PUBLIC EXPENDITURE

HC Deb 17 March 1977 vol 928 cc635-766

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Walter Harrison.]

4.1 p.m.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

The public expenditure plans which we are debating this afternoon, as set out in Volumes I and II of this year's White Paper, are designed to achieve a better balance in the economy—essential after a period of years when expenditure had grown much faster than the economy—and, whilst consolidating the improvements we have made in the social field, to give top priority to industry. This inevitably has to mean a lower priority for other expenditure programmes.

I share the concern of many of my hon. Friends that this has meant that in some fields where we would desperately like to find additional resources we have had to postpone further improvements, and in some cases actually make cuts, although I think it is fair to point out that the changes are made against a background where spending has risen over 10 per cent. in real terms in the last three years. Expenditure on programmes such as social security, housing and health and personal social services still increased in real terms this year.

With the urgent need to move resources into industrial investment and exports and the repayment of debts, those increases could not continue, and in the next two years there had to be cuts in some programmes. I shall want to deal a little later with the major point made by the General Sub-Committee of the Expenditure Committee about the allocation of the cuts. My right hon. Friend the Financial Secretary will deal with matters raised during the debate. But it is right that I should now deal with the point raised by my hon. Friend the Member for Chorley (Mr. Rodgers) and others of my hon. Friends on gas prices. There is a serious underlying question here which the House should consider: how much nationalised industry investment, or public expenditure for that matter, should be financed by borrowing, how much should be financed by taxation, and how much should be financed by the reduction of other public expenditure. Those are the issues we face in considering this problem.

It may be helpful if I first give the House some of the facts. The gas industry's debts at the end of 1975–76 stood at about £2¼ billion. In 1974 and 1975 there were heavy losses, of over £40 million and just under £30 million respectively, arising largely from policies of the last Conservative Government, which resulted in total subsidies to the nationalised energy industries and the Post Office of £1,181 million. That is something which I am sure the Leader of the Opposition recognises. I assume that the right hon. Lady supported it at the time.

For a few years there will be a breathing space as regards the amount of capital required by the gas industry, but then there will be some very heavy further borrowing to prepare for the further investment for the gas industry of the Brent field. Therefore, I do not think it unreasonable that we should consider reducing a burden of debt of the size I have described. But any given level of borrowing—£100 million here—must be considered together with the other ways in which one might deal with the matter. The crucial problem is whether to raise tax for it, cut other public expenditure or cut investment in the nationalised industries.

In real terms, gas prices fell between 1970 and 1976 by nearly 20 per cent., compared with increases of more than 20 per cent. in electricity prices and 10 per cent. for coal. That is just one other factor that must be taken into consideration in deciding our priorities on the question of where and how we raise a particular sum of £100 million.

I have noted my hon. Friends' motion. I ask them in return to note the facts I have described this afternoon and to recognise the serious and difficult problem we all face in considering priorities in expenditure. Whichever way we look at those priorities, I am convinced that the broad changes we have made are not only essential for economic, financial and industrial reasons but are right for social reasons, because to continue to spend more than we earn is a recipe for disaster that would eventually destroy the social fabric of our society.

Nevertheless, we know that many of the people whom we represent—[HON. MEMBERS: "Oh"]—whom all of us represent—want substantial increases in expenditure on many public services. They are often supported most vocally in particular demands by the same people who demand bigger and bigger cuts in public expenditure in general. Some of the most vocal are not infrequently found on the Opposition Benches. But—and we should not be too surprised—the same people who ask for higher public expenditure invariably also want large cuts in direct taxation. They cannot have both. At present, if we are honest with ourselves, we must admit that our constituents' choice would be for income tax cuts.

Given the growth of public expenditure and the consequential reduction in net take-home pay that there has been in recent years because of low rates of economic growth, I do not believe that it is necessarily to take a populist view to accept that our constituents are right and that there must be a shift in the balance. I should like it to come from higher economic growth, but we should be very foolish to assume that in advance.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

The right hon. Gentleman has put forward a most important proposition, that tax cuts are preferable to higher public spending at this time. How can those of us who wish to support him in the Lobby in that proposition achieve that object and defend him against those who do not agree with him? How will the matter be determined by Parliament on this occasion?

Mr. Barnett

If I am looking for someone to defend me against my hon. Friends, I am not sure that I should necessarily choose the hon. Gentleman as the ideal person. I leave it to him to decide. Knowing his independence, I am sure that he will make up his mind how to vote this evening after listening to me and other speakers in the debate, regardless of the three-line Whip that there may or may not be on his side of the House. [Interruption.] Opposition Members should not be so surprised. I do not know why they are making so much fuss about a petty procedural point. We shall be voting on the Adjournment tonight. It is not unknown for the House to vote on the Adjournment.

Mr. Ridley

The right hon. Gentleman has repudiated my offer of support. Does that mean that if I now want to vote against him I vote for the Adjournment of the House or against it? Will the right hon. Gentleman tell me which way he will vote, so that I know how to vote?

Mr. Barnett

I shall let the House have my views as to how I shall vote a little later. I have noted the hon. Gentleman's independence of his own Front Bench and that he intends to listen and vote in accordance with his conscience and what he thinks is right. I am sure that it will be helpful, and I will not repudiate his support in the Lobby if he wishes to join me there tonight. I will be happy to have him with me, provided that he is there in support of all my policies.

Mr. George Cunningham (Islington, South and Finsbury)

If my right hon. Friend is to argue about this business of the nature of the motion, will he remind the Opposition that more often than not on their Supply Days they table a motion only for the Adjournment of the House and not a substantive motion at all?

Mr. Barnett

1 am obliged to my hon. Friend. I am not trying to be difficult with the Opposition. I am sure that they want to get on and debate the serious problems of public expenditure which I believe we are talking about, whatever the motion.

Regrettably, in looking ahead to where we see public expenditure and the economy generally going, we do so after what was in economic terms inevitably a disappointing year, not only for us but for the world as a whole.

Although there were signs towards the end of the year that growth was picking up again, the pace of expansion after the first quarter was generally below the rate needed to increase employment. In many industrial countries unemployment was higher at the end of 1976 than it had been at the beginning. The fall in the sterling exchange rate and the slowing down of world trade during 1976 checked the progress that had been made in reducing the large deficit in our external payments. The fall in the sterling exchange rate, by raising the cost of our imports, cut consumers' expenditure and so reduced activity further. We had to take action to ensure an improvement in our external account and to make certain that industry could obtain the funds it needed on reasonable terms.

That was the background against which my right hon. Friend the Chancellor of the Exchequer announced on 15th December a stabilisation programme, extending over two years, to bring the economy back into balance. The reductions in public expenditure plans for 1977–78 and 1978–79 then announced were a central part of this programme. They were painful cuts to make at a time when unemployment was high, but the restoration of confidence was imperative if we were to avoid the danger of a massive fall in employment.

On the basis of that stabilisation programme, we were able to agree with the International Monetary Fund a standby credit of $3,900 million and to arrange a drawing facility with the Bank for International Settlements to protect sterling from the danger of withdrawals of official balances. The transformation in both the external and the domestic financial markets in the last three months has been dramatic. However unpalatable the measures themselves were, there was widespread recognition of the need for them. There can be little doubt that without them unemployment would have been even higher.

I have noted the Early-Day Motion standing in the name of my hon. Friend the Member for Bristol, North-West (Mr. Thomas) and the names of others of my hon. Friends, in which they seem to disagree with our general policy. I also note that they recognise that certain policies we are pursuing are not always in line with what the TUC "Economic Review" recommended, and that is true. But it is equally true that the TUC "Economic Review" also says that There was no real alternative to seeking financial support from abroad if the pound was to be protected against continuing downward pressure, the consequences of which would have been even more difficulties on the balance of payments and even more unemployment We have won the immediate battle for confidence—

Mrs. Margaret Thatcher (Finchley)

Not in this House.

Mr. Barnett

I am surprised at the right hon. Lady. I thought that she would have been delighted that the pound was stable.

Mrs. Thatcher

I am delighted. Therefore, why does not the right hon. Gentleman put his policies to a direct vote in the House?

Mr. Barnett

The right hon. Lady is becoming obsessive. We are debating public expenditure, and we want to debate it seriously. I hope that she will be interested in a serious examination of the problems, which is what I am trying to do.

Mr. Nick Budgen (Wolverhampton, South-West)

Will the right hon. Gentleman explain why, if it is so bad for the pound to fall, we understand that the Bank of England is holding it down?

Mr. Barnett

There are a number of reasons why I think it would be bad for the pound to fall at the present time.

Mr. Budgen

Who is holding the pound down?

Mr. Barnett

Who is holding it down? I am not sure whom the hon. Gentleman has in mind. The pound at present is stable. I find that satisfactory, and I gather that the Leader of the Opposition does as well. I note that the hon. Member for Wolverhampton, South-West (Mr. Budgen) does not.

I believe that we have won the immediate battle for confidence, but we need to create the conditions in which a sustained expansion is possible to bring us back to full employment. I think it is now widely recognised that the present problem of unemployment cannot be solved by reflation of demand of the kind that was used by Governments in the 1950s and the 1960s. The situation in the 1970s is a good deal more complex, and we are all aware of the disastrous lessons of the last Conservative Government's attempt to reflate.

The answer to unemployment must be sought more fundamentally in a continued effort to bring down the rate of inflation and to strengthen the productive side of the economy. It is not something that the Government on their own can produce. Nor is it something that will automatically come about as the North Sea oil flow eases the balance of payments constraint that has never been far away throughout the post-war period. Rather must the answer to unemployment be sought in partnership with management and labour, and, since the problem of unemployment is common to all industrial countries at the moment, it must be sought in partnership with other Governments. All this is now, I think, widely recognised and accepted—although not everywhere, I have noticed.

Of course, public expenditure cuts must inevitably entail some unemployment, either directly or indirectly. But we have taken action to offset the impact in the coming year. The employment measures announced in December at the same time as the reductions in public expenditure programmes should provide rather more jobs in 1977 than will be lost as a result of the cuts. I recognise, however, that this is far too narrow a way to look at the relationship between these cuts and unemployment. If we had not taken resolute action to restore confidence and ease the pressures in the financial markets, the effects on employment would have been catastrophic.

I turn now to the question of controlling public expenditure. I know that my hon. Friend the Member for Nottingham, West (Mr. English), the Chairman of the Expenditure Sub-Committee, views these matters seriously, as do other hon. Members. It is no good drawing up elaborate spending plans without the determination and means of ensuring that the planned total is not exceeded. We have that determination, and the introduction of cash limits and the development of the contingency reserve into an operational instrument of control have enabled us to make great strides this year.

The contingency reserve regime is strict. We do not allow additional expenditure to count against the contingency reserve until we are fully satisfied that offsetting savings are not to be had. The cash limits for 1976–77 announced in Cmnd. Paper No. 6440 will be adhered to. Only a very few exceptions are being made.

It would, however, be foolish to pretend that these improvement will guarantee success. Some public expenditure is not so readily controlled. In this context I refer to local authority expenditure. The point is still not always taken that the Government do not have the direct control here that they exercise over their own spending. We have, therefore, tried to bring out more clearly than before in Part I of the White Paper the differences in control arrangements and in the extent of the Government's responsibility for management of this expenditure.

Mr. Nigel Lawson (Blaby)

If it is the case that local authority expenditure is much harder to control than central Government expenditure, why is it that in the cuts that the Chancellor sought to make 60 per cent. will fall on local authority expenditure, 30 per cent. on Government expenditure and the rest on public corporations?

Mr. Barnett

I should never have given way to the hon. Gentleman in the middle of the point I was dealing with, which concerned local authorities and the operation of the cuts between capital and current account, on which the Committee of which the hon. Gentleman was a distinguished member reported. We have tried to bring out more clearly in the White Paper the extent of these problems.

An annual rate of growth of 10 per cent. at the time of reorganisation in 1974–75 has been cut to about 21- per cent. in 1976–77. Given the growth since the war, as most people who know about the problems of local authorities will recognise this is a considerable achievement. As the White Paper points out, over most of the post-war period local authority expenditure has grown faster than public expenditure programmes as a whole. It is right to add that it would be grossly unfair to blame that growth simply on profligate local authorities. Much of the growth came in response to demographic demands and demands for constant improvements in local services. We should remember that a great deal of that demand stems from legislation passed by this House, usually without dissent from those who rush to criticise local authorities.

The situation is now very different. As table 3 brings out, during the last two years total local authority expenditure has declined slightly both in absolute terms and as a proportion of public spending. The White Paper envisages a further small decline during the next two years.

Control in this area is due in no small measure to the excellent work of councillors and officials on the Consultative Council on Local Government Finance. I gladly pay tribute to them. They do not enjoy cutting public services any more than I do, but they have recognised the need for this. Their co-operation has made it possible to improve considerably arrangements for monitoring the course of local authority spending. Thus, when returns of local authority budget plans received last spring indicated the possibility of substantial excess spending in 1976–77, we were able to take early action to cut back this overspending.

In 1976–77 also, the cash limits imposed for the first time on most Government grants to local authorities have restricted the addition for pay and price increases and have provided an important new discipline on local spending. For the most part, local authority current expenditure has not been affected by the reductions in programmes announced last July and December. Even so, plans for 1977–78 still involve a small reduction in current spending in constant price terms.

The White Paper that we are debating today is about the Government's expenditure plans in volume terms. For 1977–78, however, we must harden these figures into firm control totals. I shall be laying another White Paper before the House in the near future setting out cash limits on Government expenditure in 1977–78.

Any fair-minded observer will accept that the initiatives we have taken on cash limits and in developing sophisticated new arrangements for monitoring expenditure have brought public expenditure in Britain under more effective control than it has been for many years.

Mr. J. Enoch Powell (Down, South)

Will the Minister tell us how the assumption on the rate of inflation is fed into the fixing of cash limits?

Mr. Barnett

We start from the volume figures in the White Paper and then take various assumptions about the pay and price increases expected in 1977–78. In the case of local authorities, wages are a considerable part of the calculations. We know the major part of the increase because much of the local authority wage increases come into effect in November. That is only a comparatively small item as a proportion of the total increase in 1977–78. The wages element enters into the addition that one must make for inflation. Some explanation of this has been given to the Select Committee and it will be further enunciated in the White Paper that we shall publish soon.

Mr. Ron Thomas (Bristol, North-West)

Will my right hon. Friend be good enough to tell us the precise figure? He mentioned the inflationary figure that is injected, and wages and salaries. Local authorities are faced with other kinds of purchases. The increases in the prices of those purchases have rocketed in the capital programme.

Mr. Barnett

I apologise to my hon. Friend the Member for Bristol, North-West because I referred to him and his Early-Day Motion when he was absent, but I did not refer to him in any derogatory way.

Mr. Ridley

Why not?

Mr. Barnett

Because I am fond of him. I would rather have him in the Lobby with me than the hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

The amount allowed for inflation in the cash limits for 1977–78—including those of the local authorities—will be made clear in due course.

Although most fair-minded observers of what we have done so far will recognise that we have done a good job in gaining control over public expenditure, there is no room for complacency. That is why there will be further consolidation during the next financial year. We shall be building on our new controls.

In speaking of those controls, I should like to pay a personal tribute to the work of the General Sub-Committee of the Expenditure Committee, under the excellent chairmanship of my hon. Friend the Member for Nottingham, West. The Committee has been critical, but, most important, it has stimulated us to greater efforts. In its latest report the Committee made some uncomplimentary remarks about the choice of capital and current expenditure. I hope that the Committee members will forgive me if I disagree with their criticism, and I shall tell the House why I disagree.

It is wrong to take such a hard line on the choice between capital and current expenditure. It is right to protect pensioners and others who are the least-well-off members of our community. My hon. Friend the Member for Nottingham, West will not disagree with me on that. Therefore, we exclude transfer payments, and that is a major area of current expenditure.

As for the cuts in goods and services, much of the expenditure, as I have indicated—about f12 billion—is not directly controlled. That is to say, it is local authority current expenditure. But not all capital expenditure should necessarily be preferred to current expenditure when the House has hard choices to make in choosing where the cuts in public expenditure should fall. For example, if the choice lies between cutting a road programme or a social programme in order to cut staff, cutting the social programme is the only way in which one can achieve real cuts in staff spending. Personally I should prefer to cut roads. However, I recognise the serious consequences of that and of other cuts in capital expenditure for the construction industry.

Another example is that we all accept that at some point—there may be some differences between us on this—a decision must be taken on the totality of public expenditure. Certainly, on the Government side there is some difference of opinion about the total, but within the total there are difficult choices of priorities. When one has to make cuts, as happens from time to time, one may have to make a decision in cutting Home Office expenditure about whether the size of the police force should be reduced or police buildings should be cut. Personally I should have thought it far better, when one has such a difficult choice, to cut the police buildings and not the size of the force.

There are many difficult choices that one has to make right throughout the whole sphere of public expenditure. It is quite wrong to take a firm line and say that one must cut right across the board or that one must have an equal balance between capital and current expenditure. It simply is not possible to do that when one has to look at all the programmes and make selective decisions. We have not made across-the-board cuts for some of the reasons that I have given.

Mr. Michael English (Nottingham, West)

I take my right hon. Friend's point, but the Sub-Committee did not say what he is accusing it of having said. The imbalance has been successive in every series of cuts since those that were first made by Mr. Barber—0now Lord Barber—in 1973. The Sub-Committee said that one cannot continue to have such a rate of imbalance.

Mr. Barnett

I take my hon. Friend's point. I cannot speak for what lay behind Lord Barber's decisions on cuts in December 1973 or for any of my predecessors. All I know is that, in the fairly traumatic last three years of expenditure cuts over which I have presided, on every occasion we have examined the problem in the light of the kind of consideration given by my hon. Friend and his Committee and decided what our priorities should be as between capital and current expenditure. We have always looked at the matter in that way.

However, we must also consider the practicalities. Frequently, if one decides that, for example, in the case of local authority current expenditure, one could have made bigger cuts, it may not be possible. Indeed, in local authority current expenditure for 1976 –77 we tried to achieve a standstill in expenditure between 1975 –76 and 1976 –77. I believe that local authorities tried hard to achieve that standstill, but they were not successful for a variety of reasons for which I am not blaming them. To have assumed and taken into account that one could have got even bigger cuts would have meant making a pretty unrealistic assumption.

Mr. Michael Latham (Melton)

Surely the argument is that construction has had a disproportionate amount of the cuts. That was what the General Sub-Committee said. Is it not the case that at present there are nearly 250,000 people unemployed in the construction industry and that their unemployment benefit and the transfer payments being made to them, must be very high?

Mr. Barnett

I take the hon. Gentleman's point and share his concern about unemployment in the construction industry. However, I hope that he is not under any illusion. If one had chosen a: similar amount on current expenditure, assuming that it could have been made to stick, it would have had unemployment consequences in another area. We must remember, when looking at public expenditure, that increasing capital expediture has consequences for current expenditure as well. Ongoing further current expenditure items arise following capital expenditure increases—for example staff, maintenance costs and so on.

I understand the Sub-Committee's view of the matter. But, looking at it overall, when we look at the hard choice of deciding as between one item of expenditure and another, it is not as simple as to decide that, instead of taking so big a proportion of capital expenditure, we should reduce that proportion and assume that we can get perhaps an across-the-board cut of 5 per cent. in current expenditure generally. It is not as simple as that.

The response to our measures from our friends abroad has generally been encouraging both by their words and by their deeds. The response from the Opposition has, I must admit, been typically irresponsible both in words and in deeds.

In last year's debate on 9th March, the right hon. and learned Member for Surrey, East (Sir G. Howe), after some pressure from my right hon. Friend the Chancellor of the Exchequer, who was joined in that pressure by the right hon. Member for Down, South (Mr. Powell), as he will recall, told us that his target for cuts was £4 billion. The right hon. and learned Gentleman was asked when he would achieve his target. But he was not too sure. It seemed that we would have to seek enlightenment from another source. Heaven, he told us, knows how quickly we could achieve it That is where we must turn to find how quickly and when and what public expenditure cuts we should get; the ones of which the right hon. and learned Gentleman spoke.

But if the right hon. and learned Gentleman's words were a little obscure, the deeds of his right hon. Friend the Member for Wanstead and Woodford (Mr. Jenkin)—a predecessor of mine as Chief Secretary—were very clear. Leading for the Opposition on the Social Security (Miscellaneous Provisions) Bill, he forced nine Divisions for amendments involving a net cost of £60 million.

Mr. Patrick Jenkin (Wanstead and Woodford)

Come, come, come. Is the right hon. Gentleman aware that on Second Reading I said that if his Government could for the first time produce convincing figures about the earnings rule, we would accept them? And we did.

Mr. Barnett

I note that the right hon. Gentleman is always happy to seek excuses. What I said was strictly true. In Committee he forced nine votes which if they had been carried would have involved a net cost of £60 million. What he is now presumably telling the House is that, if he had carried those votes, he would have moved amendments on the Floor of the House to delete the amendments that had been carried upstairs. It cannot have any other meaning. The right hon. Gentleman should think about what he was doing and should perhaps consult his right hon. and learned Friend the Member for Surrey, East.

One is bound to wonder whether members of the Shadow Cabinet are on speaking terms.

Mr. James Prior (Lowestoft)

Where are the Chief Secretary's right hon. Friends?

Mr. Barnett

I assure the Opposition that my Cabinet colleagues can, with the greatest confidence, leave me to deal with the Opposition.

One is bound to wonder whether members of the Shadow Cabinet are on speaking terms. I want to tell them why. Take the subject of housing. The right hon. and learned Member for Surrey, East was untypically forceful last year when he said that we must be looking much more vigorously and questioningly at the scope for reducing subsidies on housing."—[Official Report, 9th March 1976; Vol. 907, c. 288, 286.] As the right hon. and learned Gentleman knows, I believe that over a period of time there is room for some reduction, but he was typically unforthcoming in not telling us by how much or how quickly or what would be the consequences of the large cuts that he implied.

By contrast, his hon. Friend the Member for Henley (Mr. Heseltine), the Shadow Environment Minister, ignoring the right hon. and learned Gentleman, in a recent speech promised huge across-the-board additions to public expenditure and the borrowing requirement in the housing sphere. I should be happy to quote the whole of the hon. Gentleman's speech, but I shall take just one of his bright ideas which would have cost hundreds of millions of pounds. The hon. Gentleman promised a maximum mortgage rate. Obviously he saw what happened to the Leader of the Opposition when she promised one. The hon. Gentleman talked of an adjustment of the composite rate of tax on building societies as if that would not cost anything. In fact, the cost of reducing the mortgage rate to, say, 91½ per cent., to pluck a figure from the air—the rate suggested by the Leader of the Opposition—would be nearly £600 million gross.

The Opposition's irresponsibility does not stop at housing.

Mr. Michael Latham

Will the right hon. Gentleman give way?

Mr. Barnett

I thought that I might have provoked the right hon. Lady the Member for Finchley (Mrs. Thatcher).

Mr. Michael Latham

Surely the right hon. Gentleman took some elementary interest in the point before making it. Does he not realise that it is cheaper to help people into owner-occupation than to build new council houses for them? That was the point made by my right hon. Friend.

Mr. Barnett

I hope that the hon. Gentleman, who appears to understand these matters, recognises that a reduction in the mortgage rate applies to everyone with a mortgage. That means that it would cost approximately -600 million gross As I said, the opposition's irresponsibility does not stop at housing.

Dr. Colin Phipps (Dudley, West)

Tell us more.

Mr. Barnett

I shall be happy to do so. If their words have any meaning, the Opposition would substantially increase expenditure on defence, the police, Northern Ireland, agriculture, fisheries, forestry, construction and pensions, to list but a few.

Mr. Patrick Jenkin

Where does the right hon. Gentleman get his evidence that we have urged increased public expenditure on pensions?

Mr. Barnett

If the right hon. Member for Wanstead and Woodford is going back on what he and his party previously said on pensions, I note that.

Mr. Patrick Jenkin

Quote it.

Mr. Barnett

The Opposition have a policy to have twice-yearly increases in pensions.[Interruption.] Of course they do. Are they now going back on it? I am interested to note that. I have not noticed anyone else on the Opposition Front Bench deny what I said about any of the programmes I have mentioned.

Merely to balance the increase in expenditure promised by the Opposition would require the right hon. Gentleman's cuts in transfer payments and elsewhere to be pretty speedy.

Will the right hon. and learned Member for Surrey, East tell us how he proposed to balance the books, and where and how quickly he would make the cuts of which he talks so freely?

Sir John Langford-Holt (Shrewsbury)

The right hon. Gentleman is quite rightly drawing the attention of the House to the fact that the decisions that the Government make about future activities are based on the figures available to the right hon. Gentleman but not published. In order that I, my right hon. Friends on the Front Bench or anyone else in the House may arrive at meaningful decisions, will the Chief Secretary ensure that all the figures necessary for such decisions are made available to hon. Members, whether they are yet published or not?

Mr. Barnett

All the figures on public expenditure are expressed in very great detail in the current White Paper, which I am sure the hon. Member for Shrewsbury (Sir J. Langford-Holt) has read from cover to cover. I see him nodding. He will no doubt have taken careful note of the observations made on the document by the Expenditure Sub-Committee. He will not need any further enlightenment from me.

The right hon. and learned Member for Surrey, East and his right hon. and hon. Friends invariably seem to relish the prospect of huge and unspecified cuts, about which he talks so freely. Speaking for myself and my right hon. and hon. Friends in the Government and on the Back Benches I can say that none of us enjoys the fact that we cannot increase public expenditure for the time being and that we have to cut some expenditure on services which would improve the living standards of many of our fellow citizens. But before we return to a period of further growth in public expenditure we must restore balance in the economy. We do not help those who need improvements in public services by paying for them out of excessive borrowing and at the expense of industrial investment. The action we are proposing in our public expenditure plans is essential if we are to create conditions in which industry can have confidence in the prospect of a long period of sustained expansion.

Our first objective has been achieved. In the financial markets the pound is firm, and our reserves have been rebuilt rapidly. [Interruption.] I am surprised that Opposition Members are not happy about that.

Sir J. Langford-Holt

Is not the right hon. Gentleman aware that when the pound was handed over to his tender care it stood at $2.30 to the pound, but it is now only $1.71? If the right hon. Gentleman took it down to $1 to the pound, he would probably make it go up.

Mr. Barnett

The hon. Gentleman may find that amusing but the reasons for the depreciation of sterling go back to the actions of many Governments. The hon. Gentleman knows it, and Opposition Members on the Front Bench know it.

I am astonished that the stability of the exchange rate provokes such comments from Opposition Members. The fact is that conditions are now stable and the reserves have been rebuilt. Domestically, short-term interest rates have been reduced by four percentage points from the peak reached last autumn and long-term interest rates have gone down by nearly three points. Money supply is under firm control, and generally the financial conditions have been laid for a stronger advance in both output and investment.

