PUBLIC EXPENDITURE

HC Deb 19 March 1979 vol 964 cc1105-241

Mr. Speaker

I have selected the amendment in the name of the right hon. Lady the Leader of the Opposition.

3.47 p.m.

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

I beg to move, That this House takes note of"The Government's expenditure plans, 1979–80 to 1982–83"(Command Paper No. 7439); and approves the Government's policy of planning for improvement of public services in line with what the economy can sustain. Perhaps I can give the House the apologies of my right hon. Friend the Chancellor of the Exchequer, who has to be at the European ministerial Council in Brussels today.

Perhaps I can start the debate at the same point at which I started the last one and note that in last year's debate the right hon. and learned Member for Surrey, East (Sir G. Howe) made one incredibly bad forecast when he said that last year I was introducing the last public expenditure White Paper I should have the opportunity of introducing. I now have the pleasure of introducing another one. I want to begin now, as I did last year, with the subject of the growth of public expenditure and the actual figures relating to that growth.

Last year, I began on what I thought was a reasonably non-controversial note when I said that I did not know what the precise figure of growth was between 1977–78 and 1978–79. To my astonishment, the right hon. and learned Member for Surrey, East took that statement amiss and wanted me to give a precise figure. As both he and the House must know, the whole question of shortfall tends to distort the picture of growth, particularly when shortfall in one year is exceptionally large, for special reasons about which I shall say a brief word.

I am sorry that the right hon. and learned Member for Surrey, East appeared to be so shocked when I told the precise truth and said that I did not know exactly what the growth would be. The hon. Member for Blaby (Mr. Lawson) told us that his guess was that it would be about 5 per cent. On 17 January this year, he said in a radio or television broadcast that the growth figure was now between 7 per cent. and 8½ per cent.

I am not complaining about that, and I am sorry to see the hon. Member for Blaby shaking his head, because the whole question of shortfall is a serious matter. As I have said, it inevitably distorts the picture. If we exclude general shortfall, and nationalised industries shortfall, in one year, such as 1978–79, one can arrive at a figure for growth of about 8.2 per cent. That is possible. I hope that the hon. Gentleman will agree, because he told us in last year's debate that he always liked to be fair as he saw himself as being a fair man. I see him nodding in agreement. That is not something that personally I have always taken as being strictly a fact, at least in the debates in this House, but let us start from that viewpoint. If that is so, I am sure that he will recognise that it is unreasonable to take shortfall into account in one year, not to take it into account in another and then come to a figure for growth which is abnormally high.

Of course, one can make the figure for growth almost anything, particularly in a year such as 1977–78, when there were exceptional reasons for what I loosely call shortfall but which, as the White Paper brings out in paragraph 14, show very clearly that there were substantial financial changes in relation to nationalised industry borrowing, the sale of BP shares and a change in the method of borrowing money for export credit and shipbuilding refinance. Indeed, if one excludes those special factors—and they are special factors—the actual growth in public expenditure between 1977–78 and 1978–79 was between 2½ per cent. and 3 per cent. I leave it at that. What the figures show is that the 1978–79 plans for public expenditure did not change between the two years. What changed, and led to the distortion about the actual growth figure, was what happened in 1977–78 and the figures that I have outlined to the House.

Mr. Nigel Lawson (Blaby)

The right hon. Gentleman will be aware from one of the appendices of the report of the Expenditure Committee that if a full £2 billion shortfall is allowed for this year—which has not yet been fully identified—and outturn is compared with outturn, even taking away the BP share sale and special factors of that kind, the increase comes out at 4.1 per cent. It does not do for him to mislead the House in the way that he is attempting to do.

Mr. Barnett

I do not know why the hon. Gentleman goes on about this. I have conceded that shortfall, particularly when there are special factors, distorts the figures. If we want to have a sensible argument about public expenditure, we should do so on the best basis that we can—or the basis of the facts. That is all that I am seeking to do.

Mr. Lawson

What I said are the facts.

Mr. Barnett

With respect, the hon. Gentleman is trying very hard to distort the statement he made last year about being fair. I said that there were very special factors in relation to financial changes in 1977–78, with which he does not disagree. If one excludes those and takes shortfall on a comparable basis between the two years—and there was no change in plans for 1978–79—the real growth of plans was between 2½ per cent. and 3 per cent. I mentioned that not to try to make a cheap debating point but to try to get right the facts on which we base our discussions. That is all I seek to do.

The plans that I honestly outlined to the House last year showed that between 1977–78 and 1978–79 the growth in public expenditure was approximately 2¼ per cent. The shortfall for 1978–79 is lower than that of 1977–78. If one takes the same assumptions about shortfall for 1979–80, the growth is about 2 per cent. a year from here on. As the motion says, I believe that this is in line with what the economy can sustain. Of course, I make absolutely clear that if the assumptions are wrong—and there are many assumptions underlying all these plans—action will have to be taken to ensure that public expenditure growth will be within what we believe the country can sustain. I shall come to the possible effects on the 2 per cent. growth of public expenditure plans of the changes that have happened since the publication of the White Paper.

At the outset, I want to plead guilty in respect of wanting to see higher growth of public expenditure, certainly in selected areas, than we were able to provide for in this White Paper. I wish that we could sustain more. Goodness knows, there is a desperate need for greater expenditure on the Health Service, education and social services. But, despite the economic situation over the past four or five years, we have managed to achieve substantial real increases in areas such as pensions, help for the disabled and child benefit. Therefore, we have not altogether failed to increase public expenditure in areas about which Labour Members feel strongly.

But we cannot ignore the fact that the economic situation both at home and abroad is such that, in my view, it would be foolish to plan to spend more in public expenditure than the 2 per cent. growth for which we have provided. However, I note the Conservative amendment, which argues that we should be spending less on public expenditure.

I now turn to the White Paper itself, which, as has been recognised, provides more information than has ever been provided in the past. This year, there are 255 pages, whereas the last expenditure White Paper of our predecessors—in December 1973—included 160 pages of which the last page was totally blank; I cannot imagine why. But a great deal more information has now been provided at the behest and constant request of the Expenditure Sub-Committee. I note that the Sub-Committee, under the chairmanship of my hon. Friend the Member for Nottingham, West (Mr. English) welcomed the White Paper generally, although not without criticism. I shall come back to that, because it seems that the Sub-Committee and my hon. Friend have an insatiable appetite for yet more information.

The first request for more information related to tax expenditures. That is the jargon for tax allowances and reliefs which are given in the same sorts of areas where public expenditure also bites—for example, child benefit and child tax allowances. While welcoming what I have done in this White Paper, in providing a great deal of additional information, the Sub-Committee asks me to consider a request for further extending the information. I can tell my hon. Friend the Member for Nottingham, West that in next year's White Paper either I or one of my hon. Friends who might be introducing it will give serious consideration to the request for further information.

Equally, I am asked for more information on output achieved and planned in programmes. My hon. Friend and the Sub-Committee recognise that, here again, we have provided a great deal of information. But they want more. I shall again carefully consider whether I can meet that request.

The planning totals for 1979–80 and next year are, on revalued figures, in line with last year's White Paper. But within the total the financial provision for the nationalised industries has been reduced, and the headroom has been used for extra expenditure on health, education, employment measures, child benefit and benefits for the disabled.

At this stage I turn to the other more important and major criticism of the Expenditure Sub-Committee. Judging from the press, I was savagely attacked by the Sub-Committee. My hon. Friend the Member for Nottingham, West shakes his head. In line with the headlines that I read, I read the report with very great care. I notice that the Sub-Committee was actually expressing dissatisfaction about me personally. In the kindest possible manner, I must tell my hon. Friend that I am somewhat dissatisfied and disappointed with those aspects of the report, and I should like to say why.

The main point, which not surprisingly has been taken up by the Opposition, is that the White Paper has been overtaken by events. Indeed, the Conservative amendment would refuse to approve the White Paper because it has"been overtaken by events ". If that notion were acceptable to the House, very few White Papers would ever be approved. Between the time when the White Paper plans are prepared and the date of our debate, many changes occur at home and abroad. That was not, however, the point of my hon. Friend the Member for Nottingham, West and the Sub-Committee. They said that the matter had been overtaken by events and that much depended on the pace of pay rises in the public sector in relation to the private sector.

That is what is known in the jargon as the relative price effect. Clearly, this is an important factor, but the pace of changing views on the likely outturn of the pay round in the public and private sectors is so fast that if we had provided the Expenditure Committee twice daily with revised information that would still have been inadequate. At the time, as hon. Members will recall, the lorry drivers' settlement was such that the pessimists were assuming that the growth in the current pay round would be about 20 per cent. or more. As my hon. Friend the Member for Nottingham, West will know, the assumptions fluctuated widely at that time and have done so ever since.

The situation is very different now. There is, therefore, only one clear point. Whatever additional new assessments I would have provided for the Committee, or my officials would have given on 31 January in giving evidence, would have been out of date long before the Committee got round to publishing its report, let alone our holding this debate.

Mr. Michael English (Nottingham, West)

We seemed to have a further assessment from the Chancellor of the Exchequer in a speech.

Mr. Barnett

My hon. Friend knows perfectly well that the Chancellor, in a speech, gave a very rough and ready set of figures on the basis of a hypothesis which he by no means accepted as being the likely outturn. What my right hon. Friend said was nothing like what my hon. Friend and the Committee were asking us to do, namely, to provide much more detailed and constantly updated assessments. I believe that to have been an unreasonable request.

Mr. Nicholas Ridley (Cirencester and Tewkesbury) rose—

Mr. Barnett

Perhaps before I give way I may finish my remarks about the Committee. I know that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) is a member of that Committee, but I have a great deal more to say about it When I have finished those remarks I shall be happy to give way to the hon. Gentleman. The Committee is important and I take its remarks most seriously.

The position on the pay front today is much calmer than it was when my hon. Friend and his Committee were putting together their report and asking for further information. The situation, as my hon Friend knows, was being much exaggerated at the time, and in all the circumstances I believe that I was right, for the reasons I stated in my letter, not to provide additional information. I am grateful to my hon. Friend for publishing my letter. It is there for all to see precisely why I felt it unnecessary to provide that additional information.

The Committee's other major criticism was about the projections that I published in the White Paper. On this the Committee described itself as being"disappointed ". It wanted a wide range that would cover all likely eventualities. I very much doubt whether the Committee's report would ever have been published if we had sought to cover all likely eventualities. I have, however, noted the observation that three likely eventualities is an inadequate number.

The projections do not cover the year 1978–79 or the year 1979–80. They cover the years from 1977 to 1982, and they do not pretend to cover all eventualities. They are intended to meet the requests of the Committee for more quantified economic background information, and within the inevitable limitations they provide just that. In particular, they bring out that inflation is the main enemy of growth, so the main constraint on the volume of increased expenditure is made clear by those figures, and they show that the economy can sustain a higher rate of economic growth only if we can obtain lower rates of inflation.

Mr. Ridley

The Chief Secretary has addressed himself to the hon. Member for Nottingham, West (Mr. English) as though the hon. Member were a one-man committee. I am grateful for this opportunity to intervene in that dialogue. Is the right hon. Gentleman aware that the three wage projections that he gave for the years 1977 to 1981 were 5 per cent., 7 per cent. and 11 per cent.? There is a slight qualification upon the first. As the growth in earnings last year was 14½ per cent. and is this year likely to be well over 11 per cent., has the right hon. Gentleman yet seized the point that all of his projections are unlikely and that the Committee is calling for a more likely bracket within which to view the possible consequences for public expenditure?

Mr. Barnett

The hon. Member for Cirencester and Tewkesbury would be astonished if I were not aware that that is what he is asking for. I hope that he understood what I was saying. The period we are discussing covers 1977 to 1982, and in seeking to cover that whole period I would not accept that the likely outturn or pay in later years will be such as to invalidate every figure within those three projections.

Mr. Lawson rose—

Mr. Barnett

I do not know why the hon. Member for Blaby wants to intervene in this row between me and the Committee.

Mr. Lawson

It is a very important Committee, as the Chief Secretary said. The right hon. Gentleman is also on a very important point. The Chief Secretary is quite entitled to make his own assumption now and to say that he thinks that earnings over the next year will be less than someone else might think they would be. But what he cannot with validity say is what he was saying to the hon. Member for Nottingham, West (Mr. English) a moment ago, that it is quite impossible to make an estimate of earnings over the coming year and therefore of the relative price effect. The Chief Secretary knows as well as I do that that estimate has to be made for the calculation of the borrowing requirement which will be announced to the House on Budget day in a few days. Why cannot he tell the House what that estimate is?

Mr. Barnett

Because I would prefer the hon. Gentleman to wait for Budget day, when he will see that forecast. But in these projections we are talking not about what will happen next year but what will happen over the years to 1982. I gave three projections that were intended to meet requests from the Committee for more quantified economic background information. To have gone much wider and to have provided for all eventualities, even the possibility, remote though it may seem, of the hon. Member for Blaby being in office, is asking for too much.

Mr. English

I am sorry to intervene a second time, but my right hon. Friend seems to be assuming that we cannot be told his anticipation over several years ahead because it is more difficult to make than an anticipation for one year ahead. We all appreciate that, but why does not my right hon. Friend assume that the rate of inflation over several years ahead will be at least as great as the rate over one year ahead? Why does not my right hon. Friend assume that if, for example, there were a Conservative Government the rate of increase in the money supply might be greater than this Government have permitted?

Mr. Barnett

I am sure that my hon. Friend does not wish to misinterpret what I have said. I was not giving assumptions. I was giving three illustrative projections. I am not forecasting what will happen to inflation over the years up to 1982. That is not what this is all about. Those three projections provide the underlying background economic information for which the Committee asked. I am therefore somewhat disappointed at my hon. Friend's disappointment. I am ever ready to accept criticism—if it is merited. In this case it is not merited, and I can only regret the dissatisfaction and disappointment of the Committee. I hope that when it has had another opportunity to reconsider what I have said it might even contemplate withdrawing its dissatisfaction and disappointment. That would give me much greater pleasure and satisfaction than what it has said so far.

Mr. Ian Stewart (Hitchin)

Surely the simple point is this. The three projections which have been given are not considered by many people to be likely to span the actual outturn. Is the Chief Secretary saying that he expects that the outturn will be within the span of those three projections? If he is not, why could not a series of projections be given which would be likely to cover the expected result?

Mr. Barnett

I am trying hard to have a serious discussion on a serious matter. As I pointed out to my hon. Friend the hon. Member for Nottingham, West, I have never said that I was making either assumptions or forecasts. We were giving projections in order to provide economic background in certain illustrative circumstances. The hon. Member for Blaby laughs, but I cannot imagine why. Perhaps he can give forecasts. He is ever ready to give forecasts of all kinds, most of them wrong, but I cannot imagine that he is likely to be able to give me a relevant forecast here. He gave an example a few moments ago. Last year, he talked about 5 per cent. growth in public expenditure; in January this year he said that it would be 8½ per cent.; and a few moments ago he spoke of 4.1 per cent. I do not know which of his forecasts to take. All three cannot be right.

Mr. Lawson

They can.

Mr. Barnett

They can? The hon. Gentleman can make just about anything seem right. But there is a serious matter here. I am not attempting to forecast what will happen up to 1982. I am sorry that the hon. Gentleman was not listening when I answered my hon. Friend the Member for Nottingham, West.

Perhaps I may now turn to the effect on planned growth—as set out in the White Paper—of the pay settlements at present going on, which is related to the point in the minds of all hon. Members who have questioned me in the past few moments. There is likely to be—I do not dispute it—an excess over what we had originally hoped for in the pay outturn in the current round. No one will dispute that. Certainly I do not, although I would say that the excess is not likely to be as large as the exaggerated fears expressed at one time suggested that it was likely to be.

When the White Paper was published on 17 January, I said that the plans were conditional on the level of inflation. That is correct, because, unlike the situation that prevailed prior to this Government's introducing the cash limits system, we are not prepared simply to increase the amount of cash available to meet whatever needs to be added to the volume of expenditure for whatever pay and price increases there are, and precisely because we did not want a reduction in real expenditure on public services we wanted to see moderation in pay settlements.

I must make clear that the public purse is not bottomless. If the prices of goods and services rise, and rise faster than we can afford, clearly we shall be able to afford fewer of them. That is a straightforward statement of fact, which most housewives thoroughly understand.

Therefore, the policy of cash limits—[Interruption.] I am glad to see the hon. Member for Knutsford (Mr. BruceGardyne) back, muttering in his place. I am sure that he will have recognised that the real world is rather different from Knutsford.

The policy for cash limits is as announced by me on 23 February and reflects the situation that I have just described, namely, that public expenditure plans are based on many assumptions, including pay and prices, and if the assumptions turn out to be incorrect the plans will have to be adjusted. The size of the adjustment will depend on the extent of any change, but inevitably growth will be lower if inflation is higher. I would not wish to dispute that.

It has been suggested that the way in which the cash limits will work, or, rather, the way that I described in my statement of 23 February, is somewhat uncertain, particularly in relation to pay, and I want to say a word about that.

The effect of cash limits is inevitably uncertain, since we live in an uncertain world and we do not at this stage know the pay outturn. The options available to us in setting cash limits in a period of free collective bargaining are somewhat difficult. On the one hand, one could finance all public expenditure in respect of all pay increases. At the other extreme, one could finance none of the increased public expenditure coming from additional pay increases.

Between those, there is more than one course open. But one that is generally taken by those who are total unbelievers in any kind of incomes policy would fix the cash limit on a new pay assumption which, they argue, would be more credible, and then provide no more cash and cut public expenditure in order to meet the difference.

With respect, I find that proposition somewhat naive and unrealistic. I believe it to be naive because it assumes that any new figure that one would have stated would not be taken as a new guideline to be broken. My view is that in current circumstances it would have been taken as a new guideline and once more sought to be broken. It is unrealistic because it assumes that one can make sufficient public expenditure cuts in the short term—a matter to which I shall return when I come to the Opposition amendment.

We chose instead a case-by-case approach, making clear in advance that a substantial proportion of central Government pay increases will have to be absorbed. In the case of local authority staff—other than manual workers—the same case-by-case approach will be adopted. In the case of manual workers we shall finance our 61 per cent. share and no more, but as the local authorities have to finance the other 39 per cent. there could, I fear, be some squeeze there, too.

The cash limit on prices is a different matter again, and I hope that it is clearer. It is based on the Industry Act forecast of 8½ per cent., and any outturn above that will have to be absorbed.

Mr. Terence Higgins (Worthing)

Do I understand the Chief Secretary to say that the pay increases determine the cash limits, not the cash limits the pay increases? Can he say whether paragraph 3 of his White Paper, which says that the basis of cash limits of individual programmes will be the White Paper figures, is still valid?

Mr. Barnett

With respect, that is not what I said. I did not say that cash limits would be determined by the pay outturn. I said precisely that they would not be. I said that a substantial proportion would have to be absorbed. Unlike what happened when the hon. Gentleman was Financial Secretary and there were no cash limits, the position today is very different. We are using cash limits to ensure that there will be some inevitable squeeze on public expenditure.

The hon. Gentleman caught me in midstream, and I hope that he will allow me to develop the point regarding cash limits on prices. I said that I hoped that this matter was rather clearer, in the sense that the cash limit will be fixed on a straight 8½ per cent. forecast and beyond that any price increase would need to be absorbed. It will apply to central Government expenditure and local authorities' expenditure—that is, in respect of their capital expenditure—and it will also apply to the price element in the rate support grant.

Clearly, the impact of cash limits will depend in large part on the level of pay settlements and the direct and indirect effect which they have on prices. I do not propose today to make any new forecasts—they will be published in the normal way in the Budget. But, to give some indication of the magnitude of the squeeze in respect of the price element, for each 1 per cent. extra on prices—in other words, for each 1 per cent. that they exceed the provision in the cash limits—the volume of central Government expenditure, excluding rate support grant but including the volume of local authority capital expeniture, will be squeezed by approximately £125 million at 1978 survey prices.

It gives me no pleasure to say that, but it would be foolish to imagine that without cash limits one could just carry on as though large pay settlements had never happened. They have, and are likely to happen, and they will affect prices and therefore will affect the amount of cash available for public expenditure. If one spends more on one thing, there is less available for the purchase of other goods and services, as I said.

I turn now to the Opposition's alternative. I wish to examine this alternative since it raises a serious argument whether one should cut public expenditure substantially in order to ensure that one has substantial cuts in personal taxation.

I hope that it is clear that the Opposition may now accept that the first part of their amendment is just a little foolish—to say that one would not approve the White Paper because it is overtaken by events. As I said, we do not live in a static world. We are affected by world events—the Iranian oil situation, the increased price of oil and other factors will affect what happens to White Paper plans—and to suggest that one should not approve such plans because things have changed over a few months, or even a few weeks, is rather foolish.

I shall proceed to my examination of the second part of the Opposition's amendment.

Mr. Ridley

If the right hon. Gentleman suggests that the House should approve the White Paper, why does the Government's motion ask the House only to take note of it?

Mr. Barnett

I am astonished that the hon. Gentleman has not read the motion. It asks the House to approve the Government's policy of planning for improvement of public services in line with what the economy can sustain ".

Mr. J. Enoch Powell (Down, South)

As the right hon. Gentleman appears to be entering a new phase of his speech, will he state whether I have correctly apprehended the argument that he has completed to the effect that in so far as wage increases in money terms and price increases in money terms are higher in the next 12 months than is assumed for the purposes of his calculation, public expenditure will be, though not necessarily to that degree, less than the projection in the White Paper?

Mr. Barnett

I hoped that I had made that reasonably clear. I am obliged to the right hon. Gentleman for asking me to repeat it. If there is a higher growth of pay and prices, inevitably there will be consequences for the volume of public expenditure. That is one of the major reasons why I regret that we are not likely to achieve as great a moderation in pay settlements as I had thought.

I was about to examine the implicit and explicit proposition in the second part of the Opposition's amendment. To put it in the kindest possible way, I find the assumptions somewhat nonsensical.

Explicitly, the idea would be substantially to cut public expenditure and to provide scope to cut personal taxation. If a cut in public expenditure were offset by a cut in personal taxation, there would not, at least initially, be a great effect on either the borrowing requirement or interest rates. On the other hand, implicit in the second part of the amendment is the intention to cut the borrowing requirement to achieve lower interest rates. It does not necessarily follow that a lower borrowing requirement will automatically mean lower interest rates, but let us assume for the purpose of the second part of the argument, which is a serious one, that the borrowing requirement is cut and that from that simple cut lower interest rates are achieved.

I have examined the proposition seriously. I want to see cuts in personal taxation. However, to pretend that that can be done on the substantial scale needed to cut substantially both personal income tax and the borrowing requirement, regardless and in advance of improving Britain's industrial performance, is to present a fraudulent prospectus to the nation. It is to perpetrate on the public a great hoax, which is bound to backfire when the hoax is exposed, as it certainly would be. I hear murmurs from the Opposition Benches. It seems to be assumed that by cutting personal taxation there will be a result sufficient to reduce the borrowing requirement.

Public expenditure could be cut. I have never said that it is impossible to cut it. I argue that some public expenditure can and should be cut. I have a little more experience in that direction than those on the Opposition Front Bench. However, I did not cut public expenditure with the same gleeful anticipation that those on the Opposition Front Bench seem to have. To pretend that public expenditure can be cut on the scale that the Opposition imply in the second part of their amendment to achieve both a lower borrowing requirement and huge income tax cuts is, first, to delude themselves—which has obviously happened—and, secondly and much worse, to seek to delude the public.

I wish to examine seriously whether it is possible to do what the Opposition imply. I do so on the basis of my little experience of cutting public expenditure. First, I wish to demonstrate why a cut on the scale proposed by the Opposition is not possible. As a background I give four reasons. The first is that to make cuts on such a scale it is necessary to take account of the consequences on others of so doing. The second is the sheer impracticability of the exercise. The third is the economic consequences in the short and long terms. The fourth is the time scale. Against that background, I examined seriously the proposition that is implicit and explicit in the second part of the amendment.

I share the desire to make personal income tax cuts, if not to make them in the manner proposed by the Opposition Front Bench. I shall put forward certain ways in which personal income tax cuts might conceivably be achieved. I have tried in the past, without avail, to put these ways in the form of questions to the Opposition Front Bench. On this occasion I hope that I shall be forgiven for stating the possible ways as facts. If I am wrong, no doubt the Opposition will tell me.

We are now privileged to have much greater access to the thinking, if that is the right word, of the Opposition Front Bench. We find that the hon. Member for Blaby is writing articles in Financial Weekly. We have a better idea of its thinking because we know that the hon. Gentleman's voice on these matters is clearly that of the right hon. and learned Member for Surrey, East, the Shadow Chancellor—at least, we assume so. I see from a smile of the hon. Member for St. Ives (Mr. Nott) that possibly it is the other way round.

The White Paper figure for general assistance to industry is over £500 million. Being a large figure, it has clearly caught the attention of the hon. Member for Blaby and other members on the Opposition Front Bench. A large part of that sum is already committed. The National Enterprise Board has committed the largest part of it to British Leyland and Rolls-Royce. For the purposes of my argument I assume that the Opposition Front Bench does not propose—at least not in 1979–80—to close down British Leyland or Rolls-Royce. I do not see any movement of heads, so I assume that that is correct.

The next area is future industrial support. It will not surprise the Opposition Front Bench when I say that I have examined that support with a fine-tooth comb. The savings that could be made would not start until 1980–81. Even then there would be some existing commitment. Some provisions would be needed for contingencies. However, I do not dispute that some savings could be made. I estimate that about £70 million a year could be saved for the next two years if all new NEB investment were curtailed.

Given the substantial queue of small businesses, especially, at the door of the NEB, it seems that if the Opposition were in Government they would have to leave some contingency funds available. I note from the smile on the lace of the hon. Member for Blaby that small business men had better not think along those lines if ever they are unfortunate enough to operate under a Conservative Government.

If future industrial support on a selective assistance basis were restricted to contingencies only, some savings could be made, but they would be small. There would be only a small saving, if any, in 1979–80. I reckon that in 1980–81 there could be a saving of about £10 million, with rather more saved in 1981–82. There would be some once-and-for-all savings by selling off some NEB assets. That might achieve savings of between £70 million and £100 million, but not a great deal altogether.

The other large item to which the Opposition have had their eyes attracted is the functioning of the labour market and the figure of £1,243 million in 1979–80—a growth, from 1973–74. of £269 million. That growth has been largely in industrial training, from £116 million to £511 million, and in special employment measures, where expenditure has risen from nil to £446 million.

I do not argue that cuts are not possible in these areas, but do Opposition Front Bench Members argue that they propose, despite everything that the Opposition pressed on the Government about industrial training, to cut expenditure on industrial training? I see that there are no nods or winks, or anything else. I assume that the Opposition do not propose to cut expenditure on industrial training.

I see the Shadow spokesman for employment sitting below the Gangway. I hope that nothing serious has happened. I assume that he would not want to see a cut in industrial training. I understand that when I look at some of his hon. Friends.

The second area would be special employment measures. Do the Opposition have in mind to cut the whole of the expenditure on the special temporary employment measures, youth opportunities, the job release scheme, the small firms employment subsidy and the rest? Do they have in mind to cut those schemes? I suppose they might. If they started with a 25 per cent. cut they might achieve a saving of £60 million in 1980–81. They might attain a more considerable saving if the schemes were cut entirely. However, in last year's debate the right hon. and learned Member for Surrey, East raised this matter.

The hon. Member for St. Ives should not nod, or he will cause me to think that the Opposition plan immediate cuts. Before the hon. Gentleman says what he would do, I remind him that on 16 March 1978 the Shadow Chancellor said that he would taper out these expenditures.

Mr. John Nott (St. Ives)

I realise that the Treasury is understaffed and that the Chief Secretary changes his speech on these subjects only once in every four years. However, this is precisely the same speech as he made a few months before the Chancellor of the Exchequer cut public expenditure by £4 billion. That happened a few years ago.

Mr. Barnett

With great respect, if the hon. Gentleman cannot do better than that he had better not intervene. I am trying seriously to examine whether it is possible to cut public expenditure. I outlined where expenditure may be cut. I do not say that it cannot be cut. If the Opposition deny that expenditure can be cut in this way, no doubt they will say so. The hon. Gentleman did not say that.

The Opposition should recognise that we are discussing a Government amendment to an Opposition motion. Perhaps I am making the mistake of treating the matter seriously. If the Opposition cut public expenditure on unemployment measures in this way, it would have consequences for the numbers employed in some areas, if only on a temporary basis. On that temporary basis, it would have an effect on 200,000 jobs, at least initially. Even if, ultimately, the money freed from this expenditure went into productive manufacturing industry to provide additional jobs, in the transitional period there would inevitably be some growth in public expenditure. I do not think that that can be disputed.

