HC Deb 01 November 1979 vol 972 cc1450-63
The Chief Secretary to the Treasury (Mr. John Biffen)

With permission, Mr. Speaker, I will make a statement about the White Paper, published today, on the Government's expenditure plans for 1980–81. Copies are available in the Vote Office.

The Government's strategy is to stabilise total public spending in volume terms. The outturn for last year, 1978–79, is now put at £69¾ billion at 1979 survey prices. Estimates for the current year, 1979–80, are still speculative, but the outturn is not expected significantly to exceed last year's expenditure. We plan to hold the total for next year, 1980–81, at the same level.

Within the total planned for 1980–81, provision is made for growth in some programmes, offset by reductions in others. Provision for defence increases by 3 per cent. in 1980–81 over the expected outturn in the current year, and provision for law and order increases by 3½ per cent. Expenditure on the National Health Service is maintained, whilst a rise in spending on social security partly reflects the recent pension uprating.

For local authorities, the plans provide for a reduction of 3 per cent, in their capital and current expenditure over the two-year period 1978–79 to 1980–81. The reduction in their current expenditure is rather less and in line with the figures on which they have been consulted. The allocation between services shown in the White Paper is tentative. It will be for the authorities themselves to decide the pattern of their current expenditure in the light of local needs and conditions.

The plans also provide for a further programme of public sector asset sales aimed at a figure of some £½ billion in 1980–81 compared with £1 billion in 1979–80.

The Government consider that the plans in the White Paper take realistic account of the poor prospects for growth in the domestic and world economies, and of the need to bring Government borrowing and the money supply under firm control without unacceptable consequences for taxation and interest rates. They will form the basis for setting the cash limits for 1980–81.

The Government's general intention is to publish the cash limits in time for spending authorities to take account of them in making major decisions affecting their costs in 1980–81, including the costs of pay settlements. We intend to exert a firm control on spending through the cash limits. Spending authorities must expect that, if they incur higher costs than provided for in the cash limits, it will not be possible to implement the full volume plans in this White Paper.

We aim to publish the cash limits on the rate support grants and the limits on the external financing requirements of the individual nationalised industries later this month. Other public service cash limits will be published nearer the start of the financial year.

The Government are also preparing provisional expenditure plans for the years up to 1983–84. These will be published in a subsequent White Paper.

Mr. Healey

If I did not know the right hon. Gentleman better, I would suspect that he was rather ashamed of what he had to tell us. His statement was even thinner than the White Paper, which is the most uninformative to come before the House for many years. Is it not the case that he is planning a cut of £3,500 million on previous plans and that this is the price that the people of this country are having to pay for the fact that the Government's economic policy has given Britain the highest inflation and the lowest growth in the whole of the Western world? It has led to a total collapse in business confidence since the Budget.

Even so, why does not the right hon. Gentleman accept the view of his newly appointed economic adviser that the Government should allow the public sector borrowing requirement to rise when unemployment rises and activity falls? Is he aware that these cuts will make the recession deeper? The way in which they are composed means that their main effect will fall on activity and cash flow in the private sector of the economy.

On the distribution of the cuts, how can the right hon. Gentleman, against this background, justify increasing defence expenditure, in real terms, by 3 per cent. when he is expecting a fall in output in this country? In the same year, Germany is planning an increase of only 1½ per cent. and expecting a substantial increase in her growth rate. Why is the right hon. Gentleman planning next year, 1980–81, to make a net payment to the European Community of £1,000 million when the right hon. Lady the Leader of the Opposition has just promised again to eliminate this payment next month? Is his confidence in his leader as low as ours is in her?

Will the right hon. Gentleman say what he thinks will be the effect of the 9 per cent. cut in local authority capital expenditure? How will that be achieved in a single year and at what cost in housing, old people's homes and in the replacement of derelict nineteenth century facilities? What will be the effect on the construction industry on top of the cuts he is planning in the road programme?

The major question to which we want an answer is the effect of the White Paper on inflation. Inflation next year is already going to be 2 per cent. higher than it would have been because of the recent fall in the value of the pound sterling which the Government have engineered. On top of that, the public expenditure White Paper foreshadows massive increases in rates, massive increases in local authority rents and increases in fares, electricity and gas prices. It plans to take £240 million exclusively from the parents of young children by increased charges on school meals, milk and transport. It also plans to increase prescription charges to 70p

What will be the effect on unemployment? Will the effect be to add 250,000, 500,000 or 750,000 to the total next year? The right hon. Gentleman must have made an estimate. He must at least be able to tell the House how much of the proposed increase in social security spending is expected to result from an increase in unemployment and where offsetting cuts in social benefits will be found.