Mr. Lawson

Will the right hon. Gentleman give way?

Mr. Barnett

The hon. Gentleman is a Whip. Why is he intervening?

Mr. Lawson

I am grateful that the right hon. Gentleman is on speaking terms with a Whip on the Opposition side of the House even though he may not be on speaking terms with the Whips on his own side. I am a little puzzled about the right hon. Gentleman's remarks on the exchange rate. When the exchange rate was $1.88, his right hon. Friend the Chancellor of the Exchequer told the House that sterling was undervalued and that he had the assurance of Chancellor Schmidt that this was so. But the exchange rate is now $1.71, and the Government intend to keep it there and prevent it from rising. Can the Chief Secretary explain what his exchange rate policy is? Can he reconcile these statements?

Mr. Barnett

I thought that the hon. Member for Blaby (Mr. Lawson) had improved since he went to the Whips' Office, but he seems to have deteriorated again.

The markets decide when an exchange rate is stable. [Interruption.] I am not sure what that noise was. I do not know whether it meant that the Opposition agreed with that comment. We now have some stability in the exchange rate. I am surprised that Opposition Members find it a hilarious matter. I sometimes wish that the House was televised. It would make a very interesting picture to see Opposition Members sitting there giggling at the fact that the exchange rate has stabilised. It is a most interesting situation.

Mr. Keith Stainton (Sudbury and Woodbridge)

They are giggling at the right hon. Gentleman.

Mr. Barnett

I sat opposite the hon. Member for Sudbury and Woodbridge (Mr. Stainton) for a long time in the Finance Bill Committee debates in the past. Things have got worse on the Opposition Benches these days.

Mr. John Nott (St. Ives)

If the markets decide, how is it that the Government have been rebuilding their reserves?

Mr. Barnett

There is nothing strange about that. The hon. Member for St. Ives (Mr. Nott) understands these things rather better than some of his hon. Friends. I hope that the House recognises that this situation will create the kind of stable background against which industry can improve its performance. There can be little doubt that we need improved performance. [Holy. MEMBERS: "Hear, hear"] I wonder whether Opposition Members will cheer the fact that our industrial performance has not just been bad in the last three years. As any serious Opposition Member would know, our productivity growth has been two-thirds of the average of major OECD countries: that has been the case over at least the last 15 years, and there is nothing to be amused at in that. That, unfortunately, is the sad fact that underlies the exchange rate and much that is wrong with our economy. The sooner we recognise that that is the serious problem, and that it is not the fault of any single Government in the last few years. the sooner we can have serious discussion of the problems.

Unless we improve our industrial performance, we shall not be able to command real increases in personal living standards or in public expenditure. Our expenditure plans, set out in the two volumes of this year's White Paper, provide the only real way to achieve financial stability. From such a base we can go for a steady and sustained economic growth out of which we can once again expand and improve public services to the standard that a decent, humane and civilised society requires. I commend the White Paper to my hon. Friends.

4.48 p.m.

Sir Geoffrey Howe (Surrey East)

I begin, in the light of the mysterious unwillingness of the Chief Secretary to tell his hon. Friends what, if anything, they should do in any vote tonight—indeed, not telling us in which Lobby we might have an opportunity of joining them—by quoting some words from some time ago: I congratulate the right hon. Gentleman most heartily on the dexterity with which he has managed, more or less at any rate, to keep his balance in a highly embarrassing position. The situation is one of embarrassment to the Government, and one of impotence for the House of Commons. We have a formal and colourless Motion on which we can talk, but on which we can give no effective decision"—[Official Report, 1st March 1922; Vol. 151, c. 451.] I shall tell the House in a moment where those words come from.

The situation today is equally sombre. The Chief Secretary comes before us today in a debate that is one of the key features of the Government's programme for the year ahead—often two days of debate are devoted to this issue—with a motion simply for the Adjournment of the House, although on each previous occasion when this White Paper has been debated there has been a substantive motion, either to take note or to approve—certainly a motion on which the House could express its view, or could agree or amend. The House has no opportunity of expressing its view, by way of amendment or in any other way.

Mr. George Cunningham

It never has.

Sir G. Howe

Does the hon. Member not recollect that 12 months ago the House divided, both on an amendment to the motion and on the motion itself, on the White Paper, when the Government were defeated? For the Chief Secretary to appear before us today and say that this is a petty procedural point is the most absurd and grotesque lack of respect for the House and the country.

Mr. Ridley

Has my right hon. and learned Friend heard the rumour circulating in the Lobby that the Government are to take the Budget on the Adjournment, too?

Sir G. Howe

We may yet come to that. It is a curious thing that the House defeated the Government on this issue 12 months ago and that that event was followed by the last stand of the right hon. Member for Huyton (Sir H. Wilson), seeking the confidence of this House. Thereafter the Labour Party experienced a change of leadership. We had expected a rather more courageous and forthright approach to this question from the Prime Minister. After all, last July, in answer to a supplementary question, he said with some pride: I lead the Labour Party and the Labour Government. It will be upon Labour votes that I shall depend in any policies that I place before this House"—[Official Report, 8th July 1976; Vol. 914, c. 1602.] What is the Prime Minister doing today'? His actions certainly speak a great deal less loudly than his words of triumph those few months ago. He is not even here today. A key feature of the Government's programme for the next 12 months is being debated. Where is the Prime Minister? What has happened to the Chancellor of the Exchequer? Yesterday, apparently, he was brave enough to face the Parliamentary Labour Party and to spread some of his customary cheer among those disheartened ranks. Where is he today?

The Chief Secretary had the effrontery to say that my right hon. and hon. Friends and I might not be on speaking terms. Where is his mate from the Treasury? There are rumours that the Prime Minister intends to split the Treasury. I do not know whether the split has already taken place.

Mr. Eric S. Heffer (Liverpool, Walton)

Is the right hon. and learned Gentleman aware that no matter how disheartened Labour Members may be on occasions, one look at the Opposition Front Bench is enough to unite all of us?

Sir G. Howe

I can understand that the hon. Member may have to look almost anywhere outside his own party to get any encouragement whatever. He must, however, echo this thought. I find it curiously unattractive that a Prime Minister and a Government who were prepared to deploy the whole might of the Government and the trade union movement against a small group of people in industry who, whatever one may feel, have a legitimate sense of grievance—who are smarting under a deep sense of injustice—should be unprepared to justify their policies before the House. It is unattractive, but not uncharacteristic.

I promised to say from whom I was quoting at the beginning of my speech. I was quoting—I am sorry if I caused any sense of anguish to the hon. Member for Cornwall, North (Mr. Pardoe)—from, the speech of Mr. Asquith in response to the debate on the public expenditure White Paper, as it then was, on 1st March 1922—the White Paper produced by the Lloyd George Government. We have had to go that far back to find a disreputable precedent for what the Government are doing today. The House ought to notice that that was six months before that Government collapsed and were thrown out of office, just as this one will be. Why is it that the Government are unwilling to give the House any opportunity to pass judgment on these documents? The reason—and the Chief Secretary had better take the smile off his face because he knows it clearly—

Mr. George Cunningham

Sit up straight!

Sir G. Howe

The Chief Secretary knows that the reason is that there is at the heart of the Government's position a total lack of integrity in their presentation of their public expenditure policy to this House. They are doing one thing step by step—cutting back on public expenditure—and still trying to mislead their supporters and others into thinking that they are doing something different.

I remember only too clearly the frequency with which the Chancellor, for two or three years or more, rejected every plea from the Conservative side of the House for an early start on the reduction of public spending by saying that it would be cruel folly to contemplate reductions in public expenditure at a time when unemployment was rising. Now the Government are trying to hide behind a smoke screen, accusing the Opposition of wanting savage, immediate, indiscriminate cuts and pretending that they are doing nothing of the kind. Yet what has happened?

If we look at the change in the position since January of last year we observe some interesting and important things. Between the time before the publication of the 1976 White Paper—and I take these figures from the paper submitted by Mr. Terence Ward to the Expenditure Committee—and 1977–78 the Government have made effective reductions in next year's spending programme of £2.5 billion. For the year 1978–79, in their various steps throughout the past 12 months, they are cutting the spending programme by £3¾ billion. We applaud that. We are delighted by it.

The only thing that I wonder is this. Why are cuts, denounced as savage when we suggest them, apparently reasonable, sensible and supportable when carried out by the Government—although not quite sufficiently supportable for the Government to ask their supporters to support them in the House? The tragedy is that for three years the Chancellor and the Government as a whole have disregarded our advice to embark upon spending cuts of this kind sooner. Their failure to face the facts at an earlier stage is the cause of our present crisis and anguish. Indeed, the Chief Secretary has written his own epitaph in the White Paper, The right hon. Gentleman tried to suggest that the responsibility for our condition goes back over many years, through many Governments, over 15 years and so on.

I remind the Chief Secretary that the Chancellor, who does not come to the House of Commons—and this must be the first time for a long time that the Chancellor has not appeared during a debate of this kind—was glad enough to tell the nation in October 1974 that he was the man responsible for lowering inflation to 8.4 per cent. He was glad enough then to tell the nation that unemployment was coming down and everything was looking rosy. He was glad enough to take the credit at that stage for what he thought and claimed were the consequences of his control of the economy.

The Chancellor cannot have it both ways. If he is entitled to claim credit for what he achieved in October 1974 he must accept responsibility for what has happened in the following three years. Let me remind the House of what is said by the Government about their record in the White Paper. It appears in paragraphs 47. 48 and 49 of Volume 1, where it is stated that In the wake of the oil price increase, the Government sought to cushion the impact on living standards and employment … public sector borrowing rose steeply. The problems of financing these deficits became acute and were reflected in the weakness of the exchange rate and in the sharp increases in UK interest rates that were necessary both to assist sterling and to check the rapid growth of money and credit. It was against this general background that the Chancellor of the Exchequer announced … a stabilisation programme … to restore confidence, to bring the economy back into balance and to reduce the strains that the financing of the public sector was imposing in financial markets The question I ask the Government is this: who was it who destroyed the confidence that the Chancellor is now struggling to restore? Who pushed the economy out of balance, and who is now trying to bring it back into balance? Who created the strains involved in financing the public sector by the financial markets? All those things, which this programme is now, belatedly, designed to correct, are the direct responsibility of the Chancellor of the Exchequer. It is no wonder that he is not prepared to come before the House to justify his policies.

Mr. John Pardoe (Cornwall, North)

The right hon. and learned Gentleman is following a most bewildering course in his tour de'horizon. Does he not think that the economy was out of balance in February 1974 and that it had largely been put out of balance by the increase in money supply of 60 per cent. in two years by the Government of whom he was a member—and a guilty member?

Sir G. Howe

I wish the hon. Gentleman would try to take some kind of sensible view of these facts. If he recollects the position, the oil crisis had struck the country in the autumn of 1973. The then Chancellor of the Exchequer, in December 1973, introduced a substantial series of public expenditure cuts. He got precious little thanks from the House, certainly not from Labour Members. The first thing that the present Government did when they came into office was to reverse those cuts and to embark on a massive spending spree. [HON. MEMBERS: "Not true"] It is true. The responsibility for our present economic condition—the hon. Gentleman has made this point on many occasions—follows from the three years of rake's progress following the election of this Government.

Mr. Pardoe

The right hon. and learned Gentleman knows perfectly well that the cuts announced in December 1973 post-dated the expansion of the money supply of 60 per cent. He knows perfectly well that any Government who expand money supply by 60 per cent. in two years are bound to wreck the economy, and they did.

Sir G. Howe

The hon. Gentleman knows equally perfectly well that the money supply was expanding at a lower and perfectly proper rate by the autumn of 1973 and that the public expenditure cuts announced by the then Government would have had a substantial effect on it. I fully take the point about the time lag between the money supply expansion and the ultimate consequences, but it is now three and a half years since a change of Government and since those cuts were announced. One reaches a point at which the Government and the Liberal Party have to acknowledge that the record and consequences of the last Conservative Government have long since ceased to be relevant to the present economic crisis.

Mr. George Cunningham

The right hon. and learned Gentleman would like them to be irrelevant.

Sir G. Howe

The present Government are glad enough to take credit for things when they are going well, even within six months of taking office. It is high time that they recognised that these words from their own White Paper are a savage condemnation of their incompetence while in office. There are no more alibis left for the Chancellor, wherever he may now be.

The Government have still not directed affairs in the right direction. I shall come back in a moment to some details about what they ought to be doing. They certainly have not acted in the right way. They are now under the discipline of the International Monetary Fund and, under the pressure of events, they have taken decisions that enable us to catch our breath. But they have certainly not restored the balance of the economy, as the Chief Secretary was suggesting.

Both those points have been strongly supported by the reports of the Expenditure Committee, to whose work I gladly pay tribute. I welcome the important contribution that the Expenditure Committee has made to the increasing effectiveness of this system of government in the House. It is important that we should have contributions of that kind.

Resting myself on its earlier analysis, I suggest that the public sector borrowing requirement, however much it may turn out to be—the Chancellor of the Exchequer yesterday said that it was a matter of some uncertainty—still is so large as to carry a risk of inflation returning, because it may yet be a large figure to finance without resorting to inflationary finance. Certainly it is still large enough to be piling huge and growing interest charges upon our people, and those already placed upon us mean that we shall have the burden of repayment well into the 1980s.

The most important point concerns the public sector borrowing requirement, which as it is now does not give any effective room for real reductions in the burden of taxation. Even if the Chancellor were to make reductions of £1½ billion, as has been suggested, it would still do no more than to restore the possition to what it was 12 months ago. If he intends to do anything effective to restore the motivation of people in this country, such as cutting direct taxation, he must not only contemplate switching to indirect taxes rather than direct but must press ahead still further with the reduction of the totality of spending.

I hope that the Expenditure Committee will continue to study some of the matters in this direction that it already has on its agenda. I hope that it will study further, for example, the methods that it has already considered for drawing together the consideration of revenue and expenditure in the way in which it has been done—for all the difficulties suggested by the Treasury—in other countries. It is not without significance that every local authority is able to consider revenue and expenditure together in a more sensible way than does this House. It should be possible for us to know what the revenue forecasts are before we commit ourselves to expenditure programmes.

I hope also that the Expenditure Committee will press ahead with further consideration of ways in which we can improve the present tripartite method of controlling public expenditure. It has done a great deal of work, with the considerable contribution of the Chief Secretary, on expanding and creating the effectiveness of that method of control, together with opportunities for bringing together consideration of revenue and expenditure. Cash limits, alongside Plowden-type control and Estimates machinery, are a confused and confusing system, particularly if also put alongside the rate support grant negotiations, all of which depend upon inflation forecasts.

I strongly endorse what the Expenditure Committee has done and I hope that those changes can be taken forward as quickly as possible. But I come to the main criticism that the Committee makes. We agree with the Committee in this criticism. It says that the cuts that have been made were made in a fashion that was damaging and unbalanced.

The Chief Secretary sought to deal with this point, but I must remand the House of the harsh strictures of the Expenditure Committee, in paragraph 9: A major criticism of this White Paper is the composition of the proposed public expenditure as between capital and current expenditure The Committee points out that between 1976–77 and 1978–79 current expenditure will have increased by 0.7 per cent. whereas capital expenditure will have gone down by 18'4 per cent. It goes on to say: The Government is thus itself acting like those industrialists it criticises for failing to invest. Indeed, even worse, it appears to be cutting capital expenditure and selling off productive capital assets … in order to sustain current expenditure, the classic action of an ailing industrial company. The results will inevitably be felt in every public service and also particularly the construction industry upon which unemployment is being differentially imposed. This recent action also, of course, is only the latest of a long series of similar actions by successive Governments stemming back at least to the public expenditure cuts of December 1973 Those last words are just as fair as anything else. It is a fair point of general importance to make.

It is ironical that the present Chancellor of the Exchequer, at the time of his 1975 Budget, took credit for the fact that he was not imposing public expenditure cuts until the next 12 months because he wanted to avoid the necessity of such a thing as break-neck hasty cuts in capital spending. Yet, having taken the House of Commons and the nation through a 12-months series of cuts, it was not until about 15th December last year that the last programme was so belatedly and hastily brought forward that the Government have not even been able to ensure the proper organisation of a public expenditure White Paper for the House this year.

It is ironic that the party that has spoken so often about the necessity for long-term planning and that seeks to impose planning agreements on every one else in the country has turned out to be so incompetent at planning its own spending programme, even one for 12 months.

This is the most important reason for criticising the pattern of these cuts and looking for a more rational pattern. We need a rational alternative to this series of cuts, because the Government remain committed to a series of long-term, large, growing and misguided spending programmes. They will have to be reconsidered and severely reduced, anyway, for the two years that are incomplete in the White Paper. Those figures, we are told, for the two years are more provisional than usual. If they are allowed to stand, public spending will begin growing by at least £1 billion a year from 1979 –80 onwards. Clearly, this will have to be re-written if those programmes are to be brought back into balance with what has now happened.

We are anxious lest, with the accession of oil to our balance of payments, with an improvement in the balance of payments, with perhaps an improvement in the pound, but with unemployment remaining high, this Government, if they remain in office, will be tempted to overlook and disregard the necessity for bringing those later spending programmes back under control. They have pushed many of the capital spending programmes that were in existence back six or 12 months by a series of moratoria. There is a limit to the length of time for which that can be done.

The Chief Secretary does not convince the House when he draws his contrast between capital programmes that can be cut and current programmes, such as transfer payments, that must be protected. He knows as well as anybody else in the House that current expenditure, for example, includes transfer payments on housing subsidies that go to families who are well off as well as to pensioners. He knows, too, that capital programmes are not confined to roads that can be put off because they do not affect social programmes. They involve the improvement of hospitals, community homes, prisons and institutions in which people must work. It is not as simple as saying "Capital, bad Current, good. Let us put it that way."

I hope that on this matter I can secure the agreement of the right hon. Member for Down, South (Mr. Powell). I know that he has in the past argued that all the cuts that should be embarked upon in the next year or two should be taken from the capital spending programme.

Mr. Powell

Not all.

Sir G. Howe

But the lion's share. I confess that I have always found that surprising coming from the right hon. Gentleman, because it was really he who taught so many of us the importance of restructuring the pattern of spending on the National Health Service when at last he expanded the capital expenditure in order to begin replacing the old hospitals. It was he also who was at one time so fierce in his denunciation of the damage done by housing subsidies, which are a pattern of expenditure that we shall certainly cut. It was he, also, who was so fierce in his denunciation of the damage done by grants to industry, whether on a regional or a non-regional basis, all of which are on a revenue rather than on a capital basis and are areas in which, I suggest, the Government should be making still further cuts to restore the balance of these patterns of spending programmes.

The Government's projected expenditure on trade and industry remains very substantial and very large. We welcome, of course, the abolition of the regional emploment premium. It was a pity that the Under-Secretary of State for Industry, the hon. Member for Keighley (Mr. Cryer), only two days before the premium was abolished by the Chancellor described it from the Dispatch Box as a welcome inducement to investment and the maintenance of employment in assisted areas. No doubt nobody had told him what was in prospect. Even when that has gone, the regional development grants, selective assistance to industry and the National Enterprise Board will be costing next year £750 million against a total of £224 million in 1973–74.

The House must face the argument that more jobs and more prosperity will be created if such sums are allowed to flow not at the discretion of bureaucrats and civil servants in this or that direction, but by reductions in taxes and reductions in the burden of government on small and medium-sized companies, the companies which are frequently the seed beds of new jobs and new growth in regions as well as anywhere else. That is one area where further substantial reductions should be forthcoming.

I shall not take the House through all the possible examples. Another clear area where the Government have failed to face up to their duty is housing subsidies. It is very strange that the Government, who last year, apparently in agreement with the Trades Union Congress and the TUC/Labour Party Liaison Committee, were agreeing that food subsidies were of great value to the nation, have now moved on to abolish food subsidies—we welcome that—and yet have remained so unwilling to make any change in housing subsidies.

Why is it so essential to maintain indiscriminate and still expanding housing subsidies while it is wise and acceptable to abolish food subsidies? This year the total housing expenditure is running at some £4½ billion, of which housing subsidies at £2 billion have doubled since 1973–74. All this, incidentally, is alongside a reduction of 30,000 in the number of council houses being built this year as against last year. Our contention is that a sensible Government would be reining back on housing subsidies, but to continue to increase those, as the White Paper says the Government will, is grossly to misuse the inevitably limited resources.

Mr. English

I thank the right hon. and learned Gentleman for the kind things he has said about my Sub-Committee. One of the things he mentioned—that we like to link revenue and expenditure projections—is highly relevant to this subject. We have said constantly that the tax subsidy on the mortgage interest paid by owner-occupiers should also be shown. Would he care to bring that into his argument? Like him, I think that there is much to be said for cutting subsidies, but I would not single out one group of subsidies to local authority tenants.

Sir G. Howe

If the hon. Gentleman is saying that there is a case for setting out, as is done in the United States, the value of so-called tax subsidies as part of the presentation of Budget statistics, I agree that there may well be a case for doing that as a means of improving analysis. I should not like the hon. Gentleman to go away with the impression that, because I have said that, I take the view there is great injustice to be corrected in the availability of mortgage interest relief to those buying their houses. On the contrary, I am sure that none of my hon. Friends would agree with that contention, either.

Half the population, many of them supporters of the Labour Party, are already owner-occupiers. The great majority of those who are not owner-occupiers would like to become owner-occupiers. The cost of paying for the average mortgage on the average secondhand house, as my hon. Friend the Member for Norfolk, South (Mr. MacGregor) was informed the other day, in terms of minutes worked has risen by 50 per cent. in the 30 years since the end of the war. The cost of paying the rent of an average council house in terms of minutes worked has fallen by one-third since the end of the war. The burden of house ownership has become more onerous and the burden of council house tenants has become less onerous. Even so, people still want to own their own houses.

So the same kind of argument cannot be advanced on that point as in relation to local authority housing subsidies. Indeed, the case as to the direction in which we should be going has been made crystal clear in the report of the NEDO Working Party of the Building Economic Development Committee—the Housing Strategy Committee, it is called.

Mr. Neil Kinnock(Bedwelty)

rose—

Sir G. Howe

The Government have so far been unwilling to publish that report. If they would allow us to have this published for the nation at large to study, it would see clearly set out the folly of continuing the present pattern of local authority housing subsidies.

Mr. Kinnock

Will the right hon. and learned Gentleman give way?

Sir G. Howe

I want to finish this point first.

Mr. Kinnock

NEDC did not accept that.

Sir G. Howe

NEDC may not have accepted it. I suggest that it is the result of a housing strategy committee, which included representatives of many sections of the building industry and which made an objective assessment of the housing situation. The document contains some very valuable advice which the Government would do well to heed.

Last year the average rent of a local authority house was £4.96p. That represents, as the Chief Secretary has told us, about 7 per cent. of the average industrial wage. The point is that there are many much poorer families paying through rates and taxes for the subsidies which go to tenants of local authority houses. There are many poorer families who are not only poorer but who have no home: they are living in furnished lodgings and they are having to pay towards this indiscriminate housing subsidy system.

The tragedy is that the Chief Secretary has been unable—on this point he may have some virtue lurking within his soul—to fulfil the promises that he himself was beginning to utter last year. The NEDO working party put forward a sensible scheme for substantially increasing rent rebates for those who need help at a cost of a 50 per cent. increase in the total cost, reducing the indiscriminate subsidies on housing, and cutting public spending by—450 million. The Chief Secretary to the Treasury—occasionally we see a good man struggling to break out—told us last year that it was the intention of the Government's then White Paper to increase the percentage of the cost of housing being paid by the tenant from 43 per cent. to 50 per cent. He said that that was a modest increase. Yesterday the House was told that only 42 per cent. is being paid by the tenant and that that will be the position for the next 12 months.

Mr. George Cunningham

The right hon. and learned Gentleman complains of indiscriminate subsidies, by which he means subsidies that do not reflect the income of the recipient. He knows that the relief above the basic rate that is given to the house buyer is not only discriminatory but perverse in its application Do the Opposition believe in principle that giving relief above the basic rate should be terminated at some stage? If they do not, that knocks to the ground the right hon. Gentleman's point that subsidies should not be indiscriminate.

Sir G. Howe

The Labour Party cannot understand the basic difference between a subsidy that is disbursed by the Treasury and a decision by the Chancellor of the Exchequer or Parliament to take less taxation from someone's income. It is discriminatory for the Chancellor of the Exchequer to be paid more than the Chief Secretary, if he is, and if he pays a different rate of tax. That discrepancy will exist if one has a progressive tax system.

Mr. George Cunningham

What about insurance premiums?

Mr. Joel Barnett

My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) is on to a good point. In reply to the Chairman of the Sub-Committee, the right hon. and learned Member for Surrey, East (Sir G. Howe) recognised that it is fair to look at revenue and expenditure together. In those circumstances, how can he argue that discrimination between taxpayers on the one hand and council house tenants on the other is totally different?

Sir G. Howe

The difference is as plain as the difference between chalk and cheese—between taxing someone and giving him a subsidy at the expense of other taxpayers. No doubt we can have another debate about the matter if by some dreadful chance the absurd advice of the National Executive Committee of the Labour Party to begin to withdraw the relief for above-the-standard-rate taxpayers should appear in the Budget. If that happens, we shall debate until the night and day is finished. We shall not stand for the imposition of yet another burden upon middle management, which is already sweating under massively high taxation. If that were done, it would be the height of folly.

The result of this ragbag of selective expenditure cuts has been to impose a heavy and unfair burden on the construction industry. The money available for the construction industry since last year's White Paper has been cut by—1,500 million. The industry has faced cuts that are four times as large as those that have been applied to the rest of the public sector. There are now 2,500 bankruptcies a year in the industry. A total of 230,000 people in the industry are now out of work and they represent 17 per cent. of the total unemployed. The number is still rising.

Mrs. Renée Short (Wolverhampton, North-East)

What about the way in which the cuts are being distributed?

Sir G. Howe

I invite the hon. Lady to look at Part I of the White Paper, and at paragraph 34 in particular. It states that The provision for some services in some areas will have to be reduced; and there will be a fall in staff numbers, estimated in England and Wales at 20–30,000. A sharper reduction would have been required but for a switch of about £130 million from previously planned capital to current expenditure That means that local government has decided to spend on the maintenance of its own current programmes £130 million and to slash other programmes to the same extent. That is one of a number of illustrations of the way in which the Government are allowing bureaucracy to continue undisturbed at the expense of those in the building industry.

The situation is more dramatically set out in Table 7, which spells it out with crystal clarity. The table deals with current expenditure on wages and salaries and states that wages and salaries in the public sector in 1975–76 were £15,566 million and that in the year still to come—1977–78—they will be more, and will total £15,910 million.

