply, and its monetary impact depends on how it is financed. As my hon. Friend the Member for Walsall, South said, to the extent that it is matched by sales of public sector debt—gilt-edged securities, national savings and local authority paper—outside the banking system its expansionary effects will be neutralised. We aim, of course, to finance a substantial part of the borrowing requirement outside the banks, and we have been successful in doing just that. I think that some of my hon. Friends may not appreciate that the most important expansionary factor in the growth of money supply has not been the public sector borrowing requirement but bank lending to the private sector.

Mr. Bruce-Gardyne

The impact of the public sector borrowing requirement may not be direct but surely it is indirect, because indirectly it expands the credit base of the banks and has thereby generated the ability of the banks to lend, which has in turn led to the enormous increase in money supply.

Mr. Nott

That certainly can be so, and it was because of the emerging public sector borrowing requirement towards the end of last year that my right hon. Friend made two calls for special deposits. This was done specifically with the intention of preventing an expansion of the joint stock banks' credit base.

I must refer to productive potential, to which the hon. Member for Ashton-under-Lyne also referred, because this is an important point. In the short term the growth of the economy will be determined by a variety of factors, one of which will be the extent to which slack exists in the economy at the beginning of the period under consideration. But, as has been suggested, in the medium and even more in the longer-term, it is the underlying growth of productive potential in the economy, the rate at which it can grow at a constant pressure of demand, which determines the additional resources available for use.

Historically, during the 1960s productive potential probably grew at around 3 per cent. a year, with some slight increase in the latter part of the period. The more recent behaviour of the economy is very difficult to interpret and the views of outside experts differ widely. The Department of Applied Economics favours a figure of about 3 per cent. Professor Paish on the other hand, who is a well-known authority in this field, put forward only a few weeks ago estimates suggesting that productive potential has recently grown by between 4 and 4½ per cent. and that for the remainder of the 1970s 4 per cent. would be a pessimistic assumption. He felt that the figure could easily be 5 per cent. The uncertainty about the future rate of growth of productive potential is one of the main reasons why, in table 1.2—the resources table around which a great deal of the debate has centred—we show two alternative rates of growth.

Perhaps I may add to what my hon. Friend the Chief Secretary said earlier in the debate and emphasise that the rates chosen do not purport to represent the extremes of a possible range. The 3½ per cent. is in line with those who take a less sanguine view of this period and the 5 per cent. illustrates those who take a more optimistic view. Both fall within the range of what may broadly be called sensible hypotheses.

As my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, it is true that 3½ per cent. is itself rather better than the past long-term growth rates of the United Kingdom economy. But we must allow for the fact that in the base year 1971 there was a good deal of unused capacity in the economy which, with the current rate of growth, justifies the expectation of a better average growth performance over the period to 1977.

Mr. Ridley

What worries us is that the target for public expenditure is usually met and often exceeded, whereas the target for growth is rarely met and is often very much less. Over a period of years this leads to an ever greater share of the GNP being in the public sector. Will my hon. Friend devise means of adjusting public spending so that it might be slightly more flexible downwards, just as the growth achieved has often been?

Mr. Nott

My hon. Friend is aware of table 1.2, which shows clearly that between 1971 and 1977 current rates of public expenditure leave adequate room, on either of the two growth rate assumptions, for a reasonable rate of privately financed consumption. In dealing with the White Paper—the medium-term situation—the resources table shows that the Government expenditure is planned and is not growing too fast. I do not deny that we have to look at these things in two timescales. The shorter timescale is a matter for my right hon. Friend the Chancellor of the Exchequer and not for this debate.

My right hon. Friend the Member for Stafford and Stone (Mr. Hugh Fraser) thought that there was a considerable amount of demand-pull inflation at present. He may hold that view, but it would be more appropriate for him to await my right hon. Friend's Budget Statement, which will naturally, include a great deal of material on this point.

Mr. Sheldon

When will the Minister come to the counter-cyclical question? He said that the table was the wrong one. We are still waiting to see why he disagrees with the fact—for fact it is—that the Government are to spend £1,200 million more in 1973–4 but only £200 million for counter-cyclical reasons. I hope that he will deal with this.

