HC Deb 21 May 1973 vol 857 cc38-52
The Chancellor of the Exchequer (Mr. Anthony Barber)

With your permission, Mr. Speaker, and that of the House, I wish to make a statement.

A primary objective of this Government has always been to set our nation on a course of faster economic growth. In the 1972 Budget our aim was a rate of 5 per cent. That we achieved.

Having lifted the economy on to this path of higher growth, the aim of this year's Budget was to continue on that path over the next year or so. All the indicators confirm that the economy is continuing to expand at an annual rate of at least 5 per cent., as we intended. Production, industrial productivity and retail sales have all been rising well. Industrial investment is now beginning to forge ahead, and exports are growing strongly—indeed, more strongly than I expected. Unemployment has continued to fall. These are the welcome signs of success.

Despite some of the problems associated with that success—pressure on the construction industry in some areas and a shortage of skilled labour in certain sectors of industry—we will still have for some time ahead the spare resources necessary to continue that faster rate of growth which is a primary objective of our economic strategy. Furthermore, the nation is firmly behind the Government's counter-inflation policy, which is a key part of the strategy for expansion.

But if we are to secure a lasting improvement in our economic performance, and so in our prosperity, we must at this stage look beyond the present financial year and take whatever action is necessary now to secure the opportunity for steady and sustained economic growth during the next financial year, 1974–75, and beyond.

This sustained growth will depend crucially on the continued strong expansion of industrial investment and exports which we can now expect. It is therefore essential that we now seize this opportunity to get industrial investment and exports on to a higher level and a faster growth path. At the same time, we must allow for a reasonable rate of increase in personal consumption. Looking ahead beyond this financial year, in order to make sure that we have sufficient resources for these three vital elements of demand—industrial investment, exports and personal consumption—it is necessary to moderate the growth of the remaining principal element of demand—public expenditure.

This was deliberately expanded at the end of 1971 as a temporary measure to reduce unemployment. Now, with unemployment falling at a good rate, and—what we have always wanted—with exports and industrial investment rising fast, is the time to look beyond this financial year. To permit the changes in the pattern of output required to meet these expanding demands, we must take decisions now to ensure that public expenditure, while continuing to grow to meet essential needs, does not pre-empt too much of the nation's output and so jeopardise the continued expansion of the economy in 1974–75 and beyond.

In my Budget Statement I announced that certain work on public expenditure had been put in hand last year. That work is now complete and my colleagues and I have decided on certain changes in public expenditure next year, 1974–75.

We have throughout adopted a selective approach, and the result is that a net saving will be achieved without any reduc- tion in the building programmes for hospitals; for schools, including nursery schools and the replacement of the older schools; without any reduction in the building programmes for colleges and universities; for old people's homes, and other buildings for the local health and personal social services; and without any change in the rates of regional development grants.

Mr. Frank Allaun

Housing?

Mr. Barber

I shall come to housing in a moment. Expenditure programmes on all these items as well as, of course, social security will continue as planned. The changes include no increases in charges.

Furthermore, because the changes are being announced well in advance, there should be no question of cancelling existing contracts.

In deciding upon the geographical spread of savings in individual programmes, the Ministers responsible will take account of the varying circumstances, including the load on the construction industries, the level of unemployment and the particular needs of the various parts of the country.

So that the specific changes can be strictly compared with the most recent Public Expenditure White Paper (Cmnd. 5178), they are expressed at 1972 survey prices.

The savings are as follows:

Roads:

Deferments for the time being of new schemes and a reduction in maintenance affecting both central and local government. The roads necessary to support Scottish oil developments will not be affected. The saving will be £100 million.

Miscellaneous Local Services:

This will involve deferment of approvals. A substantial part of the saving will come in the non-key sector, where the selection will be made by the local authorities themselves. Here again the total saving will be £100 million.

Local Authorities' Current Expenditure:

Out of a total estimated local authority current expenditure of nearly £5,000 million, there will be a saving of £80 million. The largest part of this—£50 million—is already included in the totals which I have mentioned, particularly road maintenance. The rate support grant negotiations this autumn will proceed on the basis that these economies are being made. It is important that the new local authorities as well as the existing ones should be given this early notice of the changes.

Various Public Building Projects or Improvements:

In this area also, the Government and the local authorities will both make contributions, amounting to £15 million in all.

I should add here that there could be no question of incurring any expenditure on the proposed new parliamentary building during either this or the next financial year.

The Civil Service:

Figures are being published today—they may even have been published for all I know—which show that the total number of civil servants is now less than when we took office. By continuing to contain the growth of Civil Service manpower there will be a saving of £20 million on previous plans.