If one contrasts that with what has happened to capital spending programmes, taking the aggregate figure, in 1975–76 it was £10,786 million and in the coming year it will be £7,593 million. While the salaries of the people who are directly employed in the public sector have risen—and will rise into the year ahead—capital spending programmes have been cut by £¾ billion. The Government have allowed the public sector to look after its own at the cost of grave hardship to the rest of the working population.

One cannot endorse or accept a policy that imposes such a discriminatory and destructive burden on the construction industry and that leaves the great rolling programmes of central Government to go ahead.

Had we been allowed to table an amendment today it would have been directed to that point. It would have deplored the disproportionate burden placed on capital expenditure cuts, and on the construction industry in particular.

The amendment would have deserved the support of both sides of the House, because this is a misconceived, misshapen programme for cutting public expenditure. If that amendment had not commanded the support of the House, the general scale of reductions in public expenditure—

Mr. Powell

If the right hon. and learned Gentleman had been defending or arguing such an amendment as that to which lie has just referred, would it have been his proposition that there should have been less reduction in capital expenditure and more reduction in current expenditure, or that there should be more reduction overall and that the additional reduction should have fallen on the current side?

Sir G. Howe

Basically, I should have argued that there should be more reduction overall. Had that been done at the time—and the right hon. Member for Down, South was urging it two or three years ago—it would have been possible to avoid such a rapid and savage phasing down of the construction industry.

The proposition that Government spending should have been reduced more extensively would also command the support of the House and we should have had the opportunity to debate it. Our complaint is that the Government have deliberately and cynically—notwithstanding the importance of the issue—chosen to deny the House the opportunity to vote on that tonight. A Government who have so far disregarded the custom and practice of the House in order to deny it the opportunity to vote on either of those questions are a Government that no longer command the confidence of the House.

5.30 p.m.

Mr. James Boyden (Bishop Auckland)

I thought that I should intervene briefly, as Chairman of the Expenditure Committee, to explain to the House the situation in which the Expenditure Committee finds itself over this White Paper.

I thought that the right hon. and learned Member for Surrey, East (Sir G. Howe) would be impartial, but he coloured his speech with a certain amount of politics. What he was saying towards the end of it about the relationship of expenditure to needs was pointed out by the Committee in 1972, and various Sub-Committees of the Expenditure Committee have been pointing this out more or less ever since then.

The present position is that the House has charged the Expenditure Committee to consider the White Papers on public expenditure. This the Expenditure Committee, largely through its General Sub-Committee endeavours to do. It likes to have its findings before the House before any particular debate.

The paper that we are considering today was published in two parts, the second part appearing on 25th February, less than three weeks ago. That really gave the General Sub-Committee, chaired by my hon. Friend the Member for Nottingham, West (Mr. English), an almost impossible task. What it has done, with great expedition and considerable skill, has been to analyse in a brief report the salient macro-economic aspects of the paper and to bring forward its report. If any hon. Members have had difficulty in getting the report in good time it is purely because there has not been enough time for the Sub-Committee of the Expenditure Committee to get out the papers any earlier.

The Fourth Report of the Expenditure Committee has been in the Vote Office for about 36 hours, and that is as early as it could have been there. It is in duplicated form, because there was not time for it to be printed.

The right hon. and learned Gentleman made much play with the delay in producing the second White Paper, but I really think he should have had some regard for the negotiations with the International Monetary Fund, because that was the major reason, this year, why the paper was so delayed. I hope that my right hon. Friend the Chief Secretary can give us an assurance that next year, when we are calmly considering these matters again, we shall have a White Paper in November or December and that we shall not be disturbed by these extraneous matters, and that the Chancellor will be able to exercise his authority over the other Departments and bring them to understand the situation so that the House can have its White Paper in good time and the Sub-Committee can do its work on it effectively.

The Sub-Committee makes no criticism of Treasury Ministers or the Treasury over this delay. In fact, during the last 12 months relations between the Sub-Committee and Ministers and the Treasury have very much improved. The expedition with which they deal with queries from the General Sub-Committee and the general co-operation that goes on constitute a very great improvement over previous years. This is something of which we very much approved, and we hope that it will improve even further. The little business about the delay is a case in point.

One of the major findings of the Committee, which has already been referred to twice—the fact that capital expenditure has been so seriously cut and that current expenditure is expanding a little—is not only a theme that gives a number of my hon. Friends considerable concern; the Expenditure Committee and its different Sub-Committees—my hon. Friend the Member for Wolverhampton, North-East (Mrs. Short) has said this comes from some of her reports, and other Committees have said the same thing—have spelled out the way in which unexpected cuts have damaged programmes and in the long run have meant far less value for money.

I subscribe to the views that have been put forward that in this context the construction industry is a rather special case. When my right hon. Friend was defending the capital cuts I rather hoped that he would have been able to say something about rather more specialised treatment of those programmes that particularly involve the construction industry. However, I am sure that the Expenditure Committee will return to this theme during the next few months, and we hope to be able to give the Treasury some advice that it will accept.

There has been some criticism of late that the Expenditure Committee is not adequately staffed to do the task laid upon it. Were we in more lush times, I have no doubt that we would like more staff. However, considering the present economic difficulties, I think that the Committee is making good progress, and is doing it with the greatest attention to the costs of staff. For one thing, the Committee is able to get to advise it a wide range of expert advisers. At present we have 15 part-time advisers advising the various Sub-Committees. We get them for very modest remuneration. They could get very much better money elsewhere. It is a tribute to them and a tribute to the House that people of this sort will come forward and give their most conscientious and hard labour to assist our cause.

There is an advantage in this from the point of view of the House. If we had large permanent staffs of experts we should set up a parliamentary bureaucracy. Bureaucracy is very often criticised when it is in the form of the Civil Service, but it would be no better for being a parliamentary bureaucracy. I have referred to this on previous occasions. In the United States the very large number of people who are serving committees full-time build up on inertia in those committees, a sort of perpetuation, which does not and cannot happen here at present with the Expenditure Committee. We should be well on our guard to resist that.

Mr. English

I support my hon. Friend's argument. He mentioned our 15 advisers. I think it is also important to mention that many of them are the heads of considerable organisations, of which they willingly make use for the purposes of our Committee. To replace the equivalent of, in many cases, those 15 organisations would indeed mean an enormous staff.

Mr. Boyden

I am grateful to my hon. Friend. That is exactly true.

We have a very good system of permanent clerks who are well used to serving the House. They fit extremely well into this system of having part-time experts. There is no jealously between them. They work most harmoniously.

We have three permanent experts on these Committees, doing special jobs. The Exchequer and Audit Department has lent two members of staff to work for the Defence Sub-Committee, and there is a special adviser, an ex-civil servant of very senior rank, who has joined the Committee recently and works largely with the Sub-Committee chaired by my hon. Friend the Member for Nottingham, West.

Therefore, I emphasise that in the discussions about whether the Expenditure Committee is adequately staffed, we ought to look at the results, and we ought to look at them in relation to the service that the Committee is getting. I do not say that it cannot be improved, naturally, but in the present times of difficulty in relation to expenditure itself the Committee is doing a very good job, and it hopes to do even better.

This year, on receipt of the White Paper, every Sub-Committee set out to make a special study to assess the very things that the right hon. and learned Member for Surrey, East has mentioned. The Sub-Committees are proposing to test the objectives underlying the programmes that they are considering and to seek to quantify the demands against those programmes.

The White Papers that are now available cover a range of years. They cover a good period of the past and, of course, the future. This will enable the Committee to assess the impact of past programmes on the need that they were designed to satisfy and will throw light on the question whether the programmes have been successful, where there may be economies, and the likely success of future programmes. We intend to push this forward in our Committees to see that we arrive at opinions as to the cost-effectiveness of the particular methods that are being used and possibly on alternative means.

Naturally the Sub-Committees cannot cover the whole range of what is proposed for the next couple of years or so, in terms of taking differing sections of the Vote and analysing them in the way that I have described. The present proposals before the various Sub-Committees are the housing programme, export credit guarantees, the Government's priorities in health and personal social services, and the employment of civilians for police purposes.

In addition, the Defence Committee is doing this sort of thing all the time. It was the first Committee to have a running investigation into costs, and there has been a recent report from it on the effects of the cuts.

The Committee under the chairmanship of my hon. Friend the Member for Nottingham, West is continually dealing with the procedures of the essence of the Treasury work. So, a fairly effective programme will be available in addition to the existing operations of the Committee, which are to examine in detail particular subjects in which it is particularly interested. That has been the traditional work of the Committee for a considerable time.

Dr. M. S. Miller (East Kilbride)

My hon. Friend mentioned the Defence Committee. Will he comment on the situation that would develop if the Opposition's attitude towards what we should be spending on defence was adopted, as opposed to the Government's proposals that we are discussing today?

Mr. Boyden

I am particularly interested in the construction industry, and I have some sympathy for it. Such an approach would be a further blow to that industry, because the money that the Conservatives would want to spend on defence would undoubtedly be taken away from construction. Therefore, I agree with the implication of my hon. Friend's question.

The particular subject of today's debate comes from the General Sub-Committee, chaired by my hon. Friend the Member for Nottingham, West. That Committee has been extremely diligent and hardworking, not least in relation to this report, which was produced in the minimum of time and by considerable application.

The Committee's expert advisers over the immediate past have been quite outstanding. My hon. Friend drives the Committee with considerable skill and himself spends many hours in devising the sort of analysis that is required to get the best results. I hope, therefore, that full consideration will be given to the Sub-Committee's Report, and I hope that we shall have some backing in the House for further progress along the lines that I have been suggesting.

5.43 p.m.

Mr. J. Enoch Powell (Down, South)

When the Chief Secretary resumed his seat he used—I do not know whether by a slip of the tongue or deliberately—an unusual formula for a Minister completing a speech in such circumstances. He said that he commended the White Paper and the Government's proposals to his hon. and right hon. Friends. The normal formula is to claim at any rate to be commending those proposals to the House, even when they may notoriously be such as will not commend themselves to a great part of the House. Whether intentionally or not, however, he was stigmatising by implication the fact that no positive proposition is being put before the House on this occasion by the Government.

My hon. Friends and I who have the duty, which we undertook to our constituents when elected, of scrutinising on their merits the matters put before the House, have often complained that on Supply Days we have not been provided by Her Majesty's Opposition with a statement of what their alternative policy would be, a statement which would enable us to go into the Lobby one way or the other choosing, as the electorate is eventually required to choose, between alternatives.

Now, however, the fault lies on the side of the Government. Here, after all, is a major element in the Government's financial management, one of the normal steps in the financial year, and yet the Government have deliberately so framed the Question as to make it impracticable for the Opposition to invite the House to consider any alternative or any criticism of it in explicit form which would lead into one Division Lobby or the other.

I believe this is evidence that the Government are indeed trying to avoid securing the support of the House as a whole for their financial policy, and are only concerned to avoid the degree of support or lack of support which that policy enjoys on their own Benches from becoming too painfully visible to the House and the country.

Nevertheless, the Opposition need not despair. There are means at their disposal for ascertaining the extent of confidence in the Government in the House. It is the privilege of an Opposition at very short notice to ascertain whether, generally or on a specific matter, Her Majesty's Ministers enjoy a majority in the House. They therefore have it in their power very shortly to remedy what I must stigmatise as an objectionable omission on the part of the Government.

Mr. Lawson

On this important point, will the right hon. Gentleman enlighten the House on whether the Government have his confidence?

Mr. Powell

Certainly my hon. Friends and I will do that as soon as there is a proposition before the House, when we can see the grounds on which the proposition is put forward and listen to the arguments on which it is commended or rebutted. That, as the hon. Member will be the first to concede, is what all of us are prevented from doing by the form of today's debate.

The right hon. and learned Member for Surrey, East (Sir G. Howe) had to go as far back as the early 1920s—or so he assured us—to find a parallel for this procedure upon this matter. Probably it would not be necessary to go back quite so far—though I think one would have to go back a considerable way—in order to find a precedent for what is presented in Table 2, that basic analysis of public expenditure, in Volume I of the Government's White Paper. As one of the three Treasury Ministers of 1957 –58 I cannot contemplate without some emotion a run of four years during which total expenditure in constant terms in the second year was little greater than in the first, in the third is intended to be substantially lower than in the second, and in the fourth will not be much higher than in the third.

Such a run of years, as evidence of rigorous control of public expenditure—and some of the methods detailed in Volume I of the White Paper are both important and novel—would require some beating over a considerable time past. I doubt whether the same degree of control has been exercised with such determination for so long by any Administration in the last 20 years, and I am pretty certain that in the control of one of the most difficult elements of public expenditure, namely local government expenditure, we are breaking new ground—I trust with the approval of the House as a whole—and that this, more than anything else, has contributed to the relative stability of public expenditure in real terms disclosed by Table 2.

That table, like the White Paper itself, covers only one year beyond the financial year immediately ahead. Here I come to one of my two points of strong disagreement with the Public Expenditure Committee. The Committee deplores the fact that the White Paper does not present another two years beyond 1978–79. For my part I rejoice to see what I believe is the beginning of the demise of Plowden.

Ever since the proposition was put forward by Plowden in 1961, welcomed, against my urging, by the then Chancellor of the Exchequer and adopted in 1962, I have argued that the publication on a five-year basis of future views of the course of public expenditure is inimical to proper Treasury control of public expenditure and confers no countervailing benefit. Experience has uniformly shown that the third to fifth years of the five-year cycle have had no useful relationship to experienced reality. If they did, one might consider if there were two sides to the question; however, the experience of the past 16 years in which Plowden has been applied seems to be damning in its verdict upon the effectiveness of Plowden as a method either of planning Government expenditure or of securing the obedience of public expenditure to the policies of the Government.

Even this afternoon the air has been full of talk of cuts. What are these cuts? In the White Paper we contemplate a column of figures showing three or four successive years in all of which public expenditure in real terms is to be virtually stable as an absolute and also virtually stable as a proportion of the gross domestic product, because the growth of the gross domestic product has been so slight.

Yet against that background parties and Parliaments tear themselves to pieces discussing cuts. There are no cuts. Public expenditure has not been cut, and is not to be cut, to any measurable degree either in absolute or in relative terms. What has happened is that there have been published large forecasts, which, the further ahead they were, carried less responsibility on the part of those who made them. It is in relation to those figures that hon. Members and the country at large have been invited to talk about slashing cuts in public expenditure.

We have been deceiving ourselves by a system that invited the publication of imaginary projections over five years and then as we came to each successive year obliged us to live in the real world.

Mr. Kinnock

The situation may be exactly as the right hon. Gentleman says but is it not true that there have been real cuts in particular areas of public expenditure? Is it not true, too, that what we are talking about is a reduction in the anticipated rate of growth of public expenditure, which means that there will be savage reductions in that which will be delivered to people in place of promises previously made? Does that not excuse the contest that takes place between parties and within parties?

Mr. Powell

It excuses it to the extent that we have been so unwise as to live in a Plowden world. Experience has shown that Plowdenism has resulted in Governments and parties holding out prospects to their supporters and the public which have proved to be unreal and irreconcilable with the real situation of the country. I cannot believe that that is beneficial from any point of view.

For Treasury control to be exercised rationally, of course, all Departments must be making projections all the time. They must, if one must use the word, be planning ahead. What is equally necessary is that the Treasury should be a partner to all that thinking and planning. The notion that it is an intrusion of the Treasury to seek to participate in the thinking of each Department is a total misconception. It is essential for good government that the Treasury should be a partner in the planning, the work, the philosophy, the thinking and the intentions of every Department of Government. It is for that reason that those who would break up the Treasury, rather like children who imagine that the constraints of the real world can be removed by breaking something that is within their own power, seek to do something that is contrary to good government.

It is the function of the Treasury—a function that would have to be reconstructed if we succeeded in taking it to pieces—to reconcile the total magnitudes of the economy and the philosophy of the Government in power with the continuing thought, work, and activities of all Departments of tSate. Those elements must be brought together. In that one Department there must be men who are constantly in contact with and sharing the thoughts of those in every other part of the Administration. But if they are to do that, if they are to do it successfully and if they are to do it without constant jolts and stop-go, the projections of the future, until they are finally authorised for the year ahead, not only do not need to be published but should not be published.

So I would rather have seen the 1978–79 column absent from the White Paper—the actual figures will not prove anyhow to be like those in the column one way or the other—than, like the Expenditure Committee, want to see yet another two even more imaginary columns standing to the right.

At all events, we have the figures for the next financial year and they show a minor diminution both real and relative, but for broad purposes a stability in public expenditure. The Chief Secretary to the Treasury constantly described last year, this year and perhaps next year as years when the economy would be stabilised. I must take issue with him. It is a great mistake for the Chief Secretary to equate the stability of the figure of public expenditure with whatever might be meant by the stability of the economy. If he equates those figures with stability of the value of money, he is liable to be greatly mistaken.

I wish we could avoid using the words "economic stability", which mean anything or nothing, and say precisely what it is that we wish to see stabilised. I do not suppose that anyone in any part of the House would say that he does not wish to see the usable value of money improve in stability over the coming years. I doubt whether there is any section of opinion that would dissent from that. However, behind the figures in the second table there lie the projected figures for the intended public sector borrowing requiremen to £8.7 billion for 1977–78. There is hidden in that figure a whole series of factors that are not yet disclosed. The majority of them will not be disclosed until the Budget Statement, if then. Certainly the factor of real growth anticipated in 1977–78—the 2 per cent. real growth—is not an important element in that group of factors. But whatever they are—we shall know in due course—we have to set off against the stability of public expenditure in Table 2 the huge public sector borrowing requirement of between £8 billion and £9 billion.

I say again here what I have said in every debate on this subject in this Par- liament. I believe that by planning for a public sector borrowing requirement of that dimension, a requirement not anticipated to be appreciably lower in the following year, 1978–79, the country is dicing with the resumption of inflation and the renewal of all the miseries which that brings in its train. I repeat that I believe that we cannot live safely with this size of deficit—if that be the appropriate single word for public sector borrowing requirement. I believe that at any moment a nation whose finances are thus balanced is at risk of running into inflationary courses and of having to resort to all sorts of short-term measures and interventions that will be damaging to the economy and unfair to different sections of the community. One of the measures that I have in mind is severe manipulation of the interest rate.

If we are to escape from that danger and descend from that knife edge, we can theoretically operate upon two fronts—revenue and expenditure. But there has been no indication that the Chancellor intends to operate positively on revenue. Therefore we are driven back to operating on expenditure. We are driven back to the conclusion that I was glad to hear confirmed by the right hon. and learned Member for Surrey, East that the public expenditure totals contemplated for next year and the year after are much too high and that there ought still to be substantial reductions—and now I really am talking about cuts—in these figures. These reductions must be measured in terms of billions of pounds in each of the two years, so that we can get the borrowing requirement down to the point where we can cover it, even in adverse circumstances where there is no real increase in the country's production, without the Government being exposed to the risk of losing control over the money supply and thus over inflation.

The Expenditure Committee put forward as its other major criticism that the Government's operations have been exclusively upon capital account. I am not sure I can accept the criticism in that form, since I have stood here in three previous years and said that, if substantial reductions are to come about soon enough, they would have to come about mainly on capital account because the current account is much less flexible. If one has to get very large sums out of public expenditure, it involves deferment, if not cancellation, of capital expenditure. That does not mean I dissent from the conclusion of the right hon. and learned Member for Surrey, East that there are still substantial areas of current expenditure in which total public expenditure could be reduced.

Mr. Martin Flannery (Sheffield, Hillsborough)

Where?

Mr. Powell

I associated myself with the remark that we are spending far too much on too large a gap between actual rents and economic rents. Another area is the subventions to industry—the anti-bankruptcy payments, that keep men tied to making a loss in loss-making firms when they should be making profits for themselves and others in different combinations and different arrangements of our resources.

Mr. Ridley

On the question of capital account, is the right hon. Member not falling into a slight trap in condoning the abolition of years four and five and advocating a high level of capital cuts as he has in the past? Might it not be that years four and five have been abolished to prevent these capital deferments from turning up again in later years?

Mr. Powell

I hope they have been abolished so that the Treasury and the Government might not be committed to capital outlays in those relatively distant years. It is actual projects to be initiated in the coming financial year which are the most accessible form of public expenditure if the total has to be reduced. So, while in the long run a balance must be restored, I do not think criticism can be levelled at those who have secured short-term reductions primarily on the capital side.

Sir G. Howe

I am anxious to try to get a clear understanding of the speed at which capital and revenue cuts can be made. To turn off a capital spending programme generally involves a time-lag in stopping an order or in the cessation of a project. However, with a programme such as food subsidies this can be turned off very quickly, and the same can be said for rent subsidies. The contrast is not as clear as the right hon. Gentleman has painted it. Had the Government embarked on cuts on both sides much earlier they could have marched forward hand in hand.

Mr. Powell

I am not sure that the reductions in the total, of which some subsidies could be achieved as rapidly or as painlessly as the right hon. Gentleman suggests; but I associate myself with him in saying that there should be in the coming year substantial further reductions in the total, of which some should and could be sought on the current side.

My final point is one on which there has been considerable misapprehension on both sides of the House, but especially the Labour side. Whenever there is talk of a reduction of the public sector borrowing requirement by, say, £3 billion and when it is said that that reduction must be secured by an equivalent reduction in public expenditure, many people conclude that this means a reduction of £3 billion-worth of economic activity—with all the consequent increase in unemployment, and waste, and so on. That is not so. The public sector borrowing requirement is not a mine of Golconda from which the Government are drawing resources that are not simultaneously denied to other parts of the economy. That £8.7 billion of the public sector borrowing rquirement projected for the next financial year is just as effectually withdrawn from the private sector as if it had been withdrawn by taxation; for it is withdrawn either by borrowing or by the effects of inflation—one way or the other.

Those who say that there should be more resources available for investment and that more should be ploughed back into industry have their wish if the public sector borrowing requirement is reduced by means of a corresponding reduction in public expenditure; for that automatically means that an equivalent additional amount is left at the disposal of the private sector. A great part will go into new capital. While it is of the nature of the construction industry—of the capital element of public expenditure—that it tends to be a cushion, and bears the brunt of changes of gear in public expenditure, we should not assume that further reductions in public expenditure involved in a recoil from the inflationary brink of £8.7 billion public sector borrowing requirement would be a cause of contraction in the construction industry. Certainly it would not be a cause of contraction in the capital industries generally.

A great part of those resources would, in all probability, go into new capital. Indeed, more might well go into new capital than if they had remained in the public sector. We are not dealing with an operation which for monetary reasons is demanding and enforcing a curtailment of economic activity. What we are talking about is a reorganisation of economic activity—the very reorganisation which Opposition Members are often calling for—the renewal of industry and the renewal of the capital equipment of industry.

We are calling for that by way of a redistribution of the national effort; for in the end what we are discussing when we talk about figures of public expenditure is the pattern of the national effort. Therefore, although we are wrongly denied a meaningful vote tonight, I believe now, as I have said in the past, that there could and ought to be much greater common ground between the two sides of the House about the necessity for these measures, which we have to take if we are to regain a reasonable stability for our currency. We should all see that those measures could at the same time be the key to the advances which we want in British industry and the British economy.

6.12 p.m.

Mr. John Pardoe (Cornwall, North)

I followed the right hon. Member for Down, South (Mr. Powell) in a great deal of what he had to say. I must say that I found myself more closely in agreement with the argument he was making than I have been with him on some previous occasions. I do not feel that the right hon. Gentleman was on all fours with the right hon. and learned Member for Surrey, East (Sir G. Howe) who spoke about housing subsidies. I think the right hon. Member for Down, South is concerned to cut all housing subsidies, as I am—and, indeed, all subsidies full stop. As I understand it, from what the right hon. and learned Gentleman was saying, the Conservative Party now seems to be committed to cutting the subsidies which go to those who rent council houses but to increase the gap between the economic, or real, rate of interest which is charged in the rest of the economy for one section of the community alone, namely, owner-occupiers.

Mr. Powell

Since the hon. Gentleman puts it to me I would say two things. First, I do not believe that in the long run there is a justification for rents that are not market rents, apart from the question of rebate and assistance for families and persons with regard to their particular circumstances. Secondly, I have never believed that there was a justification for the interest upon private borrowings for private consumption commanding tax relief.

Mr. Pardoe

In that case both the right hon. Gentleman and I are in agreement. I do not think that either of us is in agreement with the Conservative Party.

The right hon. Member for Down, South was also right to point out that achieving a desirable end would be very painful and would take a long time, even if that is the direction in which we are heading.

I want to dispose right away of what I can only call the theology of public versus private expenditure because as a Liberal I do not like the increase in collectivism. I myself much prefer a self-reliant society, if one can describe it in that way. I do not see public money, publicly administered, as an answer to every problem, but Britain is not spending a higher proportion of its national wealth than other comparable industrial countries. There is no shred of evidence in the statistics that one can find to suppose that it is.

I know that mere facts will not change the minds of Conservatives. I sometimes think that Proust was referring to Conservative Members when he said: The facts of life do not penetrate to the sphere in which our beliefs are cherished. As it was not they who engendered those beliefs, so they are powerless to destroy them. There is no evidence to suggest that this country's economic and industrial problems are due to the high proportion of our national wealth that is being spent in the public sector. We must look elsewhere for the answers for our lack of industrial and economic success. Nor is it self evidently clear, even if public spending did reach a much higher proportion of the national wealth than it does now, what effect that would have on the major economic problems—for instance, unemployment and inflation. The notion that unemployment would fall in some magical way if we were to cut public spending depends on the "dig a hole" theory: if one digs a large hole in the public sector some enterprising entrepreneurs will come along and fill it.

It is certainly true that in some situations it is excruciatingly difficult for a Government to determine when these circumstances are present. They are not present in a recession. It is clear that in a recession it makes sense to run a high budget deficit because that is one way in which the Government can take up the slack in the economy. This was spelled out by a group of economists, of a political and economic complexion that I find congenial, in The Times on 15th November when they wrote: So long as private savings remain high, corporate liquidity low, a collective oil deficit persists, and the economy remains slack, it is perfectly rational to plan a substantial budget deficit They went on to say that a quick attempt at a massive reduction in the Budget deficit would simply aggravate the recession. I am absolutely convinced that this is so. The problem for the Government is, therefore, one of re-entry into economic expansion out of recession—how to cut back public expenditure, which has been increased in recession, perfectly accurately, as a counter-cyclical measure when that recession comes to an end.

The right hon. and learned Member for Surrey, East seemed to me to be confusing this issue quite extraordinarily. Surely he must admit that in the management of the economy there is a time to cut and a time to spend. The right hon. and learned Gentleman's repeated assertion that somehow we would have solved all our economic problems if only the Government had made three years ago the cuts that they are making now, seems to be absolute nonsense. Had those cuts been made earlier they would almost certainly have exacerbated the recession.