Mr. Nott

The hon. Gentleman has been very patient. He will find the answer on page 115, table 3.15 headed Policy and estimating changes since Cmnd. 4829. If he adds up the bottom line he will find that those figures total £600 million to £700 million and not the £200 million to which he has been referring. His confusion arises on table 1.3 because throughout the debate he has been referring to the top line headed "Counter-cyclical measures" but he may not have read what is in the brackets. It says, (additional to those in Cmnd. 4829)".

Mr. Sheldon

I thought that this might be the point. This was the point the specialist adviser referred to when he advised us on this matter. This is additional expenditure for 1973–4, over and above what the hon. Gentleman is mentioning. We now have an additional £1,200 million of which £200 million is to ease the problems of high unemployment and so on. The other £1,000 million is not for such things, and is a distortion of public expenditure.

Mr. Nott

The hon. Gentleman has got it wrong. The total amount of counter-cyclical expenditure is on page 115 and amounts to £600 million to £700 million.

Mr. Joel Barnett

Against which figure?

Mr. Nott

I must press on.

Let me come now to the point raised by the hon. Members for Cornwall, North (Mr. Pardoe) and Ashton-under-Lyne about the publication of revenue figures alongside the public expenditure figures. Supporters of this proposal say that they will be able to tell, if we include a revenue total, whether taxes will have to go up or down.

Is this so? There are two principal problems. The first is that the level of taxation is not determined simply by public expenditure. It also depends crucially on other and much less predictable factors, such as the, requirements of demand management. Because these demand management factors are short term it is not right to take account of them in a five-year outline of resource availability. They would largely invalidate any projection we sought to make on the level of taxation in a particular year.

Second, while public expenditure can be expressed without too much difficulty in constant price terms it is very much harder to do this for taxation on any realistic basis because the range of assumptions are so much wider. I was a member of the Expenditure Committee at the time that it asked the Treasury to produce revenue figures. The point made to us then was that the projections could be misleading because of the effects of the various assumptions and also that they were of little operational value.

We did not take kindly to this negative advice but we were persuaded that a much more valuable piece of information would be something from the medium-term assessment. It was in response to that request that the resource table has been included on this occasion. I can assure the House that it was purely a coincidence that the table was included at a time when I was translated to the Treasury.

I come now to the Opposition amendment. This regrets both the "initial cuts" made in public expenditure by the Government and what it calls the "unplanned increases" that have occurred since. Much of what my hon. Friend the Chief Secretary and I have said goes far to refute this caricature of the true position but I must answer some of the points made directly. The 1970 cuts were neither irresponsible nor indiscriminate. As my right hon. Friend the Chancellor of the Exchequer made clear in his statement on 27th October of last year, they were the consequence of the Government's determination to concentrate their activities and their expenditure on those tasks that they alone could perform. At that time we cut indiscriminate and widespread subsidies and, within the total reductions then made, found room for more generous improvements in social security benefits to take care of the less well-off.

The example of a cut which the Opposition single out for special mention is housing. But what we announced in 1970 was the elimination of indiscriminate housing subsidies, Riving instead more help where it was most needed and freeing resources for better use elsewhere. In other fields the same philosophy was adopted so as to focus a higher level of expenditure on to those places where assistance was most wanted and thus avoid the waste of resources inherent in the less discriminating policies of hon. Gentlemen.

Mr. Fernyhough

Will the hon. Gentleman give way?

Mr. Nott

No, I am afraid I have not sufficient time to give way any more.

There is one important point on housing. A good deal of rebuke has come from Opposition benches about the housing situation. Let me draw attention to the fact that gross public investment in housing between 1968–69 and 1970–71 fell by £325 million. Here are we being condemned by the Opposition. Yet in the last years when they were in office the housing programme actually fell by £325 million. Within these figures subsidies rose. Local authority houses completed fell from a total of 188,000 in 1968 to 176,000 in 1970. I find it difficult to understand how the Opposition can criticise us for our housing programmes.