The hon. Member for Blaby and others suggested that the other major public expenditure programme available for substantial cuts was the area of housing subsidies. Again, that is not surprising, as the figure in that area is over £1,600 million. The Government already plan rent increases in line with earnings from 1980–81. To make further cuts in those subsidies, rents would need to rise faster than earnings. That is fairly self-evident. Local authorities, as they are autonomous, may decide not to increase council house rents faster than earnings. They may decide to take the amount from balances, or from the rates. Power would need to be taken over local authorities to force them to do this, as was done before. That is what would happen. We could not do so under existing legislation.

If that legislation were pushed through, expenditure in this area might be affected in 1980–81, or 1981–82, but there would be nothing in 1979–80. [Interruption.] The Opposition should not be so sensitive. Let me finish. If rents were pushed up £1 a week faster than earnings were rising, we should attain about £250 million—that is to say, if rents rose by £1 a week faster than they are already rising, in line with earnings, there would be a saving of about £250 million a year.

Mr. Lawson

The Minister mentioned the article that I wrote. I did not refer exclusively to housing subsidies. I also referred to the sale of council houses and the shift of the building programme from the public to the private sector. If it is impossible for the Government, without legislation, to make assumptions about the level of rents, how is the Minister able to make his assumption about the level of rents rising in line with earnings?

Mr. Barnett

The hon. Member for Blaby is a sensitive soul. I read his article. I have not finished with it. I shall answer it in my own time. I was coming to the question of council house sales. First, I shall deal with the questions constantly put to me by the hon. Gentleman. I realise that he does not like being criticised, even remotely, but I was not criticising him.

The assumption that we made was that council house rents would rise in line with earnings from 1980–81. My point was that if subsidies were cut by a substantial amount, rents must rise substantially faster than earnings. That is a simple point. I am sorry that the hon. Gentleman was so obsessed with his own article that he was not able to take my point on board.

I come immediately to the sale of council houses. I know that this is not only what the hon. Gentleman writes and talks about; it is part of Opposition policy.

Mr. English

Look at what happened in Nottingham.

Mr. Barnett

I do not dispute that a great many things happened in Nottingham. No doubt my hon. Friend will tell me. No doubt the Expenditure Committee's report was discussed in great detail. I envy hon. Members their pleasure.

I do not dispute that council houses may be sold. After a few years, with larger discounts and a sustained campaign, it would be possible to sell more council houses in some areas. However, not much would be achieved in the first year. [Interruption.] If the hon. Member for Blaby aspires seriously to higher office, he must be a little less sensitive than at present. He must listen occasionally.

It might help Opposition Back Benchers to know how much in the way of public expenditure cuts they may hope for, so that they may include the information in their speeches around the country or in their constituencies and when they say that they will cut income tax, public expenditure and the borrowing requirement by massive amounts. Let me tell the Opposition what would be the result if there were a sustained campaign to sell council houses. If they sold 50,000 more council houses, the long-term savings—certainly not in the first year—would be about £200 million. In the longer period still, with mortgage relief and the possible replacements that would be needed, that might well produce a net loss on the borrowing requirement. However, that ignores the growing need for about 75,000 houses a year to meet the special problems of the elderly, the disabled and the homeless. Presumably even a Conservative Government would not be able to ignore those problems.

I now come to the other expenditure savings, and administrative savings on social security and tax. There have been some increases in the staffs of the Revenue services. The biggest increase was 10,000 in the staff of Customs and Excise. That number rose when the Conservative Government changed from purchase tax to VAT. That was the biggest influence. The Opposition know that any major reduction in staff in that area depends on the simplification of the tax system, which simply cannot be done quickly, especially when they stopped the expenditure on computers, which would have helped us to improve the simplification.

I now come to a subject that is often mentioned by the Opposition—the waste of resources. I note that the Opposition have been quiet about a document that was leaked recently. It is right that the areas covered in that document should be scrutinised very carefully. That is why two of the seven items were not proceeded with. I should be very interested to know whether the Opposition Front Bench would cancel any of the other five. I shall list them.

Would the Opposition cancel the British Aerospace 146—the old HS146? Would they cancel the Rolls-Royce RB 211–535? This is the company that the Opposition rescued from liquidation, having first put it unnecessarily into liquidation. Would they cancel entry into Airbus Industrie? Would they cancel the Sidewinder, or the Milan anti-tank missile, so that we would be utterly dependent on the United States and not produce them here? Which of those would they cancel? I can begin to see why the Opposition have not sought a debate on the subject.

I am bound to say that casting stones in this area of waste of resources is a dangerous business. One thinks of Concorde, the Rolls-Royce rescue, the TSR2 and Blue Streak. Which Government were responsible for more waste than the Conservatives?

Where else would the Opposition make these huge savings? Would they make them in the coal industry, the steel industry, the shipbuilding industry or in the National Health Service? Perhaps we would get from the Opposition some savings in the Health Service. It is possible, for the right hon. Member for Leeds, North-East (Sir K. Joseph), who has some experience in this area, was reported in The Times of 17 April 1978 as saying: Have a health service by all means, maybe one that will have a monopoly of some sorts of care, perhaps the handicapped, the geriatric or mental illness. That is the kind of Health Service envisaged by the right hon. Gentleman. It would have a monopoly of those items and everything else would be divided elsewhere. Is that really the kind of proposition that would enable the Opposition now to argue that they would obtain major cuts in public expenditure? Even if the Opposition planned to provide a National Health Service for the poor, the geriatric, the mentally sick and the disabled, it would take, according to what the right hon. Gentleman is further quoted as saying, up to four consecutive Parliaments ". There would not be much scope there for cutting public expenditure.

All in all, then, the minimum savings that the Opposition would be able to make would be such as would be available only for 1980–81. They would by no means enable major cuts to be made in public expenditure or a major cut in the borrowing requirement—particularly when, offset against even these minimum cuts, there would have to be increases in expenditure on defence, the prison service, law and order and housing for first-time buyers.

One would gather that a substantial increase in public expenditure is to be the policy of the Opposition Front Bench. Tonight they will vote to ensure that there will have to be an increase in public expenditure to allow for the abolition of the earnings rule in relation to pensions. That would involve expenditure up to £100 million over a given short period. This is from the party that claims to be able to cut public expenditure on a substantial scale.

My comments on the Opposition amendment have been extremely moderate, and I have no doubt whatever that the Opposition case really does add up to the fraudulent prospectus that I described. The House has a better prospect before it, as has the country. The House has the Government motion and the plan to increase public expenditure in line with what we can sustain. That plan depends on economic growth, which in turn depends upon containing inflation. Within economic growth, we can achieve what we need by a balance between personal consumption—including income tax cuts—and public consumption.

I do not apologise for wanting to see a society that is governed by a party that cares for something more than public expenditure cuts regardless of the consequences. I do not like the kind of society envisaged by the right hon. Member for Leeds, North-East, in which the poor, the geriatric, the mentally ill and the disabled would be the main people to be served by the Health Service. We need more, not less, public expenditure on health, education, social services, housing and the environment. The Government motion and Government policies provide the opportunity for those better balanced policies in a caring society, and I commend them to the House.

4.45 p.m.

Sir Geoffrey Howe (Surrey, East)

I beg to move, to leave out from"House"to the end of the Question and to add instead thereof: declines to approve"The Government's expenditure plans 1979–80 to 1982–83"(Command Paper No. 7439) which has already been overtaken by events and which in any case leaves inadequate scope for the cuts in personal taxation and interest rates essential to the creation of a prosperous economy. The Chief Secretary's speech had a curious quality of déjà vu about it. We have heard it all before. Not long after he made that speech on a previous occasion, he had to take action to disprove the value of his own speech by doing exactly the converse of what he had advocated. He had to make reductions in public spending on a scale which he had denounced as impossible only a week or two before.

The amendment that we have tabled today underlines one point, and the Chief Secretary has attempted to address himself to it from time to time. It is the extent to which these debates on public spending far too often take place in isolation from the much more important question of how the spending planned by the Government is to be paid for.

The General Sub-Committee of the Expenditure Committee, under the chairmanship of the hon. Member for Nottingham, West (Mr. English)—to whom, collectively and individually, I gladly pay tribute—has argued for some time that we ought to do more to bring together for consideration in the House the two sides of the Budget, so that they could be looked at simultaneously. That is surely the direction in which we ought to go.

The Chief Secretary, in table 7 of the White Paper, has moved to some extent in that direction. As I shall have one or two less-than-friendly things to say later about the Chief Secretary, I am glad to pay tribute to him now—this must be the last occasion on which I shall have the opportunity of doing so—for some of the constructive work that he has done in this field. He has played an important part in advancing the concept of cash limits and he is entitled to take credit for that. He is a little less entitled to take credit for the way in which he welcomed back to these Benches, for a public expenditure debate, my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne). We are delighted that he is here with us again. He has now left the Chamber, I gather, but he will be back.

Mr. Douglas Crawford (Perth and East Perthshire)

The hon. Gentleman left when the right hon. and learned Gentleman started to speak.

Sir G. Howe

My hon. Friend and I are so close in our thinking, and we understand each other so well, that he no doubt felt that he needed to proselytise another audience.

The Chief Secretary managed to demystify and devalue the White Paper almost to the point of extinction, and there may be some credit that he can take for that as well.

The General Sub-Committee of the Expenditure Committee, in paragraph 11 of its report, may have given an apt verdict on the Chief Secretary when it said: There is no explicit statement to show whether the Government regards any of the projections as either desirable or acceptable, although the clear implication is that the Government cannot determine the rate of economic expansion…This seems to reflect a pessimistic view about the effects of the Government's economic policy upon the rate of economic growth and indeed no indication is given, apart from urging trade unions to restrain wage demands, of the measures that might be taken to influence developments, let alone of their likely effect. The decisions that are being debated today and the plans that the Chief Secretary has brought before the House will be far more significant for the Government's room for manoeuvre on the tax front, and a great deal more should be done to bring them together.

Happily, the Prime Minister gave us an opportunity to consider these matters alongside each other. Addressing an audience in Paris last Monday, he said: We are misusing taxpayers' money and the day is fast coming when our taxpayers will refuse to authorise any more. The newspapers produced headlines the following day such as"Taxpayers revolt"and"A bottomless pit ". The Prime Minister went on, in other flowing phrases, to say that it was high time that this rake's progress was brought to an end. We applaud those sentiments. It is a marvellous thing for the Prime Minister to say, but we have doubts about his choice of audience and of target.

The net contribution to the EEC this year, taking account of the European Investment Bank, is £722 million. That contribution should certainly be examined criticially, but how far is the Prime Minister entitled to do that in such strident terms? The contribution was arrived at in accordance with the procedures and calculations established after a painful, prolonged renegotiation by the Prime Minister of the Treaty of Accession, so he has no right to complain of the result.

The Chief Secretary is sitting there looking fairly content, but he has little right to question the contribution. Towards the end of last year the European Assembly raised the Community budget by some £300 million. That was considered by the Council of Ministers, and the Chief Secretary represented this Government. He did not slap his veto on the table to overrule that increase; he allowed it to go through. Only months back he, the Italians and the Irish conspired to promote a further increase in the Community budget. He is no better placed than is the Prime Minister to pose as a friend of the taxpayer.

That is a prudent judgment on the quality of the contribution that the Chief Secretary has made to the debate this afternoon. He has not taken far enough the alignment of each side of the Budget together. In a few weeks' time—if the Chancellor of the Exchequer is still in office—the Budget will still be seen by the public as the lonely centrepiece of our economic debates.

Mr. Joel Barnett

Before the right hon. and learned Gentleman distorts the picture any further, I should say that the £300 million related to the regional development fund, from which we get a net benefit.

Sir G. Howe

We fully appreciate that. Even so, the Chief Secretary was contributing to an overall growth in the Community budget, and by that means was hoping to readjust its shape. If it stands as that, it will lead to an overall growth in the budget. Neither the Prime Minister nor the Chief Secretary is entitled to take that point.

Mr. Barnett

The right hon. and learned Gentleman must get his facts right. Is he arguing that we should not be seeking an increase in the EEC budget that provides a net benefit for this country?

Sir G. Howe

If it operates simply as an addition with other adjustments that may take place, it is likely to lead to an increase in the total contribution. Neither the Chief Secretary nor the Prime Minister is entitled to challenge that kind of thing.

It is grotesque for the Prime Minister to talk of a taxpayers' revolt against a total contribution of £722 million if one considers what has happened under this Government. One can take a number of different tables from the White Paper to make comparisons and put that in a wider perspective.

Table 1, line 7, shows that in 1973–74, which was the last year for which my right hon. Friends were responsible, the total public spending was £58.8 billion. Two years later, in 1975–76, it had risen to £65 billion. Two years after the Chief Secretary first made his speech saying that reductions in public expenditure were quite impossible and the most cruel things that could happen, it had fallen to £60 billion. In the year that is about to end, it has gone back to £65.2 billion, and on the Government's plans for the year ahead it is likely to go up to £68.2 billion. That is from the constant line of figures in the table.

Under this Government from 1973–74 and during the next two years, the figures rose by £7 billion. They came back by £5 billion in the two years after that. In the two years from 1977–78 onwards, the aggregate increase will be £8 billion-plus.

Two things follow from those figures. First, in total contrast to the tenor of the Chief Secretary's speech, public spending can be reduced. By his past actions he has not merely demonstrated that that can be achieved; he has also demonstrated the hollowness of his speech this afternoon. Up until 1976, year after year, we were denounced for arguing for a reduction in public expenditure. It was said that it would be cruel folly to do that. But under pressure from the International Monetary Fund the present Government reduced public spending by £5,000 million. The Chief Secretary said that that was impossible and counterproductive, but even that has been disproved by his experience. At the same time as public spending was reduced, we saw interest rates coming down and unemployment beginning to fall. What the Chief Secretary is warning against was disproved by his experience after he made those public spending cuts. The tragedy is that within two years of taking those steps the Government and the Chief Secretary have all too quickly forgotten the lessons that they should have learnt.

Last week the Prime Minister talked about a taxpyayers' revolt against the European Community. Between 1977–78 and the year ahead public spending is likely to rise by £8,000 million. That is a 14 per cent. increase from its previous low. Gross domestic product will rise by probably less than one-third of that. For the Prime Minister to inveigh against less than £800 million total spending by the European Economic Community, while presiding over a growth in his Government's total spending that is 10 times as large, is a shameless attempt to throw dust in the eyes of the electorate. He has shown himself willing to strain at a gnat and swallow a camel.

It is ludicrous for the Prime Minister to seek to put himself at the head of a taxpayers' revolt. If there should ever be such a revolt, the Labour Party would be clearly and firmly on the other side of the barricade. The Chief Secretary would be dishing out the riot shields to his colleagues in the Cabinet. The tear gas and the hosepipes would be wielded by the members of the Tribune group below the Gangway. So much for a taxpayers' revolt led by the Prime Minister.

We decline to accept the White Paper. Its plans for public spending are an insuperable road block to any prospect of the tax reductions that are necessary to begin restoring the health of our economy. The increases in public spending that are planned, in addition to those that have taken place over the past 12 months, are positively damaging and counter-productive. The Chief Secretary, as he so often does, sought to present it as a calm, considered judgment, helping to steer our economy and our people to ever more prosperous heights. We must bring him back to the reality of the economy over which he helps to preside.

The White Paper paints a pretty sombre picture. The General Sub-Committee says that not only does the White Paper have an air of unreality—and it is certainly right about that—and not merely that it is out of date, but that it is too optimistic. The Chief Secretary sought to explain that it contains mere illustrations. But our complaint and that of the General Sub-Committee is that not one of the illustrations that he is at such pains to discount is within sight of reality.

The oft-repeated forecasts of balance of payments surpluses for the current year of £2 billion or £3 billion turn out to be represented by a modest surplus of less than £250 million. Unemployment is back on an upward trend. Price inflation is within sight of double figures and going beyond that. The Bank of England Quarterly Bulletin published last week shows that the growth outlook for the year ahead, excluding North Sea oil, is probably 1 per cent.

If we look at manufacturing output—the heart of the economy in terms of"The industrial strategy "—we find that it was actually 4½ per cent. lower last year than it was in 1973. As a result of the industrial stoppages and other factors at the beginning of the year, the slump between the last quarter of 1978 and the first quarter of this year was more than 8 per cent. That was significantly larger than that which occurred as a result of the three-day working week.

Again looking at the Bank of England analysis, we take the question of productivity. Up to 1973 it was growing at an average rate of 3½ per cent. a year. In the last five years it has fallen sharply behind—far below that of any of our competitors—so that it is now growing at about half a per cent. a year. The Bank of England says—and this is hot from the presses last week: The consequences of failing to arrest this country's industrial decline are likely to become more pressing and obvious as time goes on Now condemned to very slow growth, we might later even have to accept, if present trends continue, declines in real living standards.… The need, then, is not simply to arrest inflation, necessary though that is, but radically to improve both efficiency and thus also real wages. Our complaint about the White Paper is that it makes no contribution whatever to that end. On the contrary, is will destroy any hope of our ever achieving the kind of improvements that are necessary.

Mr. John Pardoe (Cornwall, North)

What the right hon. and learned Member for Surrey, East (Sir G. Howe) has just referred to looks suspiciously like a recession. Does he believe that a recession, or the beginning of one, is the right time to slash public spending, particularly as a proportion of GNP?

Sir G. Howe

The two factors are unconnected, as the hon. Member for Cornwall, North (Mr. Pardoe) should know. Year after year we have been through contractions and expansions in the concertina of public spending. At one time the present Government argued that it was wrong to contract public spending in the heart of a recession, so they resisted it for two years. In fact, they finally reduced public spending under pressure, and the consequence of that was a reduction in interest rates, a turn-round in the economy and the beginning of growth and employment. The argument that follows in the analysis that I have made is that we should give far less attention to manipulating the demand side of the economy in that sense and concentrate on improving the supply side so as to make it more worth while for the economy and for people to work.

Clearly, we are in need of an alternative strategy. There is no hope of that from this Government, who have come full circle round and ended up far worse off than when they started. Increasingly, one finds that Members of the Government are beginning to recognise the need for an alternative strategy. I noted that in the debate on public expenditure 10 days ago the Financial Secretary made a number of despairing comments on the way his policies had gone. He said: we have seen a transfer from manufacturing industry into service industry—largely Government service industry. We have seen an increase in local authority staff and, at the same time, decline in our industrial strength. That is a matter of regret to us all. We had hoped to see greater efficiency in the public service and in industry. He went on to say: The idea of people pricing themselves out of jobs is, unfortunately, valid. I wish it were not, because then the solution to our problems would be so much easier. I should be able to embrace the ideas of my hon. Friend "— that is, his hon. Friend the Member for Salford, East (Mr. Allaun)— with acclamation, delight and joy. Unfortunately, the realities tell against us…Times have changed. Our reactions must change with them."—[Official Report, 9 March, 1979; Vol. 963, c. 1688–9.] That was a confession of abject despair from the Treasury Bench if ever there was one.

There was rather more candour from the Chancellor of the Duchy of Lancaster who said, in Birmingham, on St. David's Day: One of the lessons the people of the left in all countries have learned "— he might have said"all countries save our own "— is the value of the decentralised energies of the private sector in both economic and human performance. We have to acknowledge that the decentralised private sector has out-performed the old-fashioned concepts of centralised planning…For all these reasons, we come to see that there is enormous merit in the motivation of the private sector. What a pity he is still a lone voice in the Government, because by now the alternative strategy should be clearly defined.

The Chancellor of the Exchequer accepts the first point—that the control of the money supply is crucial and targets for the growth of the money supply should be set, declining year on year until they are in line with the growth of the productive resources of the economy. But that is of no value in itself unless fiscal policy is consistent with it. The fluctuation of interest rates in the last 12 months—to the high of 14 per cent.—shows that the Government have been trying to borrow too much, consistent with that money supply target.

Alongside declining money supply targets, the real and money size of the public sector borrowing requirement should also be planned to reduce year on year. One cannot repeat too often that excessive borrowing operates just as much as a tax on the productive sector of the economy as excessive taxation, either through inflation or through interest rates. Therefore, that must be brought in line as well.

For all these reasons, it is necessary to reduce the total of public spending and to hold it below a figure for a number of years as a plain signal of the fresh approach that has been made to the balance of the economy. Last year I said from this Dispatch Box that the Government should have been trying to hold the figure at the outturn for last year. For some years before that the CBI had been saying that they should have been trying to hold it at the outturn for the year before. The crucial thing is to move in that direction as quickly as possible.

This is important, because it is the only way, beyond controlling the balance of the economy, of giving us the room for manoeuvre to make the substantial reductions in personal taxation that are so necessary. That is one of the two halves of what must be done to begin improving productivity and the supply side of the economy. The Chief Secretary knows that perfectly well; the tragedy is that he is never in a position to do anything about it. He comes here today, as he has in the past, and says that there is nothing that he would like better than to be able to cut taxation. The Chancellor of the Duchy of Lancaster often says the same thing. The trouble is that the Government never have the determination or the understanding to control their public spending in order to make that possible. That is why the country remains stuck in the same box after five years of this Government.

The marginal tax rate of 39½p in the pound, including national insurance, paid by most people in this country, is profoundly disincentive. In other countries around the world one does not pay that amount until one is on a much higher income level. In France, Germany, the United States and Canada the level at which one starts paying 39½p in the pound is between £16,000 and £40,000 a year. In Britain, one starts paying at that level at £50 a week. If that does not overwhelmingly prove the case for reductions in personal taxation, I do not know what does.

The other aspect of what demotivates our economy is the extent to which many of the subsidies actually have the effect of discouraging productivity and mobility by their sheer addition to the tax burden, which impedes the improvement of the economy. The outlook on this out-of-date White Paper is profoundly gloomy, even if one brings the figures up to date. Is it clear that the public sector borrowing requirement will be at or above the limits set by the Chancellor for himself. Even that will be possible only on two assumptions—that personal allowances are indexed and that excise duties are valorised as well.

If one looks more closely at the balance of the White Paper, one finds the Bank of England producing this judgment: Given the need both to contain the size of the public sector borrowing requirement and to reduce the necessity for adding to the tax burden, there appears to be a clear case for containing more strictly the rise in public spending. We expected to hear some answer to that judgment from the Chief Secretary this afternoon. Do the Government intend to stick to the spending programmes set out in the White Paper or do they intend to reduce them as the Bank of England advises and considers necessary?

If press reports are to be believed, the Chancellor of the Exchequer told the Parliamentary Labour Party last week that he had in mind a neutral Budget. If that means doing as little as possible, maintaining the spending plans set out in this White Paper and doing nothing whatever to alter the shape and size of the tax burden on people, it is a prescription for continued decline of our economy and our society.

I must warn the Government against doing two things that would make the position worse. There is, of course, a case for an increase in indirect taxes if it is used to finance cuts in personal taxation. But if the present Government approach their Budget—if they are there that long—with the intention of increasing indirect taxes simply to pay for higher spending, that would be unacceptable. Particularly unacceptable would be any plans by the present Government to increase still further the national insurance surcharge on employers. That figure has risen in the last two years from 8¾ per cent. to 13½ per cent. It has had an effect on either prices or unemployment and jobs, or on both. It has certainly had an effect on the profitability and the cash flow of companies.

The Governor of the Bank of England, speaking in Birmingham the other day, gave a clear warning which the Government would do well to heed. He said that there is little future for this country…unless priority is given to encouraging business and industry. Profit margins have fallen to disturbingly low levels in recent years, and seem even more vulnerable in the present context. In framing the detail of fiscal policy, this needs to be kept constantly in mind. In other words, translating those courteous words by the Governor, it would be an act of grotesque folly for the Government at this stage to increase the burden of taxation on industry by increasing the national insurance surcharge.

The Chancellor of the Exchequer may remember an interview in The Guardian, when he was asked what was his biggest mistake. He said that the biggest mistake he made happened in his first Budget, when he underestimated the tightness of industry's cash position. He went on to say that he had made many mistakes since then but that that was the biggest one. He certainly should not repeat that mistake by once again increasing the burden on industry's cash flow by a change of that kind.

I wish to offer advice on where economies should be found. I very much hope that the Government will not go on finding economies in public borrowing by taking advantage of those who are adversely affected by the present strike in governmental computer services. There are many reports of people who are hard-pressed and badly affected by the strike. I refer, for example, to pensioners, whose income is tightly budgeted and who are in a position of great hardship as a result of the failure of the Government to honour the obligations to pay interest on investment in Government securities. I also refer to small savers, who are required to cash their savings to buy houses for their retirement. They are required to borrow money from the bank, on which they pay interest of 17 or 18 per cent., because of the failure of the Government to pay out money due to them.

Furthermore, exporters are not receiving rebates of VAT for two or three months at a time and are suffering considerable hardship. This sequence of hardship on citizens as a result of industrial strikes in the Civil Service is the unattractive first fruit of the concordat of which the Prime Minister made so much the other day.

I hope that the Government will consider special arrangements to meet hardship faced by people, whether in a private or commercial context, as a result of the present position. Will the Government confirm that a citizen who is not receiving VAT rebate will be entitled to offset that rebate against his liability to pay PAYE the other way? We should like to have answers to those questions, because there has been an agreement to such effect in at least one case. Can such a step be taken? A Government who are prepared to dishonour debts due to pensioners and others will not command much confidence in the House or in the country.

Let me offer some other advice on where economies could be found. The Government have wholly overlooked the cost in the long term to the taxpayer of the huge borrowing programme which the Government have financed over the last five years. The net real burden of interest at the end of five years of this Government is twice as high as it was when they came into office. The net real burden has risen from just over £1 billion to £2.3 billion. In the last five years the Labour Government have borrowed £40,000 million at an average interest rate of 13 per cent. If the proper rate of interest were to come down to 8 per cent., if inflation were to come under control, the taxpayer would be paying about £1,000 million a year too much as a result of the excessive borrowing at excessive interest rates by the present Government. That in itself is a good reason for reducing the Government's overall borrowing programme.

Let me offer some other suggestions. The fact that short-term benefits, indexed to prices but untaxed, continue to be planned for in the Government's programme means that if the tax pattern were to be changed so that short-term benefits came within the tax net, there would be room for a saving of £300 million or £400 million a year. At the same time the Government would have succeeded in removing a direct disincentive to work—one of the many items that are lowering productivity in our economy.

The Chief Secretary spoke of scope for reducing public expenditure on housing as though this were a sacrosanct area in which progress could be made only in a modest way. He forgets that under his own supervision public spending on housing was running at £6.2 billion in 1974–75 and was reduced, after the ministrations of the IMF, to £4.9 billion three years later. It is undoubtedly possible over a period of time to make substantial reductions in the burden of expenditure on local authority housing and local authority subsidies.

Some years ago the Chief Secretary was suggesting that he would do just that —that he intended to raise the proportion of the cost of housing paid by the average tenant from 42 to 50 per cent. But that has not happened. He has been denouncing us for having plans in that direction, although The Guardian on Wednesday last week contained this interesting report on its back page: New powers to claw back the cost of large wage increases by substantially raising rents for six million council tenants are to be put before Parliament before Easter. These changes have been foreshadowed since 1977. They have taken on a new significance since wage rises increased this winter and local authorities face large rate rises in the coming year to pay for large comparability studies for low-paid workers. We should like to have confirmation from the Government whether that report is correct. If the Government are bringing forward plans for higher rents, as reported in that newspaper last week, why should it be so beyond contemplation for us to say that that is the way in which public spending could be saved? Will the Government bring forward plans of that kind, or will they leave that aspect to us? If this is a report of the Chief Secretary's intentions, he is being unusually diffident. We must assume that his intentions, which he is unwilling to admit, are a true insight into what the Government intend to do. It shows what a hollow nonsense it is for him to denounce us for having plans to save public spending by seeking reductions in that direction.

Let me deal with his dismissal of savings to be made by council house sales. That comes as no surprise to the Opposition. The idea of selling council houses on a substantial scale embodies principles that are anathema to members of the Labour Party. The idea that they should want to achieve economies in the public sector programme and that they should do so by giving citizens more choice is the last thing in the world they would want to do.

The Chief Secretary mentioned room for economies in trade, industry, employment and energy. Why should these areas be so beyond the pale of legitimate thought? The right hon. Gentleman lives in a kind of world that I do not recognise. He suggests that expenditure of up to £500 million on the National Enterprise Board is sacrosanct because small business men are clamouring for that expenditure in order that they may themselves be saved. They are apparently queueing up in tumultuous crowds for assistance from Sir Leslie Murphy and his colleagues. That is not the real world in which people live. There is undoubted scope for reducing the figure in excess of the £.billion which goes to selective assistance for industry, including the NEB.

