§ In order to reduce the borrowing requirement and the burden of direct taxation, we must make savings in public spending and roll back the boundaries of the public sector. We are totally committed to improving standards in the public services. But that can be achieved only if the economy is strong in the first place. So that will be our first priority. Finance must determine expenditure, not expenditure finance. Substantial reductions in expenditure can, and will, be made in the remainder of this financial year.
§ First, as I made clear three weeks ago, we shall not raise the cash limits to cover prices higher than those provided for in the cash limits originally published for this year. On pay in the public services, while we will honour the commitments to the universities and the health authorities entered upon by our predecessors, in general we shall limit the adjustment of the cash limits so that substantial offsetting economies will have to be found.
§ The need for substantial economies applies equally to local authority expenditure, where the Government's contribution is made through the rate support grant. As I said three weeks ago, we shall take account of pay settlements in calculating the increase orders for the rate support grant, but we shall make a significant across-the-board reduction from the total so calculated.
§ I can now tell the House that the reduction will be £300 million for England and Wales and £35 million for Scotland. That is, of course, to be set against total rate support grant expenditure of about £9 billion. These figures may have to be increased when we know the cost of further pay increases and will be finally determined in November, before the increase orders are made. In coming to this decision, a major factor has been how much in present circumstances it is reasonable for the taxpayer to contribute.
§ The cash limits on Departments and fringe bodies are being set to ensure that economies of 3 per cent. are achieved on manpower costs this year, as announced by my hon. Friend the Minister of State, Civil Service Department. I estimate that this cash limits policy will reduce the volume of planned expenditure by about £1 billion at 1979 survey prices.247
§ On top of these reductions resulting from the policy on cash limits, my right hon. and hon. Friends have reviewed the plans for their Departments and the nationalised industries and have identified further specific reductions which are being made this year. The changes are listed in a notice to be issued by the Treasury and available in the Vote Office. Further details will be given by the Ministers concerned. But the House will want to know where the main reductions will be made. All figures that I quote are at 1979 survey prices.
§ We are making an immediate start in reducing expenditure on industrial and employment subsidies. My right hon. Friend the Secretary of State for Industry is cutting expenditure on industrial support this year by £210 million. This will come mainly out of the provision for new projects by the Department of Industry and by the National Enterprise Board, and by imposition of a delay of four months in payment of approved claims for regional development grant. Support from the employment programmes is to be concentrated on the areas where unemployment is highest. Savings of over £170 million will be made in those programmes this year.
§ In the area for which my right hon. Friend the Secretary of State for Energy is responsible, savings of over £320 million are being made this year in the finance for BNOC and the electricity, gas and coal industries. The industries have been asked to avoid so far as possible increases in fuel charges beyond those required to meet the cash limits announced by the previous Government.
§ My right hon. Friend the Secretary of State for the Environment is making savings of about £440 million from his programmes this year, mainly by scrapping the Community Land Act, deferring water authority investment and reducing existing allocations to housing authorities.
§ As we have repeatedly made clear, it is not our intention to reduce spending on the Health Service. But we cannot ignore the fact that the contribution made by some health charges has greatly diminished in recent years. This applies especially to prescription charges, which have stood at their present level for eight years, during which prices have risen 248 over two and a half times. It is therefore proposed to increase prescription charges to 45p. This will still leave them cheaper in real terms than they were in 1971, and the present wide range of exemptions covering children and the elderly amongst others will, of course, be maintained. Certain dental charges will also be increased. Those changes will yield £34 million in 1979–80 for Great Britain as a whole.
§ My right hon. and learned Friend the Secretary of State for Education and Science is reducing expenditure in those areas of the education and science programmes within the Government's direct control by about £55 million. We shall not add to the increase of 5p in the school meal charge which was planned by our predecessors for the autumn term.
§ The aid programme this year is being reduced by £50 million. Savings are also being made on the transport, trade and arts programmes.
§ My right hon. Friends the Secretaries of State for Scotland, Wales and Northern Ireland are making comparable reductions in their own programmes.
§ In total, these reductions amount to almost £1½ billion this year.
§ In addition, we do not intend to use as large a Contingency Reserve as provided for 1979–80 in the previous Government's public expenditure White Paper. We have decided to cut the reserve by £250 million. Any further decision to add to the volume of programmes in the remainder of this year will be met from the balance of just over £250 million which will remain in the reserve after today.
§ In two areas we are providing for increased spending—defence and pensions. An extra £100 million is being provided for the defence budget this year. This will enable essential projects in the equipment programme to go ahead. I shall return to pensions improvements shortly.
§ As I have already indicated, we are only just embarking on our review of the plans we have inherited and of the scope for reducing the size of the public sector. But it is already clear that the scope for sale of assets is substantial.
§ Sales of State-owned assets to the private sector serve the immediate purpose of helping to reduce the excessive public sector borrowing requirement with which 249 I was faced. This is all the more necessary this year, given the difficulty of cutting back public sector spending programmes once a year has already begun.
§ But such sales are not justified simply by the help they give to the short-term reduction of the PSBR. They are an essential part of our long-term programme for promoting the widest possible participation by the people in the ownership of British industry. This objective—wider public ownership in the true meaning of the term—has implications not merely for the scale of our programme but also for the methods of sale we shall adopt.
§ So far as this year's disposals are concerned, we must obviously retain flexibility on timing and on the precise mix of assets in order to ensure a fair price. I do not, therefore, propose to announce the details today. But I intend to ensure that the proceeds of sales in the current financial year will amount to some £1 billion and I have taken account of this in the Budget arithmetic. The biggest contribution to this total will come from the sale of a further part of the Government's shareholding in British Petroleum, where we shall be following the example set by the previous Administration.
§ In total, I estimate that the economies I have announced will amount this year to about £½ billion at 1979 survey prices and £4 billion at current prices. Yet, given the scale of the problem we have inherited, I must look for a further contribution from indirect taxes to finance the first stage of our plans for the reduction of income tax.
§ Before turning to the first of my tax proposals, I must make it clear that today's Budget will be able to deal with only a small part of the Government's tax agenda. Coming, as we do, to a Finance Bill at this late stage in the year, there is a physical limit to the amount of legislation that can be proposed and enacted. We have been unable to deal with many important matters. There will be other opportunities to consider those. At this stage, we have concentrated on tax changes of strategic importance. I turn now to the first of these.