I want now to say a few words about defence. The increases in defence expenditure fall mainly into three categories. First there is the acceleration of certain shipbuilding and aircraft purchases not only for defence reasons but also as part of the Government's wider programme for stimulating employment. Secondly there are the considerable costs of peace-keeping in Northern Ireland which until 1973–74 have been contained within defence budget ceilings. Thirdly there are the extra costs arising from improvements in recruiting and last year's military facilities agreement with Malta. None of these increases constitutes a modification of defence policy for which, as the Opposition amendment implies, the Government should be censured.

I deal finally with the figures about which the hon. Member for Ashton-under-Lyne was concerned. They are those expenditures totalling between £600 million and £700 million undertaken to stimulate economic activity in the short term, as right hon. and hon. Members opposite have been saying. Had they remained in office, would not they have indulged in this kind of stimulation to the economy? Of course they would have primed the pump. Surely they are

aware that this is a proper use of the public sector spending power, and it should be applauded because of its beneficial social effects. It should not be derided by the cheap debating points that right hon. and hon. Gentlemen on the Opposition side have made.

There are increases in expenditure in pursuit of the Government's industrial and regional policies exceeded only in size by the increases in social security.

The primary aim of these new policies is to bring new economic life to those areas suffering most from the evil of heavy and persistent unemployment and to bring into productive use that part of our industrial capacity which at present is lying idle.

The whole House knows that when the Labour Government came to power—

Mr. Walter Harrison (Wakefield) rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to

Question put accordingly, That the amendment be made:—

The House divided: Ayes 196, Noes 223.

