§ I now turn to the cuts in public expenditure which have become inevitable. In addition to the regeneration of British industry we have always given priority to improvements in the social field. I plan to maintain this priority—not only in revising our public expenditure plans but also in making the necessary tax increases so as to maintain and extend the progressivity which was a feature of my earlier Budgets. In my Budget a year ago, I recognised that, in order to allow increases in social benefits, in housing and in subsidies on basic foods, savings would need to be made in other areas of public expenditure wherever possible. For example, we have done a great deal in recent months towards reducing the huge deficits in the nationalised industries, and there will be further substantial savings in 1975–76.
295§ Our public spending plans were set out in the White Paper published in January. The White Paper described the implications of the expenditure programmes for the economy as a whole; and it warned that if the economic prospects deteriorated, the expenditure programmes would have to be reappraised.
§ The prospects unfortunately have deteriorated, and I have explained why public expenditure savings must make a substantial contribution in 1976–77 to the necessary reduction in domestic demand. The planned level of expenditure in that year, as set out in the White Paper, will be reduced by over £1,100 million at present prices or £900 million at 1974 survey prices. To permit comparison with the White Paper I will use 1974 survey prices in describing the distribution of these cuts.
§ The defence budget will be cut by £110 million, or about 3 per cent.
§ In the civil programmes, current expenditure on goods and services, including manpower, will generally be reduced by 1½ per cent., and capital expenditure by 10 per cent. But we have not thought it right to apply these reductions to certain services such as the general practitioner services or the provision of essential school places. These reductions will produce a saving of about £125 million on current expenditure on goods and services and about £280 million on capital expenditure.
§ No reduction is proposed in the building of new council houses, but a saving of £50 million will be found from other capital expenditure in the housing programme.
§ As regards subsidies, I announced last November the decision to phase out the deficits caused in the nationalised industries by price restraint, and we have also announced our intention to contain and eventually reduce the food subsidies. I now estimate that price restraint subsidies for the nationalised industries will come down from £550 million in 1974–75, at 1974 survey prices, to about £70 million this year and are likely to have been phased out completely by April 1976. The planned provision for food subsidies in 1976–77 will be reduced by £150 million and that for housing subsidies by £65 million.
296§ Within the arrangements for the investment programme of the nationalised industries I have described, we plan to produce savings of about–100 million by securing a more stringent and realistic determination of their capital requirements. In addition, we have decided with reluctance that we cannot afford to increase our provision for overseas aid quite so much as we had hoped. A reduction of £20 million will be made, spread in this case over 1975–76 and 1976–77, in a programme still rising substantially in cash terms.
§ Finally, we have decided not to proceed with the mid-term census.
§ I am circulating a table in the Official Report setting out the incidence of these reductions in planned expenditure on the main programmes.
§ A sizeable proportion of these savings will fall on programmes administered by the local authorities, and I realise what this task means. I do not think that it would be right to leave them to face it without closer guidance and help from Ministers. I know that local authorities have complained that in the past Governments have urged them to spend on particular services and to save on the total.
§ This Government, however, have been working towards closer liaison between Ministers and local authorities on financial issues. My right hon. Friend will now put to the chairmen of the representative associations proposals to set up a consultative council on all matters of policy affecting local authorities which have major financial implications.
§ The council would be chaired by my right hon. Friend and would include senior Ministers and the leaders of the local authority associations, with senior officials from both sides meeting in support.
§ My right hon. Friend the Secretary of State for Scotland will be in touch with the new convention of Scottish local authorities about broadly similar consultative arrangements in Scotland. Related arrangements will be made for Wales.
§ Through this new machinery, central and local government should establish a closer mutual understanding of the constraints under which they each have to operate. Each will be able to contribute, more directly and effectively than before, 297 to the difficult but urgent policy decisions which will be necessary; and together they will be able to do the necessary monitoring. The new council will be faced in its first year with preparing for the unavoidably stringent rate support grant settlement for 1976–77.
§ As soon as discussions on the form of the new council have been completed, my right hon. Friend will be making a full statement to the House.
§ Looking beyond 1976–77, there will at best only be very restricted room for overall growth in public expenditure. Nevertheless, we shall aim to ensure, by a careful reassessment of needs and priorities in the 1975 public expenditure review, which will take account of the latest assessment of the economic prospects, that the most essential needs are met as far as possible.
§ In this context I want to emphasise that the Government are fully conscious of the special needs of families with children. That is why, as I announced in my Budget Statement last November, we have made the increase in family allowances to £1.50 a week which has just come into effect, the increase being subject to normal taxation only. This is the first increase in family allowances since 1968.
§ I also said last November that the Government would carry out their commitment to introduce a new scheme of child cash allowances or child benefits, payable for all children including the first, as soon as resources and the practicalities of administration allowed. We have now decided that, subject to parliamentary approval of the necessary legislation, the scheme will be introduced in April 1977. This is in fact the earliest date by which it is administratively practicable to extend family benefits to all of the 7 million families which will be eligible—over 3 million more than those now receiving family allowances. Such a scheme is, of course, potentially expensive; and against the background of the economic prospects and the resulting need to hold back planned expenditure, which I have already described, we shall need to accommodate its cost within the total which, in the light of future reviews, we conclude that we can devote to public expenditure at large in the years beyond 1976–77.
298§ Although we cannot introduce the full scheme before 1977, we can take earlier action to help one group of families—namely one-parent families—who we think it will be generally accepted have a claim. to this additional support in advance of others. We therefore propose, subject again to parliamentary approval, to introduce an interim benefit which will in effect extend family allowances at the new rate of £1.50 a week to the first children of one-parent families who do not already receive an equivalent benefit—for example, in the widowed mother's allowance. The benefit will be treated for tax just like family allowance. This interim benefit will begin in April 1976 and will be replaced one year later by child benefits under the new scheme. One-parent families will thus be the first to benefit from our commitment to extend family support to the first child in each family. The public expenditure cost in 1976–77 will be about £23 million.
§ The necessary legislation to enable both these benefits to be brought into effect will be introduced by my right hon. Friend in due course.