The right hon. Gentleman said that we had not questioned the wisdom of the scale of expenditure recorded so interestingly the other day in a letter from Sir Douglas Wass to Sir Peter Carey. It is for the Government to question this matter. We certainly do. That document read as follows—I quote from The Guardian of 28 February: Over the four months to last December the Government initiated seven job-saving projects which will involve the country in losses of up to £800 million. Sir Douglas wrote: The startling and disturbing conclusion is that we have been accumulating prospective losses of real resources at a rate faster than the growth of national income. That is intolerable. I notice that the Chief Secretary failed to mention one of the items in the list of seven—namely, that of Polish ships. We are told that losses on this order for British shipbuilding would be £30 million, and that the subsidy of 70 per cent. of the selling price amounts more than £6,800 for each man year of employment. It is absurd for the Chief Secretary to pretend that there is no room for reduction in public spending in that sector. It is as a result of that kind of open-ended subsidisation that reports about State shipyards, such as the one in the newspapers last week, have been published. My hon. Friend the Member for Tynemouth (Mr. Trotter) drew attention to that report. Each British shipbuilding yard loses an average of more than three hours' production a day through late starts, early finishes, waiting time and other factors. That is the consequence of open-ended subsidisation being shelled out under the Budget for trade, industry and energy.

The Chief Secretary defended the large sums of money that are being spent on the functioning of the labour market. It is difficult to see how those large sums have produced dramatic success. The figure has risen from less than £300 million five years ago to more than £1,300 million now. In many cases, the take-up of the suggested training measures is very low. I noticed one example in the White Paper where 68 per cent. of the places were left vacant. There has been little improvement in efficiency, because all these services to improve the functioning of the labour market have led to a reduction in our productivity improvement from 3½ per cent. to ½ per cent. per year. In many cases, the availablility of the services has had an adverse effect on productivity. Therefore, to believe that there is no room for reduction in these expenditures is totally absurd.

We are concerned by the way in which the Chief Secretary is handling cash limits. His speech does not give us much confidence that cash limits will be upheld in a way that will keep public spending properly within bounds. We feel real anxiety that the terms of the comparability study which has been announced by the Government will put far too much pressure on the cash limits, in terms of the awards or judgments that may be made to public sector employees. We should like to know whether the terms of reference of the comparability studies will make proper provision for account to be taken of supply and demand for different kinds of labour that are to be considered by the comparability Commission. Will the job security of those employed in the public sector, alongside those employed in the private sector, be taken into account? Will proper account be taken of the differential pension rights available in the public sector? Above all, will a comparison be made on the basis that equal work of equal efficiency is being done in the private and public sectors?

Mr. Frank Chappie—a man of great candour—uttered some great truths recently. He said: The brutal truth won't go away by ignoring it. The Government have no money for inflated pay increases. What cash it has is got through taxation—the same taxation we all complain about and accuse of killing incentive because it is pitched too high. How will his conclusion—that it is no good paying five men more for doing three men's work—be reflected in the comparability studies?

We are not encouraged by the limited extent to which the Chief Secretary is prepared to give real substance and effect to the cash limits when they are placed alongside the comparability studies. These studies are of value as a means of determining the going price for a particular kind of work in the private market outside only when put alongside the real discipline of cash limits.

In his latest speech to the House, the Chancellor of the Exchequer made clear that cash limits would not be increased to take account of increases in public sector pay that might emerge from the pay bargaining process. However, in his answer on 23 February and in his statement today, the Chief Secretary appeared to be making the cash limits a great deal more elastic, diminishing them as a credible form of discipline and turning them more into a form of propaganda. That would diminish the role of Parliament. If cash limits are to be for real—contained, as they will be, in the Estimates that come before the House—it is important that they should be upheld as being for real. The House is required and entitled to make decisions as to whether or not they should be increased. We are disturbed by the apparent flexibility with which the Chief Secretary has sought to defend the reality of cash limits this afternoon.

The Governor of the Bank of England, speaking in Birmingham, put his finger on the real point. He said: If the coming year is a hard one, as I expect it to be, there will be some who would seek to represent it as the result of a collision between excessive pay settlements and the maintenance of firm…monetary and fiscal limits. But the real collision is between the level of those settlements and the level of growth of productivity in our economy. That is the reality which the Chief Secretary and the Government have to realise. Cash limits represent the limit of what the Government, the taxpayer and the ratepayer are prepared to pay. Negotiation has to take place against that background, and within that framework, far more firmly than the Chief Secretary has sought to suggest.

There was some justice contained in a comment in The Accountant, which, no doubt, the Chief Secretary reads avidly. The article, under the headline"Standing Firm or Opting Out ", says: We confess ourselves frankly less than certain of how much the Right Honourable Joel Barnett, politician and Privy Councillor, Chief Secretary to the Treasury, remembers of what Mr. Joel Barnett, certified accountant, was presumably taught at some stage of his career about reporting in clear and unambiguous language, and the presentation of a true and fair view…It might perhaps be helpful if Mr. Joel Barnett, FCCA, were to explain in terms not too difficult for the Right Hon. Joel Barnett, PC, MP, to understand, that ' standing firm' involves something a little more than taking money out of one pocket rather than another…saddest of all is to find a member of the accountancy profession, trained to precision in the presentation of factual information, associated with the debasement of language that seems to equate standing firm with opting out. That is—unhappily—a fair judgment on the rather pallid defence that the Chief Secretary has made of cash limits.

Mr. English

Was the right hon. and learned Gentleman quoting from the accountancy institute, the majority of whose members are trained outside private industry for which they then practise, or was he referring to one of the accountancy institutes that seems incapable of agreeing on standards of accounting in the profession?

Sir G. Howe

That is a complex and sophisticated question. However, the one thing that they appear to have no difficulty in agreeing on is that it is the duty of an accountant—in or out of Government—to report in clear and unambiguous language and present a true and fair view.

Mr. English

They cannot agree themselves.

Sir G. Howe

It is that duty of which they regard the Chief Secretary as having fallen short.

Mr. Joel Barnett

There is a serious point among the points that the right hon. and learned Gentleman has made. The phrase"true and fair view"in the accountancy certificate was used because it could not be precise about figures in a balance sheet. If the right hon. and learned Gentleman thinks about that, I am sure that he will appreciate it. It is impossible to be arithmetically accurate when providing a certificate on a set of accounts.

Is the right hon. Gentleman arguing that if he set a cash limit in respect of pay at a particular level for a particular current year, and then allowed free collective bargaining, which results in, for example, 5 per cent. to 8 per cent. more than that cash limit, he would or could cut expenditure in order to keep within that cash limit?

Sir G. Howe

That is the kind of question that has to be faced frequently by pay bargainers in private industry. In the real world, the cash limits of many organisations of the private sector are determined by that which is available. We have been encouraging the Chief Secretary to try to introduce and establish in the public sector a parallel to that concept.

In his answer on 23 February, the Chief Secretary said: In respect of pay…the Government will review each case as settlements are reached…the general principle will be that a substantial proportion of any excess cost above the provision already made will have to be absorbed within the existing cash limits…Whether the Government make any further contribution in respect of other settlements will depend upon the circumstances of each case."—[Official Report, 23 February 1979; Vol. 963, c. 335]. For some years, the Chief Secretary has been trying to assert the importance of the reality of cash limits, but the first time that they come to be tested he qualifies them to such an extent that he does grave disservice to the concept that he has been doing so much to erect. Cash limits have to be upheld with determination and conviction. In the private sector there are circumstances when they cannot be held at à l' outrance in every situation. To undermine them to the extent that the Chief Secretary has done on the first occasion that they have been brought under pressure and test is to do grave disservice to the important concept that he has been trying to establish.

The verdict on the White Paper and the Government is that if we go ahead on these public spending plans, in the context of what the Chancellor of the Exchequer has told us will be a neutral Budget, we shall be going ahead on the basis of no change and no hope. If we leave Britain on the course set out in the White Paper, we shall be on course for further, even more rapid, decline. That is the conclusion of our five years' experience under this Government.

The House must recognise, as I am sure that it does, that only a fresh Government, with a fresh mandate and fresh strategy, can begin reversing that decline. For those reasons, I invite the House to reject the White Paper, to regard it as a feckless and dismal document and to vote instead for our amendment.

5.31 p.m.

Mr. Michael English (Nottingham, West)

The right hon. and learned Member for Surrey, East (Sir G. Howe) raised probably the most central question of the British economy. He ended by saying that only another Government—we take it that he meant a Government of his party—could reverse the trend of decline in the British economy. He also quoted from the Bank of England Quarterly Bulletin, which said: The consequences of failing to arrest this country's industrial decline are likely to become more pressing and obvious as time goes on. However, the right hon. and learned Gentleman did not refer to the earlier sentence in the same paragraph: The United Kingdom has long been a country where productivity grew relatively slowly;… The same paragraph refers to an earlier page of the bulletin.

Sir Geoffrey Howe

I did not want to have too long a quotation, but the sentence that the hon. Gentleman has just quoted is followed by: but…the United Kingdom's performance has in the last five years become even poorer. That is the substance of the matter.

Mr. English

I was going back from that section to the earlier page referred to in the middle of that quotation. Let me quote it in full. It says: The Unilted Kingdom has long been a country where productivity grew relatively slowly; but, as figures quoted earlier in this commentary show (see page 7), the United Kingdom's performance has in the last five years become even poorer. I hope that the right hon. and learned Gentleman accepts that I was about to refer to the reference in the middle portion of that quotation. If we go back to page 7, we find these words: The slow growth of manufacturing output in recent years has been accompanied by some further worsening in the United Kingdom's already poor productivity performance. From the immediate post-war period until 1973, manufacturing output rose at an average rate of 3 per cent. a year and productivity at an average of some 3½ per cent. a year. The Bulletin goes on to outline what has happened since then, and adds: A weakening in productivity growth since 1973 is common to most other industrial countries —it then refers to a table in the document— but the United Kingdom started from a lower base. The reasons for the unusually slow response of employment to the recent depressed level of activity are not wholly clear. In the end, the quotation of the right hon. and learned Gentleman leads us to a simple statement from the Bank of England that the reasons for it all"are not wholly clear."

The immediate post-war period until 1973 involves periods under Governments of both parties, and the Bank failed to point out that when the Bulletin says that the United Kingdom's performance has"long"been poor, the"long"is very long indeed. Everyone who has studied this country's economic performance is aware that its economy, standard of living and productivity have improved over the past century, but have done so much more slowly than in other industrial countries. We are still among the more prosperous countries of the world. We have improved in that time, but under successive Governments of all parties we have not done so as quickly as have other countries.

The short-term arguments of the right hon. and learned Member for Surrey, East will not solve or reverse a secular trend of more than a century. It is necessary to think of something more radical than anything proposed by his Front Bench or, if he wishes to say it, perhaps by my Government or even by the Liberal Party, the members of which have suddenly vanished from the Chamber.

In our debates, we tend sometimes to concentrate on short-term things—presumably because we have elections every four years—without considering the possibility that there may be some things that are so deeply wrong that they cannot be altered by simple, short-term activities.

The Chief Secretary said that the Expenditure Committee had two main criticisms. He said that we recognised that the White Paper is an improvement on some of its predecessors. Instead of a blanket refusal on everything for which we had asked, we have had a large number of the things that we requested done or substantially done. My right hon. Friend the Chief Secretary said that we had two main criticisms, but he did not mention what I regard as one of our main criticisms, namely, that by example the Government wish to discourage capital investment. My right hon. Friend did not mention paragraph 10 of our report, in which we said: As we said last year some of the recent cuts seem to be false economies and the damaging impact on the construction industry is neither sensible nor just. We said, earlier in the same paragraph: It has been calculated that construction by or on behalf of central and local government as a proportion of total public expenditure has fallen from 11 per cent. in 1973–74 to 8 per cent. in the current year and will, on the White Paper plans, have fallen to 7.2 per cent. by 1982–83. It is perhaps regrettable that the Opposition, who were quite keen on that point a year or so ago, seem to have dropped it. It is certainly not mentioned in their amendment.

I accept that there is likely to be less need to build schools if there is, for example, a decline in the school population, but unfortunately the allowances available for school building have so declined that the basic needs allowance is merely keeping pace with the natural movement of populations out of the centres of cities into the suburbs.

In the centre of Nottingham, for example, there are still whole areas where houses have been cleared and replaced by modern corporation houses. The children there will be going to schools that are, in some cases, 140 years old. I am not suggesting that the automatic replacement of elderly schools somehow raises the productivity of the teaching profession, though teachers often think that it does. However, we cannot say that a 140-year-old school is necessarily up to the standard of schools in our modern, prosperous suburbs. If a modern, prosperous corporation estate is in the centre of a city and not on a green field site, it has to put up with elderly schools. Private or local authority housing on a green field site gets a brand new school. There is enough public expenditure for the latter but not for the former.

My right hon. Friend said that he wanted capital expenditure on the environment. He does not seem to have thought of the implications of the recent history of the citizens of Manchester and the surrounding area. The people who maintain the sewers of Manchester went on unofficial strike recently. That should not have mattered for a week or two, but it mattered immediately. The relevant authorities had immediately to tell the public"You must be careful about drinking the water ", because the sewers were so bad that they might pollute the water supply.

In the Expenditure Committee report, we quote from the civil engineering contractors, who pointed out to us that: each of the Water Authorities faces a common problem—the accelerating deterioration of sewers laid down many years ago to serve populations very much smaller than those presently existing. In paragraph 53 of part 1, the White Paper justifies lower capital expenditure on the grounds of demographic and other changes. The change since those sewers were built is that there has been a vast increase in population and in the amount of material—I shall not use the four-letter word I used at a press conference—flowing through those sewers. There is a need for that capital expenditure. All that we are promised in the White Paper is that there may be a study on how far there is a need for it.

We cannot rely on the efficiency of Victorian engineers for ever. They were remarkably efficient. Indeed, their capital expenditure as a proportion of the total of capital and current expenditure was far higher than the proportions that we are talking about. We are still relying on their ability and on the capital investment of Queen Victoria's reign. We cannot do it for ever.

The worst thing of all is the example given to the country. I am sure that my right hon. Friend will readily tell me that our tax provisions for encouraging private investment are generous compared with those of almost every other country. There is free depreciation and so on. We have very generous provisions in an endeavour to encourage the private sector to invest. But there is something about Government and leading by example. The example that we give to people in the country is"Always concern yourself about current expenditure. Do not bother about investment."

There is another aspect which is even more immoral. Over the past two or three years, the Government have given the impression that they are reluctant to share the burdens of the economy equally. When the International Monetary Fund and others wished us to indulge in public expenditure cuts, many of my hon. Friends were deeply concerned. Yet if external factors impose upon the Government the necessity in turn to impose, in effect, cuts in the standard of living upon the rest of the country, they must surely do the same for the public sector as for the private sector. I am not suggesting that they should do better for the private sector or better for the public sector. The burden must be spread equally.

If one cuts capital expenditure alone, there is a difference. If one cuts capital expenditure differentially, one is saying"All our millions of people in the public sector will remain in employment ", because generally speaking they are not engaged in construction and allied capital industries."We shall export all the unemployment that the country is forced to go in for not merely to the private sector but to a particular portion of it—primarily to the construction industry and similar capital goods industries." That must be unfair.

The same applies not merely to employment but to the question of profits, bankruptcies and so on. If there was a necessity to do something on behalf of the country as a whole—let us assume for the moment that there was—the burden should be spread equally. It should not be directed to a particular sector. That is what the General Sub-Committee of the Expenditure Committee unanimously believed last year and this year. We were not in that context arguing about the principle behind cuts as a whole. We were arguing about the unfairness of directing cuts predominantly against a particular sector relative to others. Apart from the examples given, that must be wrong.

I should like to end with a simple question or two to the right hon. and learned Member for Surrey, East. I found some of his statements hard to bear. For example, he quoted the chartered accountants. British industry is not like German industry, where the predominant profession on the executive boards, not the superior boards, is that of the engineers. British industry is not even like other industries where the predominant, most highly paid, profession is that of accountants. The best way to earn money as an accountant in Britain is to be a senior partner in a good firm of accountants, not in industry but in the service industries, the very thing that the right hon. and learned Gentleman was criticising.

Unlike some bodies, for example, the Institute of Cost and Management Accountants, the accountancy institute that the right hon. and learned Gentleman mentioned, requires, generally speaking, that in order to join it people must join an accountancy firm practising outside industry. It may be working for industry, but it is not an industrial firm. They must go through the period of training outside industry, being sent to look at industry from the outside on behalf of their firm.

Other accountancy institutes take a different view and accept into their organisation people who are trained in the service of local authorities or in employment by industrial companies. But large numbers of chartered accountants will practise in industry, where they were not trained. It seems a very odd way of running a profession and of running industry. However, that is the institution that the right hon. and learned Gentleman chose to quote.

The right hon. and learned Gentleman also made some criticism of the fact that in Britain we had moved from employment in industry to employment in"service industries ", as he put it. It might be simpler to say"in services ". What he criticised is something that has long since happened in the United States. It is a general trend in all countries to move first from a predominantly agricultural economy to a predominantly industrial economy and then to a predominantly service economy.

But heaven help us! Where did his comment come from? It came from a party that has long been dominated by a great set of service industries, the service industries of the City—banking and insurance—which have often advised British Governments. As the right hon. and learned Gentleman pointed out, the Bank of England is advising the present Government. It has often advised British Governments, in ways that have not necessarily been to their benefit.

A previous Labour Government were advised not to devalue the pound, until perhaps a few years after they should have done so. It may be that the pound is over-valued now compared with what it should be from the point of view of British industry. It might be better for British industry if the pound had not gone up relative to other European currencies, as recently it has.

In one sense it is a tribute to the Government that the pound has risen, compared with its trend to decline. That can be lauded in the City, and indeed it is, but is it wholly desirable for industry that, as a result of the increasing value of the pound, our exporting should be a little more difficult? Is it wholly desirable that importing should be made much easier? I do not think that that is necessarily desirable, but I can see why the great service industries of this country might think so.

The right hon. and learned Member for Surrey, East said that it was bad for things to have gone on in that way. I hope that he was saying that, if he were in office, he would be desirous of reducing the trend always to listen to the City and instead would occasionally listen to British industry. He did not seem to be saying that. He did not say that the pound was over-valued and that it should be less over-valued than it is in relation to other currencies. He did not say that we should make exports easier and imports more difficult. But he should think about that if he has the interests of British industry at heart.

The right hon. and learned Gentleman was kind enough to say that the Expenditure Committee had always favoured a closer amalgamation of the consideration of revenue and expenditure. It does. I think that is fairly general from the extreme Left to the extreme Right in both parties on the Committee. What slightly puzzles me personally is that the Opposition have no direct proposals in this regard.

For example, the right hon. and learned Gentleman said that the effect of an over-massive public sector and high taxation was a reduction of incentives. I do not wholly agree with that argument. Money is not all. Some people these days still seem to want to go into the House of Lords. There are other incentives than money. If they do, in the society in which we live, they will find themselves still far behind the hereditary peerage which is already there and will always take precedence over anyone else, however talented and able, because that is the law of this country.

The right hon. and learned Gentleman said that some people need greater incentives as regards their earnings. We all agree with that. We would all love the maximum rate of taxation to be 50 per cent. Labour Members might also wish people who sell off their castles or Canalettos, even if non-resident, to be taxed at at least 50 per cent. There seems to be a discrepancy in the views of the Conservative Party. It says"Yes, we should have a lower rate of taxation."

I should slightly differ from that and say that all those who earn money should have a lower rate of taxation and that it might be more interesting and better for the country if those who did not earn money had a higher rate of taxation, especially those who choose to migrate, leaving behind assets which they propose to sell for their own personal gain, having contributed little or nothing to the country in which they live. It would be much easier to persuade people of the generosity and virtue of the Conservative Party's desire to increase incentives if it wished to increase disincentives to people who do not contribute to the economy of the country.

5.54 p.m.

Mr. Ian Stewart (Hitchin)

Despite those strange concluding remarks made by the hon. Member for Nottingham, West (Mr. English), there are at least two respects in which I am pleased to follow his remarks—first, because of his distinguished chairmanship of the General Sub-Committee of the Expenditure Committee, of which I am a member, and, secondly, because he has drawn attention, yet again, to the problem which that General Sub-Committee and the whole House and the wider public who have to consider public expenditure always have to face in looking at the two sides of the Government's revenue and expenditure on separate occasions and without any close relationship between the two.

it would be more convenient if we were to have an overall budget for the country of the same kind as that which any individual, household or company has in which resources and commitments are looked at at the same time. It has many times been said, and again today, that in such a way we could harmonise the outgoings and incomings—expenditure and revenue—of the Government. It might be of help in that direction if we considered the two together. However, I should go further and say that, if we have to consider them out of phase, we should consider income before expenditure, not expenditure before income.

In the last few years—I can go back quite a few years because this is the way things have worked out, but they have been accentuated more in the last three or four years—the Government have chosen a particular level of commitment to expenditure programmes and subsequently had to find ways and means of financing them as best they could. When they have failed to finance them in an acceptable way, they have had to cut the expenditure programmes, often in a most inconvenient and unbalanced way with a heavy bias against capital expenditure because of the length of time that it takes to adjust overall levels of current Government expenditure. That is not a satisfactory way to proceed.

Equally, when Government expenditure in relation to national income is at a high level, it is important not to overstep the taxable capacity of the country and the borrowing capacity of the markets. In those circumstances, by going too close to the margin of what may be financed, we put a much higher risk on having to make adjustments to the expenditure plans halfway through the year. Therefore, it would be more satisfactory if we could consider not expenditure and income at the same time but the income side first and then the expected expenditure plans on the basis of what can reasonably be counted as the Government's revenue.

The White Paper proposes for this year and the next two years an annual rate of expenditure growth of about 2 per cent. On the face of it, that does not appear too excessive if we can project a growth in national income of about the same or a little greater. But that fails to take into account what happened in the past and the fact that we have already reached a very high level of public expenditure in the economy as a whole—a level which is becoming progressively more difficult for the Government to finance year by year.

If we add to that the uncertainties created by shortfall and the difficulty of assessing the way in which the marginal last £1 billion of public expenditure may or may not take place because of shortfall and the doubtful effect, as it were, of the suppression of public expenditure by the application of cash limits, it is apparent that we are up against the edge of the room for manoeuvre which any Government must have in planning and deploying their public expenditure intentions. I think that the Government are now taking a great risk—a risk which has become greater because we have been at or close to these limits for such a long time—in proposing rates of growth of public expenditure which, only if we are fortunate, will be matched by growth in economic performance during the two or three years to come.

I am sure that many hon. Members on both sides of the House agree that it is not possible to make severe cuts in public expenditure at very short notice. I think that the Chief Secretary overplayed that argument, just as he overplayed many other arguments this afternoon. But, if we never take the decision that public expenditure must be held back or reduced, we shall never get to the point when we can hold it back or reduce it. At some stage in the process we must take a strong decision, which will require an effort of Government will, that public expenditure has reached a level beyond which it cannot readily be financed and accept the implications, namely, that public expenditure must, in the first instance, be held in check and, as soon as it can conveniently be done, reduced as a proportion of the national income.

A first and fundamental criticism of the White Paper is that it has failed to do that in spite of the very sluggish state of the economy and the fact that there is greater difficulty, almost month by month, in finding money for the Government's expenditure plans.

The implications of being, as it were, up against the limit of the Government's room for manoeuvre in their borrowing and taxation, in order to pay for public expenditure, brings home some very sharp and uncomfortable choices in both taxation and borrowing and in the implications for interest rates. That is why, in our amendment today, we refer to the fact that the White Paper leaves inadequate scope for cuts in personal taxation and interest rates ". Those are the two variables that are left to the Government once they have rigidly decided on a level of public expenditure which I regard as excessive.

The test is whether public expenditure can, or cannot readily, be financed by the resources of the country in any given year. The signs are that in the last three or four years the Government have had increasing difficulty in financing their expenditure, and if they continue on present lines they will find it even more difficult.

The Prime Minister, who was quoted by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) this afternoon, has talked about countries and their citizens—I am sure he was referring to this country among them—coming to the limits of their taxable capacity. I should have thought that that was obvious and, in fact, demonstrated by the growth of moonlighting—what I think is known as the"informal economy"in official circles. I believe that that is now estimated at between 5 per cent. and 10 per cent. of the total economy. That, in itself, indicates that many people believe that they are now so ferociously taxed that it is worth their while to take the risk of ensuring that some of their income—in many cases it may even be all their income—comes to them by a route which does not suffer PAYE. It is worth so much more to them, unfortunately, because of the rate of tax that they would have to bear.

That seems to be a practical demonstration of the way the public in this country—and, indeed, in other countries—are silently saying what they have failed to get across by protest about the level of taxation, which is that they are simply not prepared to continue paying the present levels of taxation for much longer. This indicates that we have reached a point—not just for the good of the economy and the needs of industry, but because the citizen simply will not stand it any longer—at which it is high time we had a shift of balance in the economy as a whole. We must reduce income tax.

My constituents, and, I should have thought, most people in this country, see income tax as at best a necessary evil. Unfortunately, for this Labour Government it has become a way of life. High taxation is part of their social policy. It is highly regrettable that it has become so, because by making it so the Government have parted company with the instincts and the needs of the British people. The Government will find, when they eventually are pushed or dare to face the electorate, that the question of the colossal burden of personal taxation will be one of the major matters which is held against them on that occasion.

It is most depressing how quickly the Government's better instincts are overwhelmed by events. Last year, in the opening paragraphs on the White Paper on expenditure, there was a pious statement to the effect that it would be necessary to plan over the next three or four years the growth of public expenditure to remain within the growth of national income so as to leave some scope for reduction in taxation. It did not happen. We warned that it would not happen.

This year, the Government have rather toned that down and their language is not quite so clear-cut. They say: To plan faster growth of the total… —that is, the total of public expenditure— would limit the room for fiscal manoeuvre ". That little piece of jargon means that the Government are pretty worried about the tax effects of what they are planning to do and that they would be even more worried if they were to increase public expenditure any faster.

As to taxation, I think that there is no question but that the taxable capacity of the country, particularly income tax, has reached a point where it is now counter-productive to attempt to raise more revenue from that source. That means that there are the alternatives either of raising taxation from other sources—on spending or whatever it may be—or of borrowing to make up the gap to pay for public expenditure. In passing, I think it is essential that there should be some shift from taxes on income to taxes on spending. Therefore, I do not think that there is any room for extra taxes on personal spending to finance further public expenditure.

The residual item of the Government's accounts comes back to borrowing, and, good heavens, have we not seen the implications of what that actually means in the last three or four years? In the old days, when I first took a serious interest in politics, the Government used to run the economy by what was called"demand management ". Now they seem to be running the economy by what one could describe as"debt management ". The Government decide how much they can get into debt, how much they can cajole, persuade or bully the private sector into lending them, and then spend to the absolute limit of that capacity.

When the Government find that the going is getting difficult, they do not cut their expenditure—or they have not done so recently—but merely put up interest rates to a level where every other form of investment is made so unattractive that, by one means or another, they are eventually able to raise the money from the markets.

The actual figures are really quite astonishing. Over the last four years—1975–78—the amount of gilt-edged securities which have had to be sold to the private sector, other than the banks, is over £20,000 million. That is an average of over £5,000 million for each year. In each of those four years gilt-edged securities have accounted for between 50 per cent. and 60 per cent. of the cash flow of the investing institutions—the insurance companies and the pension funds. No wonder there is very little money left for investment in industry through other sources.

Naturally, if the Government raise interest rates beyond a certain point they can make borrowing by others so unattractively expensive that they can scoop the pool, but they cannot go on doing that year after year. It was possible, I think, to raise very substantial sums in this way in 1975 and 1976. First of all, the investing institutions had put a lot of money into equities and property in previous years and would, anyway, have sought to redress the balance by putting more money into fixed-interest investment. However, it became progressively more difficult in 1977—and particularly in 1978—to raise huge sums of money in this way without affecting the general level of interest rates to the detriment of the rest of the economy. Any Chancellor or any Chief Secretary needs to take very careful note when market resistance is at a point at which the rest of the economy is crowded out because the Government insist on maintaining their own expenditure at such a high level that there is no room for others.

Public attention on the problems of funding the Government's debt seems to have focused rather more on the methods than on the size of the problem. We read that perhaps the Bank of England should be more adventurous and have tap stock issued by tender. I see that the bank has introduced a modified form of tender for the issue currently proposed. More drastic methods have been suggested.

It has also been thought that by moving the price of Government stocks more readily it would be possible to avoid some of the sharper movements in interest rates. All this may well be true, but that is not the problem. It is not really a technical problem, although that is one aspect of it. It is a problem of quantity. One cannot go on indefinitely selling any product, in this case Government securities, beyond the ready capacity of the market to take it up.

If the Government borrowing requirement remains so high, they have to go on borrowing. The only way in which they can do so is to pay progressively over the odds in terms of interest rates, thus imposing a burden on the tax-paying public for probably a generation ahead. There are some most enlightening figures in the White Paper. I refer to table 5.1, on pages 216 and 217, which shows that in real terms the cost of debt interest for public expenditure purposes has doubled in the last four years. That is the most unproductive form of public expenditure that there can be—merely paying for the cost of one's past expenditure and debts.