Indeed, this was recognised by the Conservative Government in their record during the period 1970 to 1974. The Leader of the Opposition, then Secretary of State for Education, came to the House early on after the 1970 June elec-0 tion asking us to approve what were regarded as fiddling cuts in milk, school meals and the like. She told us they were all made necessary by the need to cut public expenditure in order to make way for private sector expansion. Less than 12 months later she went to the conference of the Association of Educational Committees in her guise as Secretary of State for Education proudly patting herself on the back as the Secretary of State who had managed to win massive increases in public spending for education.

We may be told that the Conservative Party has changed in this respect, but I do not find any change at all, particularly on the education front. The right hon. Lady's successor as Conservative spokesman for education, talking about the Government's then cuts, wrote in the Sunday Telegraph in February 1976: I can quite understand her"— he was referring to the hon. Member for Eton and Slough (Miss Lestor)— sense of outrage at the savage cuts in education. The person who should be resigning is not Miss Lestor but Mr. Fred Mulley who has failed in the first duty of a Secretary of State which is to protect education If the first duty of all those in the Cabinet who head up spending Departments is to increase public spending then of course we have a constant conflict, and the management of the economy is bound to go down hill.

The size of the Budget deficit required at any state of the economic cycle is not necessarily relevant to the argument which has been launched by some hon. Members already in this debate about the balance between public investment and current public expenditure, but surely the industrial strategy is enormously relevant to this balance.

There is in this House fairly general agreement that Britain needs more investment. Cuts in public investment in the present state of British industry can only mean less total investment, because private industry will not take up the slack on investment. Public investment should be held high, and the cuts should have come, if they had to come at all, from current expenditure. That has been said by all sides, and the Select Committee on Expenditure made the point, too.

I repeat that this is not an argument which is derived from any counter-cyclical theory. It is an argument which must be the logical response from the Government's own industrial strategy. Yet between 1976–77 and 1978–79 current expenditure will rise slightly by 0.7 per cent. while capital expenditure will fall by 18.4 per cent.

I understand the difficulties which were spelt out by the Chief Secretary. It is much easier to cut capital expenditure than to cut current expenditure, but part of the analysis behind the industrial strategy is that Britain has consumed too much and invested too little. At the same time, the Government have neglected the effects of cuts in public investment on the private sector of industry, notably the construction industry, which has lost out very considerably.

I want now to refer to a piece of nonsense in the Fourth Report of the Expenditure Committee. There is more than one piece of nonsense in it, but I refer especially to the piece in paragraph 11 on page 6 of the document. In discussing the Government's decision to cut investment as opposed to current expenditure, it says: Nor can the Government which took this decision be wholly blamed since many cuts in current expenditure would have involved legislation, something which is difficult to guarantee in a Parliament with the multi-party composition of the present one. Electoral results such as those of 1974 carry their consequences and this is one of them. That is complete and utter balderdash and can only have been concocted out of the mind of a two-party political pygmy. It is the very opposite of the truth. It is the failure of Parliament to control the Executive which has led to the increase in public spending over the years. Here we have a Select Committee trying to tell us that the Executive are virgin pure in these matters and that it is the all-powerful and disastrous Parliament which has forced the Executive to spend money more than it wished.

I noticed that the Chief Secretary did not mention this excuse. If he had, I would have asked him what pieces of legislation for cutting current expenditure the Government wished to bring forward which they had not been able to bring forward, apart, perhaps, from the redundancy rebates scheme.

Moreover, the Committee contradicts itself. In paragraph 10, referring to the public expenditure cuts in December 1973 which it rightly also condemns for having cut too much in public investment and not enough on current account, it asks why the Executive did not use their majority, which was then an enormous one, to cut current expenditure, and what was Parliament doing at the time. Of course, Parliament was not able to exercise control at the time, and it is nonsense to suggest that, somehow, the results of the 1974 election which produced a minority Government are responsible for the Government increasing public expenditure. Precisely the opposite is the truth.

At last we have a situation where Parliament has some control over the Executive. In my view, therefore, minority government can be good government. However, we need to write new ground rules for the exercise of minority government and for much greater discussion before legislation is plonked on the Table.

Mr. Boyden

In view of the great light which obviously the Liberal Party could throw on the reports of the Committee, why does no Liberal Member volunteer to serve on the Expenditure Committee?

Mr. Pardoe

It is not a question of volunteering. I have offered my services repeatedly to numerous Committees of this House—

Mr. Boyden

Let me tell the hon. Gentleman that there was a place available for a Liberal Member on the Expenditure Committee. I saw the hon. Gentleman's Leader about this. It was not taken up.

Mr. Pardoe

I do not think that the hon. Member for Bishop Auckland (Mr. Boyden) is referring to the present Leader of the Liberal Party.

Mr. Boyden

No.

Mr. Pardoe

We do not all go back quite as far as the hon. Gentleman. Remembering what the right hon. and learned Member for Surrey, East was telling us, the hon. Gentleman probably asked Asquith, but, if the hon. Gentleman is offering the Liberal Party a place on the Expenditure Committee we shall be very happy to accept it, and if any colleagues suggest that I should personally take up that place I shall be delighted to accept it. I look forward to hearing from the powers that be in this House who issue these invitations.

There are two massive omissions from the two White Papers before us. The revenue forecasts are not given alongside the expenditure forecasts. This would help the House to control expenditure, because it would then see the taxation consequences of what it was doing. Nowhere in either volume or in the Select Committee's report is there any measure of the efficiency of public expenditure. It is all very well to continue the macro-economic arguments about the effect on the economy of the totality of public spending and resources, but if we looked after the pence the pounds would tend to look after themselves.

Mr. Boyden

That is precisely what I said the Committee was proposing to do. There was no one present on the Liberal Bench to hear me say it.

Mr. Pardoe

I am delighted to hear that the Committee intends to do so. It has never been done in the history of the Committee so far. The Committee has been in being for a long time, and it has not done it. I shall be delighted to see it done and, since the invitation has been thrown across the Floor of the House, I hope very much to participate. That is really looking after the efficiency in individual expenditure programmes.

I give an example in education with reference to my own county of Cornwall. When we look at the cost of providing primary education per pupil in our various counties and schools we find that Cornwall in the current year was the lowest, with £241 per pupil, as against £326 in London and £265 in the other non-metropolitan authorities. It is impossible, in correspondence, to ascertain from the Department of Education and Science any reason why there should be this big discrepancy. It seems to me that it can only be that other authorities are wasting education money.

Again, when one asks the Secretary of State a simple question about the average cost per student per week in full-time education in colleges of education in the county, and about the highest and lowest cost colleges in England and Wales, one is told that the information is not available. How is it possible to monitor the efficiency of public spending in the education service unless we have a Department which at least knows the answers to these questions?

I take another example—industrial subsidies, regional support and regional regeneration, costed in the Public Expenditure White Paper at £743 million for the current year. How is this allocated between the various Departments, and what sort of standards are we taking for the efficiency of the return? I would have thought that the money was being allocated according to the amount of unemployment in an area.

The South-West Development area has a substantially higher male unemployment rate than any of the other development areas. The figure is 13.8 per cent. compared with the average figure of 10 per cent. Even on Merseyside the figure is only 12.6 per cent. Yet if we examine expenditure per head in the various areas we find that only £8.3 per head of population of this assistance is being spent in the South-West assisted areas compared with a sum of £14 per head in English assisted areas and a figure of £23.3 in Welsh assisted areas—none of which has an unemployment rate as high as that in the South-West.

We need a national efficiency audit to make comparisons between the real costs in the public and private sector services between one part of the United Kingdom and another and between expenditure on comparable services in this country and that in other countries.

Finally, I wish to deal with the subject of local government expenditure, which is a substantial proportion of the total. The White Paper continually bemoans the fact that it is almost impossible to keep control over what is now more than a quarter of the total of public spending. The best kind of control lies in linking expenditure with taxation—in other words, for local authorities to be responsible for raising their own revenues and living off them. That would be the best discipline that could be exercised.

Mr. Timothy Raison (Aylesbury)

And in Cornwall, too?

Mr. Pardoe

Yes, in Cornwall as well. If we take the whole of public expenditure per head in Cornwall, the county with the lowest income per head of any county in the United Kingdom, we do not come out of the exercise at all well. That can be seen from the figures of regional assistance.

I repeat, that the best exercise in discipline lies in allowing local authorities to raise their own money. I know that objections will be made that such a proposal may mean that Government can no longer exercise control over the management of the economy. The fact is that the country with the greatest decentralisation of revenue-raising powers, namely, Switzerland, has managed its economy more efficiently than has any other European country. It is surely not impossible for efficiency of management to go hand in hand with the decentralisation of taxation. In the absence of such decentralisation penalties must be imposed on those authorities which overspend. I do not accept the Government's repeated assurances that it is impossible to penalise them. So long as this House votes money spent by local authorities, it is this House that has the responsibility to penalise those authorities who do not spend efficiently. I hope that the Government will re-examine the matter and bring forward a programme for penalties. If this requires legislation I am sure that the Government will be able to get it through the House.

6.34 p.m

Mr. John Garrett (Norwich, South)

This public expenditure White Paper, particularly Part II, is more informative than in earlier years, but it is still a long way from providing the information that was envisaged when the Select Committee on Expenditure was first set up in 1971. Indeed, the information is so inadequate that the Select Committee—which was intended to be the main vehicle for parliamentary scrutiny of projections of public expenditure—cannot carry out its terms of reference.

My hon. Friend the Member for Bishop Auckland (Mr Boyden), who was Chairman of the Committee, said that he expected the Expenditure Committee in the years to come to work towards applying its terms of reference, but he is in for a rude surprise when he looks at the information contained in the White Paper. The terms of reference of the Committee require it to study departmental spending plans and to report progress made by Departments towards clarifying their objectives and priorities, to assess the success of Departments in meeting their objectives, and to inquire into the effectiveness of departmental management. Virtually none of the information required to carry out those tasks is provided by the White Paper.

This situation arises not from any oversight by the Treasury but from a determination by it and other Departments not to tell us anything that would reveal the effectiveness of policy-making or policy implementation in Government. For example, a meaningful discussion of the analysis and reasoning underlying a particular spending programme would be enormously assisted by the publication of planning analysis reviews—the PARs that are produced in Departments to jusify particular spending programmes and policies and to discuss their effectiveness. But these documents are not available to us, although I believe that one such document from the Department of Education and Science was made available to OECD. Therefore, we can never examine spending programmes in detail.

To give another example of the continuing inadequacy of the information in the White Paper, it is exceedingly difficult in many areas of public expenditure to examine the aims and results of individual programmes. For example, we have the costs of all industrial training and we know the numbers trained by skillcentres, colleges of further education and employers, but we cannot relate costs to training establishments to assess their relative merits.

We know from the White Paper that this year £222 million of the £281 million devoted to industrial innovation programmes is in support of aerospace and nuclear research and development, but nowhere do we get the anticipated pay-off or benefits from these programmes or any justification for this enormously disproportionate emphasis on two industries, rather than on all the other industries which are in need of funds for innovation. Where do we have an account of the priorities in the White Paper behind that kind of decision?

I have dwelt briefly on some technical points in case, throughout this debate on what is in the White Paper, we forget what it does not contain. In future I want to see White Papers include a breakdown of individual spending programmes showing their objectives and providing the means by which we can assess how successful they are—their effectiveness and their impact on the community. The development of a proper investigatory system of Parliamentary Committees depends on the Executive providing that kind of information so that we are able to go behind the numbers and examine policy.

For a number of years the Expenditure Committee has complained about the failure of the Treasury to provide medium-term economic assessments in public expenditure White Papers. That criticism has been repeated this year. The few lines in the White Paper that are devoted to the economic future have an ominous ring. Paragraph 53 says that Britain will move into a substantial balance of payments surplus in 1978 and afterwards, that this surplus will be used to discharge debts and strengthen our external finances, and that well into the 1980s there will be a tight rein on the growth of demand.

The prospect is for a tightly limited growth at home through a period when there will be a rapid increase in the balance of payments contribution and the public revenues in tax and royalties from North Sea oil and gas. My right hon. Friend the Chancellor has been exhorting the surplus countries to reflate and expand demand, but when we are a surplus country we shall be doing the opposite.

Where does that leave the prospect for unemployment? We now have 1½ million unemployed and an increase in the number of people coming on to the job market involving another 1 million in the period covered by the White Paper. We have an industrial sector that is still hopelessly under-invested and desperately uncompetitive. Our exports clearly are not growing in line with the growth in world trade. We are managing 5 per cent. per year—half the rate of world growth—in exports, and our imports are growing at 12 per cent. per year.

All this planned contraction is taking place in pursuit of a limitation in the public sector borrowing requirement which the Treasury always consistently over-estimates. The figure will probably amount to £2 billion this year and may be £1 billion next year. The White Paper still talks of a probable cut in public expenditure of a further £½ billion in 1978–79.

It seems to me that we are going too far down the road of cut-back and contraction. The over-emphasis on cuts in capital expenditure has done incalculable—perhaps irreversible—damage to the construction industry, and steps must be taken to revive it. Costs in the construction industry are relatively low at the moment, and a boost to activity in the construction industry would be valuable in cost-benefit terms.

Mr. Budgen

I was hoping to rely on a similar argument. Where did the hon. Gentleman get his information?

Mr. Garrett

From the specialist adviser to the General Sub-Committee.

The general problem is how to devote the freedom from balance of payments constraints and the State receipts from North Sea oil and gas to the generation of investment and employment in manufacturing industry. First, it seems to me a crucial element of public policy that public funds should be devoted to the National Enterprise Board, which can be developed as a highly effective instrument of intervention in industry. Secondly, we have to continue with our selective scheme of investment for industry directed to overcoming particular obstacles to growth in particular sectors. Thirdly, the funds surplus to requirement for investment in big firms must be used to assist small firms to expand and re-equip.

Public expenditure planning must be related to industrial planning. This White Paper, in addition to being uninformative in the sense of the parliamentary accountability which we have the right to require, seems inadequately to have faced up to the central issue of public policy—how to use public expenditure as a source of industrial growth and the creation of new jobs.

6.41 p.m.

Mr. Nigel Lawson (Blaby)

The hon. Member for Norwich, South (Mr. Garrett) spoke as a member of the General Sub-Committee of the Expenditure Committee. One of my great sadnesses in becoming a Whip a few months ago was that it obliged me to resign from that estimable Sub-Committee. I am therefore grateful to you, Mr. Speaker, for allowing me to catch your eye on this occasion.

Had I remained on that Sub-Committee, I think that I would have tried to persuade it to alter its report in one respect. I agree entirely with what the right hon. Member for Down, South (Mr. Powell) said about the unwisdom of complaining against the omission of years four and five in the five-year projections for public expenditure. These years are a snare and a delusion, presenting all sorts of problems which the right hon. Gentleman dealt with. My regret is that, so far from this being a permanent improvement, the Treasury has said that next year it will bring back years four and five again. I cannot commend the Treasury on that, much as one looks for things to praise it for. But I hope that it will think again.

Despite this slight criticism of the Treasury, I am wholly opposed to the fashionable idea that the Treasury should be split into two, with one Ministry responsible for expenditure and another Ministry responsible for revenue. That seems to me to be the height of absurdity, not only for all the reasons already adumbrated in this debate but also because one of the most important needs is to bring home to people the inextricable link between expenditure and revenue.

One of the great myths and delusions of our time which has caused so much trouble is the idea that somehow the level of taxation is totally independent of the level of Government expenditure and that the Government can spend and spend without there being inexorable consequences in the long term and even in the medium term for the level of taxation.

I must comment, as others have done, on the extraordinary absence of any substantive motion before the House. It is quite unprecedented. It is true that in 1975 the Government refused to give any day at all for a debate on the public expenditure White Paper of that year. There was no such debate that year—the only year that there has not been one—and it was shameful. But at least the Government then had the excuse, if excuse it be, that they had controversial legisla- tion to push through and they needed the time for that. Now, of course, they are unable to push through anything. It is fear and funk that has prevented them from putting a substantive motion on the Order Paper today.

I must say that if the Government are in a state of funk it might have been better if they had tabled a motion to reduce the salary of the Chancellor of the Exchequer. That would have displayed no greater lack of self-confidence than the present motion, and at least it would have been welcomed wholeheartedly on both sides of the House and would have been a contribution towards cutting public expenditure.

There are two main questions before the House as we look at the White Paper and the Government's spending plans, and they are fairly obvious ones. First, are the cuts adequate? Secondly, are they the right cuts? The adequacy is difficult to judge because the figures in which the White Paper deals are very curious and need a great deal of interpretation. They are, to begin with, in so-called funny money.

But, granted that, there appears to be envisaged between 1976 –77, the current year now ending, and 1977 –78, the year ahead, a total cut of a little over £1,000 million. However, if one looks more carefully one finds that £500 million of that billion is accounted for by the sale of BP shares—a rather curious and nonrecurring transaction which, we have been told by some Ministers, may not happen and which, rightly, is given a separate line of the White Paper all to itself.

There is something odd in the fact that, under a rather artificial convention, the sale of BP shares counts as a reduction in public expenditure, whereas the acquisition of shares in the aircraft and shipbuilding companies does not count as an increase in public expenditure. I know how it happens, but it is an artificial convention and it is not convincing.

To find out something about the other £500 million, one has to look at the penultimate page of Volume II of the White Paper. One sees there this little note: Estimates of expenditure which are directly affected by foreign exchange rates reflect average rates prevailing in October 1975, the date relevant for costing most programmes in this White Paper. Actual payments will of course reflect the rates prevailing when those payments are made Indeed they will.

I put down a Written Question to the Chancellor of the Exchequer about this—and I must commend the Treasury for its excellent answers to Written Questions: it is always extremely helpful. I got a reply from the Chief Secretary saying that if this were calculated in current exchange rates—February 1977 instead of October 1975—the increase in expenditure would be £500 million, in White Paper terms. That is quite a lot. So bang has gone the whole billion pounds worth of cuts which were put in the White Paper as occurring between this year and next year—and as already has been pointed out, it is unwise to pay much heed to the figures for the following year.

It is difficult, then, to say whether these cuts are adequate—indeed, in a sense there are not cuts at all. Nevertheless, there are two ways of looking at the question. First, such as they are, are they adequate to reduce the amount that the Government need to borrow? Secondly, are they adequate to reduce that and also to reduce taxation as well?

My judgment—it can only be a judgment—is that they may just be adequate from the point of view of a reduction in the Government's need to borrow. I do not think that the Government's need to borrow next year, and we shall be told on Budget Day what that is, will be as much as £8.7 billion, on the basis of these White Paper figures and on the basis of the best projections that one can make.

However, what seems to me to be quite clear is that those figures are wholly inadequate if we are to have a sufficient reduction in taxation, and on income tax in particular. I was delighted to hear the Chief Secretary say that at this juncture in our affairs it was far more important to cut income tax than to increase public expenditure. I think he is right. But I also think that the cuts, such as they are, which have been announced are not sufficient to produce cuts in income tax on the scale required. So much for the question of overall adequacy.

There is, then, the question of whether these cuts are of the right kind. Here I agree with my former colleagues of the General Sub-Committee in their criticism that these cuts are overwhelmingly concentrated on capital expenditure rather than current expenditure, and that that is wrong. It is wrong because of its disastrous effect on the construction industry and in many other ways. Indeed, to put the matter in perspective, one has to go further than the Committee did. The Committee pointed out that between 1976–77 and 1978–79 current expenditure would go up by about ¾ per cent., whereas capital expenditure is scheduled to go down by 18½ per cent. But the Committee under-estimated the figures because it did not allocate the contingency reserve which clearly will be spent.

Mr. English

One cannot allocate the contingency reserve between capital and current expenditure just because it is a contingency reserve. One knows only after the reserve has been used—and I expect that it will be—whether it has been spent on capital or current expenditure.

Mr. Lawson

I take the point, but a more accurate indication can none the less be obtained by allocating the contingency reserve to capital and current expenditure in the same proportion as capital and current expenditure appear for that year in the White Paper. That would give a better approximation. Nevertheless, this is a minor point and I do not want to engage in quibbling.

The Committee that the hon. Member for Nottingham, West (Mr. English) chairs with great distinction pointed out that current expenditure will go up by 0.7 per cent. and capital expenditure will go down by 18.4 per cent. However, that is not all. For during the previous six years since the beginning of the decade, 1970–71, current expenditure has risen by 36 per cent.—more in real terms, but this is funny money terms—and capital expenditure has gone down by 7½ per cent.

There has been a steady run-down of our stock of public capital, and by that I mean schools and hospitals and so on. Sometimes when we revile the victorians—as some of us are inclined to do—I cannot help reflecting that it is difficult to know where we would be today without them, because so much of our capital stock, our prisons, schools and hospitals, was built during that time. We are living off the capital that the Victorians created and we are not adding to it as we should.

When the Treasury gave evidence to the Sub-Committee, it was made absolutely clear that the Government's decision to cut capital rather than current expenditure was a political one. But an important question immediately presents itself. Those of us who criticise that political decision must say where the cuts in current expenditure should be. Whether we say that the emphasis should be different, or that the total cuts should be greater, the question is still one of where major cuts can be made in current expenditure. Three areas stand out.

First, there is public sector manpower. We have heard again from the Chief Secretary today that the Government believe that it is difficult to cut current expenditure because local authority current expenditure is not really under Government control whereas local authority capital expenditure is. However, three-quarters of all current expenditure is central Government expenditure and not local authority expenditure. Therefore, that excuse will not wash. The current issue of Economic Trends points out how public sector manpower has increased in recent years. In a special article, it says that between 1974 and 1975 in particular there was a massive increase in employment in the public sector and a great reduction in employment in the private sector. Indeed, the same contrast appears in the unemployment figures. It is possible to obtain unemployment figures in terms of the jobs that people have left. The latest figures, for February 1977, show that unemployment in the public sector was 2.7 per cent. while in the private sector it was 5.8 per cent. I do not welcome unemployment anywhere, but nobody, on either side, can deny that the public sector has been shielded from the economic buffeting that the rest of the economy has had to suffer.

The Government attempted, in a modest way, to ensure that there would be some cuts in public sector employment. The Chancellor announced in last Year's public expenditure White Paper that there would be a saving this coming year, in 1977 –78, of £62 million in Civil Service staff costs at 1976 survey prices. However, the footnote on the final page of Volume I of the White Paper shows that the Government have been unable to achieve even this. They have been able to allocate to the various spending programmes only £47 million out of the £62 million. In other words, the remaining £15 million saving in Civil Service staff costs has fallen by the wayside: roughly one-quarter of the modest Civil Service staff costs cuts that the Chancellor wanted to introduce have failed to materialise. Yet there is obviously huge scope for simplification of both the tax system and the social security system of this country—which is the most complicated in the world. That alone could lead to a massive reduction in Civil Service staff and public sector employment.

Moreover, it is quite clear that the Government must look at the whole matter of pay and conditions, including pensions, in the public sector, which are making public sector jobs far more attractive than the equivalent jobs in the private sector. That is no way to regenerate industry and to obtain a shift of employment from the public sector to the private sector. Indeed, the reverse is inclined to be the case.

The second area of public expenditure where there is scope for economies is housing subsidies. That has been made absolutely clear by my right hon. and learned Friend, Member for Surrey, East (Sir G. Howe), and the Chief Secretary knows it well. The right hon. Gentleman has made frequent speeches about how dreadful it is that only 43 per cent.—and it is now 42 per cent—of housing costs are met by rents. He has said that this proportion must go up; but he and the Chancellor were defeated on this in the Cabinet and nothing has happened.

I would add one further argument to those that have already been adduced during the debate for cutting housing subsidies. The present system—with what are virtually tied cottages everywhere—leads to immobility of labour, which in turn leads to greater unemployment than would otherwise be the case.

The third area where there is scope for a reduction is perhaps the most contentious of all. It is social security payments. This is perhaps what the general Sub-Committee had in mind when it talked about certain cuts that would require legislation. Certainly the legislation that has obliged the Government—or, rather, the Government have obliged themselves by passing this misguided legislation—to ensure that all social security benefits, such as unemployment and sickness pay, are increased regularly in line with wages or prices, whichever is the higher, is a millstone round the Government's, and particularly the Treasury's, neck.

I was glad that during the debate before Christmas the right hon. Member for Newham, North-East (Mr. Prentice) in his resignation speech—if one can call it that—said: This means that we have to grasp the nettle of seeking at least a reduced upgrading during the next two months in terms of all national insurance benefits, including pensions and also public service pensions"—[Official Report, 21st December 1976; Vol. 923, c. 521.] It is no good Labour Members feeling that no Labour Government could possibly undertake this. It was a foolish obligation to have entered into in the first place. It is more than the country can afford, and last year the Government themselves exploited a loophole in the legislation by changing the basis upon which the uprating is calculated. Indeed, I believe that there has been a threat by the Child Poverty Action Group that the Government will be challenged in the courts over this. The Government have tried, through the back door, to escape from this problem—understandably because it is more than the country can afford.

We must ask ourselves: which is more important—the redistribution of income or the creation of wealth? Is it more important to have a bigger cake or to argue about who has what slice now?

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

The hon. Gentleman referred to uprating the pension in line with inflation. As he is now an Opposition Whip, is that the attitude of the Official Opposition?

Mr. Lawson

The right hon. Gentleman has given me the opportunity of saying that I am speaking for myself. I am not a Shadow Treasury spokesman, but I am speaking on Treasury matters. I should have thought that that was self-evident.

As I pointed out, last year, for very good reasons, the Government sought to evade their legislative responsibility and, indeed, increased pensions and other social security benefits by less than the amount of inflation over the previous 12 months. So there is no point in their acting "holier than thou" over this matter.

These are all nettles which need to be grasped if we are restore this country to economic health. The Government know that, but they are unwilling to do anything because they dare not do anything. They dare not put a motion on the Order Paper even to take not of the public expenditure White Paper, let alone to approve what is, in effect, the central strand in their economic strategy. All they can do is to try to cling to office, by whatever means, in the hope that something wil turn up. That would be a pathetic, undignified, spectacle at the best of times. But in the present parlous state of the country it is worse than undignified. It is a betrayal of the people of this country, who need a Government who can govern.

7.2 p.m.

Mr. Neil Kinnock (Bedwellty)

I notice that the hon. Member for Blaby (Mr. Lawson) is back with a vengeance. With the customary dismissal of those who want to get on with their speeches, I say that I shall not follow up the remarks of the hon. Gentleman. However, on this occasion I say it with real feeling, because I could not follow him. My sense of smell is not that strong. That is no disrespect to the hon. Gentleman, but he tended to be rather serpentine in the general tenor of his remarks. Consequently, I should do no good to the House, to myself or to the hon. Gentleman if I sought to enter into combat with him on the content of his speech.