Division No. 51.]	AYES	[10.0 p.m.
Abse, Leo	Cunningham, Dr. J. A. (Whitehaven)	Grant, George (Morpeth)
Albu, Austen	Dalyell, Tam	Griffiths, Eddie (Brightside)
Allaun, Frank (Salford, E.)	Davidson, Arthur	Griffiths, Will (Exchange)
Allen, Scholefield	Davies, Denzil (Llanelly)	Grimond, Rt. Hn. J.
Archer, Peter (Rowley Regis)	Davies, G. Elfed (Rhondda, E.)	Hamilton, James (Bothwell)
Armstrong, Ernest	Davies, Ifor (Gower)	Hamilton, William (Fife, W.)
Ashton, Joe	Davis, Terry (Bromsgrove)	Hamling, William
Atkinson, Norman	Deakins, Eric	Hardy, Peter
Barnes, Michael	Dell, Rt. Hn. Edmund	Harrison, Walter (Wakefield)
Barnett, Guy (Greenwich)	Dempsey, James	Hattersley, Roy
Barnett, Joel (Heywood and Royton)	Dormand, J. D.	Healey, Rt. Hn. Denis
Benn, Rt. Hn. Anthony Wedgwood	Douglas, Dick (Stirlingshire, E.)	Heffer, Eric S.
Bennett, James (Glasgow, Bridgeton)	Douglas-Mann, Bruce	Hooson, Emlyn
Bidwell, Sydney	Duffy, A. E. P.	Houghton, Rt. Hn. Douglas
Bishop, E. S.	Dunn, James A.	Huckfield, Leslie
Blenkinsop, Arthur	Eadie, Alex	Hughes, Rt. Hn. Cledwyn (Anglesey)
Boardman, H. (Leigh)	Edelman, Maurice	Hughes, Robert (Aberdeen, N.)
Booth, Albert
Brown, Robert C.(N'c'tle-u-Tyne,W.)	Edwards, Robert (Bilston)	Hughes, Roy (Newport)
Brown, Hugh D. (G'gow, Provan)	Edwards, William (Merioneth)	Hunter, Adam
Buchan, Norman	Ellis, Tom	Irvine, Rt. Hn. Sir Arthur (Edge Hill)
Buchanan, Richard (G'gow, Sp'burn)	English, Michael	Janner, Greville
Butler, Mrs. Joyce (Wood Green)	Evans, Fred	Jay, Rt. Hn. Douglas
Campbell, I. (Dunbartonshire, W.)	Ewing, Henry	Jeger, Mrs. Lena
Cant, R. B.	Faulds, Andrew	Jenkins, Hugh (Putney)
Carmichael, Neil	Fernyhough, Rt. Hn. E.	John, Brynmor
Castle, Rt. Hn. Barbara	Fisher, Mrs. Doris (B'ham, Ladywood)	Johnson, James (K'ston-on-Hull, W.)
Clark, David (Colne Valley)	Fitch, Alan (Wigan)	Johnson, Walter (Derby, S.)
Cocks, Michael (Bristol, S.)	Fletcher, Ted (Darlington)	Jones, Barry (Flint, E.)
Cohen, Stanley	Foot, Michael	Jones, Dan (Burnley)
Concannon, J. D.	Ford, Ben	Jones, Rt. Hn. Sir Elwyn (W.Ham,S.)
Conlan, Bernard	Forrester, John	Jones, Gwynoro (Carmarthen)
Corbet, Mrs. Freda	Galpern, Sir Myer	Jones, T. Alec (Rhondda, W.)
Cox, Thomas (Wandsworth, C.)	Garrett, W. E.	Kaufman, Gerald
Crawshaw, Richard	Gilbert, Dr. John	Kelley, Richard
Crosland, Rt. Hn. Anthony	Golding, John	Kinnock, Neil
Cunningham, G. (Islington, S.W.)	Gourlay, Harry	Lambie, David
Lamond, James	Ogden, Eric	Silverman, Julius
Lawson, George	O'Halloran, Michael	Skinner, Dennis
Leadbitter, Ted	O'Malley, Brian	Small, William
Lee, Rt. Hn. Frederick	Oram, Bert	Spriggs, Leslie
Lestor, Miss Joan	Oswald, Thomas	Stallard, A. W.
Lewis, Arthur (W. Ham, N.)	Padley, Walter	Steel, David
Lewis, Ron (Carlisle)	Paget, R. T.	Stewart, Rt. Hn. Michael (Fulham)
Lipton, Marcus	Palmer, Arthur	Stoddart, David (Swindon)
Loughlin, Charles	Pardoe, John	Stonehouse, Rt. Hn. John
Lyon, Alexander W. (York)	Parker, John (Dagenham)	Strang, Gavin
McBride, Neil	Parry, Robert (Liverpool, Exchange)	Summerskill, Hn. Dr. Shirley
McGuire, Michael	Pavitt, Laurie	Thomas, Jeffrey (Abertillery)
McMillan, Tom (Glasgow, C.)	Pendry, Tom	Tinn, James
Mahon, Simon (Bootle)	Perry, Ernest G.	Tope, Graham
Marquand, David	Prescott, John	Tuck, Raphael
Marsden, F.	Price, William (Rugby)	Urwin, T. W.
Marshall, Dr. Edmund	Probert, Arthur	Varley, Eric G.
Meacher, Michael	Reed, D. (Sedgefield)	Wainwright, Edwin
Mellish, Rt. Hn. Robert	Roberts, Albert (Normanton)	Walker, Harold (Doncaster)
Millan, Bruce	Roberts, Rt. Hn. Goronwy (Caernarvor)	Wallace, George
Milne, Edward	Roderick, Caerwyn E.(Brc'n&R'dnor)	Weltzman, David
Mitchell, R. C. (S'hampton, Itchen)	Roper, John	White, James (Glasgow, Pollok)