Economists are inclined to sniff about this. They argue that the level of interest rates does not have too much effect on economic activity. I beg humbly to disagree. Certainly, that is not the impression that I get from talking to industrialists or to people in business and commerce who have to make industrial investment decisions, because in deciding whether to expand their turnover they must decide whether they will be able to raise the working capital and, if so, whether they can afford the price in interest rates. It must be remembered that they have to compete with the Government, who by hook or by crook must borrow at whatever interest rate needs to be paid.

Interest rates have now been in double figures for about six months. The economy was probably beginning to turn down in the later part of last year. To impose on top of that interest rates which have been up to 5 per cent. or 6 per cent. higher than the rate of inflation imposes an inevitable burden on the private sector and on the cost of small firms' borrowings to finance their stocks. To do so at a time when the economy had ceased to expand in the way it was doing last year is bound to lead to the deferment of some investment decisions and to a lower level of turnover than might otherwise have obtained. The cause of this is nothing other than the fact that the Government themselves wanted to borrow too much. That has meant that firms in the private sector have had to borrow less, because once again they have been crowded out by this insatiable demand.

Very high borrowing can be financed for a year or two, but it cannot be done year after year. We have now had four years of colossal borrowing requirements, with the projection of another £8 billion or £9 billion in 1979–80. Every expectation is that figures of that size would be projected into the almost indefinite future were this Government to have their way.

The markets have just about managed this for two or three years. They have shown the increasing difficulty of producing that sort of money in the fourth year, which is 1978–79. It has been at a very high cost in interest rates. If we were to carry on in this way, the volatility of interest rates and the high levels which periodically have to apply would inflict growing, deeper and lasting damage on many areas of our economy. I myself do not believe that that is a price we ought to pay to sustain public expenditure at these levels. Instead of the Chief Secretary saying"One cannot cut this item of public expenditure overnight. Of course, it is difficult to cut public expenditure quickly during the middle of the year ", the Government should have taken a decision that it was now time at least to hold back public expenditure and to maintain it, if they cannot do more than that, at the level of previous years, thereby allowing any future growth in the economy to ease the strain so that interest rates can come down and allow more scope for the expansion of industry and commerce in the private sector. After all, that is the only long-term way in which we shall ever be able to produce the jobs that we need.

This is a disappointing White Paper. The Government have learnt nothing from the past and, unfortunately, it holds out the prospect of extreme financial dislocation in the next year or two, just as we have had it in previous years.

6.15 p.m.

Mr. John Pardoe (Cornwall, North)

I do not for a moment agree with the hon. Member for Hitchin (Mr. Stewart) in his condemnation of the White Paper. I start by saying that I believe this White Paper is an extremely good one by all past standards. It is extremely good on a technical level. It has come a long way towards meeting the recommendations and criticisms of the Expenditure Sub-Committee. It is excellently presented. For anyone who wants to understand the problems posed by public expenditure rather than to indulge in sloganising political propaganda, it is rather a good document.

Of course, in technical terms, it still does not go as far as I would want it to go. It still does not bring expenditure and income together, but so long as we continue to debate these subjects on entirely different days we shall not do that. We shall have to get some kind of procedure in this House—I very much hope that all parties are now becoming committed to the reform of our procedure along these lines—that enables us to debate together these two things on both sides of the national balance sheet. In addition, the White Paper does not present expenditure in terms of a constant employment budget. I want that to happen because I believe that is the only way in which we can better manage the economy.

I should like to define briefly my own position on the question of spending. I do not believe that there is any inherent reason why public spending is better or worse than private spending. It may be worse, but, if so, the fault is not in our stars but in ourselves. It is certainly true that where money is spent by a private monopoly it is not likely to be more efficiently spent than when it is spent by a public monopoly. All of us may well agree that where it is spent by a monopoly, public or private, it is likely to be inefficiently spent.

Where competition and market forces apply, private expenditure is inherently more efficient than expenditure by a public monopoly. That is obviously true. Therefore, no expenditure ought to be undertaken by the public purse where it could be undertaken by a private purse—provided, of course, that that private purse is subject to competition and market forces.

There is no need for the public budget to balance in any one year or, indeed, even over a period of more than one year. Certainly, it ought to balance—and must balance—in the long term, but Government borrowing is by no manner of means always a bad thing. Indeed, it may be a very good and essential thing. Of course, the problem is to know when public borrowing is good and when it is bad, and how large it ought to be at any particular phase of the economy. That is the real crunch of the whole matter, and we are astonishingly unsophisticated in trying to assess how big public borrowing ought to be, or when it ought to be large, low or washed out altogether.

Mr. Ron Thomas (Bristol, North-West)

Or private borrowing for that matter.

Mr. Pardoe

Yes, I accept that. The answer is that we need a constant employment budget, and I shall return to that later.

The reason why I take this view of public expenditure—I accept that it is totally different from the view taken by the Conservative Party in its present phase, although by no manner of means in the phases it has adopted in the past—is that, so far as I see, investment is the key to all recessions. As a result, confidence evaporates, people spend less and save more, the demand for goods and services falls and investment falls. The classical idea that when interest rates fall very low industry will somehow automatically start to invest again is nonsense. We know that that does not work, and we have seen it not work year after year.

At whatever rate to which interest rates fall, investment will not pick up if there is lack of demand for the goods which the investment is geared to produce. Indeed, industry may never invest again. It is not just that we will have to wait a year or two; it may never actually happen. That is the fundamental critique which Keynes made of the old classical system. But the idea of stimulating consumer demand, as we have indicated—

Mr. Ivor Clemitson (Luton, East)

Does not the hon. Gentleman agree that this is not just a function of demand but also a function of confidence in the future expectation of what the pay-off for the investment will be?

Mr. Pardoe

I think I implied that. It is clearly the case. But the idea of stimulating consumer demand does not seem to have fared much better in recent years. The consumer may refuse to spend even if more money is put into his pocket by tax reductions or increased income. He may want to save more, or he may refuse to spend money on home-produced goods and insist on spending it on imports. That, of course, does nothing to create home demand and encourage industry to invest.

The management of our demand over the last 15 to 20 years, at any rate, has been so haphazard and so subject to political change, with all the considerable fluctuations, that industry no longer believes what Governments are putting in the shop window. Therefore, if we are to solve the problem we must act directly on investment.

I do not think that industry can be force-fed with investment. Here I agree with the critique which has been made by many Conservative Members. They are right, in looking for spending cuts, to turn their attention first and foremost to industrial subsidies. Nothing that has been devised anywhere in the world has yet shown that it is possible, by some kind of industrial subsidy, to increase total industrial investment.

We know that we can influence decisions about where the investment will be located. We may be able to persuade industrialists to go to a particular part of the country. But I do not believe that there is any evidence to suggest that the vast amount of money that we are spending with the intention of encouraging industry to invest is succeeding in its objective. We may succeed in bringing investment forward from one year to the preceding year, and that may be necessary in the short term, but to continue pouring these huge amounts into industrial subsidies does not seem to me to be sensible.

So if we want directly to do something about investment we are left with Government action on public investment, and that is why we in the Liberal Party tabled the amendment which was not selected but which simply sought to add at the end of the Government's motion: but regrets that too high a proportion of public spending will be devoted to current consumption and too little to investment. The White Paper figures are only a crude guide, but table 13 on page 21 provides some alarming information. By calculating current and capital expenditure as a percentage of the total and adding that to debt interest, one sees that capital expenditure was 20 per cent. of total Government expenditure in 1973–74, that it had fallen to 15 per cent. in the current year and that, according to the projections, it will fall to 13½ per cent. in 1981–82. That is precisely the opposite of what we should be trying to achieve if we are to use management of demand and of the economy to overcome the problem of the recession.

Investment, including public investment, is enormously important, and far more important than current expenditure, for a variety of reasons. First, it has a more direct effect on private industry. That is what some Conservative Members forget. When they call for cuts in public expenditure, which usually tends to mean cuts in public investment, they ignore the effects that that has, particularly upon small contractors in the private sector. I am thinking not only of the building industry and the services that supply it but of a whole host of other private concerns that are rapidly done down by cuts in public investment. Public investment, therefore, directly affects private investment, particularly in small and medium-sized companies.

There is then the problem that public investment has far less effect on imports than has current expenditure. If by increasing public sector salaries, or by some other means, the Government put £1,000 into the pocket of the ordinary working man, it is open to him to spend it on a Toyota car. Therefore, that money feeds directly through into imports because of the curious propensity of the British people to buy imported rather than home-produced goods. If the Government, however, put that £1,000 into public investment, it would not feed through into imports so immediately, although some of it may leak away in that direction.

There is also the important factor of the management of our spending programme. There should be far more flexibility on the public expenditure side. It is wrong to rely purely on the income side—which is taxation—to secure that flexibility. The White Paper is amazingly honest about the uncertainties of the future. Nowhere in the White Paper is anyone committing himself to the way these matters will turn out—certainly not beyond a year or two.

The White Paper clearly states that all sorts of uncertainties exist in the distance, and that is one of the reasons why I welcome it. In an interesting article in Lloyds Bank Review in October 1978, Mr. Peter Vinter was discussing this matter. He made the point that it is much easier politically to cut capital expenditure than current expenditure. Therefore, the element of flexibility on the expenditure side tends to be related to the amount of capital expenditure in the programme as opposed to the amount of current expenditure. Now that capital expenditure is so small a part of the total programme and current expenditure so large a part, we have undoubtedly lost that degree of flexibility on the expenditure side that is necessary if the economy is to be managed effectively.

I turn now to the Government motion. It"takes note ", and I do not see how anyone could fail to take note of anything. I am prepared to take note of almost any darned fool thing, even if it is totally foolish. I do not, therefore, see how we can vote against that. It then reads: and approves the Government's policy of planning for improvement of public services in line with what the economy can sustain. The Conservative Party is making a real meal of that one. I do not see how one can disapprove of a policy for the improvement of public services in line with what the economy can sustain ". That is unspecific, and it does not commit anyone to saying that he will increase spending in the public sector exactly in line with what the economy can sustain. The wording is extremely vague, and it is vague because that makes it difficult for anyone to vote against it—not a bad reason for wording a motion in that way. I think that it is vague enough for anyone to vote for it, even the hon. Member for Blaby (Mr. Lawson).

We come then to the Conservative amendment, which complains that the White Paper has been overtaken by events. But every Government document is inevitably overtaken by events. As I have said, the White Paper is astonishingly vague, and quite rightly so, in its projections. In so far as those projections are forecasts, no one can say that the Government are sticking their neck out and saying anything hard and fast about the future. Since I am also arguing that there ought to be increased flexibility in the planning of the expenditure programme, I believe that in so far as the programme has been overtaken by events at this stage and may be again in the future, the flexibility will deal with that problem.

The amendment then goes on to talk about the"inadequate scope"for cuts in personal tax. Here I believe that the Conservative Party is simply reiterating the dangerous rubbish that landed it in the mess it was in the last time it was in power. I must tell the hon. Member for Blaby that high public spending is not the cause of high personal taxation in Britain. We have much lower public spending in terms of our GNP than most other industrial countries. The right hon. and learned Member for Surrey, East (Sir G. Howe) referred to those countries and said that the people there were paying much lower levels of marginal tax. So they are, and so ought we to be, but we shall not lower our marginal tax rates on personal income by cutting our public expenditure, because that is not the problem.

The problem is not how much we spend but how we raise the revenue, and we raise the revenue far more by income taxes on personal incomes and far less by taxation on companies and corporate incomes, far less by taxation on company costs—an important factor in the equation—and far less by taxation on consumer expenditure.

Only by making a major shift from taxes on incomes to taxes on expenditure and industrial costs shall we make the necessary change, and that is the reason why our major competitors have lower rates of income tax. It is not because they are spending far less in the public sector Manifestly, they are not.

The hon. Member for St. Ives (Mr. Nott) accused the Chief Secretary of making a speech which was four years old. The right hon. and learned Member for Surrey, East made an even older speech—a speech nine years old. The sort of strategy which is being set before the House today and before the country for the coming general election by the Conservative Party is precisely the same strategy, backed up by almost exactly the same promises, as was set forth, with the same promises, by the Conservative Party in Opposition before 1970. There is no difference whatever.

Mr. Lawson

I do not know whether the hon. Gentleman agrees that the Government's borrowing is too high. Certainly, most hon. Members on both sides of the House would be inclined so to agree. If he agrees on that and he agrees also that the amount of income tax is too high, and he wishes to make good both those defects by increases in indirect taxes, how much of an increase in indirect taxation does he propose?

Mr. Pardoe

That is a good question, and it is one which the hon. Gentleman will not be able to duck on the hustings throughout a three-week campaign, as he and his hon. Friends have successfully ducked it so far, since the truth is that, if they are to make the sea change in income taxes which they demand, they should give us no nonsense about stabilising VAT at only 10 per cent. Let us have a litle honesty from the Conservative Front Bench and an admission that private conversation within Conservative party committees is leading to VAT at well over 15 per cent. That is the truth of the matter.

I do not advocate a lower borrowing requirement, and I shall come to that. I am not in favour of a lower borrowing requirement, and I believe that we probably ought to increase the borrowing requirement in the coming year. I shall come to the reasons for that, too. All I am doing now is being absolutely honest in saying how it is possible to reduce income tax.

It is possible to reduce income tax in a major way—I want it to be done in a major way—only by switching from taxes on income to taxes on expenditure. It does not mean just VAT, tobacco duty and the rest. It entails a sea change in the taxation of industrial costs. The hon. member for Blaby knows that, just as he knows that the major single reason for the different balance between our tax structure and that on the Continent, which he and his right hon. and learned Friend admire and draw attention to today, lies in the greatly higher level of taxation on the employer-paid national insurance contribution. That is the major single reason, and one cannot duck it.

No doubt my right hon. and hon. Friends and I on the Liberal Bench will now be accused, as we were last year and throughout the intervening months, of campaigning for an increase in the employer-paid national insurance contribution. I believe that one can motivate people. I do not believe that one can motivate companies or institutions, and I should personally concern myself more with motivating people by reducing income tax, even if that meant increasing the taxation on company costs.

That is why I am very sceptical about the Conservative strategy. We have heard it before. Moreover, quite apart from whether one agrees with it, which I do not, it will not be carried out. Why was it not carried out last time? There were good reasons. It was not just because those running the Conservative Government were a bunch of incompetent and weak men and women. In fact, there are several very powerful Ministers in any Government who are in charge of spending Departments. They work away, busily making their careers. The two most successful spending Ministers in the last Conservative Government were the right hon. Lady the present Leader of the Opposition, who extracted vast sums from the Treasury for all sorts of strange devices in education which were not all that useful after all, and the right hon. Member for Leeds, North-East (Sir K. Joseph), who extracted vast sums for more social security.

I am not saying that those are necessarily evil or improper objectives, but those Ministers were the two big spenders in that Government. They will have their successors. There will be powerful and ambitious men and women making their careers in the next Conservative Government, when we have one—if we do—and they also will want to make their careers and reputations by spending money. They, too, may be just as powerful arguers in the Cabinet as were the right hon. Lady and her right hon. Friend.

Moreover, when the polls start to turn sour and local government results come in rather badly in the second year of that Government, when a few by-elections are lost to the Liberals, and so on, there will be enormous pressure from all the assorted Conservative Members at present on the Back Benches who are now pressing for cuts in expenditure. They will turn a somersault overnight and cry"We must drive the voters back into our camp. That is what they did after Orpington, and that is what they always do after losing a few by-elections. Those pressures will be there. So why should we believe that the next Conservative Government, if we have one, will be any better at resisting those temptations and pressures than the last one was? The right hon. and learned Member for Surrey, East said that there was no connection between public spending and the recession. Frankly, that is rubbish. There is a connection, and we have to manage demand and manage public spending in order to overcome the recession.

The hon. Member for Blaby asked what I would do about the borrowing requirement. He and I sit on the same Committee and we are both aware of the same facts. He knows perfectly well that the recent book by Ward and Neild,"The Measurement and Reform of Budgetary Policy, showed some calculations on a constant employment basis. It is a fact that, on a constant employment basis, the borrowing requirement does not exist.

Mr. Lawson

Oh.

Mr. Pardoe

In that sense it does not exist. On a constant employment basis there is not a gap the wrong way between income and expenditure. That is the only valid way of managing the economy. One cannot manage it by taking two and two and getting five, as the hon. Member for Blaby does. For all the sophistication of his articles in various financial journals, the hon. Gentleman is positively prehistoric in his attitude towards managing the economy.

The borrowing requirement as it at present stands represents a much lower proportion of gross national product than it did when the Conservatives left office. Is it difficult to finance? The hon. Member for Hitchin said that it was becoming extremely difficult to finance. The astonishing fact is how easily we have financed a very high borrowing requirement year after year. Every year we have these debates and we worry ourselves sick about whether we shall be able to finance it next year, and then, amazingly, the money comes floating in.

The hon. Member for Blaby says"Yes, but at a price ". Let us look at interest rates. Indeed, they are high. The Government jacked them up much too high recently for the purpose of borrowing the last lot of debt. They did not need to go as high, and hence we had that unseemly scramble at City desks to get at the loot and the gains which could be made. I do not complain about that. I merely say that it is a crazy way of issuing Government debt, and there are far better ways of doing it.

But let us look for a moment at the interest rate in terms of the rate of inflation. One has to consider what people expect the rate of inflation to be, not what they think it is now. In fact, interest rates are not historically very high, because people are looking forward to a rate of inflation over the next year of some 10 per cent. to 12 per cent. Many people in the City who have to make these decisions have already decided that the inflation rate next year—certainly, by the end of next year—will be at about 12 per cent.

In that case, when one takes into account the positive rate of increase over and above the inflation rate, the astonishing fact is that in historical terms the real rate of interest is not that high. It is surprising—it is surprising to me, too—how well the Government have been able to finance it.

Mr. Lawson

The hon. Gentleman is looking at the wrong thing. He ought to be looking at the return on buying gilt edged compared with the return on industrial investment.

Mr. Pardoe

Comparisons may be made either way, but I do not think that that is the way to do it. Bearing in mind the long historical perspective, the right comparison is with the rate of inflation. The real rate of interest should also be considered. That would be a much more valid comparison. I am prepared to take up that argument with the hon. Gentleman on another occasion. The answer is that the institutions are expecting a substantial flow of funds. The personal savings ratio is high for various reasons, partly because we are moving into recession. I believe that the money will be there.

There is the concept of a neutral Budget. What does that mean? If it means that we are to have exactly the same borrowing requirement as this year, I am against it. If it means that we have a borrowing requirement that is the same in constant employment terms, that might be about right. A neutral Budget in the sense that we have exactly the same borrowing requirement as this year would be not a neutral Budget but un-neutral in real terms, and deflationary.

My right hon. and hon. Friends and I will vote against the Opposition amendment. We fundamentally disagree with it. We disagree with the way in which it has been moved. However, in a short time we shall have a Budget. We shall vote against that, too, if it is merely a neutral Budget. We shall vote against the Budget unless it makes a major shift from taxation of personal incomes to taxation of expenditure and costs.

The Government must take on board that the idea of increasing taxes on spending or industrial costs to fiddle the figures for the borrowing requirement is not on. Every penny that is raised by additional taxes on expenditure and corporate costs must be used to lower income tax. If that is done, we may have a Budget that we shall be able to support.

6.42 p.m.

Mr. Douglas Crawford (Perth and East Perthshire)

The hon. Member for Cornwall, North (Mr. Pardoe) referred to the forthcoming Budget. If the Prime Minister does not make one or two announcements in the House in the fairly near future, it may be that we shall not be having a Budget on 3 April.

I shall relate the history of the Scottish National Party's position on public expenditure in this Parliament. It has been fairly consistent in its line. The SNP has always argued that Scotland's public expenditure needs are greater than the needs of England. SNP Members have always said that the resources of Scotland, being greater than those of England, can sustain increased public expenditure.

The Government Whips will no doubt remember the evening of 10 March 1976 when they thought that they would duck a vote by not putting on Whips. My party put on Whips to assist the Government and to enable a vote to take place. The result was that the Government were defeated by, I think, 282 to nil on public expenditure. That led fairly directly to the Lib-Lab pact. I am not sure whether that was a good or bad result.

It has been difficult for the SNP Bench to consort, in various votes on public expenditure, with the Conservative Opposition and the Tribune group. That is because there are only two Lobbies in the House. However, we have always argued for the need for higher public expenditure in Scotland. Why have we taken that view? The reason is that we have higher unemployment and greater social deprivation, especially in the West of Scotland. We have a large per capita land mass and we need an infrastructure that will enable us to develop roads and other services required for the development of our oil.

Mr. Ridley

Surely all the conditions that the hon. Gentleman has mentioned apply to Cornwall and Devon. As the House knows, I do not represent that part of the country. Why does the hon. Member think that Scotland, which has its problems, should take precedence over Cornwall and Devon, or any other part of the United Kingdom that might have serious problems?

Mr. Crawford

The hon. Member for Cornwall, North may take issue with me, but Cornwall and Devon do not constitute a nation.

Mr. Pardoe

I take issue.

Mr. Crawford

Scotland is a nation. SNP Members talk about Scotland as a nation, as England is a nation. We make the comparison accordingly.

Scotland has a better export performance than that of the United Kingdom as a whole. That is not my statement; it is a statement made by the chairman of the non-political Scottish Council (Development and Industry), who recently stated that: contrary to the general run of public opinion…the Scottish Council's 1978 survey of the investment plans of manufacturing companies in Scotland provided hard evidence of returning confidence…Scottish exporters have been capturing new markets overseas at almost double the rate for the United Kingdom as a whole. Between 1974 and 1977 exports from Scotland rose by 24 per cent. in real terms compared with 14 per cent. for the United Kingdom as a whole ". Both the Council and the Church of Scotland argued for the diversion of almost all the oil revenues into the Scottish economy. On that issue the Council stated that Scotland should receive at least two and a half times the amount of North Sea oil revenues which would be allocated on a population basis. The Church of Scotland stated that A considerable proportion of the cash should be spent in Scotland on the revival of our economy in order that the standard of living be similar throughout the UK. It continued: Scotland has a moral claim to special treatment because the oilfields lie off the Scottish coast and because Scottish land communities are most affected by its extraction. I entirely agree with the hon. Member for Cornwall, North and the Chief Secretary that those in the Conservative Party who want public expenditure cuts are being hypocritical. They want cuts in general but not in particular. They want cuts in the abstract but not in practice. My constituency neighbour, the hon. and learned Member for Kinross and West Perthshire (Mr. Fairbairn) has lobbied long for a bypass for the A9 past the village of Blackford. That would cost money. However, the hon. and learned Gentleman is in the van of those who are advocating further public expenditure cuts. He cannot have his cake and eat it.

I think that it was the Chief Secretary who referred to Conservative proposals for first-time house buyers. It seems that the Conservative Party is proposing that they be given a gift of £1,000 to enable them to get on the rungs of the mortgage ladder. I find that difficult to understand. I should like to know how much the scheme would cost. Obvously the funds would have to come from the public purse. Would the scheme be back-dated?

Public expenditure cuts mean fewer roads, larger classes in schools, much more slowly increasing pensions and fewer services for the old and the sick. That message should be pushed home to its logical conclusion. Like the Liberal Party, although perhaps for different reasons, the SNP does not support the Conservative amendment. I am sorry that the SNP amendment has not been called. I shall read it into Hansard. It states: but regrets that it fails —that is—the Government motion— properly to channel the revenues from Scotland's resources to meet Scotland's needs and that it represents a further example of how the growth of the Scottish economy continues to be hampered by its being linked to the sickly economy of England. I draw the attention of the House to pages 2 and 3 of the White Paper. The planned public expenditure increase for Great Britain from 1978–79 to 1979–80 is roughly 4.5 per cent. From 1979–80 to 1980–81 it will be about 1.5 per cent. There will be the same rise from 1980–81 to 1981–82, and between 1981–82 and 1982–83 it will be 1.3 per cent. The rise for the first of those years for Great Britain will be 4.5 per cent. but only 2.6 per cent. for Scotland. The rise in the following year will be 1.5 per cent. in Great Britain as in Scotland. The next year will see a rise of 1.5 per cent. in Great Britain and only 1.3 per cent. in Scotland. The final year will result in a 1.3 per cent. rise in Great Britain and only a 0.7 per cent. increase in Scotland.

If we compare pages 2 and 3, which contain the Great Britain figures, with pages 202 and 203, which contain the Scottish figures, we find that it is clear that over five years public expenditure in Great Britain is estimated to increase at over 10 per cent. and in Scotland by less than 6½ per cent. That will not do.

The Scottish figures exclude expenditure on defence, foreign affairs, social security and the nationalised industries. It may well be that per capita Scotland receives more, in terms of social security, than does England. If so, it is an indictment of the House and the centralised management of the United Kingdom economy that Scotland has greater unemployment and social deprivation that require subventions of this type. It may well be that the nationalised industries in Scotland receive more than their per capita share, although one should tell that to the employees of the British Steel Corporation in Lanarkshire and the railways in Scotland, which always seem to be—I was about to say"blessed "—damned with poor and old rolling stock.

There is no way in which Scotland can receive a fair share of defence expenditure. The Scottish Council reckons that Scotland receives between 3 per cent. and 4 per cent. of United Kingdom expenditure on defence, when a fair population share would be about 10 per cent. We receive virtually nothing from foreign affairs expenditure. In these figures I include estimates for the Scottish share of Great Britain's public expenditure. Scotland receives much less per capita from the White Paper than does the rest of Great Britain. That is not acceptable.

From the figures on pages 202 and 203 we note that there is to be hardly any increase in public expenditure in the next five years on roads and the law. There will be a decrease in education expenditure. Scotland deserves a greater increase in public expenditure on roads in view of the development of North Sea oil.

It is regrettable that at this time the Government chose to freeze the level of educational expenditure in Scotland at a time when many Scots are still being taught in, and when teachers are expressing concern at, large classes. There is a projected reduction on education expenditure in Scotland, which, according to pages 2 to 3, is not projected for the United Kingdom.

I now look across the Irish Sea at the Republic of Ireland. I refer to the Budget in the Dail Eireann in February this year. I realise that I am not comparing exactly like with like, but the percentages will be indicative.

The Irish Government's budget for the public capital programme financed by the Irish Exchequer was £480 million in 1978. The Exchequer's financial projection for 1979 is £640 million. That is an increase from £480 million to £640 million. We in Scotland are looking for public expenditure increases of that kind.

The Scottish National Party looks forward to the day when the people of Scotland, through a sovereign Parliament, will be able to use their own resources for their own needs. Until that happens, the people who voted"No"in the devolution referendum and said that we should not have a say in running our own economy may cry until the cows come home, but they have only themselves to blame. We in Scotland have the resources to finance the public expenditure increases that we so desperately need. For those reasons we shall not support the Conservative amendment tonight.

6.55 p.m.

Mr. Ron Thomas (Bristol, North-West)

I well understand, given the referendum results in those constituencies represented by members of the Scottish National Party, why the hon. Member for Perth and East Perthshire (Mr. Crawford) should approach the matter in the way that he did. However, I do not wish to follow what he said. Instead I wish to concentrate my opening remarks on what the right hon. and learned Member for Surrey, East (Sir G. Howe) said—especially when he referred to a future Conservative Government policy to make substantial and drastic cuts in public expenditure. The hon. Member for Cornwall, North (Mr. Pardoe) suggested that the Tories might be saying that in Opposition but that if perchance they were able to form a Government they would take a different position. I did not agree with the hon. Gentleman on that matter, although I agreed with a good deal else of what he said.

The Tory Party—certainly Tory Members of Parliament—has shifted dramatically to the Right. If the British people put the Tories in a position to form a Government, we should see brutal, class-orientated legislation. The right hon. and learned Member for Surrey, East listed the cuts that the Tories would make. First, he referred to the taxation of what he euphemistically called"short-term benefits ". It is high time that the Tories came clean on this matter. Do they intend to tax those in receipt of unemployment and sickness pay, and invalidity and other benefits? If they do, they should say so clearly in the House. The message should go from this place to the 1½ million unemployed and those on sickness pay and invalidity and other benefits. They should know that the Tories intend to tax them. The right hon. and learned Gentleman used the words"short-term benefits ". To me that is a euphemism for unemployment pay, sickness pay, invalidity benefits and the other benefits mentioned in the White Paper, which the Government, to their credit, have considerably increased since they came to power.

Mr. Ridley

As the hon. Gentleman asked the question, he might as well be told the answer. We intend to make the benefits taxable. That is not the same as taxing them. I am sure that the difference will be lost upon the hon. Gentleman's dim wits. However, such benefits will be taxable only if, when added to other income, they bring somebody in the taxable range. The hon. Gentleman might therefore realise that his figure of 1½ million people is incredibly and wildly exaggerated.

Mr. Thomas

I do not know whether I should respond to an hon. Gentleman when he uses such insulting language.