My hon. Friend the Member for Norwich, South (Mr. Garrett) made some very effective remarks about the incompetence with which we, as a House, handle our public expenditure affairs. I hope that, as the matter gets increasingly important, with continual attention being paid to our public expenditure situation, Governments will become more responsive to the demands being made by Back Benchers on both sides of the House to institute realistic and modern machinery for providing the legislature with some kind of scrutinising power over the Executive. Even if, in the first instance, we cannot get any control—we want control, and that is what our constituents elected us to get—we want in the near future real power and an effective means of scrutiny.

Last year there was a great deal of talk, both before and after the much-advertised rebellion which took place on 10th March, about consultation within both the Labour Party and the wider sphere of the Commons. That has not taken place. We anticipate that only when Governments are threatened with defeat it will take place. But Governments of all colours should note that the time when Back Benchers in large numbers have been content to permit the Executive to take decisions and to have only mild, deliberative exchanges once a year on one of the most important aspects of Government policy has gone and will never return. Governments should get used to that.

As to this year's White Paper, we can take up the story where the Government left off last year—Command 6721, page 1, paragraph 2. The Government have set themselves three tasks: first to make possible a shift of resources into industrial investment and exports"; secondly, to restrain the increase in the burden of taxation which would otherwise have been necessary and thirdly, to maintain an appropriate balance between take-home pay and the provision of public services"; and by these means to help to reduce inflationary pressure in the economy". In the first strategy—the transfer of resources—the Government have the earnest support of the right hon. Member for Down, South (Mr. Powell). I do not know who will be most worried about the consequent guilt by association there. The fact is that this afternoon the right hon. Gentleman said that if public expenditure cuts are made they will reduce the public borrowing requirement and automatically additional funds will be released since the Government will not act as a magnet to the liquid funds which are searching for the best investment. Instead of financing our deficit, those funds will be directed into employment and prosperity-creating investment.

I say to my right hon. and hon. Friends, as I say to the right hon. Member for Down, South, that it could happen. However, it will not happen in the kind of mixed economy that we have now. It has not happened, it is not happening now, and it cannot happen. By the very nature of our economy, we cannot ensure that if we uproot community expenditure it can be replanted in the form of productive investment expenditure. That is not in the nature of the capitalist system in which we live. Indeed, in the last year the Government have not invented a machine, system of control or channel for transferring assets from the public sector into private investment. We cannot guarantee that if the transfer took place the money released would immediately find its way into productive investment and not into consumption or, indeed, into frivolous expenditure or even be exported so that it gave no direct benefit to Britain.

We can make possible a shift of resources into industrial investment and exports. But the question is, does it take place? The answer to that question is that it did not take place, it is not taking place, and it will not take place as long as the Government maintain their supine policy on the conduct of our economic affairs.

The second task is to restrain the increase in the burden of taxation which would otherwise have been necessary if public expenditure projections had been sustained. We shall hear more of that later this month in the Budget. I think everyone is fairly well assured that income tax cuts will be announced on 29th March. I am sure that that will bring some short-term popularity for the Government. It will bring short-term popularity from the business men. They might pause in their ceaseless carping about the idea that income tax is the single shackle which prevents them from acting as midwives over a great British economic miracle. They have always said that. They have said it as long as we have had income tax. They say it now and they will continue to say it within two or three days after the anouncement of income tax cuts. Perhaps two days of popularity may be worth while.

Trade union leaders will welcome taxation cuts. They will, in the words of the White Paper, welcome the lessening of that burden, because it will make the next phase of the incomes policy conceivably easier to sell on the shop floor. However, it is a little disingenuous for some trade union leaders simultaneously to call for income tax deductions and for rigid control of public sector prices. The only way in which both these things can be accomplished is for workers in the public sector to subsidise the standard of living of the rest of the country, as they have done in previous years, by keeping their standard of living even lower than ours. I am sure that trade union leaders do not want us to do that, but in the short term it might be popular in that area.

It will be popular on the shop floor because income tax is unpopular and, therefore, any cuts in income tax are popular. But I take the words that my father used: "There is only one thing worse than paying tax—that is, not being able to pay tax". There are 1½ million people in this country who might enjoy the opportunity to pay tax, but that opportunity is denied them because they do not have a job. But certainly tax cuts will be popular on the shop floor in the short term.

The real question is, however, whether the reduction of the burden—as the White Paper puts it—will bring about the kind of economic improvement and development of our resources, and call forth the extra ingenuity, intiative, effort and selfless dedication, that we need to pull ourselves out of the economic trough. Of course it will not. It never has done in the past and it will never do so in our generation because the tax burden is not a major source of disincentive. Lessening the tax burden will not prove an important or long-lasting incentive to the development that we need. Of course we need some tax cuts, especially for the low-paid and for pensioners, but more than cuts we need changes in the tax system.

That is a much more challenging prospect. A much more radical programme of change is needed. We must have reward for effort and redistribution of wealth rather than the simpler process of raising tax thresholds or lopping a few pence off tax rates. That is what we need to do to satisfy people that they are getting adequate recompense for their efforts. Tax cuts and the lessening of the tax burden are obviously not the economic liberation that some people would like to think they are.

That immediately brings us to the question of balancing take-home pay with the provision of public services. The idea that, by masterly juggling, the Government can somehow bring into equilibrium money raised and the social wage sounds fine. The idea of cutting taxation appeals to many people on the ground that it will probably reflate the economy, bring an increase in demand and partly offset unemployment.

If that is true many of us would welcome it, but why should we leave reflation to whim, taste and fashion? Why not use the money that we obviously have at our command—there must be money available if we are to lessen the tax burden—to plan and organise the development of our economy, instead of leaving us without any guaranteed return for our community or guaranteed success for our economic programme?

The idea that we can recover by that gamble is nonsense. If we recover, we have to build that recovery by planning with our resources. A short time after the tax cuts, when people start calculating what the cuts mean to them, they will ask: what does it profit a man to gain an extra £1.40 a week in his pay packet if his children have to go to increasingly crowded classes, his wife has to wait months longer for a hospital bed, his mother's electricity bill becomes unpayable and his neighbour loses his job? Those are the calculations that will be made, the calculations of the social effects.

This is particularly important to my party. The Labour Party must continue to be a party which has a deliberate belief in the efficacy of public expenditure, not a blind or indiscriminate belief but a deliberate, calculating belief in public expendture based on the knowledge that it is the essential means of irreversibly advancing the conditions of the working class in the country. We believe in building institutions with public money, making improvements with public money, and awarding with public money opportunities that can never be dismantled or taken away and are not transitory.

It would be a sad thing if the Labour Party stepped back from those aspirations. It does not mean stepping back to yesterday. The aspirations are not built on the memories of yesterday or the fantasies of the 1930s. These aspirations are as new and as modern as this morning's mail from my constituents. We step back from those aspirations at our peril.

Some of my right hon. and hon. Friends would not agree with what I have said. My right hon. Friends the Chancellor of the Exchequer and probably the Chief Secretary, the Secretary of State for Trade and the Chancellor of the Duchy of Lancaster believe that the policies in the White Paper have to be pursued as a means of reassuring orthodox business men. They treat the City of London as if it were some kind of winnable Tory marginal constituency in that respect. They think, generation in and generation out, as their predecessors have done, that somehow there is some deal, some kind of understanding that can be reached with people who are sworn ideological enemies, but it has not been reached yet. The sooner my right hon. and hon. Friends understand that, the sooner we shall have the policies that we need if we are to have a Labour Government that we can be proud of. History proves my right hon. Friends wrong, reality proves them wrong, and I hope that we do not have to have a repetition of last year's defeat to prove that they are wrong.

Those of my hon. Friends who are in the Manifesto Group have the Social Democrat characteristic that they will the ends of Socialism without willing the means of achieving them. They recently put forward their views in a pamphlet. They think that a mixed economy can peacefully coexist with the Welfare State, yet, before their eyes and for generations past, the Welfare State has been repeatedly robbed or stunted to make possible a shift of resources, to relieve capitalism of the bill which it has to pay for civilisation.

My hon. Friends in the Manifesto Group are highly motivated and well intentioned. To show how well intentioned they are, I should like to quote from their document: Our ideal society would be one in which each individual could develop his or her potential to the full—maximising both his or her personal happiness and also the contribution he or she makes to society as a whole. We want a community of well-housed and well-educated men and women, each with a full chance in life; all usefully employed when in health; properly cared for in sickness, misfortune or old age; and running their affairs together in a democratic way. And our conception of democracy goes a long way beyond the ballot box. We want individuals to have more say in every aspect of their lives— not only as voters at election time, but as workers in their jobs, as tenants in their homes, as consumers in the shops, as patients in the health service, as parents in the schools. The redefinition of politics after a statement like that is that politics is the science of least disagreement.

Mr. Norman Buchan (Renfrewshire, West)

Does not the document also say that it is against sin, and would it not perhaps be useful to have a counter-manifesto on what we have not done?

Mr. Kinnock

It does not say that. But there is a footnote about motherhood and apple pie. That could conscientiously be pursued. The fact that this is very much in keeping with the general philosophy behind the White Paper makes it relevant. The Manifesto Group accepts the ideas of the White Paper in full. There is a central delusion which seems to be common to it and to my right hon. Friends in the Treasury, namely, that there is some means of getting change without pain—by reassurance, agreement and simply by expressing idealism in such widely acceptable and easily digestible forms. It will not happen like that.

One thing on which I agree with my hon. Friends in the Manifesto Group is the chronic resistance to change and the fact that it must be withered away. That is obviously quite a task. My hon. Friends should begin at the most difficult end of that task. Not only should they begin with the workers, managers and bureaucrats, who appear to them to be congenitally bloody-minded and to be holding everything up—they seem to be a favourite target. Also subjected to the blinding light of transformation should be the crustaceans in the Treasury and in other Departments of Government who insist on sticking to totally outdated ideas and views of the current status and responsibilities of the British people.

My hon. Friends should start with those of my right hon. Friends who think that there is a level of public expenditure which threatens our freedom. They should start with those of my right hon. Friends who think that in our economy lost council houses will be transformed into new machines. They should start with those established interests which think that we can and should sustain outdated, insupportable international banking and defence obligations. They could also extend their views to a more modern obligation and the fact that our net contribution to the EEC in 1977–78 will be double what it was in 1976–77 at an astronomic £455 million. These are the areas in which the crusaders for change should be active. I am sure that their activities will be most profitable if they assert their talents vigorously.

The resistance to change of the average machine-minding worker trying to be secure in a sub-divided task on an assembly line is greased flexibility by comparison with the imperial rigidities of governmental thinking on economic policy. We accept such rigidity from the Tories because they make change reluctantly and strategically and they usually win as a consequence of the way in which they approach change. With the Labour Government we expect better, and if my right hon. Friends and I are to survive we need to do better than we have dune at the moment. We need enormous changes.

Is it timidity or terror that afflicts Labour Governments? It might be Toryism. There might be entryists in the Cabinet. Who knows? Whatever it is, it is not reality. If it was reality the Government could not be parading the unattained and totally unattainable canons of the mixed economy before us once again in the form of this year's White Paper.

7.23 p.m.

Mr. Graham Page (Crosby)

When the hon. Member for Bedwellty (Mr. Kinnock) rose, following the speech of my hon. Friend the Member for Blaby (Mr. Lawson), he said that he would not follow the argument of my hon. Friend because he could not follow it. I thought that that was a little unfair. I pay the hon. Gentleman the compliment of saying that I followed his argument right through. I thought he was very clear. I disagreed with every word of it.

Mr. Kinnock

Thank God for that.

Mr. Page

I disagreed particularly with what I understood to be the hon. Member's argument that there cannot be a Welfare State in a mixed economy. That seems to be nonsense. I disagree with the hon. Member's lack of faith in the belief that a reduction in public expenditure will bring about an increase in private investment. I believe that the high level of public expenditure is a deterrent, and has been a deterrent for several years, to adequate private investment. By making reductions in public expenditure there would be greater provision of money for investment in private undertakings. However, that is not the argument I want to put forward tonight.

I wish to put forward the argument that in the Government's White Paper the expenditure is wrongly placed and the priorities are wrong. There has been a general criticism emerging in the debate that in the White Paper, although there has been a substantial reduction of capital expenditure, current expenditure is to be allowed to rise. Any reduction in capital expenditure is bound to fall heavily on the construction industry. This comes at a time when the construction industry is suffering the greatest depression it has seen since the last war. It is subject to heavy unemployment, particularly in my area of Merseyside. There is unemployment in the construction industry of a very high level throughout the country. Unemployment is a heavy item in public expenditure.

In Volume II of the Government's expenditure plan, we see that the unemployment benefit estimates for 1976–77 are £568 million and in 1977–78 £533 million. Any reduction that can be brought about in the payment of unemployment benefit over a wide area means a good saving in public expenditure. I am amazed that for further years this figure does not increase, although we have had forecasts of increasing unemployment from Ministers. The figure actually goes down. There is a footnote containing the criptic statement: The figures for unemployment benefit in future years represent a working assumption and not a forecast of unemployment levels Presumably unemployment is not to go up or down. Having regard to the statements Ministers have made recently about there being 2 million unemployed this year, those figures are obviously "phoney". Any way in which we can prevent serious unemployment increasing—perhaps by moving the expenditure forecasts a little—will assist the public expenditure situation.

I was referring to the construction industry in particular. I ought to declare an interest in land and the construction industry, professionally and not speculatively. I do not ask that the Government bail out the construction industry in a British Leyland-type exercise, but I believe that some public expenditure could be switched so as to provide further employment for the construction industry and to prevent unemployment increasing. Resources could be switched from less productive areas. The compensating reduction in unemployment benefit would be rewarding.

There are four areas in which that switch could be made to good advantage. First, the Government have encouraged the expenditure of money, particularly by local authorities, to buy existing privately-let buildings and have taken that money away from the scheme to provide improvement grants for existing buildings. Such improvements provide considerable employment. Buying up existing tenanted buildings does not provide anyone with employment. I would switch the money back to improvements.

There is also the item, to which my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) referred, which appears on page 9 of Part I of the White Paper, where a sop is held out to local authorities. It is suggested that things will not be as bad as they might have been because a sharper reduction would have been required but for a switch of about £130 million from previously planned capital to current expenditure I would switch that back again to see that employment was in productive projects rather than in the staffing of local authorities.

Mr. Joel Barnett

I should be interested to know how that could be done and whether we should remove control over these matters from the local authorities.

Mr. Page

If it was originally intended that £130 million should be in capital expenditure, there must have been a purpose in spending it in that way. I see that the Chief Secretary shakes his head.

Mr. Joel Barnett

The right hon. Gentleman perhaps did not take my point. The central Government have some control over local authority capital expenditure, but they have no direct control over local authority current expenditure.

Mr. Page

That makes it even more extraordinary that £130 million which was intended to be spent in capital is suddenly, by the Government changing their minds, switched back to current expenditure. The local authorities may then spend that as they wish because the Government have no control over it. If it was originally intended that the capital could be properly expended on projects, let us return it to that category.

Thirdly, the switch in resources should be made in what has been called the anti-bankruptcy subsidies. I appreciate that the Chancellor has said that these will be selective, but I think that they could be better selective. There are occasions when, instead of saving a sinking project, it would be better to devote the money to a new and labour-intensive project.

My fourth point, which I consider to be of great importance has not been referred to anywhere in the White Paper and that is expenditure on the acquisition of land or existing buildings. By this I mean cutting non-labour productive expenditure which could dramatically result in its use on productive projects. I believe that, without damaging any public services, the Government could put a 90 per cent. stoppage on the purchase of land by public authorities for, say, three years. I know that there is no complete inventory of the land or existing buildings held by Government Departments, by the PSA, by local authorities or by nationalised industries, but I am sure that there is a substantial public sector land bank which would support the development needs of public authorities for at least the next three years. One could put a stop to the expenditure of money for that purpose. But I go further than that. I believe that a considerable amount of the land and development which is held by central Government, local government and the nationalised industries should be sold. It is being hoarded, and it is dead land in the hands of the public sector.

In the face of this, we find that the Government are still determined to go on with the purchase of more land under the Community Land Act. About £306 million is to be spent over the next three to four years. That figure is net after taking into account the land that may be sold. I believe that there is quite sufficient land for development for many years to come without spending that amount.

We see from page 54 of the White Paper, Part II, that between £200 million and £300 million a year is to be spent over the next three or four years on local environmental services. I cannot tell from those figures how much land is involved. I suspect, however, that a quite substantial amount of that £200 million to £300 million a year will go to buy land which will be held and not used for immediate development. Land could be found elsewhere without new purchases. In an endeavour to discover how much of this capital expenditure is used to purchase land, I turn to the end of Part II. There the figures are merely divided between capital and current account. I suspect that a large proportion of the items of capital against the spending Departments shown there is involved in the purchase of land.

I urge the Government to make a study of the amount of land at present held by public authorities which is not in full use, not only by Government Departments and local authorities but particularly by nationalised industries. I urge them to make a study of the amount of the capital expenditure set out against each item in the White Paper and to see how much is involved in the purchase of land that could be switched to productive projects for the construction industry. I believe that by making the switch from the purchase of land to productive labour-intensive projects there would be a real contribution to the economic health of the country.

7.36 p.m.

Mr. Ron Thomas (Bristol, North-West)

I should like to refer the House to the motion on the Order Paper in my name and in the names of more than 30 Members of the Parliamentary Labour Party. There would have been many more signatures in support of the motion had there been time to collect them late last night before it was put on the Order Paper. We had hoped that in the normal course of events the motion would have been considered by Mr. Speaker for debate. It would give those of us on the Government Benches who are completely opposed to the cuts in public expenditure as set out in these White Papers—which contain a consolidation of the cuts that we have had over the past 12 months—an opportunity to state once again in clear terms our opposition to them.

Mr. John Robertson (Paisley)

The brief introduction that my hon. Friend has made to his speech is interesting, but I wonder how he will vote tonight.

Mr. Thomas

I shall tell the hon. Gentleman in a moment. I suppose that having been challenged in that matter I should seek to put the hon. Gentleman's mind at rest, although what I say may not put his mind at rest. Faced with the present situation, those who support the motion and those who are members of the Tribune Group must ask whether they can go into the Lobby with the Tory Party, which has consistently demanded more and more cuts in public expenditure and which is still demanding more cuts. Clearly we cannot.

I tell my right hon. Friend that while we shall not go into the Lobby with the Tories—and would not conceive of doing so—or give them any kind of support via abstention when individual items of public expenditure cuts come before the House many of us will oppose them and vote against them.

Mr. James Sillars (South Ayrshire)

Does that mean that on that occasion the hon. Gentleman would be prepared to enter the other Lobby even if there were Tories in it?

Mr. Thomas

I am sure that the hon. Member for South Ayrshire (Mr. Sillars) has even more imagination than I have. I cannot conceive of the Tories ever wanting to oppose proposed cuts in public expenditure on the Health Service and proposed increases in the cost of school meals. [An HON. MEMBER: "Will the hon. Gentleman vote with the Tories?") We shall have to deal with such a situation when it arises.

We have to make it clear that if the Government ask us to vote for specific cuts in public expenditure or for increased charges for any section of the social wage, many of us on the Government Benches will oppose those individual charges. Whether it is consistent or logical—I sometimes think that anyone who wants to be consistent and logical keeps away altogether from the House of Commons—we are not prepared to enter the Lobby with a party that consistently attacks the level of public expenditure and wants to reduce it.

Our conflict with the Government Front Bench arises because we want to restore the cuts in public expenditure. We believe that the only way in which we can even begin to solve Britain's economic and industrial malaise is by more and not less public expenditure.

Our motion says that the White Paper is based on completely wrong economic assumptions. I cannot add much to what my hon. Friend the Member for Bedwellty (Mr. Kinnock) said. I should welcome it if either the right hon. and learned Member for Surrey, East (Sir G. Howe) or my own Front Bench told me what the mysterious mechanism is which, when we make cuts in public expenditure, transfers those economic resources to capital investment and to export promotion. We hear much about it. I thought that the right hon. and learned Gentleman was saying simply "I believe that it will happen. I cannot say why it will happen, but I believe that it will" That is fair enough. I suppose that it can be argued in that way.

I believe that it rests on a number of questionable assumptions. First, British industry, as far as I can judge, has considerable spare capacity. I am assuming that we are talking about releasing resources to be devoted to capital investment in manufacturing to assist with exports. Like my hon. Friend the Member for Bedwellty, I can visualise a situation in which such funds go to the building of bingo halls or betting palaces, or are invested overseas or in land or property speculation, or in coffee futures.

The Government are saying that if we cut public expenditure it will release economic resources and encourage capital investment and promote exports for manufacturing industry. I argue, first, that manufacturing industry is in a state of decline and contraction. In many cases it is running at 30 per cent. or 40 per cent. of capacity. It could meet an increase in demand for its product without any new capital investment and without taking on any more labour. Hundreds of thousands of workers have been made redundant from manufacturing industry and are now unemployed.

What is it that persuades entrepreneurs to invest? I should have thought that the major factor was that they see an increasing demand for their product. With the cuts we have had in living standards—whether via the social contract or other Government policies—the demand just is not there; it is falling. Living standards have been cut. Hardly any entrepreneur will be able to look at the future and regard it as worth while to install new equipment to meet an immediate increase in demand.

It is sometimes agued that there is a competition for funds between the Government, in the form of the public sector borrowing requirement, and the innovating entrepreneurs. On the other hand, we are told that there is so much money sloshing about in the banks and finance houses that there is no such competition for funds. One could pursue a detailed argument related to a lower public sector borrowing requirement meaning a lower rate of interest, and thus argue that there fore there might be some stimulation of capital investment.

When the Tory Party came to power in 1970 they gave massive hand-outs and tax reliefs to British industry. They did not have a public sector borrowing requirement of the size that we now have. However, capital investment fell. It has continued to fall ever since 1970. Between 1970 and 1974 the Tory Government gave British capitalists everything that they asked for—tax hand-outs, the Industrial Relations Act, wage freezes, the Barber cuts in public expenditure, and so on. Yet the innovating entrepreneurs did not invest and they did not expand the capacity of British industry. So much for the argument about a shift in resources.

Secondly, much is said about the public sector borrowing requirement. It has already been noted that the PSBR and the level of public expenditure is no higher in Britain than it is in comparable industrial countries. A society that finds it impossible—presumably—to find work for 1½ million or 2 million of its working people is bound to have a high public sector borrowing requirement.

How much of our PSBR arises from the fact that 1½ million or 2 million people are unemployed? We cannot get those figures. The right hon. and learned Gentleman mentioned the figures for unemployment pay. He knows as well as I do that after 12 months workers do not get unemployment pay; they go on to social security benefit. Hundreds of thousands of workers are now going on to social security benefit because they have exhausted their unemployment pay.

We should be given figures. We need to know the amount of tax that we no longer collect. We need to know the cost in rent and rate rebates. It has been estimated that about £4 billion of our public sector borrowing requirement arises because of an indefensible capitalist system that puts 1½ million people into the dole queue.

Much of the PSBR arises because of public sector capital investment. I can never understand why it is fine if ICI borrows £100 million for new capital investment but, if the British Steel Corporation does the same, it is very bad and must be treated as a deficit, part of the PSBR. What is the private sector borrowing requirement? What is so wicked about a public sector borrowing requirement that is not in the least wicked about a private sector borrowing requirement?

Mr. Powell

May I try to help the hon. Gentleman. ICI cannot manufacture the money to lend to itself. The Government can, and do.

Mr. Thomas

I only express the hope that on some occasion the House will spare a little time to debate the whole theory of monetarism. I do not believe that we have ever debated it. I am sure that the right hon. Gentleman will agree that to meet his point we should be arguing about the quantity of money and the way that the Government, as it is said, print it. We had an opportunity at about 2 or 3 o'clock one morning to have an interesting debate on monetarism when we were discussing the fiduciary issue. I do not accept the monetarists' theory in terms of economic analysis.

About £2,500 million of the public sector borrowing requirement is due to the stock relief that we give to private industry. One must ask whether that is justified in the way that it was 12 or 15 months ago. From editions of the Bank of England Quarterly Review I understand that the Government have had no difliculty in funding the public sector borrowing requirement. There is also the confidence factor with international bankers. My right hon. Friend mentioned the TUC report and said that it had accepted that the Government must go to the IMF. That is a legitimate point but Labour Party conferences, the Labour Party manifesto, the TUC and members of the Tribune Group have advocated policies since October 1974 which would have meant—had they been adopted—that there would be no need to go to the IMF as we did. That might not be acceptable to the Opposition.

I remind my right hon. Friend of some of the items that we have continued to talk of in the House. Last year military expenditure overseas probably reached nearly £1,000 million. Much of that was paid for by hard earned foreign exchange rates and much of it was due to our military presence in Germany. In the last three years we have spent as much on military expenditure overseas as we have borrowed from the IMF. Between 1971 and 1975 about £7,000 million has been invested overseas by the private sector. That is a low estimate. Last year the sum involved was probably £2,000 million. If we are overspending, it is on military expenditure overseas and on capital investment overseas. In the last four years we have spent £20,000 million on defence. Those are the areas of overspending.

In their economic strategy the Government appear to have a confident feeling that the contraction and decline in our manufacturing industry and the 1½ million or 2 million unemployed are due to unique and transitory facts, and that if they hang on long enough the economy will pick up and the problems will be solved. That is contrary to any analysis of Britain's economic malaise. It is not some temporary piece of stagflation. The malaise is caused by the cumulative effect of stagflation over the last couple of decades.

In each slump there were more unemployed, and as we moved temporarily out of each slump more unemployment was left behind. The previously unacceptable level of unemployment, which a few years ago was probably about 800,000, would now be seen as an economic miracle—although not to many hon. Members on the Government Benches. I remember Chancellors of the Exchequer starting off their Budget Statements by saying that they were committed to full employment. They do not say that now. They say that they are committed to a stable level of employment. They no longer talk of full employment.

The capitalist system is in a deep-seated malaise. I urge my hon. Friend to look back at the 1973 Labour Party programme. We said that it was possible to regenerate British industry to ensure full employment and economic growth, and to deal with the balance of payments. But it is not possible, if the Government simply act as a referee outside the scene, and try to create an environment in which it is hoped that the mechanism of the capitalist system will work. Is it possible, if they say that if only they can create the right climate the capitalist system will take off and solve the problems?

In all the documents produced by the last Labour Government it was clearly shown that only a policy of positive Socialist intervention could deal with the deep-seated malaise that our British capialist system was experiencing. But the Government are still going along the same lines as they did between 1964 and 1970. They say that if we create the right environment and give incentives, resources will be directed towards exports and capital investment. That is in spite of all the up-to-date statistics that show that that is not true. In spite of Government action, our exports have hardly moved. But we have an import bill for finished and semifinished manufactured goods for about £15,000 million.