The White Paper means a massive increase in the cost of living, which has already risen by 6 per cent. since the Government took office, a massive increase in unemployment—

Mr. Grieve

On a point of order, Mr. Speaker. Is not the question somewhat longer than the statement?

Mr. Speaker

That happens from time to time, but the right hon. Gentleman—I, too, can see his notes—was just coming to a conclusion.

Mr. Healey

Thank you, Mr. Speaker. You will realise that I am inviting the Chief Secretary to give us vital information which he withheld from us in his statement.

The White Paper means a massive increase in unemployment after the level has been steadily falling for two years. It means the overturning of the social priorities of a compassionate society as they have been upheld by successive Governments since the Second World War.

Mr. Biffen

The right hon. Member for Leeds, East (Mr. Healey) opened his reply by referring to the difference between this White Paper for 1980–1981 and the consequences for public spending if it had remained faithful to the projections of the public spending White Paper that he published last year. Of course, the gap is £3,500 million. However, what the right hon. Gentleman did not go on to say was that would have represented 8p on the basic rate of tax. Of course, the history of this country post-war has been of political expectations which were wildly unreal when measured against the underlying economic performance of the country.

I turn to the point the right hon. Gentleman made about the recession and levels of unemployment. We believe that the only sure way in which this country can recover from a recession which covers the whole of the Western world is through a successful revival in profitable industry. We do not believe that one can spend one's way out of a recession, and we were advised that our view was a true course by none other than the Leader of the Opposition.

The right hon. Gentleman specifically asked about the unemployment figure contained in the social security assumption. The broad working assumption used in the social security programme was that the unemployed, excluding school leavers, would average in Great Britain 1.35 million in 1979–80 and 1.65 million in 1980–81.

I turn now to three specific points that the right hon. Gentleman raised. The first concerns spending on defence. The level of spending predicted in the White Paper, to which the right hon. Gentleman objected, is an index of our concern about our national defence and our lack of preparedness, a concern which I am told by my right hon. Friend the Prime Minister is unique to the Conservative Party. I must tell the Opposition that the defence White Paper produced by the right hon. Member for Sheffield, Park (Mr. Mulley), when he was Secretary of State, stated As seen by Western eyes, the growth in quantity of the Soviet forces, together with continued qualitative improvements, has extended their capability well beyond what can be considered necessary for purely defensive purposes. If that was Labour's judgment, this is certainly our response.

The second item concerned the £1,000 million net contribution to the European Community's budget. I will not trade blows across the Dispatch Box about the shortcomings of the renegotiations which took place a few years ago, but it would be thoroughly unrealistic to put into this White Paper a figure which assumed negotiating success. That practice may have recommended itself to our opponents, but it is one that we shall not adopt.

I was asked about the fall in capital expenditure in respect of local authorities. Of course, it largely turns upon housing. Once again, we have to recognise that one of the major factors in solving the housing problem is a more effective use of our existing stock of housing resources. That lies at the heart of our philosophy and it helps explain those figures.

The right hon. Gentleman referred to the difficulties of the construction industry. The projected expenditure for this sector will be the same next year as this year as last year, namely, £7,000 million.

Finally, the right hon. Gentleman asked what all this would mean for inflation. We believe that there can be no successful strategy or tactic against inflation which does not have as its precondition stabilised public spending. Around that one can then fashion one's economic policy.

Mr. Higgins

Will my right hon. Friend give an absolute assurance that when the figures in the White Paper are embodied in cash limits there will then be no subsequent adjustment to accommodate increases in salaries and wages which exceed the levels assumed when the White Paper and the cash limits were planned?

Mr. Biffen

I think that when my right hon. Friend re-reads my statement he will find his point answered.

Mr. Richard Wainwright

As to the nature of the cuts which the Chief Secretary has announced, can he deny that, however skilful and humane the local authorities, the universities, the transport undertakings and the other bodies may try to be, there are bound to be a great many false economies as a result of the demands which he is putting on those bodies? As to lasting and genuine economies, are the Government prepared to launch upon a massive simplification of the whole over-elaborate structure of government at all levels?