The matter was made clear by the right hon. and learned Gentleman. I wondered whether his hon. Friends listened to his remark. He mentioned, by implication, the disincentive effect of unemployment benefits. He did not talk about people who received other forms of payment. If people receive other payments, we cannot speak about the disincentive effect. It is clear that the Tories intend to tax unemployment and other benefits.

Mr. Lawson

Before the hon. Gentleman is too carried away, may I say that the Tories believe that unemployment benefit should be brought within the tax net? Before he gets further carried away, he may like to be aware that the Financial Secretary said in Committee in the debate on the last Finance Bill that in his opinion unemployment should be brought within the tax net.

Mr. Thomas

I am sad indeed to hear that. However, at least the hon. Member for Blaby (Mr. Lawson)—as opposed to his hon. Friends—was listening to what his parliamentary colleague said.

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

The taxation of short-term benefits was a fact up to about 1948. It was abandoned in view of administrative difficulties, which still remain. The hon. Gentleman would be prepared—or so it would seem—to utilise the labours of about 10,000 civil servants to tax short-term benefits. I believe that the reasons for abandoning the taxation of these benefits so many years ago were valid then and that they remain valid now.

Mr. Thomas

Cuts by the Tory Party would lead very rapidly to an increase in local authority rents. I do not know why the Tory Party is such an enemy of council tenants. I refer Opposition Members to the tables on page 100 of the White Paper. Even taking into account the average increase in weekly earnings, there is no question but that the family with a mortgage has done much better than the family renting its housing accommodation. It is quite clear from page 100 that gross unrebated rents per dwelling have increased, in terms of the index, from 100 in 1973–74 to 167, while average weekly earnings have increased from 100 to 188. At the same time, the average mortgage outgoing has increased from 100 to 146.

On that basis, those who pay rent are already paying roughly 18 per cent. to 20 per cent. more since 1973–74 than those who are paying mortgages. In addition, those who pay mortgages have a very substantial capital asset at the end of the period of the mortgage, whereas the council tenant does not own one brick,

The right hon. and learned Member for Surrey, East said clearly that the Conservatives would cut the housing subsidies to the public sector, and, ipso facto, they would thereby force up quite dramatically the rents of council house tenants, with the obvious effect on the index of retail prices and the level of inflation.

The right hon. and learned Gentleman also had a good deal to say about cash limits. He said, in answer to the Treasury Front Bench, that if the local authorities or the National Health Service were to give increases of, say, 9 per cent. or 10 per cent. to the employees in those services—the sort of figure that is currently being negotiated—there should be a cutback elsewhere. The right hon. and learned Gentleman was saying, in effect, that we can pay the nurses more provided that a few hospitals are closed down, that we can pay the teachers more provided that a few schools are closed down, and that we can pay ambulance drivers more provided that a few more ambulances are taken off the road. He said that the cash limits should remain and that if more pay were granted to nurses, ambulance drivers, ancillary workers, dustmen, teachers and so on, cuts in the public expenditure on those services they provide should be made to offset the increases in wages and salaries.

Mr. Timothy Raison (Aylesbury)

Would it not be fairer for the hon. Gentleman to come clean and admit that these attacks could all be made against the Government, who have been raising rents and applying cash limits? It would be rather more honest of the hon. Gentleman if he were to attack his right hon. Friends.

Mr. Thomas

I do not think that I have been reticent in attacking my right hon. Friends, although I could be accused of many other things. I am trying to get clear what the right hon. and learned Member said about cash limits. I repeat that he said that if the legitimate pay claims—as Labour Members see them—of those in the public sector are conceded, the cash limits must be held firm, and that there must be cuts either in the services provided or in the capital side of the accounts in question. I repeat that the right hon. and learned Gentleman was saying, in effect, that we can meet the legitimate pay claim of the nurses but that we shall need to close down a few hospitals in order to find the money. [Interruption.] What is it, then, that the Tories would cut in order to be able to give the nurses extra pay? Will someone on the Conservative Benches please tell me? Similarly, what would the Tories cut out of the education budget in order to give the teachers, the ancillary workers and the caretakers more money? What would the Tories cut out of the ambulance services in order to give the ambulance drivers more money?

I have noticed that the Tories do not use the same argument with regard to defence matters, especially when increases in the pay of the Armed Forces are being discussed. Labour Members have backed the demands of the ordinary Service men, and those up to the rank of lieutenant, for increased pay. We are not so much concerned about the pay of the generals or the air marshals, who are already getting too much. We have backed the demands of the lower ranks for increased pay, but when have the Opposition suggested that there should be cash limits on defence expenditure? When have they said that if the troops are to be paid more, there will have to be fewer tanks, battleships and aircraft? When have the Opposition said that the police should be given more money but that we shall have to cut down on the number of cars used by the police? It is only in the areas of the Health Service, education and social services, of course, that the Tories take that line of argument.

I entirely agree with the hon. Member for Cornwall, North, about the need to relate the public sector borrowing requirement to the economic circumstances of the economy. It is nonsense, given the high level of unemployment and the need to pay unemployment benefit or supplementary benefit, that the economy can be run without borrowing anything at all. It is quite clear that the level of the public sector borrowing requirement, at 4½ per cent., set against the gross domestic product, is relatively a quite small percentage. As has been pointed out, it is less than the proportion of the gross domestic product under the last Tory Government.

It is no good pretending that we can go back to pre-Gladstonian days and talk rubbish about balancing Budgets when we have 1½ million unemployed. What is the cost of this unemployment? Clearly, it runs into thousands of millions of pounds when all the various benefits are taken into account. It costs thousands of millions of pounds in terms of the loss of production of goods and services. It costs thousands of millions of pounds in terms of lost revenue, whether from direct or indirect taxation.

I suggest that the fact that we have 1½ million unemployed is due to capitalist policies and not to Socialist policies. I am still waiting for the Socialist policies to come from the Government. I say that right away. What we have, instead, is the kind of policy that is spelt out regularly by the Bank of England Quarterly Bulletin, which seems to be the leading force in the militant monetarism of the day. What kind of control we have over the Bank of England, heaven knows. It is supposed to be a publicly owned corporation, but it seems to be much more in tune with the views of the Right wing of the Tory Party than the views of those on the Labour Benches.

The cost of unemployment, in terms of the waste of economic resources, must be in the region of £8 billion, £9 billion or £10 billion. It really is nonsense to say, in that context, that we can run the economy with a public sector borrowing requirement lower than the present one, which is roughly 4½ per cent. of the gross domestic product.

Mr. Powell

The hon. Member for Bristol, North-West (Mr. Thomas) is in favour of a substantial net borrowing requirement. Is he in favour of that sum being borrowed or that amount of money being printed?

Mr. Thomas

I am in favour of that amount of money being borrowed. I agree with the hon. Member for Cornwall, North that, for all kinds of reasons, the Government have had little difficulty in the past in borrowing those sums of money. There have been arguments about the cost of borrowing and that at certain times that cost has been a disincentive to capital investment in private industry. But there is no positive correlation between the cost or interest on gilt-edged securities and the level of capital investment in the private sector. The hon. Member for Cornwall, North was right in saying that what persuades entrepreneurs to invest is the expected level of demand for the product or service. If demand is cut, we shall not get the capital investment.

Interest rates must be considered in terms of the cost after tax, because interest can be set off against tax. An increase of 1 per cent. in interest rates does not have the full impact because of that. The Tories have said a good deal about taxation and incentives. When the hon. Member for Cornwall, North, or one of his colleagues, was asked to give examples of how the marginal rate of taxation inhibits incentive, he quoted the university professor who did not know whether to write another article or another book. The right hon. and learned Member for Surrey, East gave the example of pop singers who may leave these shores because of the marginal rate of tax. There is no evidence that the so-called entrepreneurs are held back by the marginal rates of taxation. One wonders how it affects them. Do they attend half a meeting, write half a memo or take half an order? Are they selling Britain short because they feel that they are overtaxed? We know the Tory attitude on taxation.

Although in the last Budget 57 per cent. of the tax handouts were to go to those earning more than the average, if the Tories had had their way that figure would have been over 70 per cent. The Opposition parties ganged up on the Government to try to force them to give tax relief over and above that offered to those earning £10,000-plus a year. The marginal rates of tax are not a great disincentive to entrepreneurs. At the same time, whether the proposal comes from our Front Benches or the Conservative Party, many of us will fight any attempt to switch to indirect taxation. Income tax, with all its defects, is based on ability to pay. Indirect taxation would force working people to pay more for what they buy in the shops. That is regressive taxation, except when applied to such things as Rolls-Royces, diamonds, expensive furs and perfumes. Working people, the lower paid and the weaker sections of our society would bear a bigger burden if indirect taxation were increased.

The White Paper is neutral. The intention appears to be to maintain the present level of public expenditure and have slight additional indexation in the tax system. But we shall not, it seems, have anything dramatic in the Budget, and it will probably be neutral. I quite brazenly want a Budget on which we can win the next election. The Tories have always done that, and we should do the same. At least 3 million people should be exempted from paying tax. We should not give massive tax handouts to those earning over £10,000 a year, as we did last time. We should get rid of television licences, there should be free travel for old-age pensioners, and there should be an increase in the death grant. The cost of a funeral today is vastly above what it was when the death grant was introduced, and it requires updating. School meal charges should also be abolished.

It is, of course, the case that pushing money into the economy highlights our propensity to import finished and semi-finished manufactured goods. Deducting oil from our import bill, 10 years ago finished and semi-finished manufactured goods made up about 32 per cent. of our imports, and they now form about 66 or 67 per cent. The TUC economic review sets out in stark detail the import penetration across the whole range of British manufacturing, which is caught in a spiral of contraction and decline. We require an alternative economic strategy which embraces selective import controls. It should also cover control of capital investment.

Despite what has been said about disincentives, vast sums of money are leaving Britain to be invested overseas. The result of that is the increased imports of finished and semi-finished manufactured goods. There should also be a dramatic reduction in overseas defence expenditure, which must be costing the balance of payments £800 million to £1,000 million a year.

We believe also that there should be an effective wealth tax. We believe that the time has come for such a tax when 5 per cent. of the adult population of this country own 50 per cent. of the wealth. We still see vast fortunes like that of the Duke of Westminster remaining completely intact, despite legislation supposedly aimed to bring about a more equitable distribution of wealth.

We do not accept that the present economic strategy is any different from what we saw between 1966 and 1970. That was the so-called indicative planning—asking firms what they might or might not achieve. Only by Socialist planning can we deal with the malaise in our economy and the indefensible situation in which 1½ million of our people are unemployed.

7.22 p.m.

Mr. Terence Higgins (Worthing)

I support the amendment, which declines to approve the White Paper. The White Paper has already been overtaken by events and it leaves inadequate scope for the tax cuts that are essential to a prosperous economy.

I disagree with the hon. Member for Bristol, North-West (Mr. Thomas) on a number of points, but I shall deal specifically with two of them. First, he has misunderstood the impact which the present high rates of personal tax have on those who generate the wealth of our economy. Secondly, while it is correct to say that we shall not get a reasonable rate of investment from manufacturing industry if there is not a prospect of a reasonable level of demand, to state that there is no positive correlation between the rate of interest and the level of investment is absurd and totally in conflict with the realities of the situation.

The White Paper has two aspects on which I wish to concentrate—the economic aspects, or its relation to the management of the economy, and the procedural aspects, or the procedures for controlling public expenditure. First, I shall speak about the White Paper's relationship to economic management. There has been controversy for more than a decade between the so-called monetarists on the one hand and the neo-Keynesians on the other. That seems to be a singularly sterile debate. There must be an argument for using all possible weapons in the battle against inflation and unemployment and to stimulate economic growth. Control of the money supply has an important role to play.

The traumatic industrial crisis of recent months, which has been due to a considerable extent to a hamstrung Government, suggests that a possible synthesis can be reached between the monetarist view and that of the advocates of an incomes policy. It is common ground between us all that it is essential to control inflation, and that to do so we need to restrain the money supply. We are no longer in the position of the 1960s, when there was some trade-off between unemployment and inflation. There is a general consenus today that the effect of higher inflation tends to increase rather than reduce unemployment. To that extent, there is more common ground compared with the earlier period.

The crucial point is that effective control of the money supply inevitably means an incomes policy in the public sector. Without support for an incomes policy in the public sector, there cannot be effective control of money supply. That is because we cannot have effective control of the money supply without effective control of public expenditure, and public service pay represents half the amount covered by cash limits. If one does not control public service pay, one cannot control Government expenditure and, hence, the money supply.

Mr. Joel Barnett indicated assent.

Mr. Higgins

I am glad to see that the Chief Secretary is indicating that he agrees with that view. Therefore, everyone who believes that we must help to control inflation by restricting the money supply must support an incomes policy in that sense. But it could be argued that this is grossly unfair to the public sector. I do not accept that. If one takes a strong line against inflationary wage claims in the public sector, one may find that increases in the private sector follow suit. Unfortunately that is not so in our present circumstances.

At the beginning of the wage round, the Ford settlement was clearly inflationary. Unfortunately, Sir Terence Beckett did not stress at the time the repercussive effects of that settlement on the public sector. It may be that the private sector began the inflationary round by taking the lead, and that raises the whole question of ensuring that trade union contracts are binding and not broken before the expiration of their term. But the general proposition is true: if one has a strong policy on restricting inflationary claims in the public sector, one can expect that the private sector may follow suit and one can get an overall level of settlement which is consistent with controlling inflation.

The crucial point in the Government's White Paper is in paragraph 3 of page 1: The planning figures in this White Paper for individual programmes in 1979–80 will be the basis for cash limits and for the Government's requests to Parliament for voted expenditure. The Government have already announced that these two control systems are being brought together; over most of the field this will have been done in time for 1979–80. This seems to raise tremendously important questions. The first is the question of bringing cash limits and voted expenditure together. We all recognise that the degree of control which Parliament exercises over public expenditure as against that which the Government exercise has declined greatly over the years. It is high time that that authority was reasserted. If we bring cash limits and voted expenditure together, and if we consider a high percentage of public expenditure as public sector pay, we will not find the Government being confronted with inflationary pay claims. However, we shall find the House being confronted with these problems if cash limits are made effective.

We must consider whether it is a desirable state of affairs for the House to find itself imposing a cash limit where an inflationary pay claim is not met. Instead of the trade union facing a Government who do not want to grant a pay claim, it will face a Parliament which does not think that a pay claim should be granted, and that is an important constitutional point.

Then there is the question of cash limits being effective. That is the whole point of the amendment's case that the White Paper is out of date. Will the figures in the White Paper really be used now as a basis for the cash limits which Parliament will be asked to approve? It is quite clear that, apart from the specific exceptions that the Chief Secretary has made, it is highly unlikely that it will be practical for the figures in the White Paper to be used as a basis for cash limits. I hope that we shall be told clearly whether the White Paper still provides a basis for the cash limits that the Government intend to impose.

It is doubtful whether the Government still believe that cash limits are an effective control over public expenditure. I believe that the level of pay claims determines cash limits. Those limits have not been imposed in such a way that inflationary pay claims are not financed. If that is not so, it is inevitable that inflationary pay claims will to some extent be financed, because we know that, when cash limits do not apply, public expenditure controls do not apply and the borrowing requirement will rise. In other words, there will be a multiplier effect, the money supply will increase, and that will finance pay claims.

I must inform the right hon. Member for Down, South (Mr, Powell) that these matters are not proportionate. There is a multiplier effect of the borrowing requirement through the banking system. Therefore, even a moderate increase in the borrowing requirement may result in a much larger increase in money supply. The crucial point is that, unless the cash limits are applied stringently, the finance will be provided through the mechanism which I have just described.

It is clear from the Chief Secretary's speech that the Government have no intention of imposing cash limits on a strict basis. This was clearly brought out in an article by Mr. Samuel Brittan, headed"How to Discredit Cash Limits." My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was right to pay tribute to the Chief Secretary for his work in devising the cash limits system. However, the right hon. Gentleman is now busily engaged in destroying that system. If there is an inflationary pay claim, to some extent the cash limits will be moved to accommodate it. What kind of limit is it which, when faced with pressure, is immediately adjusted to accommodate some of the pressure? The answer is that it is no limit at all.

The fact is that the Government are not standing firm by their cash limits, whatever they may be. They have already moved them in a number of respects, and no doubt will do so in future in the light of changed circumstances. The whole basis on which the control of money supply is said to be founded, namely, cash limits, has been undermined by the Chief Secretary.

I do not underestimate the Chief Secretary's difficulties. I am sure that he would like to see a more stringent application of cash limits. Nevertheless, the changes now being made have effectively undermined the system. We must be wary of saying that we should integrate the cash system with public expenditure control and let Parliament take the strain of imposing the cash limits. We look forward to the remarks of the Financial Secretary on these points.

Clearly, those who take a simple-minded view of oversimplifying Professor Friedman's thoughts on monetary control are under a considerable amount of pressure. Despite the degree of deflation of demand and restriction of money supply, hitherto we have clearly had a number of highly inflationary wage settlements. Alas, I am afraid that the Opposition will not have an opportunity to find out how it all works out, for the reasons I have mentioned. The fact that the cash limits are being moved does not mean that the money supply is effectively controlled so that we can prove once and for all whether the monetarists are right.

Another point arises from what was said by the hon. Member for Cornwall, North (Mr. Pardoe)—namely, whether we shall have a neutral Budget. There is a frightful temptation to think that a neutral Budget is a neutral Budget is a neutral Budget, whereas one can have neutrality in that sense at many different levels of public expenditure and taxation. One could have a neutral Budget where there is virtually no public expenditure and low taxation. On the other hand, one could have a neutral Budget with very high levels of public expenditure and high taxation. But the economic consequences of those two or any position in between are very different. The idea that somehow a neutral Budget means anything in a technical sense is open to great doubt.

Clearly, the Government are afraid of taking effective fiscal action in this pre-election period and are putting all the weight on rates of interest. This is why the amendment tabled by my right hon. Friend the Leader of the Opposition is right in seeking to cover taxation and also high interest rates. Those high interest rates will be a heavy burden on future generations. They will certainly be a heavy burden on those who have to finance the management of the economy in the years to come.

Finally, I turn to the question of parliamentary control. Members on both sides of the House feel that Supply days should occasionally be used to debate the subject of Supply. Supply days have become occasions for debating general policy points. It is high time that this House asserted its right to debate individual items of public expenditure and to vote on them. That is not an easy matter for the Back Bencher to pursue at present. The Opposition Front Bench are often reluctant to take on this task because it would mean that a more general debate had to be sacrificed.

Mr. Robert Rhodes James (Cambridge)

Does my hon. Friend agree that one of the most retrograde and deplorable steps taken by this House—and, I am afraid, under a Conservative Government—was to adopt the procedure of sending the Finance Bill to a Committee upstairs? The Committee stage of the Finance Bill used to be a great occasion on the Floor when every hon. Member could be involved in debating that Bill and the matter of Supply. Does he not agree that that retrograde step taken by the House has led to the present position?

Mr. Higgins

I agree with my hon. Friend. I made a number of speeches at the time when that proposal was advanced. That is one side of the equation.

It is important for the House to have an opportunity to debate individual items and the headings of public expenditure. We do not now have that opportunity. The opportunities to debate the means of raising money have been severely curtailed. At present, we have virtually no opportunity to debate individual items. I believe that we should have additional days for the House to debate such matters, enabling us to split the various items in a White Paper and to debate this or that item and, if desired, to vote upon them.

That is not a difficult change to make, but politically it is likely to be heavily resisted by the Government. I detect that there has been pressure in recent months to make such a change. It would be wrong for an Opposition to be deprived of the right to debate general issues on what we now call Supply days. There should be an additional allocation of days for this purpose.

Mr. Powell

Will the hon. Gentleman carry this matter a little further? Some of us, including the Select Committee on Procedure, have been giving a good deal of thought to this subject. When a Finance Bill is introduced, every clause has to be put from the Chair to the House or to the Committee with any amendments selected by the Chair. Does he envisage the Estimates being put class by class, or what is his picture?

Mr. Higgins

I am well aware of the excellent work done by the Expenditure Committee and the Public Accounts Committee in suggesting that our procedures need to be reformed. There would need to be an allocation of priorities. The right hon. Gentleman is implying that the House would go through the Estimates heading by heading. Alternatively, the Expenditure Committee, for example, could go through, decide upon the items which were likely to be controversial and bring forward specific proposals.

Parliamentary time must be made available without resulting in the Opposition's normal time for debating broader subjects being cut.

Mr. R. E. Bean (Rochester and Chatham) indicated assent.

Mr. Higgins

I am glad to see that the hon. Member for Rochester and Chatham (Mr. Bean), who is a member of the Expenditure Committee, is indicating his assent. It is high time that the House insisted that not only should we debate a public expenditure White Paper in very general terms but we should also have an opportunity to look at specific items, debate them and—more important—vote on them.

7.41 p.m.

Mr. R. E. Bean (Rochester and Chatham)

I followed the contribution of the hon. Member for Worthing (Mr. Higgins) with a great deal of interest. I was nodding because I was anticipating my cue to come in on my particular grouse—the effects of public expenditure cuts over the years on the construction industry.

For the first time the White Paper contains a reference to the construction industry. The House should appreciate that the construction industry relies heavily on public expenditure. A total of 90 per cent. of the civil engineering work load and 50 per cent. of the work load of building generally comes from public expenditure. Over the years, various stop-go policies of respective Governments have had a remarkable effect on the industry. I have looked through the White Paper and I have listened to Opposition Members' speeches. I do not think that the industry's future is bright. Lip service is paid to it, but the real intention is to cut back.

Public expenditure over the next four years will increase by about 10 per cent. but the construction industry's share will be only 1.3 per cent. In page 13, paragraph 53 states that The Government are concerned to avoid unnecessary fluctuations in the public sector's demand on the construction industry. But decisions on the level of construction and other capital spending must depend primarily on how the money available for particular programmes can be used in the most cost-effective way. That means, in other words, fiddling the books for political expediency.

Savings are being made on the road programme. There is a case for arguing that there should be cuts in road expenditure, on the grounds of environment and that there is a finite limit to the world's fossil fuels, but that is not the case put forward in the White Paper. If it were, surely the alternative money should be expended on other forms of transport—the railways or the revamping of inland waterways. Instead, the money saved from cuts in the road programme is being spent on subsidising the Port of London Authority. That may be laudable, but it is not in the interests of the economy or of the construction industry.

Considerable slippage has occurred in the amount of money being spent by local authorities on housing—£450 million. All hon. Members know that the slippage was deliberate. It was created by Tory councils which refused to carry out their obligations for public building in the housing sector. The Minister for Housing and Construction is aware of the slippage but can do nothing about it—it is a fact of life and a political decision. However, the Minister has said that he can increase public housing by encouraging the housing associations to step in. In the White Paper the contribution to the housing associations from the central fund has been reduced by £50 million this year. Again, only lip service is paid.

I followed with interest the contribution of my hon. Friend the Member for Bristol, North-West (Mr. Thomas). He said that there was a fundamental difference between the Front Benches and that it will be continued after the general election. I am inclined to agree with him. For the first time since the war, the Tory spokesmen are pushing through policies of the extreme Right. They call for cuts in personal taxation and public expenditure and say that this will lead to an increase in demand. That view has been echoed by the Bank of England Quarterly Bulletin, issued last week. The Bulletin also pointed out, however, that it could lead to an increase in imports. That is the danger. How can we ensure that cuts in public expenditure and personal taxation will find their way through into demand?

We all remember what happened in 1972 and 1974 when there was a deliberate stimulation of the economy. That did not result in an increase of our manufacturing base, and office blocks and new town centres sprang up. That was not a growth in the real economy. If efforts are to be made to increase our manufacturing base and our productivity, the Government should help by giving 100 per cent. tax incentives in the same way as incentives are given to manufacturers to write off the cost of installation of new machinery and tools. One has to look beyond the industrial base and take in the infrastructure—the railways, the docks, the roads and the whole network that is essential for the growth of our economy.

We are fortunate to have inherited the finest public health and water supply systems in the world. They were built by our Victorian forefathers to the best designs and the highest standards of workmanship. They still function after 100 years, but the toll of heavy traffic and the demands made on them are leading to the breakdown of the systems.

Our railways, docks and public services are badly in need of renewal and replacement. The White Paper makes no reference to that. Having listened to the speeches of Opposition Members, I cannot see how cuts in taxation and public expenditure will provide the replacement of these essential services.

I was particularly disturbed to hear the Chief Secretary refer to the workings of the cash limits. The emphasis was that if wage demands push expenditure over the cash limits there are price rises of over 8½ per cent. that would result in cuts in public expenditure. That may be one way of maintaining discipline over public sector wage claims, but it is an unfair and unjust method. Its effect will be felt on capital rather than on revenue. Every time, it is capital which is cut.

I believe that we need an increase in public expenditure to cope with the problems of the immediate future and those towards the end of the century. We are all aware that by the end of the 1990s we shall be faced by a different world. Our mode of travel, of generating energy and of working will be different. There is nothing in the White Paper to show that the Government are aware of those changes.

Investment in the future is essential. The White Paper and what the Government have said are purely for the time being and for political expediency. I am concerned about that because time is not on our side. If we are to have a future worth looking forward to, we should be investing now.

7.50 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

For most of his speech the hon. Member for Rochester and Chatham (Mr. Bean) was putting in a plea for the construction industry. I have some sympathy with his claim that capital has been unfairly cut, to the profit of revenue, in recent years. However, if he really wants to benefit the construction industry he must realise that nothing would do that better than the engendering of a money supply boom of the 1974 variety. Even the construction industry must play its part in contributing to more stable times.

I got the feeling from the Chief Secretary's speech that he was a little narked by the General Sub-Committee's report. I must tell him that the General Sub-Committee was a little narked by the White Paper, and I was a little narked by his speech.

There is a certain tension in this situation and it is useful to see how it comes about. I am delighted that this will be the last occasion for many decades on which we have to debate a Labour public expenditure White Paper.

I wish to make two points about public expenditure White Papers. First, we must get away from funny money, constant prices and Lord Plowden. The impossibility of discovering what has happened, what the figures mean and in what prices they are presented greatly outweighs the advantages of constant prices. The next reform must be to abolish all forms of constant prices and to stick to money. One of the great advantages of cash limits is that they are cash, and not funny money.

My second point is relevant to the Chief Secretary's stewardship of our public expenditure. In his first White Paper, in January 1975, he made predictions for the five-year period which will draw to a close on 5 April this year. He predicted an annual 3 per cent. growth in gross domestic product and a 2.8 per cent. growth in public expenditure, including transfer payments. That was a fairly Socialist prescription. The right hon. Gentleman was seeking to take 2.8 per cent. out of an annual 3 per cent. growth. No one could say that he was being modest about his intentions of public spending at that time.

If the forecast had been adhered to, the gross domestic product would have gone up, at constant prices, from £145 billion to £168 billion in 1978–79 and public expenditure would have gone up from £58.8 billion to £67.29 billion. In fact, the GDP has risen to £155 billion and public expenditure has gone up to £65.2 billion. Therefore the private sector is exactly £11 billion short, at 1978 prices, of resources that it was planned to have this year. That is the result of the failure of GDP to grow and the successful achievement of a growth in public spending.

It is too easy to put into White Papers every year that the Government expect growth to be 2.5 per cent., 3.5 per cent.. or any other percentage and to say that on that basis they can afford to spend an extra 3 per cent. more or any other percentage. They are never called to account for the fact that growth did not take place. They always say that it was due to the failure of the anchovies off the coast of Patagonia, to oil prices, to trade unions, to being blown off course or to any other excuse. The point is that the expenditure has taken place and the private sector has once more been squeezed.

The 1975 prediction was just as poor as the predictions behind the national plan, which had the same defect, and last year's White Paper, which predicted a 2.2 per cent. growth in public spending, when there was actually a 6.2 per cent. growth. No doubt the prediction in this year's White Paper of a 2 per cent. growth will prove equally wrong. As The Daily Telegraph said on Friday, the estimate is"not profligate, but mad ". I agree with that view.

Every time the trick of saying that there will be so much growth that we can afford to spend so much more is played on this country, and the more that the money is spent while the growth is not obtained, the more the private sector is ground down. Its resources for investment are further stripped, its levels of taxation have to be jacked up and it is less likely to perform and to produce the jobs and the sort of society in which people want to live.

We have to make cuts in public spending if we do not suceeed in getting the growth. I agree with my hon. Friend the Member for Hitchin (Mr. Stewart) that we should determine the tax take first and determine that the most that we can take from the people is £X billion and therefore we shall set tax rates to yield £X billion, and that means that we can spend only so much and we shall have to cut our spending to suit our cloth. That is the right way round.

It would be more sensible to have the Budget in April and to proceed to consider how to allocate public expenditure in May, having determined how much is available. That would be a useful addition to the important strictures of my hon. Friend the Member for Worthing (Mr. Higgins) upon the way that we supervise public spending.

The Minister of State, Treasury (Mr. Denzil Davies)

The hon. Gentleman is making an interesting argument. Is he saying that public expenditure should be limited to the amount of the tax take and no more?