My right hon. Friend also talked about local authorities and the controls over them. What is the inflationary index that the Government use when they say to local authorities that they must spend no more in real terms than they did last year and that that means that they will get X per cent more to deal with inflation? Which index are they talking about? The index of retail prices has little relevance to local authorities. When prices were rising at a rate of 20 per cent a year local authorities were told that they must manage with an increase of 8 per cent. That is not good enough.

It is all very well for the Opposition to talk about the numbers employed in the public sector, but let us be clear that the reorganisation of local government and of the National Health Service, pushed through by the Opposition when they were in government, certainly increased the numbers employed in the Health Service and in local authorities without improving the services offered.

Mr. Graham Page

In my constituency in Merseyside we have managed with fewer staff than the three boroughs that were amalgamated. There was no need for an increase in staff. The Government could have stopped increases at once after the February 1974 General Election.

Mr. Thomas

I should be grateful if the right hon. Member would tell that to his Tory friends on the Avon County Council and see how they respond.

Mr. Heffer

I should like to correct the hon. Member for Crosby (Mr. Page). The Merseyside County Council created another tier of government, and created two lots of bureaucracy instead of one.

Mr. Thomas

Since my hon. Friend's knowledge of the Merseyside area cannot be matched, I accept what he says.

I should like to make two final points. My right hon. Friend talked about the TUC's position. It is true, as I have said, that the TUC said that at that point in time, faced with the crisis in sterling and the speculation against sterling, it felt, rightly or wrongly, that there was little else that the Government could do in terms of the IMF. I repeat that the TUC, the Labour Party Conference, the NEC of the Labour Party and the Tribune Group have consistently offered policies that would have made it unnecessary to go to the IMF in the first place.

On the other hand, in the same paragraph from which my right hon. Friend was quoting the TUC makes it clear that the Chancellor's measures of November, which would result in the continuation of quite unacceptable levels of unemployment, did not make a positive contribution to the growth path in industrial strategy. The paragraph goes on to say, The TUC does not accept that cuts in living standards are any solution to our economic difficulties. Neither do many of us—I hope all of us—on the Labour Benches. The paragraph goes on to say that the social wage is a very important part of our living standards.

I say to the Chancellor of the Exchequer, through my right hon. Friend, that if the present Government have £2 billion to spare when the Budget comes, many of us would say that they ought to restore the public expenditure cuts rather than give the money away in lower rates of taxation.

Finally, we in the Tribune Group who put down and signed the motion—many more did not get the opportunity—are opposed to these public expenditure cuts and to the economic strategy on which they are based. We believe that that strategy will damage all those in our society who are least able to look after themselves, such as the unemployed, the pensioners and the disabled. We call upon the Government, even at this late hour, to change their economic strategy and to remember what we said in our manifesto and our 1973 programme.

We oppose the cuts in public expenditure. I warn my right hon. Friend that when any individual items arise for debate in this Chamber, many of us will vote against them, although we would not go into the Lobby with, or offer any support to, Opposition Members whose only policy is for further and further cuts in public expenditure, which would so push up the level of unemployment that it would make the inter-war years look like an economic miracle.

8.03 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

The hon. Member for Bristol, North-West (Mr. Thomas) should not really be too surprised when the Labour Party does not carry out all of its election commitments, because only a week or so ago we saw the failure of the Labour Party to carry out an election commitment—devolution to Scotland and Wales.

Mr. Heffer

We voted on whether or not we should have a guillotine.

Mr. Crawford

I am interested in that intervention. Is the hon. Gentleman saying that his party has gone back on the commitment that it made just before the October 1974 General Election?

Mr. Heffer

What I am saying—hon. Members should get this straight—is that the House of Commons decided that we should not have a guillotine on a Bill that had had a Second Reading.

Mr. Crawford

I do not want to go any further into that matter. It is not really relevant to the debate. The hon. Gentleman's views on the subject are fairly well known.

It will come as no surprise to the House when I state categorically that the SNP rejects any further cuts in public expenditure in Scotland. Our friends in Plaid Cymru and ourselves have, until the establishment of the Scottish Labour Party, been the only parties that have been consistent throughout on this matter.

There may well be a case for rejecting public expenditure cuts on a United Kingdom basis on the ground that direct cuts in public expenditure have the effect of increasing unemployment and, arguably, depressing investment, which will in turn increase the demands on public expenditure to fund that unemployment and to compensate for that lack of investment. There is a vicious circle here. However, I propose to confine my remarks to Scotland.

Public expenditure cuts may be an attractive rallying cry in the abstract, and it is one with which the Tories have made considerable electoral play, but I should like to spell out in all starkness precisely what public expenditure cuts mean. Labour Members have done so. I should like to do it perhaps even more starkly.

It is not that they mean merely more potholes in roads; they mean increased unemployment and even greater social deprivation in areas such as Glasgow and Strathclyde; they mean larger school classes; they mean the closure of Craigie, Craiglockhart, Dunfermline and Callander Park colleges of education. It is no good hon. Members, especially Conservatives, shedding crocodile tears and making sympathetic noises to the various lobbies that have visited the House to see us on these matters, while the policy of the present Government, and especially the Conservatives, is aimed at further expenditure cuts.

When, in the House last week, I asked the hon. Member for Glasgow, Cathcart (Mr. Taylor) what types of public expenditure cuts his party, the Conservative Party, would like to see, he said that he could not spell them out but would confine himself to saying that those that a Conservative Government would impose would be "different." How different, or by how much, he declined to say. We have not had much enlightenment tonight from the Tory Party on the subject. At the next General Election the Conservatives will have to do a lot of detailed spelling out, in Scotland, of precisely what public expenditure cuts they wish.

I would also have the Conservatives tell their friends in industry that public expenditure cuts mean not only fewer jobs but less investment. For example, the White Paper states that, excluding the Scottish Development Agency—which itself has a budget that is far too low—the Scottish share of money spent on regional support and regeneration will be reduced from £200 million to £120 million per annum, taking this year with the next, and obviously there will be very much less incentive to invest.

In all this and in their synthetic indignation over the Government's quite cynical management of the business motion tonight, the Conservatives have a lot to answer for. Of course, I agree that much more monetary discipline is called for, but it ill behoves the party that went on the 1973 spending and money-printing spree to call for monetary discipline. We have no intention of supporting the Conservatives on the matter.

In the purely Scottish context—I make no apology for reiterating what has been said many times from the Scottish National Bench—Scotland is being made to take a medicine for an illness that she does not have. She is once more being made to suffer for the extremely dubious privilege of being a member of a larger, centrally-managed unitary economic State. As far as Scotland is concerned, the Government, in using a huge hammer to crack a nut, are smashing the plate and the table as well.

Let me take a brief analogy from industry and extrapolate it into politics. If a company is making a loss in one department it may make economies in that department or it may close it down: it does not cut back on its investment in its profitable departments just because one of its departments may be ailing. So it should be with the United Kingdom as it presently exists. Just because the economy and the balance of payments of England are ailing, that is no reason why the great potential of the Scottish economy should be penalised. It is not just that Scotland is suffering equally with the rest of the United Kingdom; it would appear that she is actually suffering more.

The White Paper indicates that total public spending in the United Kingdom is expected to drop by not much more than 1 per cent. in the coming year, 1978–79. The right hon. Member for Down, South (Mr. Powell) pointed that out. But in Scotland, on the other hand, during the same period, and taking the figures on pages 122 and 125 of Volume II of the White Paper—that is, those figures concerning the expenditure within the responsibility of the Secretary of State for Scotland and of local authority spending—it would appear that cuts in Scotland will be well in excess of 3 per cent.

What Volume I of the White Paper states may or may not be true in the English context, but it is certainly not true in the Scottish context. Here is what it says: Even with the help of North Sea oil, the achievement of this improvement in the balance of payments will entail a very tight rein on the growth of domestic demand, both private and public.… North Sea oil gives us the prospect … of a substantial surplus in the balance of payments. It will not by itself provide significant additional employment (except in Scotland), nor in itself constitute a large continuing annual growth of resources. Even employment in the oil industry in Scotland seems now to have passed its peak.

But the main question that I ask of the Treasury Bench—not rhetorically, but in the hope of an answer—is whether it is the case that Scotland will be the only country in the world in whose territory oil has been found and who yet becomes the poorer for it, not only after the oil has been fully exploited but when it is actually being extracted? Let me remind the House that the annual value, this year, of the oil that will be extracted from beneath Scottish waters is estimated at £1,600 million.

For further public expenditure cuts to take place in Scotland at this time is quite unthinkable. In contrast with potential State wealth, public squalor in Scotland is too great. If the Government and their predecessors require a monument to what the economics of centralised government have done to Scotland, be it the unacceptable face of capitalism in the last century or State capitalism today, let them go to the 117 areas in the west of Scotland that the Department of the Environment has classed as suffering severe social deprivation.

The effect of these cuts on unemployment will be devastating. The Scottish rate of unemployment was over 8 per cent. in February—the highest total in the United Kingdom. Yet this sort of rate is becoming standard. The hon. Member for Bristol, North-West (Mr. Thomas) said that if unemployment in the United Kingdom fell to 800,000 it would be regarded as a miracle. In Scotland it would be a miracle if it ever came down to 100,000.

In spite of regional polices and the impact of oil development in the last 10 years, total employment in Scotland has declined by 40,000, primarily in the manufacturing and construction sectors. In Norway unemployment was only 1.1 per cent. in the second half of last year. But to help shipbuilding, clothing and textiles—in other words, industries comparable to those of Scotland—the Norwegian budget contained over £130 million allotted specifically to stimulate employment in those industries. That figure is more than the Scottish Development Agency gets in any given year.

The White Paper admits that the decrease in the level of expenditure in the Scottish Office will mean that significant improvements in service standards will not be possible and that, for some services, a slight decline in standards may be unavoidable. I wonder what the Scottish TUC thinks of all this. Here is what the General Council of the STUC told the Prime Minister in London last December: The social effects in a region with the highest concentration of multiple deprivation in Western Europe do not bear thinking about. If Scotland has problems now, they will be considerably greater in a year's time unless there is a major new policy initiative in this area. It has now surely received its answer from the British Labour Government, in the form of the White Paper. I hope that the members of the STUC and the community in Scotland will take note.

We do not accept the cuts as being unavoidable. We shall contest them with all our energy. I hope that the Government will have the guts to test their strength in the House tonight. If the Government lose tonight's vote, the SNP will table a motion of no confidence in the Government, and I hope that this will be debated and accepted as soon as possible, so that the people of Scotland can pass judgment on this House.

We shall also be contesting these cuts in Scotland—in the pubs and the clubs, in the factories and the farms, in the streets and on the doorsteps, so that all the people in Scotland can see to what sort of a sorry mess successive London Governments have reduced our country.

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

The hon. Gentleman has emphasised the importance of restoring to Scottish control Scottish industry and resources. Given that that is his party's objective, will he explain why, in the last 24 hours, he has welcomed the surrender to the London-based firm of Lonrho of control in Scotland over Scottish newspapers and Scottish industries, previously possessed by the firm chaired by Sir Hugh Fraser? Could it have something to do with the fact that Sir Hugh is a hard-up member of the SNP?

Mr. Crawford

It has nothing to do with whether he is or is not a member of the SNP. We welcome investment in our country provided that the people making it observe Scottish commercial law.

Mr. Rifkind

The matter is not as simple as the hon. Member is trying to suggest. For some years the SNP has been arguing that an independent Scotland would pursue a direct policy of bringing back to Scotland control over Scottish firms, Scottish industries, Scottish newspapers, and anything else that is remotely Scottish. Yet, in the last 24 hours, the hon. Gentleman has welcomed the surrender to persons outside Scotland of control that was up to now exercised in Scotland over Scottish newspapers and industries. Is it only because of the personality of the individual who has made that surrender, or is this some new change of policy by the SNP?

Mr. Deputy Speaker (Sir Myer Galpern)

Order. Before the hon. Member replies, may I express the hope that interventions in speeches will be kept as brief as possible?

Mr. Crawford

The reply will be extremely brief, Mr. Deputy Speaker. It has always been SNP policy to encourage investment in Scotland and to attract to Scotland from outside all that is best in investment. That has always been our official policy. The hon. Member can squirm as much as he likes, but he should remember that it was his party when in power that presided over some of the greatest movements from Scotland of control over Scottish industry.

I end my speech by quoting from the ringing speech of Andrew Fletcher at the last sitting of the Scottish Parliament in 1707. He said: the remedy to our own ills lies in our own hands.

8.15 p.m.

Mr. James Sillars (South Ayrshire)

I think that the most remarkable feature of that intervention by the hon. Member for Edinburgh, Pentlands (Mr. Rifkind) was the description of Sir Hugh Fraser as being hard up. I would not mind being hard up while possessing more than £7 million.

However, I do not want to pursue a running argument between the Conservatives and the SNP. The importance of tonight's debate for me is that we are now discussing part of the whole package deal that has been unfolded since the first budget after the October 1974 General Election in which we saw the Labour Government in full-scale retreat from the Socialist principles for which they had fought in the two General Elections of that year.

The present group of White Papers is part of the cave-in by the Labour Administration to the pressures exercised by the philosophy of capitalism, which is still the predominant philosophy in this country. Let me point out to my right hon. Friend the Minister that those of us who opposed the first slice of expenditure cuts forecast then that it would not be the last slice.

The people from the international capitalist community have an insatiable appetitie for public expenditure cuts. At one stage in his carreer my right hon. Friend the Member for Ebbw Vale (Mr. Foot), who is now the Leader of the House, said from the Back Benches, quite rightly, that people who opposed Socialism would not be content until the day arrived when we were demolishing our hospitals brick by brick with our own hands. He said that only when that final surrender took place would they be happy, but that by then we would have destroyed a great deal that the Socialist movement had created over a number of years. [Interruption.] Does the right hon. Member for Down, South (Mr. Powell) wish me to give way?

Mr. Powell

I merely said that if the job was done by hand it would certainly create employment.

Mr. Sillars

That is true. An alternative to that in this crazy capitalist system is to rebuild Hadrian's Wall. That would give employment to bricklayers on both sides of the border for all time to come. At least that would give them something to do when at the moment they are lining up in the dole queues. But enough of joking.

In their defence, the Government have already brought forward from the Front Bench this afternoon a plea and an excuse about the nature of the crisis we in the Western democracies are facing. I would acknowledge immediately that there is a very clear interrelationship between the economies of all parts of the world, and there is an interface between the capitalist and Communist economies as well as between capitalist and capitalist economies.

There has also been a pretty significant shift in the balance of wealth and power between the developed countries and the Third World countries, of which shift the oil crisis is only the first of a number of manifestations. But that should not be a sufficient excuse on the part of a Labour Government.

Everyone in the Socialist movement accepts that capitalism will run into crisis. The whole reason for the Socialist movement is that capitalism will create conditions that will require Socialist applications if the problems facing the ordinary people of this or any other country are to be solved. The reason for having Socialism is that capitalism exists and has a number of inherent contradictions that will display themselves from time to time.

Therefore, the problems of international capitalism and the problems of capitalism inside the United Kingdom should not be excuses for Government inertia. They are the reasons for rolling forward a programme of Socialism. That is no original thought on my part. That was said by the man who is presently the Secretary of State for Energy, and he said it at a Labour Party conference not so many years ago.

The Government cannot even claim that the cuts they are now introducing, and have already introduced, are having the effect claimed for them—a massive shift from one sector of the economy to the manufacturing sector. Even if we displace lecturers in colleges of education in Scotland, if we train teachers and refuse them employment in our schools, if we sack people in local government and in other public sectors—on the railways, in the Post Office and elsewhere—there is no job for them in the manufacturing sector at present.

Even yesterday the Bank of England was admitting that there would be no significant contribution from investment over the next 18 months. Even if the Government deny their projections in the White Paper, I do not think that anyone in the House, especially anyone on the Front Benches, believes that we shall reduce unemployment to the scale that is projected by 1979–80.

The major defect in the Government's economic strategy is that they are not operating against a national plan. It is beyond belief that a Labour Government facing the present crisis do not see the need to introduce as a fundamental prerequisite to recovery a national plan involving the allocation and direction of capital resources and the various other resources in the economy.

What we have from the Government in place of the type of planning that was set out in the early part of 1966 is straight from Conservative policy. Everyone on the Labour Benches knows that to be the case. That happens to be one of the reasons why the Conservative Party is not too keen to become the Government. After all, the Labour Government are doing their job of work better than the Conservatives would be able to do it.

One of the reasons why the Labour Government are carrying out Conservative policies better than the Tories could do is that they have captured the left wing of the Socialist movement and the Trades Union Congress. That is something that the Conservative Party could never do, in or out of government.

We have old-fashioned Tory policies from the Government Front Bench. We have exhortations to investors to do their patriotic duty. Those investors have never done their patriotic duty before and they are never likely to do it, especially under a Labour Government. We see the demolition of our social services and more cuts. We see higher unemployment, more cuts and rising unemployment. If we were on the Opposition Benches and a Conservative Government were in office, this is the sort of speech that all Labour Members would be making. They would be denouncing Tory policies when such policies were evidently before them.

My main concern about the effect of cuts in the public sector lies with jobs. I remind my right hon. and hon. Friends that the most fundamental pledge in the Labour election manifestos of 1974 was to create an irreversible shift in the balance of wealth and power in favour of working people and their families. Anyone who knows anything about the conflict between capital and labour knows that we cannot shift the balance of wealth and power in favour of working people when we make labour weaker in relation to capital by creating high unemployment. If there is to be a shift, it can take place only in a full-employment society, when for the first time in many areas of the United Kingdom labour would be able to compete with capital on a far better standing than historically it has ever done before.

We cannot shift the balance of wealth and power to the workers and their families with 1.4 million unemployed. The best that can be said about the Government is that they whistle louder in the dark than anyone else. The proof of the pudding is in the eating.

When my right hon. Friend the Secretary of State for Scotland was appointed he gave a major interview to the Daily Record, a Glasgow-based Scottish newspaper, although it is owned in London. The article stated that Bruce Millan, the 19th Secretary of State for Scotland, has an air of slightly languid, academic world-weariness. However, matters picked up during the interview and my right hon. Friend said: Never since the war have the economic prospects for Scotland and the United Kingdom looked so good—inflation is down, costs are being stabilised, production is going up, unemployment is set to come down. The great thing this time is that it is under control. It is not another of the old boom-and-bust cycles. When my right hon. Friend said that, Scottish unemployment was 165,000, or 7.7 per cent. It is now 179,572, which is 8.3 per cent. There are over 40,000 other people in the Scottish economy part-time employed, in terms of job creation.

Since the early part of 1975 we have had similar measures—I was about to say "put before the House" but that is not being done tonight. The Government are merely talking of measures involving a change. That is a far more accurate description of the situation that we now face with no vote. We have had these measures since the early part of 1975. The promise was made that inflation would be defeated, resources shifted and unemployment reduced. That has not been the case, and every Socialist in this building knows that it will never be the case while we pursue these policies.

I finish on a fairly general point, although in some senses it is specific. Earlier this evening my hon. Friend the Member for Bristol, North-East (Mr. Thomas)—the Chairman of the Tribune Group—addressed the House. He said that if a vote were to arise tonight the members of the Tribune Group could not bring themselves to vote against the Government and jeopardise their position. However, on their behalf he reserved the right to vote against individual cuts in public expenditure. The qualification was made that the Tribune Group would take that course as long as they were not required to vote in the "No" Lobby along with the Conservatives.

I say to my hon. Friends on the left wing of the Labour Party that that is the game the Government want them to play. If the Government can engineer a situation in which only the Tribune Group goes into the "No" Lobby and casts its 50 or 60 votes and clears Socialist conscience, they will be delighted. In that event they will still have the people to campaign in the country and to tell workers on the shop floor that people are fighting for their position in the House of Commons. That will be done while the Government do the work of the Establishment on a day-to-day basis in implementing the cuts.

If my hon. Friends on the left wing of the Labour Party were prepared to face the logic of the problem, they would realise that the only way to stop policies going through is to vote against them. If that were done, many policies to which they are opposed would not go through. My hon. Friends demonstrated that that is so in a quite devastating manner on the vote on the guillotine on the Scotland and Wales Bill. If my left-wing hon. Friends followed that logic now, they would stop much of what the Government are doing from taking place. That is because the Labour Government would not dare to take the risk that is inherent in such a situation.

My hon. Friends say that they do not like going into the "No" Lobby with Conservatives. I do not like going into the Lobby with Conservatives either but let us consider the possible position arising from the White Paper. Let us assume that in three weeks or four weeks time we are faced with a single item of public expenditure cutting—for example, a cut involving the colleges of education in Scotland—because of the implications of the White Paper. Are we not to go into the "No" Lobby, irrespective of who is there, if going in there will stop the colleges of education from closing? Surely that is why we were sent to his place. If we have to employ Conservatives, for whatever hypocritical reasons they happen to be in the "No" Lobby, let us employ them to stop the Labour Government implementing Conservative policy. If the Tribune Group and the left wing of the Labour Party adopt that policy, they will win far more often.

For all the pontification and for all the hot air of Labour Party conferences, they have not succeeded in stopping the Labour Government rolling on in terms of public expenditure cuts and high unployment. Every Left-wing Member of the Labour Party knows that that is true. That, in essence, is the problem that is facing them politically tonight. Probably it will not face them tonight because the Government will renege on the question, but sometime within the next six months they will be faced with the crunch questions. I hone that on that occasion Left-wing Members will reconsider their position.

Mr. Deputy Speaker

Order. In 35 minutes—at 9.5 p.m.—the winding-up speeches will begin. There are still six hon. Members who are anxious to take part in the debate.

8.29 p.m.

Mr. Nick Budgen (Wolverhampton, South-West)

I begin from a position diametrically opposed to that of the hon. Member for South Ayrshire (Mr. Sillars). I wish to see our finances progress towards a balanced Budget as quickly as possible. The only doubt in my mind is how quickly this can be done without desperate political and economic consequences of even greater size than the public sector borrowing requirement, to which the right hon. Member for Down, South (Mr. Powell) drew attention so eloquently.

It is ironic that every speech from the Treasury Bench since February 1974 has contained an almost obligatory initial passage attacking with vigour the vast deficits which unhappily accumulated during the unhappy Barber era. But those vast deficits never exceeded £4 billion, and now we have a prospect of a public sector borrowing requirement of £8.7 billion. Last year we were even anticipating a public sector borrowing requirement of £11 billion.

Yet we are told time and time again that deficits of this order can be financed, that they do not represent a danger and that all will be well. Maybe the Govern- ment will be able to stay on the knife edge. Maybe they will get away with this vast public sector borrowing requirement, but it is a perilous position for this country to sustain for very long.

We do not know whether particular factors will drive the Government off course and oblige them to raise interest rates or to print money. We do not know whether the propensity of private individuals to save more of their income will continue. We do not know whether the oil countries will retain a large part of their liquid funds in this country. All these and many other variable factors are unknown, and with a public sector borrowing requirement of £8.7 billion we are in a grave and perilous position.

Therefore the question posed by my hon. Friend the Member for Blaby (Mr. Lawson) of whether the projected cuts in public expenditure are adequate cannot be answered. No one can really tell. I do, however, assert that the argument of the Expenditure Committee that the balance of cuts is unfortunate in that it is too much concentrated on capital account and too little on current account is false. I would argue that in the present situation there is a necessity for cuts in public expenditure on both sides—on both current and capital accounts.

Mr. English

The hon. Gentleman has fallen into the same trap as the Chief Secretary at the beginning of the debate. He is assuming that we are making an argument that is not in our report. We believe that the balance is wrong and that that situation has prevailed since 1973 under successive Governments. We are not disputing public expenditure cuts. We are talking about the balance between them.

Mr. Budgen

The hon. Member is saying that, granted there should be cuts of this order, more should have been made in current—

Mr. English

I did not say that either.

Mr. Budgen

That is the interpretation of what the Committee is saying. I say that, if anything, there should have been the same level of cuts on capital account and more on current account.

I noted the three reasons put forward by the Chief Secretary in dealing with the arguments, which he may have misinterpreted, from the Expenditure Committee. He said that cuts on capital account were advantageous because they protected pensioners and the less-well-off members of the community. He pointed to the difficulty of containing expenditure by local authorities. That must be true, because if local authorities are to have discretion it is difficult to contain some of their expenditure. The Chief Secretary made the point also that not all capital expenditure was to be preferred, and in particular he made the point that as a matter of environmental and social argument he was in favour of cutting expenditure on roads. I agree with that.

There are surely some areas where capital expenditure has either been cut or deferred which do not fall within the first of the Chief Secretary's arguments. I have in mind the inner city part of my own constituency. In that inner city area there are many old, over-used Victorian schools. If they are to be replaced in future, I would argue that it is unfortunate that their replacement should have been delayed by the cuts.

Or again, if I may put forward a professional prejudice of my own as a practising barrister, I find it deeply disturbing that 40,000 of our fellow citizens are now festering in prisons where there is no hope of rehabilitation or of giving them the continuous work and training which would give them a chance of a future life outside in the community as a whole. I take the view that one of the marks of a civilised society is the way in which it deals with those who have no vote or those who have no great political pressure groups behind them.

For my part, I should be very pleased to see a Government of a Left-wing nature spending money for instance, on mental hospitals or on the prison service rather than placating the great industrialists when their individual firms happen to fall into trouble. I also believe that there is a substantial argument which does not actually arise from the sayings of Mr. Terry Ward, important though his sayings may be, but which, my hon. Friend the Member for Blaby tells me, arises on page 135 of Volume II of the White Paper.

It is a fact that expenditure on construction is at present relatively cheap. One would expect this to be so because, with 250,000 construction workers unemployed at present, there is no better indication of lack of demand in the construction industry. One would have thought, with that kind of slack in demand, that prices would have reacted to that lack of demand. Prices have gone down in construction work. It is a good moment for the State to be buying construction. I would therefore argue that the Chief Secretary has perhaps slightly overdone it with regard to cuts on the construction side, particularly in the two areas to which I have pointed.

This is also a difficult time for construction workers who are not particularly skilled. Because of the exchange rate, which is at present being held down by the operations of the Bank of England, the big construction companies are able to do a good deal of work particularly in the Arab countries. That is splendid for the more highly-paid members of the large construction consortia like the engineers, surveyors, architects and managing directors. They are able to go out and work in Dubai and in other places that are expanding fast.

But the man of whom the hon. Member for Liverpool, Walton (Mr. Heffer) speaks so often and so eloquently—the bricklayer from Liverpool—cannot go out and find other work in the Arab countries. He would find it, as I think some dockers have found, very disagreeable if he did. Therefore, at this moment such a person needs some construction work if he is to find any sort of way of avoiding unemployment.