Selective Government Assistance to Industries:

As a result of the expansion of the economy, and the increasing ability of industry to finance its own requirements, the amounts which were at one stage envisaged are not now expected to be required in full, and there will be a saving of £35 million.

Defence:

We expect to maintain the defence budget in 1974–75 at broadly the same level as in the current financial year. A saving of £50 million will be found by economies and postponements of expenditure, including works projects. Our contribution to NATO will not be prejudiced.

The Nationalised Industries:

Those industries for which the Secretary of State for Trade and Industry is responsible, a saving of £100 million; the Post Office, £30 million; the surface transport industries £10 million. Investment in the nationalised industries will still be on a rising trend and fully adequate to sustain a faster rate of national growth.

Agriculture:

As our agriculture becomes more integrated with the common agricultural policy, the need for Exchequer aid will become less and so there will be a reduction of £25 million in expenditure in 1974–75 on current production grants.

Industrial Training:

It is important not only that the momentum of this programme should be maintained but that it should be increased. A further £6 million will therefore be added to the existing programme. The plans for meeting expenditure by the industrial training boards out of Government funds instead of out of levies will be deferred for eight months. The increased programme and this deferment will result in a net saving of £20 million.

I was asked particularly about housing. My right hon. and learned Friend the Secretary of State for the Environment has already announced a major switch of resources to housing. I can now inform the House that this priority for housing will involve additional expenditure in 1974–75 of £35 million—again, for convenience, expressed at 1972 prices. Taking this into account, and also the additional expenditure on industrial training to which I have referred, the total net saving in public expenditure for the next financial year, 1974–75, as a result of all these changes will be, at 1972 prices, some £500 million. These decisions will be reflected with estimating and other changes in the course of the year in the next annual White Paper.

As shown in the last White Paper on public expenditure, we start with the advantage that we had already deliberately planned for the rate of increase to begin to slow down during this financial year, by the end of which the special counter-cyclical expenditure which we put in hand in 1971 will have largely run its course.

I have explained why the various savings I have announced relate to the year 1974–75. I should also take this opportunity to give the House an assessment of how they will affect the present financial year, 1973–74.

The changes which I have announced for 1974–75 will build up gradually and will result in a saving in public expenditure in this year approaching £100 million. This saving will be in addition to the reduced provision which I foreshadowed in my Budget Statement and which, on present estimates, now amounts to a net reduction of about £225 million. Public expenditure this year is therefore likely to be over £300 million less than the figure in the last White Paper (Cmnd. 5178).

We have before us the greatest opportunity our country has had for very many years—an opportunity to achieve a faster and lasting improvement in our national prosperity. The changes which I have announced will ensure just that.

Mr. Healey

The Chancellor has just given the House a serious and lengthy statement which it will wish to consider, but I have no doubt that, through the usual channels, we can arrange to debate it in Government time at the earliest reasonable opportunity.

I recall predicting, when the right hon. Gentleman presented his mini-Budget not too long ago, that the real Budget would follow later. We now have a public expenditure component in the real Budget. Will the right hon. Gentleman tell us when the taxation component of his real Budget will follow?

The immediate impact of what the right hon. Gentleman told us is a certain increase in the price of food, postal charges and rates. I confess that I find it difficult to reconcile what the right hon. Gentleman has just said with what the Chief Secretary told the House only a couple of months ago when he said that he totally rejected the Public Expenditure Sub-commitee's conclusion that our public spending over the next 12 to 18 months will constrain personal consumption to a rate significantly below that of total output. It just is not true."—[OFFICIAL REPORT, 12th March 1973; Vol. 852, c. 912.] I should like to ask the Chancellor a question on personal consumption. In his statement, he said that he must allow for a reasonable rate of increase in personal consumption. What rate does he regard as reasonable? Presumably, according to the Chief Secretary, at least 5 per cent., which is the rate of increase in production at present. How does the right hon. Gentleman reconcile this estimate with an increase in the cost of living since the freeze running at 9.2 per cent. compared with a year ago, although earnings have increased by only 2 per cent. as an annual rate since the freeze began?

The House will note that the main burden of the cuts proposed by the right hon. Gentleman falls on local government—there may be a recent reason for that—and on the nationalised industries. Will he tell us a little more about the implications of what he said regarding the rate support grant? Is he proposing to cut the nationalised industries' investment or to increase the prices at which they sell their products?