Mr. Ridley

My expenditure is limited to the amount that I earn, and I do not see why the Government's should not be. The right hon. Gentleman may have misunderstood me. The Budget should determine the tax take, plus the amount of borrowing that it is safe for the Government to undertake. The total of tax take and borrowing would be the total of public expenditure.

Mr. Davies

How would the hon. Gentleman determine the amount of borrowing that he would consider appropriate in the circumstances, since he accepts that there must be borrowing on top of the tax take?

Mr. Ridley

I believe that it would be right to get a situation of no borrowing. I concede that that could be done only over a period of three or four years because I do not want to give the economy a violent shock, which such action would do, but I think that it would be right greatly to reduce the PSBR. Indeed, that is essential if we wish to return to stable prices and lower interest rates to enable investment to take place.

There is a dilemma, which I am sure Labour Members will recognise, in that we on the Conservative Benches want sustained and major reductions in taxation, leading from reductions in Government spending, whereas they see the matter very much in terms of low pay in the public sector and all sorts of desirable social objectives that they believe are best pursued by more public spending. They are wrong from the start, because we can spend publicly only what we have got publicly. They must learn to cut their coat according to their cloth.

There is a real dilemma, which was highlighted by my hon. Friend the Member for Worthing. If we insist on cash limits, if we insist on budgets in the public sector which are within the nation's capacity to afford, we shall have a clash with pay claims. Why must everybody in the public sector go in for the same pay claim? Why must it be that there is no discrimination between those who increase their productivity in the public sector and those who do not?

In the private sector, the more one increases one's productivity, the more one can expect to draw—with various qualifications, which I accept. But in the public sector nobody talks about productivity, particularly in the non-industrial public sector, such as the hospitals, local authorities, the ambulance service, central Government and so on.

I would hazard a guess that the extent of overmanning in large areas of our public sector is two or three times more than is necessary. I have no means of proving that, but I believe it to be so. I shall give just two examples that hon. Members might find interesting.

Over the past 20 years the cost of the National Health Service and the cost of the education service have both increased by about 10½ times. The decrease in the value of money over the same period has been about three and a half times. Therefore, I think that it would be safe to say that the real cost of the NHS and of the education system has increased by three and a half times.

The population has been roughly stable. The number of people being ill is slightly reduced. There are more long-stay patients at the end of their lives. There are fewer children but better pupil-teacher ratios. Some equipment is more expensive. We know that there have been changes. But I do not believe that any hon. Member would say that the changes we have seen in the NHS and the education service justify a three and a half times increase. Even if they do, we should have it proved to us.

I suspect that the problem we are suffering from is that the way in which we have organised our public sector provides that for these vast unmanageable services—whether Departments of central Government, the NHS or whatever—management is unable to exert its authority to achieve proper manning levels and proper working procedures. We in this House have no means of checking whether it does, and nor do the Government centrally have such means.

As for the authority of management to manage, the position is virtually out of control. We witnessed this over the period of the strikes that we have just come through. The total incapacity of management to control events in its own establishments—

Mrs. Jill Knight (Birmingham, Edgbaston)

Has my hon. Friend studied the case of Leslie Chapman, who, in one small area of Government works, managed to save £12 million in a very short time, and because of the Government's attitude rapidly went into retirement?

Mr. John Garrett (Norwich, South)

Tory Ministers.

Mr. Ridley

I have studied that case with great interest. I believe that Mr. Chapman has retired into my constituency, so I look forward to meeting him one day.

One could go on and on, but I do not want to delay the House. The cash limit could be a tool in the hands of management. If it were possible through the cash limit for people to receive much larger wage increases than the average, in return for much more efficient working practices, the twin evils of high public spending and low public sector pay could begin to be solved.

Labour Members must accept the change that there must be. They have come up against the brick wall of the inability to find another £1 billion to pay public sector wages, at the same time finding that many people doing menial and manual jobs in the public sector have conditions that we should be ashamed of. Until Labour Members accept the diagnosis that there must be major improvements in the way in which we organise our public sector, so that on the one hand we can provide better pay and services and on the other have much less public spending, and therefore much less taxation, there will not be a way forward.

When I heard the Chief Secretary mentioning all the sacred cows and asking"Will you cut this, that and the other?" I despaired that this Government would ever begin to understand that there are ways of spending money wisely and ways of spending it unwisely. To offer to seek to find the former is not necessarily something that should be laughed at and ridiculed. The attempts to improve the structure of our public sector deserve support from all quarters of the House.

8.8 p.m.

Mr. Ivor Clemitson (Luton, East)

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) expressed himself as being narked. I am not sure that I would apply the same word to myself, but, in so far as I would, I suspect that I am narked about different things and for different reasons.

There seem to me to be two theses about public expenditure of which we have heard echoes in the debate and which can, at the risk of a great deal of caricature and over-simplification, be summarised in one or two sentences.

The first goes something like this. It is that the public sector is essentially a sort of leech on the private sector, and it is the private sector that produces the wealth; the more that is spent on the public sector, the less is available for the private sector and, therefore, the less is available for the production of wealth. Therefore, we must cut back on the public sector in order to release more re-sources for the private sector.

The second thesis goes something like this. The trouble with the economy is that we are in a depressed state, that there is a recession, a lack of demand. The way to stimulate demand is to increase public expenditure. Therefore, we should have a massive increase in public expenditure in order to increase demand, in order to stimulate the economy and growth and so on.

Those two views may appear to be diametrically opposed, and certainly in their prescriptions they are. But, ironically, they share at their basis a common assumption, particularly about the relationship between growth and employment. Both assume that growth and employment are directly related to one another—that more growth means more employment.

What I want to throw into the debate is the notion that that relationship is no longer necessarily true. There seems to be increasing evidence that it is no longer true. For example, in the rest of the EEC, over the past four years there has been a 10 per cent. growth in GDP with no increase in employment. The relationships between the basic factors in the economy—growth, investment and employment—seem to me to be far more subtle than either of the views which I have presented, in a very simplified form would admit.

I should make it clear that I am not arguing for an anti-growth strategy. I am for growth, though not all growth is necessarily good. We must be selective in the growth we undertake. I am not against investment, which is the very means by which growth is brought about. I am not arguing against the need to stimulate the economy or that public expenditure has not got an important part to play in such stimulation. But, at the same time as we stimulate growth and investment in the economy, we must deal with the consequences in terms of employment. We cannot assume that, if we achieve greater growth or investment—however that is brought about—the problems of unemployment will necessarily and inevitably disappear.

Arguably, we can produce more with fewer people. If so, how can we reduce unemployment? It seems to me that we must create other forms of work than jobs in manufacturing industry and provide alternatives to unemployment, whether in terms of reducing the working life or the working week, providing greater educational opportunities, or whatever it may be. Of course, there are implications for public expenditure whether we increase employment in the public sector, on the one hand, or provide greater educational facilities, reduce the retirement age, or whatever, on the other. But when we look at the implications for public expenditure, we should look at the net, not the gross, cost effect.

For example, one-third of all redundancy pay goes to men between the ages of 60 and 64. Between 15 per cent. and 20 per cent. of all sickness and unemployment benefits goes to men aged between 60 and 64. Therefore, if we were to reduce the pension age, there would be these offsetting savings to be taken into account.

If we adopt the new kind of approach which I am suggesting—the changed assumptions about growth, investment and employment—we shall need radical new approaches both to what we spend public money on and the way that we spend it. My main criticism of the White Paper is that we see very little of this new kind of thinking in it. I take one example—education.

We all know about falling school rolls. But does that justify what seems the paltry increase in education expenditure of only 2.3 per cent. between 1978–79 and 1982–83 compared with 65 per cent. for all programmes and 8 per cent. for defence spending? Apart from the possibility of spending more on education and thus reducing pupil-teacher ratios, with a resultant increase in teacher employment, why should we not have a greater increase in expenditure on higher and further education if we are to follow the kind of policies that I suggested a moment ago? Indeed, why do we not see a massive increase in the funding of grants to 16 to 19-year-olds?

Conversely, on defence spending we find an 8 per cent. increase compared with a 6½per cent. increase overall. If we spent proportions of our GDP on defence comparable with those of our NATO allies and other countries in Western Europe, on my calculations, compared with France we should be spending £1,023 million less, compared with West Germany £2,047 million less, and compared with Italy £3,070 million less. Those are the three countries in Western Europe of comparable size to the United Kingdom.

My main criticism of the White Paper, I repeat, is that its assumptions about the basic economic relationships seem to be unchanged. I am also critical of it because there seems to be much more of what I call thesis No. 1 than I would like to see.

The poverty of the critique which has come from the Opposition Front Bench has to be heard to be believed. It goes without saying that the Opposition are firmly in favour of thesis No. 1 which I described. There is no possibility of their adapting to new situations which, as my hon. Friend the Member for Rochester and Chatham (Mr. Bean) said, will inevitably and increasingly face us in the latter years of the twentieth century.

There is no need to elaborate the poverty of the Opposition's critique. However much they may attempt to wriggle, the reductions in public expenditure which they propose must inevitably impinge on the big spending Departments—health, education and so on. The Opposition are constantly challenged to produce a shopping list of cuts, but they are just as constantly shy about producing such a list. I am not surprised. When such a list is provided for them—a list which they find it difficult to challenge—it is offset by corresponding increases in spending on defence and law and order which they are constantly telling us they will undertake.

As my right hon. Friend the Chief Secretary said, the Opposition are basically deceiving the electorate. They are deceiving them in one of two ways. Either they will not carry out the cuts which they say they will carry out, or they will carry them out, which will mean cuts in the Health Service, education, and so on. One or the other of those—[Interruption.] Does the hon. Member for Blaby (Mr. Lawson) wish to intervene?

Mr. Lawson

The hon. Gentleman must make up his mind which it is.

Mr. Deputy Speaker (Sir Myer Galpern)

Order. We cannot have sedentary interventions.

Mr. Clemitson

The Opposition cannot get away from one or the other of those propositions. Either they will carry out cuts or they will not. If they carry out the cuts, they will inevitably impinge upon the big spending Departments. Either way, they are deceiving the electorate.

In a very small way, people have already had a taste of what a Conservative Government would mean because of the actions of Conservative-controlled county councils and other authorities—whether one is talking about old-age pensioners having to pay more for their bus passes or about county councils not putting in bids for nursery education and deferring the building of nursery schools, and so on.

I am not saying that public expenditure is a simple panacea for all ills. That, I believe, is a mistaken view. Neither is all public expenditure wisely spent—of course it is not. There are ways in which public money is unwisely spent and ways in which economies could be achieved.

If we are to have decent public services and are to deal with the consequences of technological change within our industries in a humane, constructive and positive way, public expenditure of the right sort, in the right places and in the right quantities is absolutely essential. Far from public expenditure being a drag on initiative and enterprise as the Opposition constantly suggest, unless we have the right amount and right sort of expenditure we cannot create the right conditions and climate for growth.

The Opposition believe that creating the right climate is merely a function of increasing personal incentive. I fail to follow that argument. I fail to understand the mechanics or psychology. I believe that creating the right conditions is much more a function of dealing with consequences of growth in the ways I have suggested and, of course, involving people in taking the very decisions without which growth and investment will not happen.

Public expenditure, therefore, is not some sort or leech on the body economic which should be cut down. It is the very precondition of progress as well as the desirable consequence of it.

8.23 p.m.

Mr. Timothy Raison (Aylesbury)

The hon. Member for Luton, East (Mr. Clemitson) is very much a man with a theme. I do not say that in any mocking sense, but he is, I think, obsessed with the vision of high unemployment in years to come. He has talked to the House about this matter on many occasions and it seems to dominate his thinking.

I believe that the hon. Gentleman is labouring a thesis which is, as yet, un-proven. We do not know what the future of unemployment is, but we know that our problems today are not fundamentally due to a lack of jobs. There is no lack of things to be done, but there is a lack of wealth with which to do them. When the hon. Gentleman says that public expenditure is the starting point for such wealth, he is barking up the wrong tree.

I believe that public expenditure is important. In my public life—such as it has been—I have been concerned with the social services and the side effects of spending and I would never wish to be thought of as seeking to dismantle the social services. However, we must face the fact that we are at a stage in our society where we simply cannot afford to do everything that we are trying to do. This, really, is the starting point of any analysis of our public expenditure problems.

I am not a public expenditure expert. I am not one of those people who follow the rather esoteric fluctuations and style of presentation of our public expenditure White Papers with great skill and knowledge. I remind myself of the simple theatre-goer who says"I know what I like ". That will be the spirit of what I have to say tonight.

As I have already said, I believe that the containment of public expenditure at present is absolutely crucial. If we do not contain public expenditure we will strangle our economy. I believe that we have gone a long way towards doing that already, and if we do not mend our ways that is what will happen. It is perhaps encouraging that over the last year or two we have seen that it is possible to make cuts without producing disastrous results.

I admit that some of these cuts are cuts in projection rather than cuts in existing services, but we have seen genuine cuts as well. We have also seen the phenomenon of shortfall. Neither of those things has done devastating damage. In fact, one could say that the damage that both have done is relatively limited. Sometimes they bite. There are things at the present time about which one can say that we are not spending as much as we ought or would like, but overall this is not a country that in any sense is reeling under the blows of public expenditure cuts.

I believe that my hon. Friend the Member for Worthing (Mr. Higgins) made one point of great value. He is not the first hon. Member to have made it, but I very much support him. He said that this House ought to find some way of approaching expenditure in the way that it approaches the raising of money. As we all know, we have the tremendous ritual and follow-up of the Budget and the Finance Bill. That is a very important part of our parliamentary life. I am not sure that I would want it all to come back on to the Floor of the House, as do other hon. Members, but we do not match that by looking at the way in which we shall spend all the money that we raise. In that respect, in a curious way, we are behind local government, which takes some interest in expenditure as well as in the raising of the rate. I believe that we must think very hard about the kind of ideas about which my hon. Friend the Member for Worthing was talking.

I believe that we have learnt one or two lessons in the last year or two. I believe that the General Sub-Committee of the Expenditure Committee has been a help. The additional information contained in the White Paper is, by and large, a help. I certainly think that cash limits have been a considerable help. They perhaps represent one of the most important advances in financial control that we have seen for a long time. But we shall need more. Fundamentally, the more that we need has to do with will.

There is one matter of technique rather than of will about which it would be worth thinking, certainly in respect of an incoming Conservative Government. In my opinion we ought to revive the idea of Financial Secretaries in the great spending Departments. At the present time the Financial Secretary to the Treasury sits opposite, but it is worth remembering that a few years ago there would have been a Financial Secretary to the War Office and, I think, to the Admiralty. I believe that that post had a sort of meaning. We might consider reviving it now.

When one looks at these huge Departments of State which, rightly or wrongly, we have now created—Departments such as the Department of Health and Social Security, the Department of the Environment and, for that matter, the Department of Education and Science and the Ministry of Defence—one can see that in many respects there is every sign that expenditure is running wild and that there is no control. As many people have said, it is unfortunately true that when Secretaries of State arrive in office, despite what they may have said in earlier years, they get drawn into the desire to spend more in order to show their political muscle, win approval and so on. That is a fact of life.

There is something to be said for trying to build into the system a senior Minister—not the top Minister, but the No. 2 Minister—whose job is to scrutinise carefully the way in which money is being spent in those Departments. If one looks at the Department of Health and Social Security, which I believe should be split into two, one can see that there is very little sign of anyone going through those Departments, particularly Health, and trying to assess whether manning levels make sense or productivity is as it should be.

Of course, in the Department of the Environment to some extent the money goes through local government hands. This would mean a limited role for a Financial Secretary of the kind that I have mentioned. But at least he would be intimately concerned in his elaborate dealings with the local authorities through the rate support grant and, who knows, he might even get to grips with areas such as the property services administration, where Mr. Chapman has shown that considerable savings may well be able to be made. I believe that that idea, although a modest one, is worth thinking about.

I make another small point, which is that I am not sure whether we have got anywhere near the kind of clear allocation of responsibility in Government which must be a prerequisite for effective control of expenditure. In particular, we want to look again, more carefully, at the relationship between central and local government. By and large I favour centralisation. I should like to see stronger local government. That means, inescapably, that it must have more power over its own finances. I believe that our tightened economic circumstances in the last year or two have reminded us of the value of the traditional rating system, because although it has faults and unfairness it provides that the local authorities do not get more money without going out and asking for it. That may well be of value.

On the other hand, there is one area in which we expect local government to spend money and which, for the sake of better government, ought to come back to central Government. That area is income maintenance, or income support. One hon. Member earlier argued the case for abolishing the television licence. I believe that to be ridiculous. He went on to argue in favour of free bus travel for old-age pensioners. Again, I do not accept that. I think that it is much better to give people adequate incomes and let them spend the money as they want.

If there is to be some form of subsidy for bus fares, that should fall within the realm of central rather than local government. That is, after all, straightforward income maintenance, and it is putting a grossly unfair burden on local government for it to be in the job of income maintenance in that way. Its most important role lies in the provision of services rather than in holding up people's spending power. I therefore argue that it would be best for us now to say that projects such as free telephones for old-age pensioners and the other propositions postulated by the Chronically Sick and Disabled Persons Act should now be transferred to central Government.

My main point concerns priorities in public spending. There are certain areas where we need to spend more. I believe that my party is right to say that the defences of this country have been dragged down to too low a level. I am encouraged by the fact that this argument is widely shared by people outside Westminster and outside the Services. The old adage that nobody cares a fig about defence until a war arrives is no longer true. There is widespread public support for the stance that has been taken by my party in this matter.

There is a spin-off effect in such a policy because, while some of the increased spending on defence would go towards pay for the Services, a lot of it would also go on equipment. I should much prefer to see money spent on defence industries than on bogus jobs.

I also believe that the needs of the police and the maintenance of law and order must be met. This is another area where more money will have to be spent.

I also accept, as I said in the debate on the Consolidated Fund Bill last week, that there are aspects of health on which we shall have to spend more money. I believe that nurses are genuinely badly paid and that they represent a true priority. When I see the hospitals in my constituency, and particularly when I see the ceiling of the famous hospital at Stoke Mandeville literally falling down, I have to say that money must be spent on dealing with those problems. I am, after all, speaking of an area with a growing population. That is quite different from the London problem of a declining population and over-provision. While there has to be spending in areas such as mine, there is also scope for saving money in the way that the Health Service is operated.

I come then to consider where we can save money. I do not claim to have any original approach on that, but it is reasonable to answer the challenge of those who ask what we would cut back. Certainly, in my view, we must look at housing. The fact that the balance between supply and demand in housing is changing is of immense potential significance. I recognise that there are still areas of housing shortage—I do not dispute that for a moment—but we are moving into a changing situation and there is some scope for saving on the subsidy side. Moreover, I am increasingly convinced that we make a terrible mistake when we maltreat the private rented sector as we have done over the past decade or two.

There was a strong emotional case against the private rented sector in the days of acute shortage, Rachmanism and the rest, and I recognise that in times of acute shortage there may well be landlords who behave appallingly badly and arouse a great deal of deserved public hostility. I do not dispute that, and I am sure that there are still bad landlords about. But it is a great mistake to become obsessed by that, especially if we are, as I say, moving into a situation in which the supply of housing is improving relative to demand.

To adopt a more or less penal policy towards private landlords, which merely has the result that they will not come forward with additional investment and will not make use of their own spare housing capacity, is very foolish.

Therefore, one of the things that I hope and believe we shall do when we come to power is not to attempt to replace the very welcome growth of owner-occupation but at least to create a fairer balance between landlord and tenant and to instil a feeling that leads people to believe that it is socially desirable and not a slightly ignominious and dirty thing to do to offer a house or flat to rent. Housing, therefore, is one area in which, by sensible policies, we can hope to hold down public expenditure.

Next—I have already hinted at this—I come to the whole realm of job subsidisation and job preservation. Looking at public expenditure White Papers and at the course of events over the past few years, one sees that this has been an area of substantial growth—growth in the schemes administered both by the Department of Industry and by the Department of Employment or its agent, the Manpower Services Commission.

I genuinely believe that in both these areas we are spending too much, and we can see the consequences of it. One of the consequences of spending so much money on propping up jobs is that there is not enough money to spend on doing what really needs to be done. I have often said that it appals me in my admittedly high employment area that we should run job subsidy schemes through the MSC when there are genuine and traditional expenditure needs not being met. It is crazy. I think also that we must release money for the sort of cuts in taxation to which several of my hon. Friends have already referred.

I recognise that this is a difficult matter. It will be said that it is all very well for me, in an area of high employment, to say that the propping up of jobs in other areas does not matter. I recognise also that one cannot easily apply general nostrums to these things. But it is not just in my part of the world that one is hearing comment of this kind. One hears even in areas of high unemployment that the money is, quite simply, going to the wrong places. One hears more and more of shortages of specialised skills. There is a tremendously important job to be done in training, and I do not for a moment underrate that, but I think that the general belief that we must keep jobs in being for the sake of keeping jobs in being and reducing the unemployment figures is having disastrous results.

One result can be seen in our productivity figures. It is no good people scratching their heads and wondering why our rate of improvement in productivity is so minuscule, as it certainly is today, and then going happily off to vote for the preservation of non-economic jobs. If we preserve 1 million uneconomic jobs, we are bound to damage the productivity of our country. As I said at the outset, our problem is that we are not creating the wealth and we are not competitive as a country. We must put that right if we are to do the other things in the social services that we want to do.

We must show a little imagination in how we treat priorities within certain services. For example, the decline in school rolls offers some scope for savings. It is rather a pity that so many should now be promulgating the doctrine that it is even more costly to educate fewer pupils than it was to educate more pupils. That is a foolish doctrine. There is a chance to save money. I entirely agree that if some money could be saved it would be excellent to start spending more money on post-16 education. That is an area where we should get things on the move. I was a member of the Plowden committee of some years ago. The minority report expressed the excellent idea that we should be prepared to charge for nursery school education. There is a great deal to be said for that.

The debate has been used by many hon. Members to tell the Chancellor of the Exchequer what to do in the Budget.

Mr. Crawford

There may not be a Budget on 3 April.

Mr. Raison

Even if there is a general election, something will have to be done to keep the wheels turning and the tax collectors in power.

There is a desperate need nowadays to try to restore some rationality into the area that spans wages and social security payments. In recent months we have seen the system become completely and utterly crazy. I shall not embark on the arguments that have been advanced by my hon. Friend the Member for Norfolk, North (Mr. Howell) about the poverty trap. However, there is tremendous force in the argument. The problems must be tackled. In tackling them we must be prepared to be tough about the enforcement of taxation. We must also be willing to consider the useful table which is provided in the White Paper, which sets out the present tax allowances.

We want to get away from the mass of allowances that now exist and concentrate on what I am sure is for all purposes the crucial job of the next Conservative Government and any Chancellor of the Exchequer, namely, to reduce direct taxation at the bottom and throughout the scale. I do not think that the Chancellor of the Exchequer is capable of doing that. That is one of the most powerful reasons why I look forward to a Conservative Government. I support the Opposition amendment.

8.43 p.m.

Mr. Stan Thorne (Preston, South)

Yet again an opportunity provided for the Opposition to tell us where they would make the appropriate cuts in public expenditure has been wasted. We have heard nothing from the Opposition Benches to clarify that issue. The only clear statement of policy came from the hon. Member for Worthing (Mr. Higgins), who indicated that the Conservative Party in power would have a pay policy for the public sector. I hope that that will be made clear in the Conservative manifesto. I am sure that many public sector workers will take note of it.

I am concerned about the public expenditure plans. I regret that I am unable to support them as they are presented in the White Paper. An opportunity has been missed to cut military expenditure. There is reference in the White Paper to the intention to expend £8,600 million in that sector. I suggest that a 10 per cent. cut—namely, £860 million—would enable us to build another 30,000 houses, 500 health centres and about 2,000 nursery schools, with a tremendous fillip to employment in the construction industry especially.

My hon. Friend the Member for Rochester and Chatham (Mr. Bean) rightly drew attention to the effects on industry of public expenditure cuts. Additionally, as a multiplier effect for this type of public investment, a switch of public funds would mean an increase in the manufacture of equipment for new buildings such as furniture and equipment for health centres and schools. However, I acknowledge that there would be a reduction in employment in the arms industry. There are about 12,000 to 14,000 workers engaged in the production of multi-role combat and Jaguar aircraft in my constituency.

I have argued for some time—as have other hon. Members—that some years ago there should have been attempts at diversification in those industries so that any switch of funds from military to more useful manufacture would result in employment being offered in the electronics industry and other areas of general manufacture. Alongside that, we should still need to establish import controls in selected areas of manufactured and semi-manufactured goods, especially on those from the EEC and Japan, with which we have trade deficits of substantial proportions at present.

There is a moral argument here. We understand from various sources that about 10,000 people die every day in the world as a result of starvation. This country is highly developed, although we have problems that we discuss in the House. Countries with viable economies fail to address themselves to the tremendous loss of life that results directly from poverty. It may be argued that, in addition to the areas that I emphasised, it should be possible to increase our proportion of overseas expenditure to alleviate the suffering of people in other parts of the world.

I should like to see greater planned expenditure in three areas. Housing in my constituency of Preston, in other parts of Lancashire and in all the major conurbations is still a major problem. There are many unfit houses in Preston, where many families still live in multi-storey blocks of flats. The local Conservative-run authority's impotence in the face of these problems in my area is well known. The lady in charge of housing is far removed from the problem. Promises in years past to remove families from multi-storey blocks of flats have still not been fulfilled.

My postbag—and I am not unique—is filled with letters from constituents suffering from bad housing. The incidence of high-rise nerves amongst mothers has been documented by psychiatrists' journals and others. There is one area in Preston, Plungington, where improvements are taking place. Unhappily, they are not improvements with a human face. They are based upon taking over a property by compulsory purchase, if the owner does not voluntarily agree to sell it to the local authority, so that it may be modernised for someone else. Probably it is not modernised for the existing occupier, who may have lived there for 30 or 40 years.

Sir Geoffrey Howe

That is Socialism in practice.

Mr. Thorne

The Preston borough council is controlled by a Conservative majority—by the right hon. Gentleman's party, not by mine.

On the development of health centres, Labour Members have talked—as have some Conservative Members from time to time—about an extension of community care. Written into the national health legislation after the war was the concept of the health centre with a health team in every community with a population of 8,000 and more, with doctors, nurses, health visitors and after-care service workers, able to relate to the people in the community, and with equipment in the health centre to enable small operations to be carried out, thus alleviating the problem of the larger hospitals. We are still awaiting the real implementation of that programme.

There is also a need for an extension of nursery education. Young children need care in a proper environment. Mothers need to be able to take up interesting and satisfying work in the knowledge that their children will be catered for adequately.

The public expenditure plans set out in the White Paper are inadequate in those areas. Apart from that, I wish only to add that I shall vote against the Conservative amendment and for the Government motion.

8.51 p.m.

Mr. Malcolm Rifkind (Edinburgh, Pentlands)

It must be an unusual achievement from the Government's point of view to have the support of the hon. Member for Preston, South (Mr. Thorne), for his response in debates such as this is by no means predictable. He has just made a call for further massive cuts in defence expenditure. Knowing that that would almost certainly put a large number of his own constituents out of work, he made a vain plea that they should be transferred from defence employment to other forms of productive employment.

The hon. Gentleman's plea reminded me of the remark that was once made of Mr. Gladstone—that he could convince most people of most things but that, above all, he could convince himself of almost anything. If the hon. Gentleman seriously believes that there is the remotest prospect of his constituents who would be made unemployed if his views were to be implemented being found alternative constructive work, clearly he does not understand the consequence of his own policy.

I am always puzzled, when I hear speeches from the hon. Member and his hon. Friends, as to what they believe to be the appropriate level of defence expenditure, and as to whom they would wish to see providing the necessary means for the country's defence. He mentioned the Tornado and the Jaguar, which are being constructed in his own constituency. If he believes that construction of these aircraft should cease, does he believe that Britain should be without defence potential, or that we should be entirely dependent upon manufacture in other countries for the defence of these islands? That is a problem with which hon. Members such as the hon. Member for Preston, South never come to terms, yet the whole basis of their approach to defence is that we should have massive cuts, irrespective of the consequences that might flow from them.

Earlier in the debate, the hon. Member for Perth and East Perthshire (Mr. Crawford) made a comparison between the position of Scotland, as he sees it, as part of the United Kingdom economy, and the position of the Republic of Ireland. It is a very interesting and a very good comparison to make, because the Republic of Ireland is that one part of the British Isles which has opted in the past for the solution which the hon. Member and his friends would dearly like the people of Scotland to have—the option of independence and separate status.

One of the interesting consequences of that decision, taken by the Irish Republic, is not that it has left the economy of the United Kingdom but that it has ceased to have any direct influence on the decisions made concerning the running of that economy. That is the problem with which the Scottish National Party has never come to terms. It has rightly been able to point out that the citizens of the Irish Republic can now take their own decisions in many areas of public life, but we know that on fundamental economic issues the Irish Republic has rarely been able to depart from decisions taken in London.