The House ought to be considering the position of the construction industry over the last three or four years in a mood of deep humility, because almost no other industry has been messed around to quite the extent that the construction industry has been messed around. It was the industry which was most affected, apart from what I might call the land industry, by the easy-money Barber years. It expanded very fast between 1971 and 1973. It was then hit by the cuts in projected public expenditure in December 1973. It was blamed for the increase in land prices which occurred between 1971 and 1973, and, so that the collective guilt of the then Administration might be shuffled off on to some other organisation, the development gains tax was thought up in December 1973. That had an extremely destabilising effect upon those who dealt in land or built upon land. It was followed by the Community Land Act, which was one of the first and most important measures introduced by the present Administration. That in turn was followed by the development land tax. Finally, we had the public expenditure cuts of December 1976.

I refer also to the point made by the right hon. Member for Down, South in which he spoke with regret of the tendency of Governments to publish projections of public expenditure three, four or five years forward. The difficulty is that the big contracting firms themselves prepare and invest so as to be able to carry out projects three or four years hence. The result is that, when they read these projections, they regard them as the most important indication of how their principal customer is likely to act. So it is that this industry has been mucked around to a very large extent over the last three years.

I am not arguing that, for that reason the public sector borrowing requirement should be increased to provide work for 250,000 construction workers who are unemployed. But in those areas where the State is traditionally regarded, even by the hardest faced monetarists, as having a proper duty in the provision, for instance, of social services to those who require them and in the provision of education in some of the more deprived areas, it is unfortunate that cuts in public expenditure have fallen there.

I conclude by dealing briefly with the current account position. I agree wholeheartedly with those who have pointed to the vast increase in discretionary aids to industry. I note from Table 6 of Volume I that these aids to industry are now running at the rate of about £3 billion a year. I underline the importance of noting that these are discretionary aids to industry. It is bad enough having payments out to the Upper Clyde Shipbuilders, for instance, on a one-off basis where each individual application can be considered by Parliament. But the danger of the present corporatist strategy of the Government is far more damaging than simply increasing the public sector borrowing requirement. It is allowing individual industrialists to obtain benefits of a discretionary nature as a result of their individual acts in relation to the Government of the day.

It is strange how, for instance, the motor cycle industry was assisted recently through the good offices of Sir Arnold Weinstock, whose principal company, GEC, was fortunate enough to find a way—which, if it does not conflict with the letter of dividend control, certainly conflicts with the spirit of dividend control—of giving to its shareholders a special cash issue.

I am against all forms of State interference, but I am most of all against discretionary State interference, which is the beginning of the end of the liberties of our citizens and will lead to the erosion of the power of the House of Commons.

On the subject of current account, I agree most strongly with the eloquent case advanced by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). He said that we could save £2,000 million on housing subsidies. I am not sure that he was as accurate on that matter as he usually is. When one examines Volume II of the White Paper, on page 49, it would appear that his figure of £2,000 million probably included rent and rate rebates. I should like to see the removal of the indiscriminate element of subsidies to council tenants. However, I should like to see those who are genuinely in need subsidised by the State.

Sir G. Howe

I drew attention to the fact that the aggregate was about £2,000 million, including the items mentioned by my hon. Friend. I went on to say that the report of the NEDO Committee, after raising rent rebates on a selective basis by 50 per cent., would allow for a saving of £450 million.

Mr. Budgen

I am grateful for that intervention. At the highest, there is a figure of about £1,500 million which could be cut—and that could be cut within a couple of years. I hope that one may look for reductions in public expenditure of the order of £800 million a year to phase out indiscriminate subsidies to those who can afford to pay for their own houses.

My right hon. and learned Friend went out of his way to refer to the position of the toolmakers. He commended their position in terms which I found thrilling and exciting. It showed that the leadership of the Tory Party had terminated its fleeting flirtation with the corporate State. My right hon. and learned Friend obviously understood the cry of the toolmakers that they wished to be independently represented. He understood their resentment at the present phase of wages policy. Let us hope that it follows from what he was saying that the Tory Party will have nothing more to do with the State regulation of wages and will go further and tell the trade unions that we want nothing to do with the closed shop, which is part of the mischief against which the toolmakers struck.

I wholeheartedly agree with the views of my right hon. Friend the Member for Crosby (Mr. Page) when dealing with expenditure on community land schemes. I go further and say that perhaps the best way to resuscitate our inner cities and also provide work for the construction industry would be to require local authorities to sell their vast surplus holdings of land in those areas, which they cannot afford to develop themselves. If they were obliged to sell those holdings at whatever price they could get, we would see a resurgence of activity in the inner city areas.

The sooner we get back to a balanced Budget, the better. It will be a disagreeable course, but it will be the only way to avoid the serious risk of hyperinflation.

8.50 p.m.

Mr Michael English (Nottingham. West)

This report of the General Sub-Committee, which I chair, and of the main Committees, which approved it also—in both cases unanimously—seems to be describable in a remarkable way. It seems not to have caused a storm but to have caused the sudden spurious departure of a storm, since the prospective great battle between Government and Opposition over the terms of motions about policies in regard to public expenditure has been replaced by this innocuous expenditure debate.

But, I am afraid that the Opposition Front Bench, when making the point earlier about this turning into an Adjournment debate, reminded me a little of someone who sees passing before his eyes the tuft on the tail of the elephant without having noticed that the elephant has just gone by. The whole argument seems a little spurious. Adjournment debates have been going on for centuries. They have risen in number over the last century or so for the very reason that in many cases on Supply Days, as my right hon. Friend the Chief Secretary said, Oppositions do not want to express their point of view. For Governments not to want to express their own attitude is not unusual either, especially in such a situation as that which we have in this Parliament, where no party has a majority.

I remind the House that the report contains another recommendation. No one has mentioned it yet, but I hope that my right hon. Friend the Financial Secretary will do so. On page 2, we recommend that the Government should consider now how it can speed-up its slow procedure of internal decision-making upon public expenditure". That is the thing that we should be arguing about rather than over the fact that we are having an Adjournment debate. We should be arguing about the fact that the public and the House as a whole have not had time to devote to consideration of the issues involved in this debate.

It is not the first time that it has happened. It cannot be blamed on the discussions with the International Monetary Fund, because it happened last year too. The White Paper due in November 1975 did not come out until February 1976, just as this one, which was due in November 1976, did not come out, in the shape of Part II, until February 1977. This is of the utmost importance. The House and, through the House, the public as a whole ought to have a say in the composition of expenditure cuts.

I might not necessarily agree with all those who have spoken on this side of the House, and they might not necessarily agree with me. Few of us may agree with Opposition Members as to where cuts should be made. But surely the public as a whole should have the opportunity, through the House, to express their view. One has a shrewd idea, through the pages of the more-informed financial correspondents, of the case that the Cabinet considered in November and later. Instead of having shrewd ideas through that means, however, we should be able to take part in such discussion. The whole object of this debate is to enable it to be done.

Some kind words have been said about the General Sub-Committee. I should like to express my kind words to the other members of the Sub-Committee, including the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), my hon. Friend the Member for Norwich, South (Mr. Garrett), the hon. Member for Norfolk, South (Mr. MacGregor), my hon. Friend the Member for Luton, West (Mr. Sedgemore), my hon. Friend the Member for Chester-le-Street (Mr. Radice), the hon. Member for Upminster (Mr. Loveridge) and the hon. Member for Manchester, Withington (Mr. Silvester), as well as to my hon. Friend the Member for Bishop Auckland (Mr. Boyden), who chairs the whole Committee. It was a self-denying ordinance on their part. We met the Treasury on a Monday, I drafted a report on the Tuesday, and the General Sub-Committee approved it, with, I am glad to say, very minor changes, on the Wednesday in order that we could get it out in time for the full Committee.

That is not how it should be done. It was only the self-denying ordinance of my colleagues of all parties on the Committee that allowed it to be done in that way. As mentioned in the report, the Sub-Committee's adviser from the Department of Applied Economics at Cambridge had only a week to prepare a report on this large and substantial White Paper. That is not enough, and that is not the proper way to treat the public. I do not mean only the House of Commons, because the House represents the public at large. I shall come back to that issue in a moment.

I now turn to the other main recommendation of the report which has already been mentioned. Because the Sub-Committee did not have time, it did not make a judgment about the level of public expenditure cuts, despite the fact that the Chief Secretary said that the Committee made such a judgment. The hon. Member for Wolverhampton, South-West (Mr. Budgen) also thought so. The Sub-Committee, since its report on the Barber cuts of 1973, has repeatedly said that the Government cannot go on cutting only capital expenditure, and cutting it—as in this case—in order to sustain current expenditure. The Committee was unanimous in saying that the balance was wrong.

In an earlier report on the 1973 cuts, the Committee pointed out the disruptive effect of cuts on capital items in the immediate future. The example was given of an international telephone exchange that takes 10 years to plan. In that case, the Barber cuts on the Post Office in 1973 will not be noticeable before 1983. That is the size of the time scale. That was where the right hon. Member for Down, South (Mr. Powell) missed part of the point. Capital expenditure must be planned ahead on a time scale. There will be cuts of 18 per cent over the next two years, but there will actually be cuts of over 20 per cent in capital expenditure if we make the comparison between the year just ending and the year just beginning. Cuts at that end of the capital programme are the worst because they are disruptive.

A further point on capital programmes was partly mentioned by the hon. Member for Blaby (Mr. Lawson), who was an active member of the General Sub-Committee, and by the hon. Member for Wolverhampton, South-West, who represents a city that is much like Nottingham that I represent in that it has schools that in Nottingham's case, are over 140 years old. At one time houses of that age surrounded the schools, but they have been demolished as slums. Now there is new housing, but the schools, which are just as slummy, are still there because there is no money available in any programme for replacing them. There is barely enough money for the building of new schools in the new suburbs. There is no money to replace the old schools that ought to be replaced.

This directly conflicts with the Government's economic strategy of encouraging investment in industry. When we discuss the Third World, we point out that one of the reasons for insufficient industry there is that the infrastructure is lacking. What is that infrastructure? It is schools, hospitals and roads. The Victorians used not only an older technology to build canals and roads but a new one to drive railways across the United Kingdom. That was part of the foundation of the nineteenth century Industrial Revolution. The infrasructure must be there to provide the means. There must be public investment if we are to have the private investment that the Government say they want.

In the short time available to me, I shall not mention any more about what the Committee did not like. Speaking personally, however, and not on behalf of the Committee, I want to answer a question which the Chancellor of the Exchequer both privately and publicly asks: "If you do not like the cuts that we are making, what cuts would you make?" That is a fair question.

My right hon. Friend the Chief Secretary rather took my name in vain when he said that I would not necessarily touch transfer payments. I think that transfer payments must be looked at in this connection, and I shall explain why. The point would have been pedantic in phase 1 of the incomes policy if I had said "I see no reason why pensioners, like others, should not conform to the incomes policy to which we are all subject", because it would probably have meant their getting the same increase as they got anyway. In phase 2, however, I understand that that is not necessarily the case.

My right hon. Friend said that I would not look at that aspect because they are among the lower income groups. But the pay policy was constructed to assist the lower income groups. It has a cut-off point for the higher income groups. It had a flat rate in the first phase and a partial flat rate in the second phase to assist the lower income worker. But it is not, and cannot be, argued to be wholly just, when the whole trade union movement and the middle classes are suffering a drop in their real standards of living, to say that only one group in the community—pensioners and others in receipt of social security benefits—should be allowed to keep up with inflation.

There is something to be said for index-linking in general but nothing, as far as I can see, for index-linking only one group of people and no one else. This matter also involves the Pensions (Increase) Act 1971. I do not propose to go into the general argument about inflation-proof Civil Service pensions. However, there is a good case for saying that people who benefit from that Act in normal times when there is no pay policy should conform to the pay policy just as much as their brothers in work have to conform to it.

Here we come to the question of legislation. This is where both the Government and the Opposition have missed the point about the present situation. They are both acting as if we had a Government with a majority. There is an odd feature about British politics. The constitutional theory is that the legislature, the House of Commons, is not the same as the Executive, the Government. The constitutional theory is that the Government can govern, but they cannot legislate. Yet when that situation occurs in practice, people do not realise that it should.

According to the Press this morning, the right hon. and learned Member for Surrey, East (Sir G. Howe) said at his Press conference last night that this was an ailing Government merely because they could not necessarily legislate. But what is the duty of an Opposition in such circumstances? It is to say whether they would or would not support legislation on such issues as I have mentioned.

The right hon. and learned Gentleman mentioned housing but he did not mention pensions, which are obviously a vital part of any adequate consideration of where to cut public expenditure. Would he or would he not have supported legislation on that issue? I have no doubt that the hon. Member for Guildford (Mr. Howell), who is to reply on behalf of the Opposition, may get away with it by saying that the Opposition do not have to say those things, but they have to say them when there is no Government majority.

Similarly, I do not think that the Government have adopted the policy they could have adopted. I should have liked the Government to be producing in about November, or possibly December, since November may be too early, a statement on public expenditure for all of us to see laying out the options and saying "This will need legislation. This will need the assent of a majority in the House." I should like them to ask all parties, including Members from various groups in the Labour Party, whether they want to do X rather than Y, and Y rather than Z, as the possible policy options.

This matter does not concern foreign affairs or security. It does not concern tax changes from which a private individual might benefit, which is the reason for Budget secrecy. There is no reason why, in December last year, the Government could not have come before the country and virtually given the country some of the policy options then being laid before the Cabinet. There is no reason why they could not have said in the White Paper "We need to cut so much"—this is roughly what the Treasury wants; "we have these options and these ways of carrying them out, and in some cases we shall need legislation, but in all cases we need the views and consent of the public".

There should have been more consultation earlier. The corollary of more consultation earlier is that the Opposition must concentrate not on whether we have an Adjournment debate tonight but on the main issue of what sort of cuts and the composition of the cuts that they would like.

9.6 p.m.

Mr. David Howell (Guildford)

It is fitting that the last speaker from the Back Benches should be the Chairman of the General Sub-Commtitee of the Expenditure Committee, because this debate owes something to him and his colleagues for their extremely swift work in this latest Report and for their work and hearings and the reports of the hearings generally.

On the whole they are a plus point and a credit to the parliamentary process, and I take a small pleasure in having played a minor part in the decision that led the Government of the early 70s to suggest that Parliament should adopt the Expenditure Committee pattern. But the major lead on the then Government side was taken by my right hon. Friend the Member for Penrith and The Border (Mr. Wihtelaw). Parliament accepted the proposal, and I think that it was right to do so.

I do not share the view put forward earlier today by the right hon. Member for Ebbw Vale (Mr. Foot), in response to a request that another Select Committee should be set up, that on the whole these Committees detract from the work of Parliament. I certainly do not share that view as far as the Expenditure Committee is concerned. The work of the Expenditure Committee and its Sub-Committees has added to the performance and repute- tion of Parliament. Parliament receives better coverage outside the House as a result of the Committee's hearings and reports. That is something that we should welcome, not criticise.

If we are talking about detracting from debates, or if we are looking for reasons why Parliament should be thrown into disrepute, we should look to the bizarre little manoeuvre that the Government have tried today. It is an extraordinary situation that on a central part of the Government's policy—part of its programme concerning the whole pattern of its expenditure—the Government should not feel that they can withstand the possibility of a judgment and a vote. That is a very sorry commentary on Parliament's affairs and on the Government's affairs.

The Chief Secretary was today indelicate enough to raise the subject of communications between my right hon. and hon. Friends on the Opposition Front Bench, but if anyone is entitled to raise the question of communications along the Front Bench we are entitled to ask what links the Chief Secretary has had recently with the Chancellor of the Exchequer, and where the Chancellor is today.

I appreciate that the Chief Secretary is the man in the Cabinet who deals with public expenditure, but we did not have the Chancellor here for the debate on income tax. That means that the Chancellor has been absent from debates on two halves of the Budget.

It will be said that the Chancellor is busy with the Budget and is in purdah, but his purdah did not extend to withholding his views from the Evening News. The only contact that we have had with the Chancellor is the rather whimsical views reported in today's Evening News: I will miss the Treasury when it's time for me to go. It's the central department and there are some bright chaps to work with I do not know whether the Chief Secretary has had an opportunity of working with the Chancellor recently.

I hope that the Chief Secretary will not be too embarrassed, but there is no more melancholy task, when preparing for these debates, than to make a comparison between the Chief Secretary's speeches during the past year that led up to the December cuts and this White Paper, and the speeches made by the Chancellor.

I mean it when I say that the Chief Secretary has tried to explain the realities of public expenditure to his party and to the public. I will give some of the details later. The right hon. Gentleman has said things with which I agree. He has attempted to urge his party to bring its head out of the sand. He has had to do this while at the same time we have had the Chancellor braying at the top of every meadow about a "transformation of the economy", a "turn-around", and the "immeasurable benefits that will flow" from measures taken last April, July and December. He was also claiming that we would be "home and dry" in 1977—although someone has since explained to me that that was the Chancellor referring to the increasing cost of eating and drinking out these days.

This is the background against which the poor Chief Secretary has tried to bring some commonsense into the debate. There has been an endless series of stupidly optimistic and grossly inaccurate inflation forecasts from the Chancellor. I see that the Chief Secretary is beginning to reach a similar view. To my certain knowledge, four times in the past year the Chancellor has implied that the British economy has turned the corner. The House will know where we have ended up.

By contrast—I do not want to go too far with the right hon. Gentleman, because I know that these are bouquets of barbed wire and he can do without them—the Chief Secretary has persistently said in his speeches, at least outside this House—and he was on this theme this afternoon that there must be a reversal in the balance between the private and public sector. He has argued to his party the very opposite of that which was put forward with eloquence by the hon. Member for Bedwellty (Mr. Kinnock). I totally disagreed with the hon. Member, who said that when it came to a choice between public expenditure increases and income tax cuts he was on the side of the increases, because he thought the tax cuts formula could not work.

The Chief Secretary was saying the very opposite to his hon. Friend. He was saying that in his view all the political pressure he had to face was in favour of tax cuts, that a vast majority of working people favoured tax cuts rather than expenditure increases. I believe that he is right. I believe that the hon. Member for Bedwellty is miserably out of touch with the realities of working people and their needs, whether they are in the Transport and General Workers Union or anywhere else. I believe that the Chief Secretary is probably a little nearer the truth.

All of this is a bit academic, because there will not be any real tax cuts. The situation that the hon. Member for Bedwellty feared as a result of tax cuts will not come about, because there will not be any real reduction in taxation. This time next year everyone will be paying, more tax. The Chief Secretary has his arguments going in the right direction. He has been right to warn his party about the appalling dangers arising from the imbalance created when the public sector takes 60 per cent of the GNP.

The Chief Secretary has been right to stick to the 60 per cent. figure. He reminded us last year, absolutely correctly, that 60 per cent is a figure to which we should adhere. In our last public expenditure debate he said: Nor is it any use saying that 60 per cent. is a misleading figure because about 40 per cent of public expenditure is represented by transfer payments. That is quite true but that 40 per cent. still has to be financed by taxation of one kind and another."—[Official Report, 10th March 1976; Vol. 907, c. 445.] I am sorry that, presumably, the arguments the right hon. Gentleman put forward for that 60 per cent. figure were overruled by those who finally drafted the White Paper and that new definitions producing a lower percentage figure were made. I stick to the 60 per cent. figure because I believe it to be right.

That is the first thing the Chief Secretary has been trying to do—to bring home the fact that the balance has to be changed. The second thing he has tried to do—and we have tried to support him—has been to bring home the fact that changes in public expenditure have to be planned in advance and carried out carefully and selectively. It is no use waiting until the IMF or anyone else says that we can go no further. These things must be done in a careful, planned way. In November of last year the Chief Secretary was pleading when he said: Despite what many commentators seem to think, controls over construction programmes could not be used to realise early and dramatic reductions in public expenditure.… So expenditure cannot be turned on and off like a tap. I think that there he had a point. Some may ask what had happened to that point, and whether it was lost in December. Indeed it was. He was arguing the point, which we believe, that changes have to be planned well in advance.

Thirdly, and above all, the Chief Secretary has tried to educate his party that there can be virtually no further growth in public expenditure for the rest of the decade. Those are his words. There may be further reductions. He is quite right, because one thing the White Paper points out, in paragraphs 50 to 51, is that there will be further reductions worked out this summer. They may be between £2 billion and £1 billion at 1976 prices. They will have to be worked out and they, too, will have to be sold to the Labour Party, if it is still there. That is what the Chief Secretary is trying to do. That was his homework for 1976, and I think we can give him reasonably high marks.

But one understands his look of despair when he tries to explain these things to his hon. Friends and to us. For what happened at the end of 1976 to all these fine aspirations that we should not use construction as the regulator, and that changes should be carefully planned? The answer is that when the cuts came, the principle of careful selection went straight to the wall. That point has been made by many hon. Members on both sides and was made forcefully by the General Sub-Committee's Report, which we are discussing.

The second thing that happened in December was that once we had some semblance of financial stability temporarily restored—I use the word "temporarily", but with that qualification I agree that there is some stability at present—the Chief Secretary had to sit and wince while we heard the Chancellor talking all around the country about "having got us out of our difficulties "and having achieved" a turn-round" and, in short, creating precisely the atmosphere that we could not afford to encourage, namely, that the spending machine could start up again and that the party spenders and planners could rush down to the tuck shop to buy treats all round because everything had been taken care of. That was the second major danger that the Chief Secretary wanted to avoid and that his right hon. Friend did everything to encourage.

There are three serious reasons—all of which have been raised in the debate—why that is such a dangerous thing to do and why the Chancellor was playing with fire. The first is that although the public sector borrowing requirement is down, it is still an uncertain quantity. Yesterday, the Chancellor was reported as saying that it could swing £2 billion either way. If that is the situation, and if we do not really know what is the public sector borrowing requirement, obviously there are grave dangers in saying too firmly and decisively that it is all right, that we do not need to worry too much about that aspects of matters.

Secondly, there is the fact that there are more cuts to come, to which I have referred. It is no good the Chancellor's saying that we have turned the corner, only for the poor Chief Secretary to have to explain that we must have further cuts.

Thirdly, commentators and the left wing of the Labour Party fall too easily into the assumption that because cuts are announced they will be carried out, or that because cash limits are imposed by the Chief Secretary they will be adhered to. It is all very speculative so far. We have not yet seen a real clash, a real test between cash limits and pressures for wage increases. So far, outside any pay restraint that is agreed, that thing has not been decided. The political will of the Government in Cabinet has not been decided on this issue.

We must all be cautious. Whether we are in favour of or against the cuts, we must wait and see that process decided before we assume that what will happen is what the Government say will happen.

But even these disappointments, for those who have hoped and argued in 1976—I include the Chief Secretary—that we should approach these matters in a sober way, pale beside the main disappointment of the White Paper and the December cuts. The whole case for changing the balance between the public and the private sector—a case that we support—has been brushed under the carpet in this White Paper. This is not there. There is no fundamental beginning, or even the signs of a fundamental beginning, in the change in the balance.

Throughout the whole of last summer we were told by the Chief Secretary and other Ministers that there had to be large cuts of a kind that would change the balance; it was a painful process; it had to be reversed. There was talk about the growth of employment in the public sector: this was to come to an end.

Way back in July the Chief Secretary made a speech that could well have been made by any of my hon. Friends; he reminded us of the colossal growth in manpower in the public sector. He said: Between March 1974 and January 1976 the civil service grew by some 48,000 and between June 1974 and March 1976 local authority manpower increased by more than 110,000 That was a year ago. All these figures have presumably increased since then. He spoke of an increase of 40,000 in numbers of non-teaching education staff employed by local authorities, an increase of 15 per cent in two years. If the right hon. Gentleman did not say it, somebody else said that that brought the number of non-teaching staff in education up to 50 per cent of the total. That rivals the First World War legend of there being more and more admirals and fewer and fewer ships. The Chief Secretary could have added that the Inland Revenue has taken on another 10,000 between March 1974 and March 1976.

All in all, the Chief Secretary came to the conclusion—I can see him smiling ruefully, but I am sure that he still agrees that this was the right conclusion—that It must be obvious that we cannot go on indefinitely creating more and more jobs in central and local government". So it was all set up. We were all prepared, by December, to see the changes that were needed to bring about the balance in our society and unwind the process so well described by Messrs Bacon and Ellis in The Sunday Times the other day by which more and more jobs are created in the public sector thus imposing a double loss on the wealth-creating capacity of the community.

The White Paper contained a faint mention of some Civil Service cuts way back in 1976. These have been largely or partially abandoned. A minute further reduction in Civil Service costs was proposed. For the rest, there was no suggestion that the major area of public expenditure, namely, administration, costing 25 per cent of public expenditure in wages and salaries, would be touched at all.

So I think that we have a right, on the one hand, to congratulate the Chief Secretary on saying these things but, on the other, to deplore the fact that when it came to it all his ideas were swept aside in favour of other considerations.

Let us look at some of the other things that we were led to suppose the Government would seriously consider in the December cuts and in the White Paper. My right hon. and learned Friend and other hon. Members have said that none of the proposals in respect of housing seemed to get through to the White Paper. Yet in the summer we were told: People increasingly want to buy rather than to rent. I agree with that. It is the view of a Labour Minister, but I agree with it.

Appetites were whetted with statements that Ministers were questioning the wisdom of meeting 50 per cent of council house rents through subsidy. We were told that the policy would be 50 per cent. Yesterday we were told, as my right hon. and learned Friend reminded the House, that it has now risen to 58 per cent. So who will pay for the 8 per cent? Presumably it will be taxpayers, which of course means taxpayers on low income, housewives and, where they are also taxpayers, the elderly. Again, that has caused disappointment. The aim was to have a cut in the housing programme, which has risen out of all proportion. The Chief Secretary knows that it is uncontrollable now, that it is 5 per cent of GDP, and that it has risen at the most astronomic rates. Yet when it came to the December cuts nothing was done about housing.

It is a welcome moment for the Chancellor to enter the Chamber and to have a few words with the Chief Secretary, because we have had difficulty in reconciling some of the things that the two of them have been saying. Ultimately the non-reconciliation was that the Chief Secretary knew last year that the cuts had to be carefully planned and that they should fall on housing and administration, where there is still substantial room for cuts. The cuts were delayed, they were not planned, and they had to be quick. In those circumstances the easiest thing to do is to take a pen and scratch out capital programmes. That is what the right hon. Gentleman did.

Mr. English

I take it that the hon. Member, when saying that cuts should fall on housing, means that they should fall only on local authority housing. Is he also saying, on behalf of the Opposition, that there should be no cuts in transfer payments?

