HC Deb 12 November 1974 vol 881 cc270-3

As I have said, the priority we must give to investment and the balance of payments has important implications both for private consumption and for public expenditure. We have therefore been re-assessing all our public expenditure programmes to achieve two main aims. First, to establish firm control over the demand on resources of the public sector as a whole so as to make sure that the programmes do not increase in demand terms by more than 2¾ per cent. a year on average over the next four years. Second, to achieve the right balance within the programmes between economic and social needs. The review therefore embraces defence, subsidies of all kinds, housing and other social and environmental services, and support and assistance to industry and agriculture.

The House will as usual receive details of our decisions in the Estimates and the White Paper on Public Expenditure, but I can give some general information now. As regards defence, immediately after taking office last March we began a thorough and wide-ranging review of our commitments and capabilities. This has made considerable progress. We expect to be able to make a further announcement to the House within the next few weeks and to begin consultations with our allies.

We have faced a special problem over the expenditure of local authorities. This accounts for around 30 per cent. of total public expenditure; their current spending alone accounts for 20 per cent. of the total.

The Government are at present discussing with the representatives of the local authorities the level of their current expenditure for the coming year, 1975–76, and the extent to which this is to be financed out of the rates, on the one hand, and rate support grant, on the other. I do not want to anticipate the outcome of the discussions but I can say this: some increase in the rates is inevitable. It will probably be substantial but it can be kept within bounds.

If this is to be achieved, it will require action from both central and local government. Obviously, cost inflation has played its part. But on top of this, in each of the three years since 1971–72 the current expenditure of the local authorities has been going up by 7 per cent. to 8 per cent. in real terms—that is, over and above cost increases. And that is for the last three years.

No matter how much we would like to see a further development of standards and services, a rate of increase which so far outstrips the growth in national resources cannot go on indefinitely. If the Government are to help in moderating the rate increases for the coming year the councils will have to play their part. They must limit the rise in their expenditure to what is absolutely inescapable, and in particular they must rule out a further expansion of their staff such as has been taking place on a major scale in the last few years.

The Government must make two main contributions to the social contract in the field of public expenditure—housing, where they will continue to give top priority to making up the ground lost between 1970 and 1974, and the provision of help for those who are least able to withstand the impact of inflation—above all, pensioners and familier with young children, the groups among whom poverty is to be found on the widest and most tragic scale. Full details of our social security proposals will be announced by my right hon. Friend tomorrow. Meanwhile the House will wish to know the main features of the further improvements we propose to make.

Less than four months ago, we increased pensions by almost 30 per cent., to their present level of £10 and £16 a week—the biggest increase in history. The Pensioners' Payments Bill now before Parliament also provides for a Christmas bonus of £10 to be paid later this month. We are statutorily required to make a further general uprating of pensions and related benefits not later than July 1975. But in view of the present rate of inflation, we propose to bring the next up-rating forward to early in April 1975. The increase proposed in the weekly rates for pensions and other long-term benefits is of £1.60 and £2.50 to £11.60 and £18.50 for the single and married rates respectively, and in short-term benefits of £1.20 single and £2 married to £9.80 and £15.90 respectively. These and related improvements will distribute to the beneficiaries, in 1975–76, about £815 million on account of national insurance benefits and about £110 million in addition for benefits which are wholly financed by Votes.

As to financing, I expect that the buoyancy of revenue from national insurance contributions, including the Treasury contribution, at the fully earnings-related rates, which under the Social Security Amendment Bill now before Parliament will apply from April 1975, will be fully sufficient to cover the cost of the national insurance element of this uprating. It is not therefore proposed to alter these rates.

The interval between this and the previous uprating last July will be about 8½ months, in recognition, as I have said, of the exceptionally high rate of inflation which we have been experiencing. As inflation is brought under control, we intended to move to an annual cycle of upratings. To this end, and bearing in mind that the late autumn is generally accepted as the best time at which to uprate benefits, we are planning to make a further uprating in December 1975. It is of course not possible at this stage to say what the amount or cost would be.

As regards support for families, there has been no change in family allowances since they were last increased by a Labour Government in 1968. An increase is long overdue. We are committed to extending family allowances to first children through a new scheme of child cash allowances, as soon as resources and the practicalities of administration allow. But we cannot wait till then before doing anything for families. We therefore now propose to increase the rate of family allowances from April 1975 to £1.50 a week—that is, an increase of 60p on the present rate of 90p for second children and of 50p on that of £1.00 for third and subsequent children. The increase will add to expenditure in 1975–76 by about £205 million. The increase in the allowances will be subject to normal tax only.

The increase in 1968 was fully clawed back from all those liable to standard rate tax. I have considered whether to apply claw-back on this occasion also but have decided against. To do so would mean that any family with an income already subject to tax would receive no net benefit, and it would also mean a sharp reduction in tax thresholds for families with two or more children. I appreciate that my honourable Friends would have liked a larger increase, but I hope this will be considered not unreasonable in current economic circumstances.

The full figures for all the expenditure programmes will be given in the usual annual White Paper early in the New Year.