Mr. Biffen

I am sure that that last point has been the aspiration of succeeding Governments. I think that it will certainly remain one for this Government. There is to be a retrenchment in local authority services of 4.5 per cent. in real terms for 1980–81 over the current year, and of 3.8 per cent. over last year. However, it must be taken against the background of falling numbers in the schools, and, although it is a tough programme it is, none the less, a realistic one.

Mr. Joel Barnett

Will the right hon. Gentleman confirm that his assumption about the likely effect of the Chancellor's tax cuts is of a fall in the growth of GDP in the next two years? Against that background, may we take it that what my right hon. Friend the former Chancellor said—namely, that this increase in defence expenditure means an inevitable massive boost to inflation through increases in nationalised industry charges and prices—is correct? Since the right hon. Gentleman must have made assumptions on that, is he prepared to give them to the House as soon as possible?

Mr. Biffen

The White Paper contains no assumptions on the rate of growth in the economy over the course of the next year. I cannot confirm when announcements will be made about increases in the prices of nationalised industries. However, I know that the right hon. Member for Heywood and Royton (Mr. Barnett) will be the first to agree that there should be economic pricing in those industries. However, essentially that is not a matter purely for the Government. It is also one for the managements of the industries concerned.

Mr. Paul Dean

Is my right hon. Friend aware that there will be a widespread welcome for his announcement of increased expenditure on social service benefits in order to protect the growing number of elderly in our community, and that expenditure on the National Health Service will be maintained? Does that not expose the hollowness of the campaign by Labour Members? Do I deduce from my right hon. Friend's statement that extravagant wage claims in the National Health Service would inevitably mean reduced services to patients?

Mr. Biffen

The reply to the first part of the question is "Yes". My hon. Friend is absolutely right on the second. In the course of the last few weeks there has been an extraordinarily well-orchestrated campaign designed to represent the White Paper as some outline of a savage primeval attack upon the Welfare State. It is absolutely nothing of the kind.

Mr. Donald Stewart

Is the right hon. Gentleman aware that the Conservative election manifesto policy of guns before butter was decisively rejected in Scotland? Since it is clear from his own document that the oil from the Scottish sector of the North Sea is the only lifeline on which the country's economy depends, will he give us any guarantee that these measures will he operated less rigorously in Scotland?

Mr. Biffen

There is no doubt that the right hon. Gentleman is almost a unique authority on rejection in Scotland. It is our judgment that the public spending programme is extremely well balanced as between the component nations of the United Kingdom and the regions of England.

Mr. Bruce-Gardyne

I congratulate my right hon. Friend on a most courageous White Paper. Will he tell the House whether the reference to the need to control the PSBR next year means that it remains the intention of Her Majesty's Government that it will be lower next year than it is in the current year?

Will he also confirm that it is his intention, in the words of the Leader of the Opposition three years ago, to see that the pre-emption of resources by public expenditure is reduced, and that this public expenditure White Paper will enable that to happen in the next financial year?

Mr. Biffen

My hon. Friend's first question is a pertinent and tantalising one. I am in no position to answer it this afternoon. None the less, it is a major issue of policy to which we shall return.

The answer to my hon. Friend's second point is that we have projected stabilised public spending. Whether public spending rises or falls as a share of the domestic product must turn on the behaviour of the economy. I say quite bluntly that although many believe that they can foresee this situation, I cannot.

Mr. Ashley

What would be the Minister's reaction if I gave him shocking evidence of the effect of his expenditure policies on the lives of physically and mentally disabled people? Would he say "Hard luck", or would he provide hard cash to help them?

Mr. Skinner

He would say "Hard luck".

Mr. Biffen

It is really well below the level of debate in this Chamber—MoN. MEMBERS: "Answer the question."]—to suppose that one side rather than the other possesses some hold on compassion.

We believe that the proposals in respect of the Health Service and the personal social services will secure a reasonable provision. Clearly, if difficulties arise, we shall be prepared to look at them. I totally reject the proposition that this is a public expenditure White Paper designed to fall harshly upon the social services.

Mr. Cockeram

Does my right hon. Friend realise that his proposal to stabilise public expenditure at £70 billion over a three-year period will have the effect of not reducing the percentage of the gross national product spent by the State? Can he give us an assurance that over the coming five years he hopes to seek that objective?

Mr. Biffen

Most certainly I can.