Mr. Howell

I have not mentioned transfer payments, nor do I intend to. I am reinforcing what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said earlier. I am going further and saying that if we have a sane housing policy that recognises the need, that recognises that more people want to buy and own their own homes, we would have less public expenditure producing better housing results than we have today.

Mr. Kinnock

At the beginning of his speech the right hon. Gentleman suggested, by implication, that he was more familiar than I with the real opinions of working people. He is entitled to that opinion. Perhaps many more working people would like to buy their own homes for emotional reasons. Is he speaking for the feelings of working people when he advocates the abolition of subsidies for council houses and the meteoric and prohibitive rise in council house rents? If he is not, he had better come off it.

Mr. Howell

The hon. Member for Bedwellty is scaring himself. If he talks like that outside the House he will scare people outside. The one reality upon which we all agree and upon which the Chief Secretary has given expression is that there is a preference by working people for lower taxation. That feeling must have been expressed to hon. Members by working people who come into their weekly surgeries with humble little pay slips and ask why they have such large reductions in their pay. The people want lower taxation not more public spending.

Finally, I turn to an aspect about which we can have a firm disagreement with the Chief Secretary—his belief about priority for industry. The Left Wing has argued with feeling that it rejects public expenditure cuts because they lead to unemployment. Obviously, we believe as the Left Wing and most people in public affairs believe, that involuntary unemployment is a disgusting thing. We want to see less unemployment. We want to see the recovery of jobs. The Government answer is that there shall be public expenditure cuts, although they will spend more money on industry. Even the Chief Secretary has not dared to question that sacred cow, which is tied up in the yard of the Treasury.

We say something different. We think that expenditure on nationalisation and the Community Land Act is a complete waste of money in so far as it falls on resources. It is a wicked waste. All those resources could be devoted to better things. We say that the right industrial, commercial and fiscal policies—not more money for industry—will help job recovery in a way that will not occur under the present industrial policy.

If hon. Members ask what I mean by the right industrial, commercial and fiscal policies, I mean not slashing the construction industry, which is running at a record rate of bankruptcy and unemployment. I mean ending the blinkered preoccupation with manufacturing industry that dominates the slightly stale Left Wing thinking of the 1950s and 1960s that we still hear from the Government Benches.

We believe, obviously, that it is in services and other non-manufacturing sectors that a major growth can come in a modern and flexible economy. We mean stopping the attack—if I may put the negative side of our thoughts—on the self-employed. The Government have now declared war on the self-employed, on everyone from the village carpenter or the local builder to the offshore oil worker. When the new regulations come into force on 6th April, they will do more damage to the construction industry than even the cuts now proposed by the Government.

I was told this evening that the Government have authorised—or unleashed, perhaps—a special office in Edinburgh which is empowered to look beyond the confines of an individual's affairs and to hunt down those that it deems to be in proper employment, who themselves argue to be self-employed. I do not know what is going on in Edinburgh, but the Government should look at that matter very carefully. Frankly, the more I hear about it the more I feel that this is one bit of our affairs that I should be happy to devolve to Scotland tomorrow morning.

What we mean by the right policy is helping people, not industries, removing bias against the small employer and giving incentives to workers at all levels—not conning them with arguments about the social wage, as the Chief Secretary was trying to do last week. We share the Chancellor's views on this subject. He says, Every working man knows that what matters in real life is not so much his pay increase but what is left in his pay packet after the taxman has taken his bite. We agree with that.

When it comes to priority for industry, the right policy begins in the Treasury—not in the Department of Industry and not in higher public spending but in stopping the growth of more and more jobs. "We simply cannot go on" the Chief Secretary says. We agree. By saving those salaries we could use the savings for tax cuts.

The truth is that these White Paper arguments will not stand up. The shades are closing in on the present Government, as everyone in the House knows. When we reach the stage when the Government dare not put forward a motion on which the House can make a judgment on the major part of their budget, their key public spending programmes, we must be very near the end. The Prime Minister says—he was at it again last Thursday—"Please regard all our economic policy as a whole". We look, and the more we look the more we agree that there is indeed a hole and that it is getting bigger every day. It is only a matter of time before the Government and all their policies disappear into it.

Our prime concern is to see that when that happens the Government do not drag down our economy, our work people and our country with them. That is why the House should reject the White Paper in whatever way it can tonight, and do so decisively.

9.33 p.m.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

In two weeks' time we shall be debating the Budget in this House and the problems of how to raise about £50 billion. This afternoon we have been debating how we should be spending a not dissimilar amount. Those who have been present throughout the debate will agree that it has been an extremely good one, well worthy of the higher hopes of those who first initiated these debates many years ago. There has been the discussion of the kind of choices of expenditure that people wish to see or, taking into account the current problems, the need to accept certain cuts and decline certain others.

The task that I saw originally for this expenditure debate was the way in which Parliament would be expressing its views as to the various expenditure programmes that we have put before it. I was delighted to hear the intervention of my hon. Friend the Member for Bishop Auckland (Mr. Boyden). Although he deplored the delay in the production of the public expenditure White Paper, for reasons known to all of us, including those who served on the Expenditure Committee, he told us something about the work of the Sub-Committees and the way they will be carrying out the assessments of the programmes as published in the White Paper.

I warmly welcome that. I have always felt that the Expenditure Committee would never be able to achieve the potential which so many of us felt it had without that examination of the large amount of information that was prepared, precisely bearing in mind the interests and involvement of the Sub-Committees. When my hon. Friend the Member for Bishop Auckland told us that they would study the success and effectiveness of Government programmes over the next two years—he told us about the specific programmes they are now commencing to study—it aroused in me an eager anticipation for the results of that examination.

A number of hon. Gentlemen referred to the suggested split in the Treasury. The right hon. Member for Down, South (Mr. Powell) and the hon. Member for Blaby (Mr. Lawson) were among them. They argued that this was not a time in any way to weaken control of public expenditure. There is a particular problem of public sector pay, but the management of the Civil Service Department which was carried out in the Treasury is undoubtedly better equipped to deal with some of the problems of promotion and personnel management which were not so easy to deal with when they were originally under the Treasury.

Public sector pay remains a central element of public expenditure. Therefore, whatever solution is reached, whether favoured by the right hon. Member for Down, South and the hon. Member for Blaby or by other hon. Members, will essentially involve a close and continuing control of public sector pay and conditions. Whatever changes we make will be necessary to ensure that they avoid any of the potential dangers referred to.

I should say something about the promise and expectation of North Sea oil. This matter was raised by the right hon. and learned Member for Surrey, East (Sir G. Howe), my hon. Friend the Member for Norwich, South (Mr. Garrett) and the hon. Member for Perth and East Perthshire (Mr. Crawford). It is expected that North Sea oil will produce about 100 million tons a year by 1980 with a continuing production of somewhere between 100 million and 150 million tons throughout the 1980s. The net effect on the balance of payments will mean an increase in the GNP in 1980 of something over 3 per cent a year. In 1985 it is likely to be about 5 per cent a year.

That is a large but only a temporary increase in the resources that will be available to this country, because of the consequential rundown in the 1990s. It is essential that we use those resources to strengthen the balance of payments and for investment in industry, and that we do not use them for the benefits of consumption. Basically we are an industrial nation, not an oil kingdom.

Perhaps I might explain the benefits in this way. North Sea oil will give us, year by year, an increase of about £4 billion. That will be in a steady progression over succeeding years. However. if we are successful in achieving the reasonable level of growth in manufacturing industry of 4 per cent. a year—a figure which many countries would regard as excessively modest—we shall have a growth in our GNP of 4 per cent for the first year, 8 per cent the next, then 12 per cent., 16 per cent., 20 per cent and so on.

We must therefore compare this steady growth that will come from the effect of oil on our balance of payments with the accelerating growth that can come if we use the oil wisely for investment in industry and for the expansion of our manufacturing industries. We shall be dependent not on the good fortune of having discovered oil in the North Sea but on industry's exploitation of the benefits derived providentially by the accession of North Sea oil.

Mr. Crawford

I was making the point that Scotland would be the one country in the world where oil was found in territorial waters which ended up being the poorer for it.

Mr. Sheldon

Whenever I hear the hon. Gentleman speak on these matters, he seeks to show the ways in which Scotland will be so much better off if it is allowed independence. I always see the problems of Scotland as the problems of the United Kingdom writ large. Scotland has the same problems of over-age industries and industries that have declined It has the sort of population, the sort of problems and the sort of industry that we see in other parts of the United Kingdom, including the part from which I come—namely, the North-West of England. If the hon. Gentleman has the expectation that there will be fundamental changes, I hope he is right. I hope that there will be fundamental changes throughout the United Kingdom. However, the problems that he delineates are the problems of us all and are capable of the same solutions as we may all have to face.

Along with so many others who spoke in the debate, I warmly welcome the report of the General Sub-Committee. I direct my remarks to the comment that is made concerning the difference of treatment between capital and current expenditure. I am sure that it will be accepted that there are long legs or long periods required for planning changes if we are to bring about such changes. If we want changes quickly, we must suffer some of the consequences arising from them.

Those who saw the expansion of the public expenditure programme in 1972–73 when the Conservative Government were in charge will know that on that occasion the time lags were very long and the years when the Conservatives expected to see the benefits arising did not arise until some time afterwards. This is the general problem of trying to bring about early changes in the economy arising from changes involving cuts or increases in expenditure.

As the right hon. Member for Down, South accepted, cuts in capital expenditure are quicker to implement than cuts in current expenditure. That is one of the realities with which we must live. There were certain other advantages in acting as we did. As my right hon. Friend the Chief Secretary to the Treasury pointed out, as a result of the changes in December we were able to protect the less-well-off, especially the pensioners.

There is also the problem that, if we seek to bring about reductions in expenditure through reductions in current expenditure, the PSBR effects are slower in coming through. For example, redundancy payments have to be made when people are sacked from the public service. Unemployment pay has to be made available, and so the reductions in the PSBR take much longer coming through.

As the General Sub-Committee pointed out in paragraph 11 of its well-produced and timely report, many cuts in current expenditure would involve legislation. The hon. Member for Cornwall, North (Mr. Pardoe) thought this to be a reflection of the Government's view of their majority. That is not so. It is a matter of the time involved. If it is hoped to get reductions in public expenditure and those reductions cannot be achieved until legislation has passed through Parliament, obviously the time factor will render it impossible to achieve cuts.

A great deal of this capital expenditure does, in fact, generate current expenditure. When money is spent on a building, it creates expenditure on other things. That building must be staffed, maintained, heated and looked after. Therefore, that kind of capital expenditure results in a considerable amount of current expenditure.

The hon. Member for Cornwall, North asked why we did not give figures for revenue over the coming years. In order to have a full understanding of the economy of this country, it is necessary to look at all the internal and external factors together. The internal factors of revenue expenditure and estimates of growth are estimates that one can make, and from them one can deduce a third assumption. That is the basis of demand management. One decides on levels of expenditure and the levels likely to be achieved in the growth of resources and then one decides whether to go for a surplus or a deficit.

These are the principles of demand management under which unemployment levels have been retained at the lowest levels seen this century. However, the difficulty comes in trying to operate this system when there are levels of inflation such as we have now and levels of deficit that are as much as 10 per cent of gross national product. In these circumstances that kind of operation of demand ceases to have effect, and the deficit becomes almost impossibly difficult to predict because of inflation. We are unable to make decisions based on forecasts because we do not have a degree of certainty about the levels we shall have for the public sector borrowing requirement and other factors.

My hon. Friend the Member for Bedwellty (Mr. Kinnock) said that he wanted to see a reduction in unemployment and that an essential step for this was to increase the deficit. But if we increased the deficit we would increase inflation and it would not be possible ever to have an expectation of returning to the management of demand that has kept this country with levels of unemployment lower than anything seen this century. It is not possible ever to return to that system until we reduce the deficits, the public sector borrowing requirement and the level of inflation to manageable proportions.

Mr. Kinnock

I come to praise Caesar and not to bury him. The Financial Secretary has misinterpreted what I said. I said that, rather than throw away £2 billion on whimsical expenditure by cutting taxation, it would be better and more realistic to use it for the regeneration of British industry and thus see reflation and prosperity in a more direct way.

Mr. Sheldon

If we were to increase the public sector borrowing requirement as a result of increasing public expenditure, we would have to raise interest rates. Once we did that we would make it more difficult to invest. Then we would not get the industrial expansion that is absolutely essential.

The public expenditure cuts that we have been debating today have the purpose of reducing the public sector borrowing requirement. Once that is reduced, our financing problem becomes easier. As interest rates fall, it is possible to get increased investment. I accept the point that there is no guarantee that one will result in the other, but unless there is at least an alternative and industry is given the incentive to invest of a return on capital the shift will never take place. Unless industry's prospects are made considerably greater than they have been in the recent past, there will not be the kind of industrial investment towards which our other policies are wholeheartedly directed.

Mr. Pardoe

Will the Minister say what has been the return over the last 12 months or so on capital in British industry generally in the private sector and how low interest rates would have to fall in order to make private industry invest at that rate of return?

Mr. Sheldon

Oddly enough, the hon. Gentleman does not seem to realise that the expectations of investment by all those predominantly concerned have been improving. The very necessary condition for industry to invest is that it can obtain the funds at a rate which it can afford so that it can invest in manufacturing industry. In fact, the forecast mentioned by the Chancellor, and supported by the CBI survey, which I shall deal with shortly, showed that private manufacturing investment in the second half of this year compared with the second half of 1976 was expected to grow at a rate of about 19 per cent.

The CBI survey of 8th February confirmed the investment intentions of those whom it had asked and positively endorsed the Chancellor's forecasts. On a different base period, the survey estimated that the increase in investment over 1977 as a whole compared with 1976 as a whole would be between 10 per cent and 15 per cent.

Sir John Hall (Wycombe)

Does not the Minister agree that over the last year the rate of return as a percentage of capital employed for major industries in this country was less than the rate of interest they had to pay on new money? The chemical industry, for example, has been earning about 10 per cent or 11 per cent but in real terms it has been earning less than 3 per cent.

Mr. Sheldon

I understand the hon. Gentleman's point. But the reality is what industry itself expects to do and not what the hon. Gentleman or anyone else expects it to do. The fact is that industry expects to increase its own investment in manufacturing industry at the factory level in the way I have mentioned.

Mrs. Elaine Kellett-Bowman (Lancaster)

Does the Minister accept that the average return on capital is now one-third of what it was in 1961? Is that any inducement to invest?

Mr. Sheldon

One would have to look at the kind of investment concerned. The important point, however, is that it is the intention of industry itself to invest in the manner I have described. It will get its money at a lower rate precisely as a result of the kind of public expenditure changes that we have been debating this evening, and we shall also get collaboration from those in industry, from employers and the trade unions, at the factory level.

I want to deal with some of the housing questions put by the hon. Member for Guildford (Mr. Howell), the right hon. and learned Member for Surrey, East and other hon. Members. They talked about the report of the NEDO Working Party. I assume they meant the working paper of the NEDO Housing Strategy Committee. This report is not yet ready and I am unable to comment on its details for obvious reasons. But we all know that these questions have been raised by Opposition Members when council rents, as a proportion of housing cost, have been falling due to the need to contain the rent rises because of the counter-inflation policy and also because interest charges, as a proportion of the total debt charges, have been increasing. When hon. Members look for a straightforward and simple solution to our public expenditure programmes, they talk about the need to reduce the subsidies on council houses without talking about the prob lems of reductions in the mortgage relief that is given to owner-occupiers.

We cannot look at this problem in isolation, and the housing review will not look at it in isolation. These matters have to be looked at together. There are advantages to those in council houses. There are very big advantages to those in owner-occupation. If we are to look at one, we must look at the other. That shows that the Government at any rate are looking at all parts of the community and not at a restricted element of it.

On 9th March last year the right hon. and learned Member for Surrey, East talked about the £4 billion reduction in public expenditure which he looked forward to seeing. But he did not specify the time. Today the right hon. Member for Down, South, who sometimes seems to have a hypnotic effect upon the Opposition in ferreting out their true intentions, asked the right hon. and learned Member for Surrey, East whether he favoured a reduction in capital expenditure greater than that in current expenditure. The right hon. and learned Gentleman said that, if he had the opportunity, there would be a greater reduction overall, not in the distant future but, I gathered, straight away.

The hon. Member for Blaby—[HON. MEMBERS: "Ah!"] We must remember that he is an Opposition Whip, and I know that the Opposition Benches have never embraced the doctrine of permissiveness to such an extent that they would wish to repudiate completely the views of an Opposition Whip. He said that he was prepared to grasp the nettle of the retirement pension and these social services.

We understand this. It is coming out slowly, but it is hard to drag it out. This, to them, is the red meat of the Tory cuts. This, to them, is the real opportunity which they have always wanted to cut out that kind of expenditure which we in the Labour Party have always been prepared to uphold, to defend and to be proud of.

Everyone has seen the kind of expenditure programmes to which we are committed over the coming years. Everyone has seen that we have this expenditure under control via the medium of cash limits. Everyone has seen the priorities which we have been able to choose.

We look forward in due course to hearing the Expenditure Committee take its part in the debate on those priorities and to seeing it commence its examination and its scrutiny of public expenditure in the way that its Chairman described. My hon. Friend the Member for Bishop Auckland promised the House that right hon. and hon. Members would have an understanding and an acceptance of the scrutiny of these public expenditure programmes. We look forward in the debates that we shall have in future years to being enlightened and enlarged by the contributions of right hon. and hon. Members who serve on the Committee. When my hon. Friend the Member for Bishop Auckland talks about scrutiny, I agree with him. I believe that the White Paper which we are putting forward can stand up to such scrutiny. I commend it to the House.

Question put, That this House do now adjourn:—

The House divided: Ayes 293, Noes 0.

Division No. 88.]	AYES	[10.0 p.m.
Adley, Robert	Boyson, Dr Rhodes (Brent)	Clarke, Kenneth (Rushcliffe)
Aitken, Jonathan	Bradford, Rev Robert	Cockcroft, John
Alison, Michael	Braine, Sir Bernard	Cooke, Robert (Bristol W)
Amery, Rt Hon Julian	Brittan, Leon	Cope, John
Arnold, Tom	Brocklebank-Fowler, C.	Cordle, John H.
Atkins, Rt Hon H. (Spelthorne)	Brooke, Peter	Cormack, Patrick
Awdry, Daniel	Brotherton, Michael	Corrie, John
Bain, Mrs Margaret	Brown, Sir Edward (Bath)	Costain, A. P.
Baker, Kenneth	Bryan, Sir Paul	Craig, Rt Hon W. (Belfast E)
Banks, Robert	Buchanan-Smith, Alick	Crawford, Douglas
Bell, Ronald	Buck, Antony	Critchley, Julian
Bennett, Sir Frederic (Torbay)	Budgen, Nick	Crouch, David
Bennett, Dr Reginald (Fareham)	Bulmer, Esmond	Crowder, F. P.
Benyon, W.	Burden, F. A.	Dean, Paul (N Somerset)
Berry, Hon Anthony	Butler, Adam (Bosworth)	Dodsworth, Geoffrey
Biffen, John	Carlisle, Mark	Douglas-Hamilton, Lord James
Biggs-Davison, John	Carson, John	Drayson, Burnaby
Blaker, Peter	Chalker, Mrs Lynda	du Cann, Rt Hon Edward
Body, Richard	Channon, Paul	Durant, Tony
Boscawen, Hon Robert	Churchill, W. S.	Dykes, Hugh
Bottomley, Peter	Clark, Alan (Plymouth, Sutton)	Eden, Rt Hon Sir John
Bowden, A. (Brighton, Kemptown)	Clark, William (Croydon S)	Edwards, Nicholas (Pembroke)
Emery, Peter	Knight, Mrs Jill	Ridsdale, Julian
Eyre, Reginald	Knox, David	Rifkind, Malcolm
Fairbairn, Nicholas	Lamont, Norman	Rippon, Rt Hon Geoffrey
Fairgrieve, Russell	Langford-Holt, Sir John	Roberts, Wyn (Conway)
Farr, John	Latham, Michael (Melton)	Robertson, John (Paisley)
Fell, Anthony	Lawrence, Ivan	Ross, Stephen (Isle of Wight)
Finsberg, Geoffrey	Lawson, Nigel	Ross, William (Londonderry)
Fisher, Sir Nigel	Lester, Jim (Beeston)	Rossi, Hugh (Hornsey)
Fletcher, Alex (Edinburgh N)	Lewis, Kenneth (Rutland)	Rost, Peter (SE Derbyshire)
Fookes, Miss Janet	Lloyd, Ian	Royle, Sir Anthony
Forman, Nigel	Loveridge, John	Sainsbury, Tim
Fowler, Norman (Sutton C'f'd)	Luce, Richard	St. John-Stevas, Norman
Fox, Marcus	McAdden, Sir Stephen	Scott, Nicholas
Fraser, Rt Hon H. (Stafford & St)	MacCormick, Iain	Scott-Hopkins, James
Freud, Clement	McCrindle, Robert	Shaw, Giles (Pudsey)
Fry, Peter	McCusker, H.	Shaw, Michael (Scarborough)
Galbraith, Hon T. G. D.	Macfarlane, Neil	Shelton, William (Streatham)
Gardiner, George (Reigate)	MacGregor, John	Shepherd, Colin
Gardner, Edward (S. Fylde)	Macmillan, Rt Hon M. (Farnham)	Shersby, Michael
Gilmour, Rt Hon Ian (Chesham)	McNair-Wilson, M. (Newbury)	Sillars, James
Gilmour, Sir John (East Fife)	McNair-Wilson, P. (New Forest)	Silvester, Fred
Glyn, Dr Alan	Madel, David	Sims, Roger
Godber, Rt Hon Joseph	Marten, Neil	Sinclair, Sir George
Goodhart, Philip	Mates, Michael	Skeet, T. H. H.
Goodhew, Victor	Mather, Carol	Smith, Cyril (Rochdale)
Goodlad, Alastair	Maude, Angus	Speed, Keith
Gorst, John	Maudling, Rt Hon Reginald	Spence, John
Gow, Ian (Eastbourne)	Mawby, Ray	Spicer, Jim (W Dorset)
Gower, Sir Raymond (Barry)	Maxwell-Hyslop, Robin	Spicer, Michael (S Worcester)
Grant, Anthony (Harrow C)	Mayhew, Patrick	Sproat, Iain
Gray, Hamish	Meyer, Sir Anthony	Stainton, Keith
Griffiths, Eldon	Miller, Hal (Bromsgrove)	Stanbrook, Ivor
Grimond, Rt Hon J.	Mills, Peter	Stanley, John
Grist, Ian	Miscampbell, Norman	Steel, Rt Hon David
Grylls, Michael	Mitchell, David (Basingstoke)	Stewart, Rt Hon Donald
Hall, Sir John	Moate, Roger	Stewart, Ian (Hitchin)
Hamilton, Michael (Salisbury)	Molyneaux, James	Stokes, John
Hampson, Dr Keith	Monro, Hector	Stradling Thomas, J.
Hannam, John	Montgomery, Fergus	Tapsell, Peter
Harrison, Col Sir Harwood (Eye)	Moore, John (Croydon C)	Taylor, R. (Croydon NW)
Harvie Anderson, Rt Hon Miss	More, Jasper (Ludlow)	Taylor, Teddy (Cathcart)
Hastings, Stephen	Morgan, Geraint	Tebbit, Norman
Havers, Sir Michael	Morgan-Giles, Rear-Admiral	Temple-Morris, Peter
Hawkins, Paul	Morris, Michael (Northampton S)	Thatcher, Rt Hon Margaret
Hayhoe, Barney	Morrison, Charles (Devizes)	Thomas, Dafydd (Merioneth)
Henderson, Douglas	Morrison, Hon Peter (Chester)	Thomas, Rt Hon P. (Hendon S)
Heseltine, Michael	Mudd, David	Thompson, George
Hicks, Robert	Neave, Airey	Thorpe, Rt Hon Jeremy (N Devon)
Higgins, Terence L.	Nelson, Anthony	Townsend, Cyril D.
Hodgson, Robin	Neubert, Michael	Trotter, Neville
Holland, Philip	Newton, Tony	van Straubenzee, W. R.
Hooson, Emlyn	Nott, John	Vaughan, Dr Gerard
Hordern, Peter	Onslow, Cranley	Viggers, Peter
Howe, Rt Hon Sir Geoffrey	Oppenheim, Mrs Sally	Wainwright, Richard (Colne V)
Howell, David (Guildford)	Osborn, John	Wakeham, John
Howell, Ralph (North Norfolk)	Page, Rt Hon R. Graham (Crosby)	Walder, David (Clitheroe)
Howells, Geraint (Cardigan)	Page, Richard (Workington)	Walker, Rt Hon P. (Worcester)
Hunt, David (Wirral)	Paisley, Rev Ian	Walker-Smith, Rt Hon Sir Derek
Hurd, Douglas	Pardoe, John	Wall, Patrick
Hutchison, Michael Clark	Parkinson, Cecil	Walters, Dennis
Irving, Charles (Cheltenham)	Pattie, Geoffrey	Warren, Kenneth
James, David	Penhaligon, David	Watt, Hamish
Jenkin, Rt Hon P. (Wanst'd & W'df'd)	Percival, Ian	Weatherill, Bernard
Jessel, Toby	Peyton, Rt Hon John	Wells, John
Johnson Smith, G. (E Grinstead)	Pink, R. Bonner	Welsh, Andrew
Johnston, Russell (Inverness)	Powell, Rt Hon J. Enoch	Whitelaw, Rt Hon William
Jones, Arthur (Daventry)	Price, David (Eastleigh)	Wiggin, Jerry
Jopling, Michael	Prior, Rt Hon James	Wigley, Dafydd
Joseph, Rt Hon Sir Keith	Pym, Rt Hon Francis	Wilson, Gordon (Dundee E)
Kaberry, Sir Donald	Raison, Timothy	Winterton, Nicholas
Kellett-Bowman, Mrs Elaine	Rathbone, Tim	Wood, Rt Hon Richard
Kershaw, Anthony	Rawlinson, Rt Hon Sir Peter	Young, Sir G. (Ealing, Acton)
Kilfedder, James	Rees, Peter (Dover & Deal)	Younger, Hon George
Kimball, Marcus	Rees-Davies, W. R.
King, Evelyn (South Dorset)	Renton, Rt Hon Sir D. (Hunts)	TELLERS FOR THE AYES:
King, Tom (Bridgwater)	Rhodes James, R.	Mr. Spencer le Marchant and
Kitson, Sir Timothy	Ridley, Hon Nicholas	Mr. Michael Roberts.
NOES
NIL
TELLERS FOR THE NOES: Mrs. Winifred Ewing and Mr. George Reid.

Question accordingly agreed to.

Adjourned at sixteen minutes past Ten o'clock.