§ Mr. John McWilliam (Blaydon)
I rise with temerity as a new hon. Member to tackle the broad problem of the reasons for the need for Supplementary Estimates and excess Votes and breaches of cash limits.
I am a Member sponsored by the Post Office Engineering Union. Although I am not directly affected by the Votes, as a former public servant I am aware of the impact of cash limits on public sector pay and conditions, particularly when an unrealistic view is taken of the likely outcome of negotiations during the year.
I am concerned about the level of supplementation asked for. Given the stated policy of the Government to keep expenditure under tight control, it is inordinately high. An increase of about 30 per cent. is indicated. It can be partly explained by policy changes, which are listed in Hansard, but much of it is inexplicable.
It is also partly due to the inherent difficulty of applying cash limits in the way recommended by the Expenditure Committee—the difficulty of making the correct assumptions about the level of inflation. As is stated, if the assumptions are correct, the setting of cash limits merely keeps expenditure within the limit which has been set. If they are wrong, they squeeze the volume of resources within the area for which the Vote was granted. Inflation is running at 18–2 per cent., whch appears to be a reason for asking for that level of excess. The Government's chickens are coming home to roost. Inflation has soared under their management of the economy.
I am surprised that in the Supplementary Estimates there is not a larger item under the general heading of the Treasury in Class XIII. It would seem reasonable to employ more staff, given the report in the Central Statistical Office's economic review, published last week. That report states that there is roughly £3.6 billion due to tax but not coming in tax receipts. I have searched diligently, and, although the moneys for the management of the economy are increased, those funds are 1468 not being directed towards the management of that area of the economy— or of the undisclosed economy. Indeed, the figure that I quote is, by admission of the person who wrote the paper, on the low side. If we believe the statements made by the last Controller of Inland Revenue, the figure that I quote is about half what it should be. Between 7 per cent. and 15 per cent. of public expenditure is outside the control of the Chief Secretary.
I challenge the Minister to say what he intends to do to improve the way in which these Estimates are made so that such levels of supplementation are not needed in future. What will he do about those who fiddle, while the country burns, to the tune of £3.6 billion to £7.5 billion, so that we do not have to sit up through another late-night debate?
§ Mr. Michael English (Nottingham, West)
I am grateful to my colleague the hon. Member for Blaydon (Mr. McWilliam) for raising this subject. I am also grateful to the Chief Secretary for coming at this time of night to reply to it. Many Cabinet Ministers leave these matters to their juniors. We appreciate his presence on this occasion.
I do not propose to go into the details of all the Supplementary Estimates, excess Votes and breaches of cash limits, in which last only two Departments are involved. I am, however, a little amused when in one Vote I see a Supplementary Estimate justified at item F1 on the ground that it was necessary because of faster progress and at N1 of the same Vote that it was necessary because of slower progress. That seems to me to be possibly extremely honest. It might be found somewhere in the region of the Ministry of Defence. Although it may be extremely honest, it does not seem to me that we should get very far by trying to probe into both reasons at the same time.
I wish to raise the question of what happens if cash limits are broken. This concerns primarily the Ministry of Defence. As the right hon. Gentleman and I have reputations as purists, we should consider what happens if there are Supplementary Estimates at all. In fairness to Departments, it is true that on many occasions there are Supplementary Estimates and overspendings, in lay 1469 parlance, which are more than counterbalanced by other sections of a Department having underspent. Indeed, in the previous Parliament the Expenditure Committee tended to criticise Departments for underspending—or perhaps for overestimating—rather than for overspending.
There was a time, which we all recollect, when public expenditure was very nearly, if not actually, out of control. That happened when the cash limits were introduced. Both the right hon. Gentleman and I wish to preserve the use of those cash limits and the intent behind them, which is basically to control public expenditure. I do not understand how that is to be done. I fail to see how control is being exercised at various levels. We must consider this matter in terms of levels.
The other day the hon. Member for Knutsford (Mr. Bruce-Gardyne) and I protested at the parliamentary level about the fact that we were expected to vote on Supplementary Estimates without debating them. Those Estimates had been laid before the House for 11 days, and we were expected to vote on them without any discussion. The reasons for that are historic and understandable, but they should be changed. Today, on this Bill, we are allowed to talk about the matters we voted on two days ago. The discussion has come after the event. This would be regarded as very strange in any other legislature.