I was surprised that the right hon. Gentleman should take some credit for what he called a fall in the numbers of civil servants. He will be well aware that a few minutes ago his colleague the Parliamentary Secretary to the Civil Service Department told the House that there was an increase in non-industrial civil servants of 14,000 in the last year. Therefore, any decrease in the total number must fall entirely on industrial civil servants and follows from the hiving off of public enterprise upon which the Government have been engaged over the last year or so.

In the context of this very grave statement, may I ask the Chancellor to explain why he has had no new decision to announce to the House regarding Maplin?

Will the right hon. Gentleman assure the House that he will not allow the Prime Minister in this new and grave situation to agree with President Pompidou in the next two days on the construction of a Channel Tunnel the full cost of which has not yet been presented to the House and on which we have had no chance whatever so far to pronounce judgment?

Finally—we have asked about this matter so often in the past—in the context of this statement the right hon. Gentleman surely cannot now refuse to tell us where he is to find the £15 million which he is giving to the building societies to keep down mortgage interest rates.

Mr. Barber

The right hon. Gentleman referred to what he said in the course of the Budget debates.

Mr. Healey

What the Chief Secretary said.

Mr. Barber

No. The right hon. Gentleman started by referring to what he said in the Budget debates. He will also recall that in my Budget Statement, after referring to the work that I had put in hand before Christmas concerning public expenditure, I said that I would not hesitate at any time during the year to take action on public expenditure, on taxation or, indeed, on money supply. I made the position absolutely clear, and my hon. Friends will recall it even if the right hon. Gentleman does not.

The right hon. Gentleman mentioned taxation. After the Labour Government's record, I do not think that he should complain about that.

On personal consumption, the right hon. Gentleman will know that the trade union movement has repeatedly made it clear that one of the reasons that it found itself in such great difficulties with the Labour Government was that they allowed personal consumption during their period in office to sink almost to an all-time low. The right hon. Gentleman will find, when our period in office has continued until the next General Election, that we have a much better record on personal consumption than that of the Labour Government.

On the rate support grant, if the right hon. Gentleman looks at what I said he will find that I made it absolutely clear that the measures which I have announced will be taken into account in the negotiations for the rate support grant.

Finally, the right hon. Gentleman referred to Maplin. We have made the position about Maplin quite clear.

Mr. Powell

What has changed in the two months since my right hon. Friend's Budget Statement to cause him to make these announcements now?

Mr. Barber

My right hon. Friend will recall that in my Budget Statement I said that work has been put in hand on public expenditure. Therefore, I am now reporting to the House at the earliest opportunity the result of that work on public expenditure. I appreciate that it is difficult for my right hon. Friend to find anything which pleases him—even cuts in public expenditure.

Mr. Frank Allaun

Is there not a danger that the Chancellor will mislead the country in this statement? He refers to an increase in housing expenditure of £34 million, whereas the Government survey for three years hence predicts a reduction of over £100 million. Therefore there is a net reduction of over £70 million.

Secondly, in the opposite direction, as regards arms expenditure, the Chancellor announces a cut of £50 million next year, which is precisely 1½ per cent. of our arms spending, whereas the Government survey plans a 10 per cent. increase in arms spending in the next two years.

Mr. Barber

I have made the position clear about the cut in defence expenditure. With regard to housing, I recall of course that in 1968, when an announcement was made by the then Government, which the hon. Gentleman supported, concerning public expenditure, there was a massive cut in housing expenditure.

Mr. Tugendhat

Is the Chancellor aware that this statement will receive very wide support in the country as a whole? Is he aware that the record of the economy with regard to investment, exports and output this year has confounded the fears of the pessimists and the hopes of the other side of the House, and that the Government are well on the way to securing a situation in which they will not only bring about a very rapid rate of growth but will also be able to moderate it instead of going from a rapid pace to a stop? Acting now rather than too late will ensure that.

Mr. Barber

I think it will be generally agreed that too often in the past action concerning public expenditure has been taken too late, in an atmosphere of panic and at a time of crisis. The action which I have announced today will, as I have indicated, have little effect in this financial year. Its primary purpose is to ensure that we are able to maintain steady expansion next year, 1974–75, and beyond.

Mr. Pardoe

Would the Chancellor say a little more about exactly how he is to save £30 million on postal services—by eliminating them altogether or by increasing their price? Will he also say something more about miscellaneous local services? How far will this reduction affect sewerage and water? Does he realise that the lack of these services is holding back house-building in a very large number of areas of the country?

Mr. Barber

The programme for Post Office capital expenditure for the year in question, which is set out in the White Paper, amounts to well over £600 million. Therefore I think it wholly reasonable that there should be a reduction in that year of £30 million, which is not a very large percentage reduction in relation to a total programme of more than £600 million.