Mr. Orme

The right hon. Gentleman has said that these charges will not fall upon ordinary people. Is it not a fact that prescription charges are to be increased to 70p? How does he reconcile that with the Tory promise that prescription charges would not be increased by his Government?

Mr. Biffen

Given the very wide categories of exemption from prescription charges, I regard a charge of 70p as wholly defensible.

Mr. Burden

The present circumstances are made difficult by the enormous borrowings of the last Government. Will my right hon. Friend tell us exactly how much the Labour Government borrowed from overseas countries in their five years, and what that is costing today in interest charges?

Mr. Biffen

I cannot answer my hon. Friend's question without notice.

Mr. Skinner

After his reference to the increase in unemployment, is the Minister aware that there are at least 300,000 reasons why this disastrous policy should be rejected and will be rejected by the people outside?

As for the Common Market contribution of £1,000 million that is included in the tables, on the assumption that the Government stumble into some kind of reduction in the course of the forthcoming year, will the additional money be spent on schools, hospitals and houses, and in the reduction of prescription charges, or will it go to the rich taxpayers, as in the last Budget?

Mr. Biffen

Should the Government be advantaged by a successful negotiation in Dublin—[Interruption.] There is no harm in being realistic, even from the Front Bench. It will be a collective decision as to how that money will be spent, but I will say here and now that I have a strong preference that it should be used to reduce borrowing.

Mr. Ian Lloyd

While congratulating my right hon. Friend most warmly on the refreshing sense of rigour and economic realism, may I put one point of doubt to him? In view of the massive increase in the funding of fundamental science in West Germany, France, Japan and the United States, do the Government think that it is wise to reduce the expenditure on science from £300 million to the lower figure proposed in paragraph 35 of the White Paper?

Mr. Biffen

Obviously, it was a difficult decision, but that was the balance of judgment.

Mr. Wigley

Will the Chief Secretary explain how he intends to limit the effects of these cuts on areas such as Wales, which are more dependent than other areas on public expenditure for industrial and non-industrial employment? Will he ensure that the effects on Wales will be shown when the full tables are published in due course?

Mr. Biffen

I should like to consider the hon. Gentleman's latter point. I cannot answer it immediately.

It is quite clear that the economies involving the local authorities, relating to the environment, education and transport, will be applicable to all parts of the United Kingdom. The hon. Gentleman does his party, and to some extent the Principality, a disservice by supposing that it is at a disadvantage relative to the rest of the United Kingdom in this matter.

Mr. Nicholas Winterton

Is my right hon. Friend aware that despite the utterances of a vocal minority in this country, the vast majority of people will welcome the expenditure White Paper? Is he further aware that the good sense that he has uttered this afternoon will ensure that all those who need the assistance of the State will, from a reinvigorated economy in this country, be able to obtain the assistance that they require?

Mr. Flannery

Hans Christian Winterton.

Mr. Winterton

After five years of calamity under Socialism, I should have thought that Labour Members would have learned their lesson. Will my right hon. Friend give an assurance to the House that the Government will, as far as possible, ensure that the cuts, which are vitally necessary for the restoration of a sound economy, will be carried out selectively rather than across the board?

Mr. Biffen

The answer to the second part of my hon. Friend's question is "Yes". Clearly, we are determined to maintain basic standards in health and education.

I do not know what would be the popular reaction to the White Paper, but I know that the public, which has been conditioned to expect cuts, will be surprised to discover that it will get stability.

Mr. Robert Sheldon

Is the Chief Secretary not concealing some important figures from the House? Will not an increase of 350,000 in unemployment mean that there will be substantial increases in social security payments? Does it not also mean that if the total of social security expenditure is not to rise very much there must be considerable cuts in the pipeline about which the House does not yet know? Will the Chief Secretary tell us what he has in mind?

Mr. Biffen

The figures to which the right hon. Gentleman refers take account of the increased assumption in respect of unemployment.

Several Hon. Members

rose—

Mr. Speaker

Order. I propose to call four more hon. Members from each side. We have a Business Statement to follow and a major Bill after that.

Mr. Costain

Does my right hon. Friend not find it rather nauseating that a former Chancellor of the Exchequer who brought this country to a state of financial disaster should have the cheek to criticise this realistic White Paper? Does my right hon. Friend agree that the previous Government's failure was set out in table 1 of the White Paper, which shows that debt interest increased from £1,250 million to £2,300 million while they were in office? Is that not a barometer of the previous Government's failure?