§ Mr. Speaker
Order We are free to discard Treasury control over these excesses, but we cannot have a broad debate now on the House's control over them. That is not the issue before us.
§ Mr. English
I accept that, Mr. Speaker; I was merely mentioning it in passing. I was pointing out that there are various levels of control.
The Treasury and Civil Service Committee of this House, of which I am a member, will shortly wish to consider this issue in more detail, and it will come before the House in that way. I was merely trying to point out that there is more than one level of control. At the parliamentary level, I do not think that our procedures are satisfactory. This has been discussed on many occasions, and I am sure that it will come before us 1470 again. The same is true at the level of our new Select Committees. We have only just set them up—they were appointed late in November last year—so they have not really had time to consider this issue.
We then come to the third and fourth levels—the ministerial and Civil Service levels. The Government have, rightly in my view, said that they wish to keep control of public expenditure. I am not making solely a party point when I say that the Government will not be able to preserve control over public expenditure if such control is exercised only over certain Departments of State and not others. It might be that if a Labour Government were in power they would be more ready to ensure control over defence than over social security. I do not think that it matters whether this would be so or not; it would be wrong to single out Departments. The trouble at present is that the breach of cash limits occurs primarily in the Ministry of Defence. It could be that people in that Department —members of the Armed Forces or the Civil Service or even Ministers—consider that by the very nature of the Department it is likely that a Conservative Cabinet will view sympathetically its requests for money. If that is so, those people should use the proper and authorised procedure. They should go to the Cabinet and ask for the appropriate sum of money.
Political decisions should be made in the Cabinet. Once those decisions are made, it is the duty of everyone to obey them—certainly everyone in the Executive itself. In this case, the cash limit has been exceeded. I am sure that the Minister has briefed himself in great detail on the reasons for all these supplementary excesses, and I do not want to go into detail on them at this stage. No doubt they will be investigated at the proper time in the proper place. But I wonder what steps the right hon. Gentleman has been taking to make sure that in future the orders of the Cabinet are obeyed. I refer not simply to the technical Supplementary Estimates that may be almost justified and perhaps outweighed by underspendings but to the actual cash limits that are, in effect, the orders of the centre of the Government to all Departments and all sections of Departments. Those cash limits tell Departments what they should spend.
1471 Hon. Members debated yesterday the area health authority that was dismissed by the Secretary of State for Social Services. I do not wish to go into that issue. It will be discussed again tomorrow. What is important is that the right hon. Gentleman was justifying the principle behind his action on the ground that he had to enforce the cash limits. That is fine. I said so yesterday. What concerns me is whether there will be an equal measure of enforcement in respect of every Department of State and every subsection of every Department. This must be asked. One cannot have a system that is enforced on one hand and not on the other. If that happens, there soon ceases to be any system of enforcement at all.
When there has been a breach of cash limits, I would have thought that the matter would be raised first, in this case, by the Secretary of State for Defence coming to the House and explaining whatever reasons existed for it. There may be good reasons, essential for the security of the country. No one came to the House. That was not done. So far as I know, the Ministry of Defence did not spontaneously write—I understand that it was asked, but that is not the same thing—to the Select Committee on Defence indicating the reasons for the breach of cash limits. The Ministry has certainly not approached the Select Committee on the Treasury and the Civil Service to explain why it broke the cash limits. I do not know whether the matter was mentioned to the Cabinet. Presumably the Treasury was aware of it.
What happens when orders of the central Government are disobeyed? I know what happens in some countries. There was an illustration yesterday of a member of the Cabinet who, accoridng to a judicial decision, was misadvised. No one, so far as I am aware, has yet been proclaimed responsible. I am certain that if a member of the Executive in the United States was badly advised, or well advised, those giving both bad advice and good advice would be known to the public. In the United States, salaries would be increased or decreased according to whether people were efficient or less efficient.