With regard to miscellaneous local services, the hon. Gentleman will know that capital expenditure in the local authorities falls into two categories. One consists of the key sector schemes, for which individual loan sanctions are still required. The other consists of the non-key schemes, sometimes called locally-determined schemes, for which the local authority is given a block grant. The major water and sewerage projects are in the key sector. Some minor projects are in the non-key sector, which are locally-determined, and it will be for local authorities, on the principle that we have always advocated, to decide where these savings should be made.

Mr. Brian Harrison

Could my right hon. Friend not find the solution to the problem of the over-heating of the building industry and the concentration of too much industry in the South-East by abandoning the Maplin project?

Mr. Barber

With regard to the construction industries generally, I think that the statement I have made today will be of considerable help in the next financial year. I can only say in regard to Maplin that the Government have made the position absolutely clear.

Mr. John Morris

Would it be fair to describe part of the proposals announced today by the heading "Chancellor cuts road programme"? While one has noted that the roads for the development of the Scottish oil industry are to be protected, will the Chancellor accept that the industrial development of South Wales is dependent upon the speedy building of the M4, with the provision of very necessary jobs? Is that now to be delayed?

Mr. Barber

Taking the total expenditure on roads throughout the whole country, the savings will not slow down significantly the overall programme. I set out in my original statement—and I hope the right hon. Gentleman will look carefully at what I said—the way in which the geographical spread of any savings will be operated.

Mr. Ridley

In view of the fact that the retail price index has gone up even more in the six months following the standstill than it did in the six months before it, owing to heavy Government expenditure, may I congratulate my right hon. Friend most sincerely and warmly on taking this timely and proper counter-cyclical action? May I ask him whether he has in mind to do something about the charges for nationalised industry products, because it will be very difficult for him to get back to a commercial position for these industries unless he takes some action soon?

Mr. Barber

I am grateful for what my hon. Friend said in his opening remarks. With regard to the nationalised industry prices, the policy concerning these was made clear in a recent debate and also in the code for the guidance of the Price Commission.

Dr. David Owen

Will the Chancellor give some indication whether one of the factors which has made up his mind is the serious balance of payments position that may develop towards the end of this year? Will he now give the House an estimate of how he views the balance of payments deficit over the next year?

Mr. Barber

I must emphasise to the House and to the hon. Gentleman that the prime objective of the changes which I have announced today is the same as the prime objective of the previous Government—faster economic growth. The only difference is that we are succeeding where they have failed.

Mr. Hastings

While I quite understand the need for savings, will my right hon. Friend consider this? When young men on short service are returning for their third tour in Northern Ireland in a very short space of time and the Navy is apparently over-stretched to meet the modest commitment off Iceland, does he think this is the time for cuts in defence expenditure?

Mr. Barber

I made it clear in my statement—and I would ask my hon. Friend to consider carefully what I said about defence—that our contribution to NATO will not be prejudiced and that the saving will be found by economies and postponements of expenditure, including works projects. Looking at defence expenditure as a whole and bearing in mind our obligations, I think that this is reasonable.

Mrs. Castle

Does the Chancellor's statement mean that Operation Eyesore, which is beginning to have an effect in the old industrial areas, is to be abandoned?

Mr. Barber

My right hon. Friend the Secretary of State for the Environment has already made clear the Government's policy on that.

Mr. Bruce-Gardyne

May I join in congratulating my right hon. Friend on the major step he has taken today towards bringing public expenditure and the excessive growth thereof under some control? Can he tell us what the percentage rate of increase in public expenditure will be during the current year and in 1974–75?

Mr. Barber

I am afraid that I cannot give the percentages offhand. Obviously they can be derived from the figures which have been given.

Replying to his first question, I know that this has been a particular concern of my hon. Friend, indeed of a good many of my hon. Friends. I think that the important point is that if one is looking ahead beyond this financial year it is very necessary, when one comes to the conclusion that action should be taken, that it be taken sufficiently early, so that the necessary consequences will proceed in an orderly way. This is what we have tried to do on this occasion rather than leave these decisions until the last moment to be taken in an atmosphere which is not conducive to a sensible and orderly procedure.

Mr. Harold Wilson

May I refer to the right hon. Gentleman's remarks about the Civil Service? Surely the right hon. Gentleman must know that the test in this House has always been the number of non-industrial civil servants. Is he not, therefore, misleading the House when he quotes the figure of non-industrials plus industrials? Has not the House been given figures today which show that the non-industrial Civil Service has increased by 14,000 during his period of office, despite the hiving-off of sonic Government functions?