When, for example, the United Kingdom opted to join the Common Market, the Republic of Ireland automatically joined at that time. When there was a decision to be made on whether the United Kingdom should come out of the Common Market at the time of the referendum, the Irish Government then indicated that it would be very difficult for them to avoid taking similar action if Britain so decided. In exchange for the right and ability to determine their destiny on a number of domestic issues, the Irish have continued to be affected directly and obviously in their economic policy. But they no longer have a direct say in the decisions taken in London that affect their citizens, employment prospects and general growth in the economy.

Even if the British Isles were divided into four independent States, London and the South-East would remain the dominant economic force. That is not because of prejudice or political control, but the bulk of the population lives in the South of England and for historic reasons the bulk of the economic potential has been concentrated in that area.

In Scotland and elsewhere, people must consider whether they wish to join with the rest of the British Isles in taking decisions that will be largely determined by the bulk of the population living in the South, or to opt out of that right. The hon. Member for Perth and East Perthshire and his hon. Friends would like Scotland to opt out without coming to serious terms with the consequences that would flow from that. Almost every business man, trade unionist, employer and employee in Scotland has rejected that solution as disastrous to Scotland's economic growth.

The views of the hon. Member for Perth and East Perthshire have been rejected by the electorate in Scotland, not simply because they do not believe in the Utopia that the hon. Member promises but because they believe that the opposite would happen. The employment, industrial prospects and wealth of Scotland would be severely damaged and inhibited if the hon. Member and his hon. Friends were able to implement their policies.

8.56 p.m.

Mr. John Garrett (Norwich, South)

In the short time available I wish to comment on the form of the White Paper. I make no apology for that. It is of crucial importance, too often disregarded in such a debate. Information is at the heart of the public policy process. There have been improvements in presentation, and not before time, as the form of the White Paper has been criticised by Select Committees in earlier years. A useful table is given of about 70 tax expenditures, and a further 90 are listed but not quantified. A constant request from the Expenditure Committee for the medium-term economic assessment has been partly answered by providing three alternative illustrative projections of the course of GDP and inflation, but if the Government had wanted fully to illustrate the connection between inflation and growth they should have given another, higher, projection for inflation.

The demand by the Public Expenditure Committee over the years for an analysis of the results of public expenditure has been replied to with a reading list. That far from meets the requirement for more information on the results of past expenditures. We are told what we are spending, but not what we are buying. That can be clearly illustrated by the health category of programmes. All that we are told on health expenditure in future is about capital spending on hospitals and community health services and current expenditure on those two programmes and family practitioners. We eventually get more detail in the annual Estimates.

The White Paper is supposed to be a plan about future development of individual services, the rationale for the choices that have been made or the ordering of priorities.

I direct my right hon. Friend's attention to the treatment of spending programmes in the United States federal budget. It goes only one year ahead, but the volume of special analyses that accompany the budget gives a clear picture of the results of past expenditures. In the 1978 budget, for example, there were 27 analyses of expenditures on health, covering national health care trends, health conditions in selective regions, health conditions among minorities and the health funds addressed to their needs and outlays in disease categories, together with the incidence of those diseases, and new health facility construction by type. An American legislature has a much better idea of the aims, purposes and results of present and past expenditure.

Even more important, the American federal budget is accompanied by special analyses of the key issues facing the Government. For example, in the health field there are four key issues set out relating to the arguments on federal health insurance programmes, expenditure to help the poor, and so on. To that extent the Americans publish their programme analysis reviews, which our Government always insist on keeping secret. Only when we have programme analysis reviews of this kind can we establish the choices and the rationale between public spending programmes.

In this White Paper no attempt is made to sketch out a strategy for the reduction of unemployment. Unemployment is taken as a residual factor. The focus is on the size of the public sector borrowing requirement. In other words, all economic and fiscal policy is adjusted to meet a target that is said to represent fiscal priority—a target that meets the approval of the financial community. We all know that the Treasury error in forecasting the PSBR has been an average of £2.5 billion in each of the past five years. There is no evidence that a figure higher than the target of £8.5 billion cannot be funded, yet we sacrifice employment in the labour-intensive public service sector for the sake of achieving the City's seal of good housekeeping approval.

I was alarmed by what the Chief Secretary said about cash limits. I understand that he is willing to accommodate much, even most, of public sector pay agreements in a revised cash limit figure. However, he intends to hold rigidly to an increase of 8½ per cent. in cash limits for prices. This means that to the extent that prices increase over 8½ per cent., capital expenditure in the public sector will be cut. Once again the full weight of Treasury error in forecasting will fall on construction. This is neither sensible nor just. If we look at capital spending in the National Health Service, for example, we see that it will be well reduced in the coming year. Yet if construction costs rise by more than 8½ per cent. there will be further cuts in an already inadequate programme. Once again, the construction industry has been singled out for attack when the need to rebuild our hospitals and other public facilities is acute.

Of course, the Conservatives, with their hatred of community care and provision, always behave on these occasions as if they had all been cloned off from some old Etonian privateer. In their pursuit of individual wealth and their disregard of those in need of community care and services, they want to see the destruction of the Welfare State—nothing less. What sense of priority is there in a White Paper which risks all on monetary prudence and treats unemployment as an unfortunate consequence?

9.3 p.m.

Mr. Nigel Lawson (Blaby)

It would be only courteous to begin by thanking the General Sub-Committee of the Expenditure Committee for producing once again a most useful report on the public expenditure White Paper, containing some trenchant and well-merited criticism of the Chief Secretary—who seemed unusually sensitive when he opened the debate at somewhat inordinate length.

We have had contributions by a number of members of that Sub-Committee, including outstanding contributions from my hon. Friends the Members for Hitchin (Mr. Stewart) and for Cirencester and Tewkesbury (Mr. Ridley), both of whom emphasised the great importance of trying to bring both sides of the Budget together—expenditure and revenue. I hope that it is taken as no particular criticism of this debate if I say that I think that it would have been a better debate, and a better attended one, had we been able by our procedures to achieve that.

We had a characteristic contribution from the Chairman of the Sub-Committee—the hon. Member for Nottingham, West (Mr. English)—and a somewhat abbreviated contribution from the hon. Member for Norwich, South (Mr. Garrett), who might have done better had his contribution been even more abbreviated.

The motion before the House seeks approval for what is described as the Government's policy of planning for an improvement in public services in line with what the economy can sustain ". Despite the pre-election atmosphere in which this debate is being held—I am not surprised that hon. Members opposite are a little frightened of the word"election "—I begin by trying to find the greatest possible degree of common ground between the Opposition and the Government. We welcome the recognition, explicitly spelt out in the motion, that the level of public services must in the long run depend—and, despite Keynes, it is the long run that matters—on the level of output in the economy as a whole.

So the prime concern of those of us who genuinely wish to see an improvement in the public services—that means all of us on this side of the House as well as Labour Members—must be to pursue policies that will stimulate a higher level of output in the economy as a whole. That must come first, and everything else must be secondary.

The prospect that is now before us could scarcely be worse. Manufacturing output, which is of special concern to the Government and their so-called industrial strategy, is now at the lowest level for a decade and 10 per cent. below the level in the three-day week. I know that the position was affected in January by strikes, but that also occurred at the time of the three-day week. Therefore, the comparison is wholly fair.

Or let us take an authoritative source close to the Government—namely, the Bank of England, whose judgment the Chancellor is widely believed to respect rather more than he does the judgment of the Treasury. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) reminded us, in its latest Quarterly Bulletin the bank says: Now condemned to very slow growth, we might later even have to accept, if present trends continue, declines in real living standards. These present trends, which point to a future far worse than the British people at present realise, and infinitely worse than either the Chancellor of the Exchequer or the Prime Minister have ever had the courage to admit, have arisen entirely during the lifetime of the present Government and largely as a direct result of the policies of the present Government.

This emerges clearly from a table published in the same Bank of England Quarterly Bulletin. That table showed that manufacturing productivity, the biggest single key to our prosperity in the future, rose between 1960 and 1973 at an average annual rate of 3½ per cent., whereas during the five years of the present Government the annual increase, as my right hon. and learned Friend pointed out, has been a mere ½ per cent. Of course, there has been a fall in the growth of productivity throughout the industrialised world since the oil crisis of 1973. But the fact is that nowhere has that fall been anything like as catastrophic as in this country under a Labour Government.

The bank's table shows the figures for the seven major industrialised countries in the world on a fully comparable basis. This compares the annual growth of manufacturing productivity from 1973 to 1978 with the rate of growth between 1960 and 1973. In Canada the fall amounted to 20 per cent. of the previous rate; in Germany, 34 per cent.; in the United States, 35 per cent.; in France, 52 per cent.; in Japan, 56 per cent.; in Italy, 73 per cent.; and in the United Kingdom there was a fall of 83 per cent. compared with the previous level of productivity—itself not high by international standards. That is the harsh reality of Britain's economic performance under Labour. It is the key to what we can afford by way of public expenditure.

How, then, are we to reverse this headlong descent into poverty and penury? This is the only context in which public expenditure can sensibly be discussed. To discuss it as some hon. Members on the Government Benches have done, as if it were a question of political levitation rather than economic reality, is the sheerest fantasy. As we say clearly and categorically in our amendment, a central and essential requirement of economic recovery is that there should be a substantial cut at all levels in the burden of income tax. It is no use the Chief Secretary protesting, as he did this afternoon, that significant income tax cuts will have to await an improvement in our industrial performance. There will not be an improvement in our industrial performance until income tax is cut.

Mr. Crawford

I may have misunderstood the hon. Gentleman. He said that the Conservative amendment states that there will have to be reductions in income tax. It states nothing of the kind.

Mr. Lawson

The amendment implies that clearly. I realise that it is difficult for the hon. Gentleman, coming from a Scottish nationalist constituency, to understand English. If he re-reads the amendment he will see that it is implied. The amendment specifically states that the present White Paper leaves inadequate scope for"cuts in personal taxation. If the hon. Gentleman does not under-stant that income tax is personal taxation, my earlier remark, which may have been a little unkind, is fully justified.

As my hon. Friend the Member for Aylesbury (Mr. Raison) wrote in a recent article, we have to ensure that it is worth working with a Conservative Government. For a large and growing number of people it is scarcely worth working under Labour.

Mr. English

Will the hon. Gentleman explain personal taxes more clearly? Does he include capital gains tax and capital transfer tax in that category?

Mr. Lawson

We shall come to the Budget debate on taxes later. I do include the capital taxes, but income tax is the most important and costliest of the cuts which have to be financed. To make substantial cuts in income tax, even if there is some offsetting switch towards indirect taxation—which there will have to be—means cuts in public expenditure in the short term. There is no running away from that. As my hon. Friend the Member for Hitchin conclusively demonstrated, the borrowing requirement—the only other element in the equation—is already far too high for comfort, as the present level of interest rates bears eloquent witness.

Mr. Ron Thomas

The amendment refers to inadequate scope for the cuts. Will the hon. Gentleman give an indication of the amount that he has in mind—£2,000 million, £3,000 million or £4,000 million?

Mr. Lawson

On a number of occasions my right hon. and learned Friend the Member for Surrey, East and I have said that we think that it would be appropriate to bring public expenditure back in real terms to the level of 1977–78.

Mr. Russell Kerr (Feltham and Heston)

Which was?

Mr. Lawson

Go away and look at the White Paper. We have, as usual, heard the tired old cry"What would you cut?"in the debate. I have answered that openly in the past on a number of occasions, including in the columns of the Financial Weekly, as the Chief Secretary was kind enough to remind the House this afternoon. Nevertheless, I shall do my best to please Labour Members—I always try to do so—and go into some of the detail before I sit down. Meanwhile, my hon. Friend the Member for Cirencester and Tewkesbury has done the House a service by pointing out the immense scope for cutting waste and inefficiency in the public sector.

But the crucial and inescapable fact is that cuts in public expenditure, which are also called for in the Bank of England Quarterly Bulletin, are essential for the tax cuts which in turn are essential for the economic recovery that we so desperately need. That, alone, will avoid the prospect of ever seedier and more squalid public services.

Mr. Kerr

Like the Health Service?

Mr. Lawson

Yes, like the Health Service. It is against that yardstick that the public expenditure White Paper should be judged and against which if fails abysmally.

Mr. Pardoe

The hon. Gentleman is giving the most astonishing information to the House. He is saying that the target of the Conservative Party is to reduce public expenditure to the level of 1977–78. That is a cut of £8 billion. Is he really suggesting to the House that the Conservative Party thinks that the Government should make a cut of £8 billion this year?

Mr. Lawson

I said nothing whatsoever about this year. The hon. Gentleman should listen.

Mr. Pardoe

How long then?

Mr. Lawson

The White Paper calmly envisages a rise in public expenditure in the coming year of between 2.1 per cent. and 3.7 per cent., depending on the assumptions made about shortfall, which the Chief Secretary admitted were uncertain. In other words, it will be significantly faster than the expected growth of the economy as a whole and will offer no scope for net tax cuts of any kind, with a borrowing requirement projected at £8½ billion.

It may be of assistance to the hon. Member for Cornwall, North (Mr. Pardoe) if we pause to consider the extraordinary switchback course of public expenditure under the present Government. Even if we eliminate all the special, and arguably distorting, factors such as the sale of BP shares and other financial changes of a once-and-for-all nature, we find that in the Government's first two years of office, 1974–75 and 1975–76, public expenditure rose by 9 per cent. in real terms.

Over the next two years, 1976–77 and, more important, the IMF year of 1977–78, public expenditure fell by 6 per cent. in real terms, even though the Chief Secretary tried to tell us today that such a cut was impossible. Over the subsequent two years, 1978–79 and 1979–80, it is planned to rise again by between 7 per cent. and 10 per cent., depending on shortfall. That is no way to run a railroad—at least not outside the Battersea Fun Fair.

Those facts are published in the White Paper, and the striking fact which both the hon. Member for Cornwall, North and the National Institute's Economic Review—the Comic Cuts of economic publications—evidently find so difficult to understand is that it was only during those middle two years of falling public expenditure, thanks largely to the IMF, that, after the usual modest time lags, inflation receded and unemployment ceased to rise.

I mentioned a moment ago that the White Paper projects a borrowing requirement for the coming year of £8½ billion. In reality, it does nothing of the sort. Not only has it been hopelessly overtaken by events, as our amendment says, since it was written towards the end of last year, but it was a thoroughly phoney document in the first place, as Treasury witnesses hastened to point out when they appeared before the Expenditure Committee. I quote the principal Treasury witness, Mr. Anson, a man for whom I have considerable respect, who said: We are not saying what is likely. We are saying what will result from following an announced policy. That announced policy—perhaps"muttered policy"would be a better description—was for a 1½ per cent. fall in real incomes resulting from a 7 per cent. rise in earnings at a time of 8½per cent. inflation.

Leaving aside the propriety of planning for a rise of more than 2 per cent. in Government spending at a time when private spending was assumed to be falling, the £8½billion borrowing requirement, to which the Chancellor of the Exchequer has since unconditionally committed himself, was based solely on the totally phoney assumption about real incomes which not even the Treasury ever expected would actually happen.

What is the true prospect for the borrowing requirement in the light of what is likely to happen—indeed, to some extent, already has happened—to earnings and prices, assuming that there are no public expenditure cuts or tax increases in the Budget? That is the important question to which the House should address itself.

That, too, is what the Chief Secretary refused to tell the Sub-Committee when it took evidence, although until recently the Treasury was telling any financial journalist who cared to listen that the true prospect was of borrowing requirement in the region of £10 billion to £10½ billion. The Chancellor of the Exchequer himself told the House on 25 January that a 25 per cent. rise in earnings, which he thought would be accompaniesd by 13 per cent. inflation, would mean a £1½ billion increase in the borrowing requirement over the £8½ billion projected in the White Paper.

Moreover, this calculation assumes earnings going up evenly all round, which manifestly is not the case. It seems clear that this year earnings in the public sector, where we are told the Government's incomes policy still reigns, are rising significantly faster than they are in the private sector, where, according to the Prime Minister, there is now free collective bargaining. Each percentage point that earnings in the public sector rise more than earnings in the private sector of itself adds about £350 million to the borrowing requirement.

Therefore, even if we take a far more hopeful guess at earnings this year than the Chancellor did on 25 January, and assume an average increase of around 12 per cent., made up of 11 per cent. in the private sector and 14 per cent. in the public sector, which is not an unreasonable guess, this discrepancy alone will add at least £1 billion to the borrowing requirement. Yet last week the Chancellor met the Parliamentary Labour Party and by all accounts indicated that, as if by mirrors, the borrowing requirement could after all be kept within his promised £8½ billion ceiling without any spending cuts or tax increases of any kind.

How can that be possible? The answer is perfectly clear: the Chancellor has decided to fudge the figures. Clearly, if an £8½ billion borrowing requirement was what genuinely emerged from the outdated and artificial assumptions of the White Paper, it cannot be what genuinely emerges now. But, of course, the borrowing requirement figures are particularly easy to fudge, especially for a Chancellor who is prepared to stoop that low and who knows that he will not be there when the final accounts for the year come to be published.

For example, nothing is easier than to assume a massive increase in council house rents—after the election, of course. Nothing is easier than to assume a similar post-election increase in nationalised industry prices. Nothing is easier than to assume that the comparability studies to which the Government are now committed will produce only negligible increases in public sector pay. Nothing is easier than to assume that the ludicrous new-style flexible cash limits policy announced by the Chief Secretary on 23 February—a flexibility which, as my hon. Friend the Member for Worthing (Mr. Higgins) rightly pointed out, wholly undermines the essential discipline of the cash limits system—will be interpreted with a rigour that the Prime Minister has no intention of permitting.

If the Chancellor wishes to defend himself against the charge—it is a serious charge that I am making—of planning to fudge the PSBR figure, he has a clear course open to him. Let him tell the House, or better still let the Financial Secretary tell the House tonight, precisely what increase in council house rents he is assuming should Labour by any mischance win the election.

Let the right hon. Gentleman tell the House tonight precisely what increase in nationalised industry prices he is assuming should the same unlikely result occur. Let him tell the House tonight what increase in public and private sector earnings he is now assuming for the coming year, taking into account the comparability studies and everything that Mr. Alan Fisher and all the other members of the Trade Union Committee for a Labour Victory may throw at him.

I promised that before I sat down I would say something about the detailed areas where public spending cuts might be made. On reflection, I do not think I need have bothered, because, as my right hon. and learned Friend the Member for Surrey, East has reminded us, Sir Douglas Wass has already done the job for us. As hon. Members on both sides of the House will be well aware, having turned the Treasury's beady eye towards the Government's so-called industrial policy, Sir Douglas discovered, to his evident alarm, that in the last few months of last year alone the Cabinet had approved seven major industrial projects which togethter would lose £800 million. Sir Douglas, in his own immortal words, said: we have been accumulating prospective losses of real resources at a rate faster than the growth of national income ". So much for the industrial strategy—a strategy for destroying the national wealth. If the Government wish to say that their policy is to accumulate losses of real resources at a faster rate than the growth of national income, I should tell the Financial Secretary that it is not our policy.

I fully appreciate, of course, that these projects had an important job-saving dimension. They included, for example, the RB211–535, the main work on which is being undertaken at Derby, where the hon. Member for Derby, North (Mr. Whitehead) has a majority of only 4,193, and subsidiary work at Preston, where the hon. Member for Preston, South (Mr. Thorne), who made a contribution to the debate, has a majority of 3,749 and the hon. Member for Preston, North (Mr. Atkins) has one of a mere 1,784. I see the hon. Member for Bristol, North-West (Mr. Thomas) waiting apprehensively. Do not worry. I shall come to him, too.

Even more important, these job-saving projects included the BA146, a project centred on Hatfield, where the hon. Member for Welwyn and Hatfield (Mrs. Hayman) has a still more exiguous majority—520. Nor must I forget the funds which have been shunted to Bristol, where the hon. Member for Bristol, North-West, who made perhaps his last contribution to a public expenditure debate in the House, sits in his owner-occupier council house on a majority of a mere 633.

Mr. Norman Tebbit (Chingford)

My hon. Friend will no doubt be aware that the Under-Secretary of State for Industry upstairs in the Select Committee on Statutory Instruments swore that the HS146 and the A300 programmes had been assessed in the light of a requirement to show a 20 per cent. return on assets. He has since refused to repeat it down here. My hon. Friend might care to remind the House again of the difference between that 20 per cent. return and the several hundred million pound loss which has now been revealed.

Mr. Lawson

The difference is certainly remarkable. I am grateful to my hon. Friend for drawing it to the attention of the House and myself.

But another factor also entered into the Government's thinking. A few days ago, the right hon. Lady the Secretary of State for Education and Science had this to say about the BA146 decision: A long, open and detailed debate took place before the Government finally went ahead; I know, because Helene Hayman and I were involved at virtually every stage. However, I have a strong sense, without wishing her ill, that not even in her case will the Government's gargantuan job-saving bribes be of any avail.

Mr. Russell Kerr

That is eight projects. Let us have some more.

Mr. Lawson

There is much talk at present of an imminent general election.

Mr. Kerr

The hon. Gentleman has made our campaign easier.

Mr. Lawson

The hon. Member for Feltham and Heston (Mr. Kerr), who continues to make sedentary interruptions, obviously needs things made easy for him, judging by his ignorant interruptions.

There is much talk at the present time of an imminent general election. Whether it comes to pass depends on the minority parties, whose minds I would not presume to read, although we have had some interesting glimpses of their future tactics this afternoon from the hon. Member for Perth and East Perthshire (Mr. Crawford) on behalf of the Scottish National Party and the hon. Member for Cornwall, North on behalf of the Liberal Party—and a Delphic silence from the right hon. Member for Down, South (Mr. Powell). But the debate points to one overriding reason why, even though the result will doubtless be the same in either case, the national interest requires an election now rather than in the autumn.

An election now would enable this year's Budget to be a Conservative income tax-cutting Budget and thus to inaugurate the economic recovery which this country so badly needs. An election now would enable us to begin the essential task of cutting back public expenditure and reducing the borrowing requirement in 1979–80, instead of waiting until 1980–81. And it would allow the White Paper now before us to be consigned to the scrapheap where it rightly belongs.

9.31 p.m.

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

Before beginning the main part of my speech, I should perhaps answer some of the questions put during the course of the debate.

First, the right hon. and learned Member for Surrey, East (Sir G. Howe) asked about VAT repayments and pay-as-you-earn debts, in the context of the delays in repaying VAT to traders. Value added tax of course, is a quite separate tax from income tax collected under pay-as-you-earn, but the Inland Revenue collectors of taxes have been asked to have regard to cash flow difficulties where payments by other Government agencies have been delayed by industrial action.

The right hon. and learned Gentleman also asked about The Guardian report—[Interruption.] I have made it quite clear that the Inland Revenue is prepared to take into account cash flow difficulties where payments by other Government agencies have been delayed by industrial action. I should have thought that that was quite fair.

Mr. Ian Stewart

Is the Financial Secretary able to say anything to those individuals who have cash flow difficulties as a result of not receiving repayment of national savings certificates?

Mr. Sheldon

This is something that is of more recent origin, and I hope that it will soon be resolved. The question that the right hon. and learned Gentleman put to me concerned VAT and PAYE, and I attempted to answer it.

Sir Geoffrey Howe

I asked the Financial Secretary questions on both points. He answered one in a somewhat Delphic fashion. The second question is, will the Government be taking any action to enable payments to be made, in cases of emergency or hardship, to people who are in dire need either of the income or the capital which they are entitled to receive from national savings and similar offices? We are entitled to an answer to that question.

Mr. Sheldon

No arrangements have been made at present, but I shall take into account what the right hon. and learned Gentleman said and am prepared to write to him on this matter. He also asked about the article that appeared in The Guardian concerning the new subsidy system, which will enable rents to rise in line with earnings. I cannot, of course, anticipate the contents of my right hon. Friend's Bill on this matter, but it is the policy of the Government that over a number of years rents should rise broadly in line with money incomes. This was made quite plain in the housing Green Paper.

The right hon. and learned Gentleman asked whether pay comparability would cover, first, the supply and demand of people to do the job; secondly, job security; thirdly, pension rights; and, fourthly, fair criteria of efficiency between the public and private sectors. It is for the Commission to decide whether these are among the factors that it should take into account. In so far as they can be quantified, I should certainly hope that the Commission will take account of them.

The right hon. and learned Member for Surrey, East talked of the current levels of public expenditure as an insuperable road block to the economy. He presented the figures from 1973 to the present, and tried to show the fluctuations in outturn during that period.

All the figures that were quoted at such inordinate length by both the right hon. and learned Gentleman and the hon. Member for Blaby (Mr. Lawson) were presented to show the uneven pattern of public expenditure from year to year. As the right hon. and learned Gentleman and his colleague will be aware, that uneven pattern is due to the position in 1977–78.

In 1977–78 the reduction in the outturn of public expenditure arose from a number of factors of special significance. First, there was the sale of BP shares; secondly, the change in the pattern of nationalised industry borrowing; and, thirdly, changes in export and shipbuilding credits. These, of course, were once-for-all factors that changed the outturn for that year alone. The basic plans continued both before and after that period.

Mr. Lawson

Had the Financial Secretary been paying attention to what I was saying, he would have known that I had explicitly excluded the sale of BP shares and the other factors that he mentioned before computing the figures, which show precisely the same switchback pattern—a sharp increase in the first two years, a sharp cut in the next two years, and a sharp increase for two further years—even when the factors alleged by the Financial Secretary to have been the reason for the profile have been removed.

Mr. Sheldon

The hon. Gentleman does not seem to have been listening with his customary attention. The fact is that the pattern set in the previous White Paper has continued into this current White Paper and continues the progress of public expenditure. Those once-and-for-all factors were distortions in the outturn pattern. I thought that these plans that we set in hand some years ago and are continuing at the present time were broadly welcomed by the House as a whole. Currently, they are producing the controlled expenditure that has been a notable feature of public expenditure in recent years.

I was surprised at the temerity of the right hon. and learned Member for Surrey, East, who referred to The Guardian leak about expenditure on aids to industry. He raised the issue of the second order for Polish ships. He will surely be aware that this was described as unjustified. That is right. It was unjustifiable, and that is why the Government did not go ahead with the Polish ship order. But neither did we go ahead with the Anglesey aluminium project. In rejecting this expenditure, we took into account the fact that it did not meet the requirements for public expenditure of this type.

As to the other expenditure mentioned in The Guardian article, until this evening I had not noticed any reticence on the part of Conservative Members to argue against expenditure on aerospace and defence equipment. The hon. Member for Chingford (Mr. Tebbit) accepted this. I, too, have noted the many representations that we have received on this very point. Of course, the important thing about all this is that as soon as this leak was publicised we, as I suppose did all commentators, expected a Supply day debate on it. The fact that the Conservative Opposition did not put down such a debate is the surest indication of all that they themselves supported the very same expenditure as we implemented, apart from the two projects that I mentioned.

Mr. Tebbit

The right hon. Gentleman will recollect that the Conservative Opposition accepted that those projects should go forward on the basis that the Prime Minister, the Secretary of State and the Minister of State were telling the truth when they said that they were commercial projects which could be expected to yield 20 per cent. profit on assets invested. That is now palpably untrue.

Mr. Sheldon

I had not noticed that the hon. Gentleman was particularly concerned about the precise nature of those orders. All I know is that week after week, in Question Time to the Prime Minister as well as on other occasions, he has rarely failed to put forward the views of the industry that he represents and to argue for its extension in all areas.

It is not only these recent events about which we must be concerned; this has been a pattern throughout the period of Conservative Opposition. Their relationship with the aerospace industry explains their commencement of the Concorde project, their desire to continue with the TSR2, and their continuation with Rolls-Royce as well as other subsidies in these areas. This pattern has continued until tonight, and I am not sure even at this stage that what the hon. Member for Blaby said tonight had been cleared with his Conservative colleagues. It is odd that the right hon. and learned Member for Surrey, East did not mention these matters but left them to the hon. Member for Blaby. We shall leave the Opposition to settle these matters among themselves.

I wish to deal now with the matter of Budget presentation that has been referred to by my hon. Friend the Member for Nottingham, West (Mr. English) and others of my hon. Friends as well as by the hon. Member for Blaby. For a long time we have had a system whereby decisions on tax and expenditure are taken separately—the first takes place in the weeks and months before the Budget and the second in the public expenditure survey cycle resulting in the publication of the White Paper.

It is true that our practice is different from that in some other countries, in particular the United States, where for some years the federal budget has been set in the context of projections of income. There is a case for tax and expenditure to be taken together, and there has been some concern about the implications of the separate treatment of income and expenditure.