Molloy, William	Ross, Rt. Hn. William (Kilmarnock)	Whitehead, Phillip
Morgan, Elystan (Cardiganshire)	Rowlands, Ted	Whitlock, William
Morris, Alfred (Wythenshawe)	Sandelson, Neville	Williams, W. T. (Warrington)
Morris, Charles R. (Openshaw)	Sheldon, Robert (Ashton-under-Lyne)	Wilson, Alexander (Hamilton)
Morris, Rt. Hn. John (Aberavon)	Short, Rt. Hn. Edward (N'c'tle-u-Tyne)
Moyle, Roland	Silkin, Rt. Hn. John (Deptford)	TELLERS FOR THE AYES:
Mulley, Rt. Hn. Frederick	Silkin, Hn. S. C. (Dulwich)	Mr. Joseph Harper and
Murray, Ronald King	Sillars, James	Mr. Donald Coleman.
Oakes, Gordon
NOES
Adley, Robert	Dykes, Hugh	Iremonger, T. L.
Alison, Michael (Barkston Ash)	Edwards, Nicholas (Pembroke)	Irvine, Bryant Godman (Rye)
Allason, James (Hemel Hempstead)	Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Jenkin, Patrick (Woodford)
Amery, Rt. Hn. Julian	Emery, Peter	Jennings, J. C. (Burton)
Archer, Jeffrey (Louth)	Eyre, Reginald	Jessel, Toby
Baker, Kenneth (St. Marylebone)	Farr, John	Johnson Smith, G. (E. Grinstead)
Baker, W. H. K. (Banff)	Fenner, Mrs. Peggy	Kaberry, Sir Donald
Balniel, Rt. Hn. Lord	Fidler, Michael	Kellett-Bowman, Mrs. Elaine
Bennett, Sir Frederic (Torquay)	Finsberg, Geoffrey (Hampstead)	Kershaw, Anthony
Benyon, W.	Fisher, Nigel (Surbiton)	Kilfedder, James
Berry, Hn. Anthony	Fletcher-Cooke, Charles	King, Evelyn (Dorset, S.)
Biffen, John	Fookes, Miss Janet	King, Tom (Bridgwater)
Biggs-Davison, John	Fortescue, Tim	Kinsey, J. R.
Blaker, Peter	Foster, Sir John	Kirk, Peter
Boardman, Tom (Leicester, S.W.)	Fraser, Rt. Hn. Hugh (St'fford & Stone)	Kitson, Timothy
Body, Richard	Gardner, Edward	Knight, Mrs. Jill
Boscawen, Hn. Robert	Gibson-Watt, David	Knox, David
Bossom, Sir Clive	Gilmour, Sir John (Fife, E.)	Lambton, Lord
Bowden, Andrew	Goodhew, Victor	Lane, David
Braine, Sir Bernard	Gower, Raymond	Langford-Holt, Sir John
Bray, Ronald	Grant, Anthony (Harrow, C.)	Le Marchant, Spencer
Brown, Sir Edward (Bath)	Gray, Hamish	Lewis, Kenneth (Rutland)
Bruce-Gardyne, J.	Green, Alan	Lloyd, Ian (P'tsm'th, Langstone)
Buchanan-Smith, Alick (Angus, N&M)	Grieve, Percy	Longden, Sir Gilbert
Buck, Antony	Griffiths, Eldon (Bury St. Edmunds)	Loveridge, John
Burden, F. A.	Grylls, Michael	Luce, R. N.
Butler, Adam (Bosworth)	Gumrner, J. Selwyn	MacArthur, Ian
Chataway, Rt. Hn. Christopher	Gurden, Harold	Maclean, Sir Fitzroy
Chichester-Clark, R.		McMaster, Stanley
Churchill, W. S.	Hall, Miss Joan (Keighley)	McNair-Wilson, Michael
Clark, William (Surrey, E.)	Hall, John (Wycombe)	McNair-Wilson, Patrick (New Forest)
Clarke, Kenneth (Rushcliffe)	Hamilton, Michael (Salisbury)	Madel, David
Cooke, Robert	Hannam, John (Exeter)	Maginnis, John E.
Coombs, Derek	Harrison, Col. Sir Harwood (Eye)	Mather, Carol
Cooper, A. E.	Haselhurst, Alan	Maude, Angus
Cordle, John	Hawkins, Paul	Maudling, Rt. Hn. Reginald
Corfield, Rt. Hn. Sir Frederick	Hayhoe, Barney	Maxwell-Hyslop, R. J.
Cormack, Patrick	Hicks, Robert	Meyer, Sir Anthony
Costain, A. P.	Higgins, Terence L	Mills, Peter (Torrington)
Critchley, Julian	Hiley, Joseoh
Crouch, David	Hill, John E. B. (Norfolk, S.)	Miscampbell, Norman
Crowder, F. P.	Hill, James (Southampton, Test)	Mitchell, Lt.-Col.C.(Aberdeenshire, W)
Dalkeith, Earl of	Holland, Philip	Mitchell, David (Basingstoke)
d'Avigdor-Goldsmid, Sir Henry	Hordern, Peter	Moate, Roger
d'Avigdor-Goldsmid, Maj.-Gen.Jack	Hornby, Richard	Molyneaux, James
Digby, Simon Wingfield	Hornsby-Smith, Rt. Hn. Dame Patricia	Money, Ernle
Dodds-Parker, Sir Douglas	Howe, Rt. Hn. Sir Geoffrey	Monks, Mrs. Connie
Douglas-Home, Rt. Hn. Sir Alec	Howell, David (Guildford)	Morgan, Geraint (Denbigh)
Drayson, G. B	Hunt, John	Mudd, David
du Cann, Rt. Hn. Edward	Hutchison, Michael Clark	Nabarro, Sir Gerald