Secondly, he referred to the rise in the standard of living by comparing wages and other incomes with prices. Does he agree that, in six months of absolute standstill, as one of his hon. Friends has said, prices, on the Government's own figures, published on Saturday morning, have risen by between four and six times the increase in incomes during the first part of that year? On his own calculations, will the right hon. Gentleman now give a pledge that he believes that, over the year from the freeze last November, incomes will substantially exceed prices? Or does he now know that, over the year as a whole, prices will exceed incomes?

Mr. Barber

I have the figures here about the Civil Service. If one takes the total, which it is perfectly reasonable to do—[HON. MEMBERS: "No."]—of industrial and non-industrial civil servants, one will see that the facts are as I have given them. I assume from the silence of the right hon. Gentleman on this point that he approves of the saving of £20 million in expenditure on the Civil Service. I hope that we can make that assumption.

Mr. Wilson

Answer the question.

Mr. Barber

Turning to prices, the most important thing arising from my statement is that, by ensuring a sustained and more rapid rate of growth than we have experienced over the past decade or so, we shall make a significant contribution by that alone to greater price stability. This is the aim of the right hon. Gentleman and myself and of both sides of the House. I believe that the country knows that we are doing our best, and, what is more, that we shall succeeed.

Mr. Wilson

Yes, but will the right hon. Gentleman now answer at least one of my two questions, since he has so far answered neither? Does he agree with the Prime Minister that, on the test always applied by Governments, the number of the non-industrial Civil Service has risen, as the Prime Minister told the House a couple of weeks ago? Second, does he agree that, in the so-called freeze period, prices were rising at 9.2 per cent. per annum and wages hardly at all? Will he now say whether, over the year from 6th November last, he expects prices to have increased more than wages or wages more than prices?

Mr. Barber

On the point about the Civil Service, the figures are clear and for all to see. That is true, and it was referred to by my hon. Friend, I gather, when he answered the question. The total number of the Civil Service, industrial and non-industrial, has gone down. On the second point, the right hon. Gentleman knows that when he was in office he never once gave forecasts, and would never have condoned any of his Ministers giving forecasts, of prices or earnings during the year ahead.

Several Hon. Members

rose—

Mr. Speaker

Order. I want the help of the House. This is Private Members' time and there is also an important statement to be made on Icelandic fisheries. I can allow only a couple of further questions from each side on this statement.

Mr. Norman Lamont

Is my right hon. Friend aware that his announcement is very welcome to this side of the House since it will free the resources to underwrite the Government's commitment to 5 per cent. expansion? Is it not also the case that the Government have had considerable success since the Budget in funding the net borrowing requirement? Does not that, with today's announcement, mean that the rate of increase in the money supply can be expected to moderate somewhat in the next few months?

Mr. Barber

The figures published today show a welcome reduction in the rate of growth of M3 but, in fairness, one should say that we should not read too much into a single month's figures. As my hon. Friend will know, there have been a number of special features in recent months which make interpretation of the figures particularly difficult. As to the sale of gilt-edged by the Government, it is generally known that we have been very successful in recent weeks.

Mr. Robert Hughes

Is the Chancellor aware that the Scottish economy cannot stand much deflation? Will he tell us today, unequivocally, that he will allow REP to continue, as has been called for by the CBI, the trade unions and everyone else?

Mr. Barber

We have made it clear that there will be a review concerned with the phasing out of REP. That review will take place as we said it would.

Mr. Biffen

May I join those of my hon. Friends who have extended a welcome to this very prudent reassessment of forward public spending? However, will my right hon. Friend also acknowledge that some of the more innocent Members might assume that there was something somewhat symmetrical about a figure of £500 million and might fear that that was the first figure chosen and that the process worked backward from that? Could he allay those suspicions by publishing a White Paper showing what projects will be affected by this statement, so that we may assess the social judgments that lie behind it?

Mr. Barber

The implementation of the savings obviously varies from case to case. These will be matters for the individual Ministers who are concerned. But I should tell my hon. Friend, since he has posed the question, that the right way to deal with public expenditure in demand management is to decide first what is necessary; then, if it is necessary to make a net reduction, to decide what that reduction should be; and then to find the means of achieving what one considers to be necessary. That is precisely what we have done.

Mr. English

Many of the right hon. Gentleman's expectations of expansion depend on a decision on which he should be congratulated—namely to float the pound. Does his announcement of these figures so far ahead mean that he is guaranteeing not to refix the pound at the behest of any European Power, so that we can continue with this expansion?

Mr. Barber

I have made the position absolutely clear concerning the relaxing of the pound.