The Expenditure Committee, of which I was a member, in the last Parliament 1472 advocated that the Government should consider the United States system with its much longer salary scales for all levels of the Civil Service. People can be advanced in those scales on an accelerated basis if they are regarded by their superiors as efficient or retarded if regarded as inefficient. No one wishes to sack people. There is, however, no particular reason for paying the same amount to efficient and inefficient people. I know that this scheme is not regarded highly by some Civil Service trade unions. I think, however, that others would take a different view.
The question remains about what should be done to enforce the orders of the Government in this case, the most important order of all. The basic order given by the Government in present circumstances is that there is a limited amount of taxpayers' money available.
Taxpayers voted for the Conservative Party partly on the ground that they were paying too much in taxes. My colleagues and I might or might not agree with that decision. As democrats, we accept it. Once in power, the Conservative Government endeavour, naturally, to do something about cutting down public expenditure. They impose fairly severe cash limits on all Departments of State, and all the Departments bar two have adhered to those limits. One is only a marginal breach, the other is moderately substantial. I do not claim that it is immense in the context of total Government expenditure, but it is in eight figures and, as a matter of principle should be considered.
The simple question that I wish to ask the Chief Secretary is how he intends to enforce the orders that he gives to the rest of the Government machine.
§ The Chief Secretary to the Treasury (Mr. John Biffen)
I welcome the debate and thank the hon. Member for Blaydon (Mr. McWilliam) for initiating it. For the hon. Gentleman to feel that he had temerity in raising the subject shows a becoming modesty, but, as the whole history of the House is about the control of spending and a highly sceptical regard for the Treasury Bench, the hon. Gentleman has demonstrated that, within a short time of his arrival here, he has settled in well.
1473 I have been asked about the nature of the spring Supplementary Estimates. They total £837 million. Of that figure, pay and price increases account for £450 million, of which £316 million is sought for pay, including pay awards arising from the Standing Commission on Pay Comparability. A further £110 million is required for transactions within the public sector, which are offsets to revenue, and the remaining £277 million relates to volume increases in certain programmes covered either by offsetting savings elsewhere or from the contingency reserve that is provided within the public expenditure plans.
I am certain that the hon. Member is right in saying that any attempt to control public spending is seriously impeded by inflation. Inflation claims many victims, and effective control of public spending is certainly one of them.
The hon. Member for Nottingham, West (Mr. English) apologised for making a party point. When one cannot make a party point in this place, we shall be reduced to a Jenkinsite consensus which I would not wish on anybody.
If I have to choose a situation in which one could see danger writ large, it was when the previous Government set their cash limits for 1979–80 on the basis of a 5 per cent. pay policy when no one believed that there was much likelihood of that being sustained. Of course, Supplementary Estimates were an inevitable consequence, and all who wish to have discipline in public spending will wish to minimise the significance of Supplementary Estimates.
The breaches of the cash limits are £64 million in respect of the Ministry of Defence and £6 million on assorted Scottish Votes, somewhat exotic in their character. In order to put the matter in perspective, we should remind ourselves that those figures represent 0.2 per cent. of cash-limited spending. In the 140 blocks that constitute the cash limit arrangements, there were two breaches in 1976–77, two in 1977–78 and four in 1978–79, which is the period that we are considering. In no sense do I wish to be complacent about that, but I think that we might as well register these points so that the debate can be informed rather than hysterical.
1474 The Government must react to the breaches of the cash limits, and there are three considerations that I wish to share with the House. The first is the effort that must be made to minimise the overspend that is forecast, because there is still some time to go before the final outturn. By policies of delayed recruitment and purchasing and the consequent operation upon stock levels, it is hoped that the actual breach may be somewhat less than the figures suggested in the Estimates.
Secondly, there is the consideration of getting to know why all this has come about. The Scottish Estimates have not featured prominently in the debate, but heavy overtime working in the prison service and the aftermath of the disturbances at Peterhead prison had a serious effect upon that particular cash limit.
The delightful situation of the Scottish roads was mentioned by the hon. Member for Nottingham, West (Mr. English). Because of the good weather, there was better progress than expected and consequently there was an acceleration in payment to contractors. As a consequence, there was an overspend.