Mr. Biffen

Absolutely.

Mr. Marks

What action will the Government take against local authorities that fail to carry out their statutory duties in making excessive cuts in education and social services?

Mr. Biffen

As I understand the question, the hon. Gentleman is asking what action would be taken against a local authority that failed to carry out its statutory duty. It would be much more appropriate for the hon. Gentleman to direct that question to my right hon. Friend the Secretary of State for the Environment.

Mr. Michael Morris

Is my right hon. Friend aware that the only disappointment in his statement is the low level of asset disposal in 1980–81? Will he undertake to have another look at the ownership of the New Towns Commission, the new towns themselves and the nationalised industries in order to increase that figure?

Mr. Biffen

I assure my hon. Friend that the figure was arrived at after careful consideration of the prospective candidates, but I am prepared to consider the point that my hon. Friend has raised and to have another look at the matter.

Mr. Ioan Evans

Does the right hon. Gentleman realise that since the Beveridge report there has been a consensus in the House that we should have a Welfare State? Does he appreciate that the cuts that he has announced, slashing health, education, and so on, mean that the Welfare State has been undermined? Is it not scandalous that while the Government are increasing defence expenditure by 3 per cent. to more than £8,062 million the disabled and those needing homes and education will suffer as a result of the cuts?

Mr. Biffen

The hon. Gentleman is right in saying that there is a consensus on welfare matters. That is why great care was taken to see that the Health Service was excluded from the cuts. The hon. Gentleman talks about the destruction of the Welfare State, but he and his political allies are prepared to divide the nation in order to unite the Labour Party.

Mr. Dykes

What are the adjusted targets for the British Steel Corporation deficit over the next two years?

Mr. Biffen

Those figures are not explicit in the White Paper, but if my hon. Friend tables a question or writes to me I shall see what can be done to help him.

Mr. Charles Morris

Is the right hon. Gentleman aware that his dismissive reference to pay limits is just not good enough? Will he not take the House into his confidence and indicate what level of pay increases is envisaged in the period covered by the White Paper? Will he also indicate whether the Civil Service unions will have access to pay settlements based on the principle of fair comparison enshrined in the reports of the Civil Service pay research unit?

Mr. Biffen

As regards cash limits in the rate support grant, it is our intention to publish the basis of provision for future cost increases in central Government and local authority cash limits where that has been done in previous years. As to the point concerning Civil Service pay, which comes more at the end of the financial year, there will be concern to see that pay research has an enhanced role.

Mr. Emery

Does my right hon. Friend accept that if the level of inflation inherited by the Government had been allowed to continue into the mid-1980s without the sort of cuts that the Government have introduced, the real value of spending in the social services would have been even less than it will be after the cuts have been made?

Mr. Biffen

My hon. Friend makes a fair point, to which the House must address itself. If it had wanted public spending at the levels indicated in the White Paper of the previous Government, where would the £3,500 million have fallen—on taxes or on borrowing?

Mr. Harry Ewing

Why does the right hon. Gentleman continue to repeat the myth that local authorities have flexibility in operating the cuts that he has imposed? The financial and explanatory memorandum to the Education (No. 2) Bill makes clear that education authorities in Scotland must save £21 million at the expense of our children's meals, transport and milk. Is the contribution of the Scottish Education Department and our children to these savings over or under £100 million?

Mr. Biffen

I am sure that the hon. Gentleman will concede that although it is proposed that there should be a reduction in the provision for school meals, milk and transport, local authorities will have greater freedom in this matter after the passing of the Education (No. 2) Bill.

Mr. Healey

Can the right hon. Gentleman enlighten us on the extraordinary variety of his views on the future? He told us that he had not the slightest idea what output would be next year, yet in the White Paper he says that he expects it to be poor. If he does not know what output will be, how is he able to be precise in saying that there will be a short-fall in public expenditure of £1,000 million next year? Was that figure simply cooked up in order to enable the right hon. Gentleman to achieve his financial target? What will be the pay assumption in fixing the cash limits, and will that not become the norm?

Mr. Biffen

There is no question of cooking figures. If I show a mild degree of humility about trying to foresee the future it is only to enable the House to draw a contrast between the right hon. Gentleman and myself. He makes a fair point about the hazards in publishing figures. I did not say that a wages figure, an earnings figure or an incomes figure would be published; I referred to a cost figure.