Nicholls, Sir Harmar	Russell, Sir Ronald	Temple, John M.
Nott, John	Sandys, Rt. Hn. D.	Thomas, John Stradling (Monmouth)
Onslow, Cranley	Scott-Hopkins, James	Thomas, Rt. Hn. Peter (Hendon, S.)
Oppenheim, Mrs. Sally	Shaw, Michael (Sc'b'gh & Whitby)	Thompson, Sir Richard (Croydon, S.)
Osborn, John	Shelton, William (Clapham)	Trew, Peter
Owen, Idris (Slockport, N.)	Shersby, Michael	Turton, Rt. Hn. Sir Robin
Page, Rt. Hn. Graham (Crosby)	Simeons, Charles	van Straubenzee, W. R.
Parkinson, Cecil	Sinclair, Sir George	Vickers, Dame Joan
Percival, Ian	Skeet, T. H. H.	Waddington, David
Pike, Miss Mervyn	Smith, Dudley (W'wick & L'mington)	Walder, David (Clitheroe)
Pink, R. Bonner	Speed, Keith	Walker, Rt. Hn. Peter (Worcester)
Price, David (Eastleigh)	Spence, John	Walker-Smith, Rt. Hn. Sir Derek
Proudfoot, Wilfred	Sproat, Iain	Walters, Dennis
Pym, Rt. Hn. Francis	Stainton, Keith	Ward, Dame Irene
Quennell, Miss J. M.	Stanbrook, Ivor	Warren, Kenneth
Redmond, Robert	Stewart-Smith, Geoffrey (Belper)	Wells, John (Maidstone)
Reed, Laurance (Bolton, E.)	Stodart, Anthony (Edinburgh, W.)	White, Roger (Gravesend)
Rees, Peter (Dover)	Stoddart-Scott, Col. Sir M.	Wolrige-Gordon, Patrick
Rees-Davies, W. R.	Stokes, John	Woodhouse, Hn. Christopher
Ronton, Rt. Hn. Sir David	Stuttaford, Dr. Tom	Woodnutt, Mark
Rhys Williams, Sir Brandon	Sutcliffe, John	Wylie, Rt. Hn. N. R.
Ridley, Hn. Nicholas	Tapsell, Peter	Younger, Hn. George
Ridsdale, Julian	Taylor, Edward M.(G'gow, Cathcart)
Roberts, Michael (Cardiff, N.)	Taylor, Frank (Moss Side)	TELLERS FOR THE NOES:
Roberts, Wyn (Conway)	Taylor, Robert (Croydon, N.W.)	Mr. Oscar Murton and
Rossi, Hugh (Hornsey)	Tebbit, Norman	Mr. Marcus Fox.
Rost, Peter

Question accordingly negatived.

Main Question put and agreed to

Resolved,

That this House takes note of the White Paper on Public Expenditure to 1976–77 (Command Paper No. 5178.).