At this stage, there is normally a genera] dissolving into laughter by all and sundry at the absurd way in which the control of public spending is exercised. I do not, of course, refer to such a refined body as the membership of this House. I am talking of audiences outside the House. But that brings home to the House the difficulties of somehow or other finding the magical dividing line between demand-induced programmes and programmes over which the Government are thought to have almost limitless authority.
Much the most serious breach, however, is that in the Ministry of Defence cash limits. There is a variety of causes for that. I cannot point to anything substantial which would overwhelmingly represent the reasons for such a breach, but the matter is now under discussion between the Treasury and the Ministry of Defence. One factor was the industrial action which affected the pattern of expenditure and receipts for the Ministry of Defence. However, we must acknowledge that this is not the first time that these difficulties have arisen in the Ministry of Defence. We are grateful for the studies and comments of the Public Accounts Committee, which 1475 has suggested that there must be ways of improving the estimating, monitoring and financial procedures in that Ministry.
I think that that takes us on to the question of discipline, which is my third and final consideration. Here we propose that the overspend for 1979–80 will be deducted from the 1980–81 cash limit. That is consistent with the practice of all our predecessors when operating cash limits.
§ Mr. English
As the Chief Secretary will realise, the effect of that as a sanction depends entirely on timing. If one deducts something from a cash limit after that limit has been fixed, that can be said to be a sanction. If one says in advance that one will deduct something before one has fixed the cash limit, it would be beyond the wit of man to determine whether that was a sanction.
§ Mr. Biffen
Inasmuch as the wit of man is exercised in the Treasury, it will be exercised to try to make the deduction an effective deterrent against overspending.
The hon. Member for Nottingham, West is perfectly right in saying that one is operating in a difficult area when trying to fashion a sanction that is truly effective. At the end of the day, it must to some extent depend upon a realisation throughout the public service that it is a major breach of one's duties to allow overspending to take place.
The hon. Member for Nottingham, West said that there might be a two-tier system and privileged spending Departments in Whitehall. In the short debate on Monday, he said:Above all, we ought not to say, as this Government are now saying, that cash limits apply to everybody except the Ministry of Defence and a few others and that no one will ever be allowed to discuss that exception.At the conclusion of that debate, my right hon. Friend the Leader of the House said:I agree that the present procedures are not entirely satisfactory … I do not think that I can go beyond that".—[Official Report, 10 March 1980; Vol. 980, c. 930, 933.]I assure the hon. Gentleman that there are no privileged spending Departments in any quarter of Whitehall. Some have different problems in controlling their spending. Effective discipline must be secured in respect of each Department.
§ Mr. English
The Leader of the House went on only to promise to consider setting up a new Procedure Committee to deal with the financial procedures of the House. It is essential that the Chief Secretary should lend his considerable weight to the proposal to reconsider our financial procedures, as well as those of the Government.
§ Mr. Biffen
I am happy to put on record my anxiety that the House should be an ally to the Treasury in securing disciplined control over public spending. That is not a view from either the Right or the Left. Any effective use of the social and military spending priorities can be truly advantageous only if they are controlled. If they are without control, they are as hostile to one side of the House as they are to the other. However, the matter is for my right hon. Friend the Leader of the House. I have no doubt that it will be dealt with.
I welcome the opportunity to make comments on the excess Vote and breaches of the cash limit.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
There is a particular problem in the Supplementary Estimate coming under the defence procurement Vote. A large part of the increase must be due to the movement in the exchange rate, which will increase the cost of defence procurement from the United States. How are such eventualities to be safeguarded? Surely it is wrong, if there is a movement in the exchange rate which damages a major defence programme, to make it vulnerable in this way.
§ Mr. Biffen
I cannot be precise about that comment. I assume that there must be consequences for the defence Vote from movements in the exchange rate. I speak without a shred of a brief on that topic. I am sure that my fluency is unsupported by evidence. Many other cash limit blocks are effected by volatility in exchange rates. That underlines that while being ambitious about cash limits as a system of controlling public spending we must be modest about exactly what we can achieve. The eternal, unchanging challenge of politics is to tread between the modest and the ambitious.
From the Treasury's point of view, this evening's debate has been a welcome opportunity to say a little about the 1477 Supplementary Estimates. I thank the hon. Member for I3laydon for enabling it to take place.