The Institute for Fiscal Studies announced last December the establishment of a committee under the chairman ship of Lord Armstrong. This committee has been briefed to consider what changes in the framework and presentation of the Budget, and in parliamentary and Whitehall procedure, are necessary to allow expenditure and revenue plans for the short and medium term to be taken together. I welcome the concern of the committee in tax and expenditure questions, and we shall of course be interested in its conclusions.

I think I should point out that some useful progress has already been made by the Government toward the objective of a more co-ordinated approach to tax and expenditure. In particular, the White Paper contains projections of both revenue and expenditure over the next three years and of the PSBR. In addition, this year's White Paper includes for the first time an analysis of tax expenditures.

It is also worth remembering that current price and revenue projections for the year ahead are published at the time of the Budget, in the Financial Statement and Budget Report. It is also traditional for the Chancellor to announce the Government's conclusions about social security uprating at the Budget, one important expenditure decision announced at the time of the Budget. There may be a case for going further, but there are some obvious difficulties. Let me explain some of them.

In general, tax decisions have shorter lead times—they do not take so long to implement—than those relating to expenditure. Because of this, for any given year, expenditure questions usually need to be settled well in advance of tax matters, so there has to be a compromise between the need to co-ordinate revenue and expenditure decisions as much as possible and, on the other hand, the taking of decisions against the latest information, with all the benefits that provides. In the Government's internal deliberations, decisions on expenditure take account of the taxation implications.

But the major problem in seeking a greater co-ordination between expenditure and revenue plans is that public expenditure decisions have to be made long in advance of taxation decisions. Moreover, the changes in the preparation of expenditure and revenue timetables would almost certainly have consequences for our parliamentary procedure as well as for the completeness of the factual picture upon which decisions are based. It would also have consequences for the conduct of our business in Parliament as well as for the position of Ministers.

Mr. Higgins

In view of what the Minister just said, he presumably must be in a position to answer the question that I posed in the debate, namely, whether the White Paper will form the basis for the cash limits.

Mr. Sheldon

My right hon. Friend dealt with this in his speech, and I hope to be able to add one or two comments if I have time.

Let me take up the points made by the right hon. and learned Member for Surrey, East and the hon. Member for Cornwall, North (Mr. Pardoe).

Mr. Higgins

Will the Minister give way?

Mr. Sheldon

I cannot give way. I do not have time. I must get on.

Mr. Higgins rose—

Mr. Speaker

Order. It is obvious that the Financial Secretary is not giving way.

Mr. Sheldon

The hon. Member for Cornwall, North talked about money supply influences and inflation expectations. The precise way in which cause and effect are related is less important for practical purposes than the fact that expectations of inflation act as a powerful engine of inflation. How the system works, how the quantity of money leads to rising prices, how it operates over time, what are the lags, and how it copes with fluctuations—all these we may leave to the economists to argue over. For our purposes, if the monetary indicators were to fluctuate upwards to a significant degree, in present circumstances inflation would be expected to rise, investment decisions would be altered, interest rates would rise, pay demands would accelerate, and expectations of inflation would thereby be fulfilled.

That, of course, is the basic reason underlying our undertaking to limit £ sterling M3 to the range of 8–12 per cent. over the 12-month period to October 1979. This rolls over our earlier commitments on £ sterling M3 which have been or are being met.

What so many find puzzling is the Opposition's criticism of the Government's monetary position over the years. If we look at the past 10 years we see that the British record on money supply compares favourably with that of countries such as the United States, Germany, France, Italy, Japan and even Switzerland. We see that in general in each of these years we were about in the middle of the range. There were, however, two exceptions. One was the year 1969, when our money supply was the lowest of all these countries, and the other exception was in the two years 1972 and 1973, when we soared above the others.

The attention paid by the Opposition to monetary matters amounts very nearly to an obsessional neurosis, and it is only fair to tell the House that the information that I have is that this form of mental disorder can usually be traced back to the shame of one's early years. So we ought not to be surprised if this is the consequence of the guilt and shame caused by the outrage upon our currency that took place in 1972 and 1973 under a Tory Government. Only in that way can we understand the wholly emotional desire of the hon. Member for Blaby to hand over the control of money creation to the Bank of England and to compel it by legislative force to expand money supply within fixed limits set by legislation.

The right hon. and learned Member for Surrey, East was concerned that the public sector borrowing requirement might turn out to be above the limits set out by the Chancellor of the Exchequer, and this was echoed in the comments of the hon. Member for Blaby. But on this also, as on money supply, the Government have made a commitment. If it looks as though the limit will be exceeded, action will be taken. The commitment has been and will be met. The lengthy analysis that the hon. Member for Blaby directed towards this area becomes irrelevant once the commitment is accepted.

A number of comments have been made on the table of expenditure and output in the medium term, 1977–82, and the three economic analyses that were put forward. My hon. Friends the Members for Nottingham, West and for Norwich, South (Mr. Garrett) and others dealt with that. This table was an attempt to provide a helpful range of illustrations of the way in which expenditure and output might be related in the medium term; and to give one, or even two, illustrations, might not have indicated the relationships.

What we have provided certainly does not meet every possible case, but it shows up the relativities, which was what we attempted to achieve, and I believe it to be a useful advance. I hope that those who are interested will come to recognise it as such.

The illustrations show—it is no surprise—the difference between an economy prepared to settle for moderate money earnings and one where money earnings are increased immoderately. They show that moderation in pay settlements allows greater growth in the economy.

The hon. Member for Perth and East Perthshire (Mr. Crawford) referred to Scotland and the advantages and benefits that it is or is not receiving from public expenditure. One of the least happy aspects of the introduction into our debates of such arguments is that for the first time we are compelled to examine the sums spent in Scotland and compare them with those spent in England.

There is greater expenditure per head in Scotland, but some of us have never thought about that in any way other than it being expenditure related to need. It is the basis of a unified State and a civilised State that money is provided from the common purse to those who need it.

The geographical distribution of expenditure was not a matter of the first concern. It was the le\el of need that required to be established. Unfortunately comparisons are being made not purely on the basis of need, on which basis Scotland had the greatest claim, but on other grounds on which there has been much division of opinion.

The amount that has been spent in Scotland on trade, industry, energy, employment, housing, roads and transport over the years has been greater than that spent in England. I deplore the fact that I have to mention that. Expenditure should be dependent on the requirements of areas.

Mr. Crawford

I invite the right hon. Gentleman to compare pages 3 and 203 of the White Paper. I ask him to compare the total public expenditure projection for 1978–79 for the United Kingdom with that for 1982–83. For the United Kingdom there is to be a 10 per cent. increase but for Scotland there will be an increase of about 6 per cent. Does he agree that Scotland is getting the rough end of the stick?

Mr. Sheldon

Per capita expenditure in Scotland is 121 against 100 for the United Kingdom. That is wholly justified. The industrial problems of so much of Scotland are of a sort that face many other parts of Britain, but unfortunately they happen to be worse in a number of ways. For example, in certain instances housing needs in Scotland happen to be heavier than in other areas of Britain. The extra expenditure is, therefore, fully justified. The same comment applies to Wales. As one nation we are not concerned with what one nation receives at the expense of another. We are concerned with identifying need and trying our best to meet it

Central to the Opposition's economic strategy—indeed, nearly the whole of it—is their intention to reduce public expenditure to create opportunities for cutting income tax. The Tories wish to see a reduction in public expenditure not as an end in itself, although their harsher philosophy means that they have a lesser attachment to many forms of public expenditure than my right hon. and hon. Friends, but as a means of reducing taxation. I wish to see cuts made in taxation. However, proper control of public expenditure, which we have achieved, is the basis of a stable economy in which tax cuts may be possible.

I take the Opposition's stand on public expenditure at its face value. It is only reasonable to ask about the cuts that the Opposition envisage. Until this evening we were in the dark. I am not sure whether the hon. Member for Blaby has clarified their policy. It is an extremely important issue, the Opposition having raised it to such prominence in their economic policy. When they are asked for more details of the cuts that they would introduce, they usually answer in language that is as obscure as that of an oracle and as difficult to interpret.

In The Economist of 15 April 1978 it was announced that a group under Mr. Nigel Lawson has produced a list of detailed expenditure changes—though it will not be published. I deplore the Opposition's secrecy but I admire their prudence. We cannot leave it there. People's livelihoods are at stake. Vital services are threatened. The people have a right to know and comprehend the very foundation of the Tory economic policy. We know that the Tories want to increase expenditure in large areas of defence. We know, too, that the right hon. Member for Wanstead and Woodford (Mr. Jenkin) has suggested payment by people in hospital.

We still have not heard whether the tax credit system costing £6 billion has finally been sunk. A recent publication by a pressure group in the Conservative Party resurrected this only recently. It would be interesting to know whether the 16 billion cost is one that the group headed by, or including in it, the hon. Member for Blaby is still concerned with finding.

The right hon. and learned Member for Surrey, East mentioned, as his great saving in public expenditure, the taxing of short-term benefits. The Tories are under some difficulty. On the one hand they are trying to cut the number of civil servants and on the other are trying to create public expenditure savings. The big dilemma that they face is what happens when these two conflict. This is the situation. If they try to tax short-term benefits, they must increase civil servants by about 10,000. If they do not tax them, they will not get the expenditure savings envisaged by the right hon. and learned Gentleman.

The Tories say that they want to cut taxation. I do, too. Whenever they have reduced taxation, the benefits have not been distributed in quite the way that I personally would select. I recall the great claims that were made about the advantage to the economy arising from the surtax concessions in 1962 and, more recently, the changes made in 1971. This is a recurrent theme of Tory policy—reductions in taxation promised, with extravagant claims made for this policy. In last year's public expenditure debate, the right hon. and learned Gentleman said this: The United States, Germany and most other Western economies of the same scale as our own are prospering better than we are because they have tax systems…"—[Official Report, 16 March 1978; Vol. 946, c. 671.] The case for tax changes and cuts ought not to depend on miracle cures of the kind that are being peddled by the Tory Party. Johnson once said: Promise, large promise, is the soul of an advertisement. This is what the Tories offer. They offer promises, but what we have seen—and are continuing to see—is only their dogmas and policies. They look no more convincing than when Selsdon ran out of steam back in 1972.

The hon. Member for Worthing (Mr. Higgins) asked about cash limits. As the Chief Secretary announced earlier, the Government intend to set and operate cash limits in accordance with the pay policy stated, with the £3.50 underpinning as subsequently announced. The provision for prices has been based on the Industry Act forecast published last November. That forecast was consistent with the guidelines in the White Paper.

For local authorites the policy on prices applies to the cash limits which cover capital expenditure. It also applies to the non-pay element in the rate support grant. The Government's position on manual workers' pay is well known. Our position

on other settlements will be taken case by case as with those in government, but in no circumstances will the Government contribute more than their standard share of local authority current expenditure.

In carrying out our responsibility for the management of public spending, we have to make a judgment both as to the total and the division of that total between programmes.

The Opposition have had in this debate the opportunity to explain how and in what way they intend to cut public expenditure. Their failure to do so entitles us to reject with scorn their amendment and to ask the House to support the Government motion.

Question put, That the amendment be made:—

The House divided: Ayes 265, Noes 305.

Division No. 98]	AYES	[10.00 p.m.
Adley. Robert	Cormack, Patrick	Hamilton, Archibald (Epsom & Ewell)
Aitken, Jonathan	Costain, A. P.	Hamilton, Michael (Salisbury)
Alison, Michael	Crouch, David	Hampson, Dr Keith
Amery, Rt Hon Julian	Crowder, F. P.	Hannam, John
Arnold, Tom	Dean, Paul (N Somerset)	Harrison, Col Sir Harwood (Eye)
Atkins, Rt Hon H. (Spelthorne)	Dodsworth, Geoffrey	Harvie Anderson, Rt Hon Miss
Atkinson, David (B'mouth, East)	Douglas-Hamilton, Lord James	Haselhurst, Alan
Awdry, Daniel	Drayson, Burnaby	Hastings, Stephen
Baker, Kenneth	du Cann, Rt Hon Edward	Havers, Rt Hon Sir Michael
Banks, Robert	Dunlop, John	Hawkins, Paul
Bell, Ronald	Durant, Tony	Hayhoe, Barney
Bendall, Vivian	Dykes, Hugh	Heath, Rt Hon Edward
Bennett, Dr Reginald (Fareham)	Edwards, Nicholas (Pembroke)	Heseltine, Michael
Benyon, W.	Elliott, Sir William	Hicks, Robert
Berry, Hon Anthony	Emery, Peter	Higgins, Terence L.
Biffen, John	Eyre, Reginald	Hodgson, Robin
Biggs-Davison, John	Fairbairn, Nicholas	Holland, Philip
Blaker, Peter	Fairgrieve, Russell	Hordern, Peter
Body, Richard	Farr, John	Howe, Rt Hon Sir Geoffrey
Boscawen, Hon Robert	Fell, Anthony	Howell, David (Guildford)
Bottomley, Peter	Finsberg, Geoffrey	Howell, Ralph (North Norfolk)
Bowden, A. (Brighton, Kemptown)	Fisher, Sir Nigel	Hunt, David (Wirral)
Boyson, Dr Rhodes (Brent)	Fletcher, Alex (Edinburgh N)	Hunt, John (Ravensbourne)
Braine, Sir Bernard	Fletcher-Cooke, Charles	Hurd, Douglas
Brittan, Leon	Fookes, Miss Janet	Hutchison, Michael Clark
Brocklebank-Fowler, C.	Fowler, Norman (Sutton C'f'd)	James, David
Brooke, Hon Peter	Fox, Marcus	Jenkin, Rt Hon P. (Wanst'd & W' df' d)
Brotherton, Michael	Fraser, Rt Hon H. (Stafford & St)	Jesse!, Toby
Brown, Sir Edward (Bath)	Fry, Peter	Johnson Smith, G. (E Grinstead)
Bruce-Gardyne, John	Galbraith, Hon T.G.D.	Jones, Arthur (Daventry)
Bryan, Sir Paul	Gardiner, George (Reigate)	Jopling, Michael
Buchanan-Smith, Alick	Gardner, Edward (S Fylde)	Joseph, Rt Hon Sir Keith
Buck, Antony	Gilmour, Rt Hon Sir Ian (Chesham)	Kaberry, Sir Donald
Budgen, Nick	Gilmour, Sir John (East Fife)	Kershaw, Anthony
Bulmer, Esmond	Glyn, Dr Alan	Kilfedder, James
Burden, F. A.	Godber, Rt Hon Joseph	Kimball, Marcus
Butler, Adam (Bosworth)	Goodhart, Philip	King, Evelyn (South Dorset)
Carlisle, Mark	Goodhew, Victor	King, Tom (Bridgwater)
Chalker, Mrs Lynda	Goodlad, Alastair	Kitson, Sir Timothy
Churchill, W. S.	Gorst, John	Knight, Mrs Jill
Clark, Alan (Plymouth, Sutton)	Gow, Ian (Eastbourne)	Knox, David
Clark, William (Croydon S)	Gower, Sir Raymond (Barry)	Lamont, Norman
Clarke, Kenneth (RushcliHe)	Grant, Anthony (Harrow C)	Langford-Holt, Sir John
Clegg, Walter	Gray, Hamish	Latham, Michael (Melton)
Cockcroft, John	Griffiths, Eldon	Lawrence, Ivan
Cooke, Robert (Bristol W)	Grist, Ian	Lawson, Nigel
Cope, John	Hall-Davis, A.G.F.	Lester, Jim (Beeston)
Lewis, Kenneth (Rutland)	Oppenheim, Mrs Sally	Smith, Dudley (Warwick)
Lloyd, Ian	Page, John (Harrow West)	Smith, Timothy John (Ashfield)
Loveridge, John	Page, Rt Hon R. Graham (Crosby)	Speed, Keith
Luce, Richard	Page, Richard (Workington)	Spence, John
McAdden, Sir Stephen	Parkinson, Cecil	Spicer, Jim (W Dorset)
Macfarlane, Neil	Pattie, Geoffrey	Spicer, Michael (S Worcester)
MacGregor, John	Percival, Ian	Stainton, Keith
MacKay, Andrew (Stechford)	Peyton, Rt Hon John	Stanbrook, Ivor
Macmillan, Rt Hon M. (Farnham)	Pink, R. Bonner	Stanley, John
McNair-Wilson, M. (Newbury)	Prentice, Rt Hon Reg	Steen, Anthony (Wavertree)
McNair-Wilson, P. (New Forest)	Price, David (Eastleigh)	Stewart, Ian (Hitchin)
Madel, David	Prior, Rt Hon James	Stokes, John
Marshall, Michael (Arundel)	Pym, Rt Hon Francis	Stradling Thomas, J.
Marten, Nell	Raison, Timothy	Tapsell, Peter
Mates, Michael	Rathbone, Tim	Taylor, R. (Croydon NW)
Mather, Carol	Rees, Peter (Dover & Deal)	Tebbit, Norman
Maude, Angus	Rees-Davies, W. R.	Temple-Morris, Peter
Mawby, Ray	Renton, Rt Hon Sir D. Hunts)	Thatcher, Rt Hon Margaret
Maxwell-Hyslop, Robin	Renton, Tim (Mid-Sussex)	Thomas, Rt Hon P. (Hendon S)
Mayhew, Patrick	Rhodes James, R.	Townsend, Cyril D.
Meyer, Sir Anthony	Rhys Williams, Sir Brandon	Trotter, Neville
Miller, Hal (Bromsgrove)	Ridley, Hon Nicholas	van Straubenzee, W. R.
Mills, Peter	Ridsdale, Julian	Vaughan, Dr Gerard
Miscampbell, Norman	Rifkind, Malcolm	Viggers, Peter
Mitchell, David (Basingstoke)	Rippon, Rt Hon Geoffrey	Waddington, David
Moate, Roger	Roberts, Wyn (Conway)	Wakeham, John
Monro, Hector	Rossi, Hugh (Hornsey)	Walker, Rt Hon P. (Worcester)
Montgomery, Fergus	Rost, Peter (SE Derbyshire)	Walker-Smith, Rt Hon Sir Derek
Moose, John (Croydon C)	Royle, Sir Anthony	Wall, Patrick
More, Jasper (Ludlow)	Sainsbury, Tim	Walters, Dennis
Morgan, Geraint	St. John-Stevas, Norman	Weatherill, Bernard
Morgan-Giles, Rear-Admiral	Scott, Nicholas	Wells, John
Morris, Michael (Northampton S)	Scott-Hopkins, James	Whitelaw, Rt Hon William
Morrison, Hon Charles (Devizes)	Shaw, Giles (Pudsey)	Whitney, Raymond
Morrison, Hon Peter (Chester)	Shaw, Michael (Scarborough)	Wiggin, Jerry
Mudd, David	Shelton, William (Streatham)	Winterton, Nicholas
Neave, Airey	Shepherd, Colin	Wood, Rt Hon Richard
Nelson, Anthony	Shersby, Michael	Young, Sir G. (Ealing, Acton)
Neubert, Michael	Silvester, Fred	Younger, Hon George
Newton, Tony	Sims, Roger
Normanton, Tom	Sinclair, Sir George	TELLERS FOR THE AYES: Mr. Spencer Le Marchant and
Nott, John	Skeet, T.H.H.	Mr. Michael Roberts.
Onslow, Cranley
NOES
Abse, Leo	Carter, Ray	Dunnett, Jack
Allaun, Frank	Carter-Jones, Lewis	Dunwoody, Mrs Gwyneth
Anderson, Donald	Cartwright, John	Eadie, Alex
Archer, Rt Hon Peter	Castle, Rt Hon Barbara	Edge, Geoff
Armstrong, Ernest	Clemitson, Ivor	Edwards, Robert (Wolv SE)
Ashley, Jack	Cocks, Rt Hon Michael (Bristol S)	Ellis, John (Brigg & Scun)
Ashton, Joe	Cohen, Stanley	Ellis, Tom (Wrexham)
Atkins, Ronald (Preston N)	Colquhoun, Ms Maureen	English, Michael
Atkinson, Norman (H'gey, Tott'ham)	Concannon, Rt Hon John	Ennals, Rt Hon David
Bagier, Gordon A. T.	Conlan, Bernard	Evans, Fred (Caerphilly)
Bain, Mrs Margaret	Cook, Robin F. (Edin C)	Evans, Gwynfor (Carmarthen)
Barnett, Guy (Greenwich)	Corbett, Robin	Evans, loan (Aberdare)
Barnett, Rt Hon Joel (Heywood)	Cowans, Harry	Evans, John (Newton)
Bates, Alt	Cox, Thomas (Tooting)	Ewing, Harry (Stirling)
Bean, R. E.	Craigen, Jim (Maryhill)	Fernyhough, Rt Hon E.
Benn, Rt Hon Anthony Wedgwood	Crawford, Douglas	Flannery, Martin
Bennett, Andrew (Stockport N)	Crawshaw, Richard	Fletcher, L. R. (Ilkeston)
Bidwell, Sydney	Cronin, John	Fletcher, Ted (Darlington)
Bishop, Rt Hon Edward	Crowther, Stan (Rotherham)	Foot, Rt Hon Michael
Blenkinsop, Arthur	Cryer, Bob	Ford, Ben
Boardman, H.	Cunningham, G. (Islington S)	Forrester, John
Booth, Rt Hon Albert	Cunningham, Dr J. (Whiteh)	Fowler, Gerald (The Wrekin)
Boothroyd, Miss Betty	Dalyell, Tarn	Fraser, John (Lambeth, N'w'd)
Bottomley, Rt Hon Arthur	Davidson, Arthur	Freeson, Rt Hon Reginald
Boyden, James (Bish Auck)	Davies, Bryan (Enfield N)	Garrett, John (Norwich S)
Bradley, Tom	Davies, Rt Hon Denzil	Garrett, W. E. (Wallsend)
Bray, Dr Jeremy	Davies, Ifor (Gower)	George, Bruce
Brown, Hugh D. (Provan)	Davis, Clinton (Hackney C)	Gilbert, Rt Hon Dr John
Brown, Robert C. (Newcastle W)	Deakins, Eric	Ginsburg, David
Brown, Ronald (Hackney S)	Dean, Joseph (Leeds West)	Gelding, John
Buchan, Norman	de Freitas, Rt Hon Sir Geoffrey	Gould, Bryan
Buchanan, Richard	Dell, Rt Hon Edmund	Gourlay, Harry
Butler, Mrs Joyce (Wood Green)	Dempsey, James	Graham, Ted
Callaghan, Rt Hon J. (Cardiff SE)	Dewar, Donald	Grant, George (Morpeth)
Callaghan, Jim (Middleton & P)	Doig, Peter	Grant, John (Islington C)
Campbell, Ian	Dormand, J. D.	Grimond, Rt Hon J.
Canavan, Dennis	Douglas-Mann, Bruce	Grocott, Bruce
Cant, R. B.	Duffy, A.E.P.	Hamilton, W. W. (Central Fife)
Carmichael, Neil	Dunn, James A.	Hardy, Peter
Harrison, Rt Hon Walter	Marshall, Dr Edmund (Goole)	Silkin, Rt Hon S. C. (Dulwich)
Hart, Rt Hon Judith	Marshall, Jim (Leicester S)	Sillars, James
Hattersley, Rt Hon Roy	Mason, Rt Hon Roy	Silverman, Julius
Hayman, Mrs Helena	Maynard, Miss Joan	Skinner, Dennis
Healey, Rt Hon Denis	Meacher, Michael	Smith, Rt Hon John (N Lanarkshire)
Heffer, Eric S.	Mellish, Rt Hon Robert	Snape, Peter
Henderson, Douglas	Mikardo, Ian	Spearing, Nigel
Home Robertson, John	Millan, Rt Hon Bruce	Spriggs, Leslie
Hooley, Frank	Miller, Dr M. S. (E Kilbride)	Stallard, A. W.
Horam, John	Mitchell, Austin (Grimsby)	Steel, Rt Hon David
Howell, Rt Hon Denis (B'ham, Sm H)	Mitchell, R. C. (Solon, Itchen)	Stewart, Rt Hon Donald
Hoyle, Doug (Nelson)	Molloy, William	Stewart, Rt Hon M. (Fulham)
Huckfield, Les	Moonman, Eric	Stoddart, David
Hughes, Rt Hon C. (Anglesey)	Morris, Alfred (Wythenshawe)	Stott, Roger
Hughes, Robert (Aberdeen N)	Morris, Rt Hon Charles R.	Strang, Gavin
Hughes, Roy (Newport)	Morton, George	Strauss, Rt Hon G. R.
Hunter, Adam	Moyle, Rt Hon Roland	Summerskill, Hon Dr Shirley
Irving, Rt Hon S. (Dartford)	Mulley, Rt Hon Frederick	Taylor, Mrs Ann (Bolton W)
Jackson, Colin (Brighouse)	Murray, Rt Hon Ronald King	Thomas, Jeffrey (Abertillery)
Jackson, Miss Margaret (Lincoln)	Newens, Stanley	Thomas, Mike (Newcastle E)
Janner, Greville	Noble, Mike	Thomas, Ron (Bristol NW)
Jay, Rt Hon Douglas	Oakes, Gordon	Thompson, George
Jeger, Mrs Lena	Ogden, Eric	Thorne, Stan (Preston South)
Jenkins, Hugh (Putney)	O'Halloran, Michael	Thorpe, Rt Hon Jeremy (N Devon)
John, Brynmor	Orbach, Maurice	Tierney, Sydney
Johnson, James (Hull West)	Orme, Rt Hon Stanley	Tilley, John
Johnson, Walter (Derby S)	Ovenden, John	Tinn, James
Jones, Alec (Rhondda)	Padley, Walter	Tomlinson, John
Jones, Barry (East Flint)	Pardoe, John	Tomney, Frank
Jones, Dan (Burnley)	Park, George	Torney, Tom
Judd, Frank	Parker, John	Tuck, Raphael
Kaufman, Rt Hon Gerald	Parry, Robert	Urwin, T. W.
Kelley, Richard	Pavitt, Laurie	Varley, Rt Hon Eric G.
Kerr, Russell	Pendry, Tom	Wainwright, Edwin (Dearne V)
Kilroy-Silk, Robert	Penhaligon, David	Walker, Harold (Doncaster)
Kinnock, Neil	Perry, Ernest	Walker, Terry (Kingswood)
Lambie, David	Phipps, Dr Colin	Ward, Michael
Lamborn, Harry	Price, C. (Lewisham W)	Watkins, David
Lamond, James	Price, William (Rugby)	Watt, Hamish
Latham, Arthur (Paddington)	Radice, Giles	Weetch, Ken
Lee, John	Rees, Rt Hon Merlyn (Leeds S)	Weitzman, David
Lestor, Miss Joan (Eton & Slough)	Reid, George	Wellbeloved, James
Lever, Rt Hon Harold	Richardson, Miss Jo	Welsh, Andrew
Lewis, Ron (Carlisle)	Roberts, Albert (Normanton)	White, Frank R. (Bury)
Litterick, Tom	Roberts, Gwilym (Cannock)	White, James (Pollok)
Lofthouse, Geoffrey	Robertson, George (Hamilton)	Whitehead, Phillip
Loyden, Eddie	Robinson, Geoffrey	Whitlock, William
Luard, Evan	Roderick, Caerwyn	Wigley, Dafydd
Lyon, Alexander (York)	Rodgers, George (Chorley)	Willey, Rt Hon Frederick
Lyons, Edward (Bradford W)	Rodgers, Rt Hon William (Stockton)	Williams, Rt Hon Alan (Swansea W)
Mabon, Rt Hon Dr J. Dickson	Rooker, J. W.	Williams, Alan Lee (Hornch'ch)
McCartney, Hugh	Roper, John	Williams, Rt Hon Shirley (Hertford)
MacCormick, lain	Ross, Rt Hon W. (Kilmarnock)	Williams, Sir Thomas (Warrington)
McDonald, Dr Oonagh	Rowlands, Ted	Wilson, Gordon (Dundee E)
McElhone, Frank	Ryman, John	Wilson, Rt Hon Sir Harold (Huyton)
McKay, Alan (Penistone)	Sandelson, Neville	Wilson, William (Coventry SE)
MacKenzie, Rt Hon Gregor	Sedgemore, Brian	Wise, Mrs Audrey
Maclennan, Robert	Selby, Harry	Woodall, Alec
McMillan, Tom (Glasgow c	Sever, John	Wrigglesworth, Ian
Madden, Max	Shaw, Arnold (llford South)	Young, David (Bolton E)
Magee, Bryan Mahon, Simon	Sheldon, Rt Hon Robert Shore, Rt Hon Peter	TELLERS FOR THE NOES: Mr. James Hamilton and
Mallalieu, J.P.W.	Short, Mrs Ren&ée (Wolv NE)	Mr. Donald Coleman.
Marks, Kenneth	Silkin, Rt Hon John (Deptford)

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House takes note of"The Government's expenditure plans, 1979–80 to 1982–83"(Command Paper No. 7439); and approves the Government's policy of planning for improvement of public services in line with what the economy can sustain.