PUBLIC EXPENDITURE

HC Deb 07 May 1980 vol 984 cc288-427

Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition.

3.45 pm

The Chancellor of the Exchequer (Sir Geoffrey Howe)

I beg to move, That this House takes note of the White Paper on the Government's Expenditure Plans 1980–81 to 1983–84 [Cmnd. 7841]. As the House knows, the purpose of the debate is to consider, in accordance with tradition, the Government's spending plans for the years 1980–81 to 1983–84 as set out in our recent White Paper. That White Paper completes the review of the plans inherited from the last Government. There is particular value in the debate today in relating those spending plans to the Government's economic strategy as a whole, of which they form an important part. There are several reasons for approaching the matter in that way.

First, we have made it clear on many occasions that it is necessary to reverse the inexorable growth of public spending and to bring its level down. That is what the White Paper is about. Our approach to the reduction of public spending contrasts sharply with that of the last Government. Their approach was impulsive, unintended and unsustained. Our plans show for the first time the prospect of a progressive reduction in total public expenditure throughout the lifetime of a Parliament. The importance of that sustained reduction in public spending is that it is one of the key elements in a wider strategy for lightening the burden imposed by a Government, for shifting the balance of resources back to the private enterprise sector, for reducing public sector borrowing, interest rates and taxes, and, above all, for mastering inflation. It is self-evidently right to consider public spending plans in the wider context of our economic strategy.

The second reason for saying this is that we can fairly claim that in the presentation of the Budget we have gone much further than any previous Administration in enabling the House to consider all the elements of the Government's economic strategy as a whole. This simultaneous presentation, together with the full exposition of the Financial Statement and Budget Report of the Government's medium-term financial strategy, has equipped the House more fully than on any previous occasion for a full examination and debate of our economic strategy as a whole.

Finally, the House also has before it the interesting report of the Treasury and Civil Service Select Committee. The House should note that that report seeks to deal not just with the Expenditure White Paper but with the Budget, and Budget documents as a whole. One has admiration for the members of the Committee who produced it, in the light of the diverse analyses provided for them by the crowd of expert advisers that Committees now trail in their wake. That is a remarkable achievement by the Committee. It has produced a report in the light of the necessarily condensed discussions that it had with myself and Treasury and other witnesses who appeared before it.

I pay tribute to the Chairman of the Committee, my right hon. Friend the Member for Taunton (Mr. du Cann) and the other members for the speed with which they produced the report.. I am sure that it will guide the House towards some of the more important questions arising in this debate. I am personally gratified to note that at the beginning of the report the Committee has resoundly endorsed the Government's economic policy objectives of reducing inflation and creating conditions for sustainable economic growth. I sometimes wonder whether the Opposition Front Bench goes as far as that.

The Committee offer some criticism of the Government for not providing what it regards as a sufficient basis of information for a reasonable judgment to be made about the strategy. I have some disappointment at that view, as I believe that the Government have gone a long way towards providing just that information. As I said at the outset of my speech, this is the first time that a Government in this country have set out their monetary and fiscal plans for a number of years ahead. I was grateful to hear the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—a distinguished member of the Committee and himself a former Treasury Minister-being kind enough to acknowledge, in a television interview on 29 April, that I had been more helpful... than most Chancellors have been prepared to be in the past. I am grateful for a modest tribute from that authority.

The material that we published with the medium-term financial strategy was also sufficient for Messrs. Greenwells, for example, to say that the details and consistency of the analysis stood the test of critical scrutiny. Of course, we are willing and anxious to discuss this with the Select Committee.

Mr. Denis Healey (Leeds, East)

I am sure that the right hon. and learned Gentleman recalls the Greenwells bulletin that said that it was shattered by the disappointing nature of the results achieved by the right hon. and learned Gentleman in his forward expenditure plan. I shall quote the actual words later. Is the right hon. and learned Gentleman so brazen as to ignore that comment by Greenwells?

Sir G. Howe

Indeed, I am fortified by it. As the right hon. Gentleman quoted a comment to the effect that the expenditure plans did not go far enough, I hope that we can count on his support for further robust onslaughts on public spending.

Of course, the Government are willing and anxious to discuss with the Select Committee the extent to which, and the way in which my Department and I should help it with as much information and insight as we properly can. After all, I think that it was Balfour who said that democracy was government by explanation. The relationship between the Government and the Select Committee is an essential part of that process.

I venture to express the hope that the Select Committee will be mindful in a particular case, for example, of the reason that it gave for discretion—market sensitivity—as a reason for not disclosing the Government's quantitative view of the corporate sector deficit. That is a point about which we are on common ground I suggest that the same point may well be relevant in other places.

I hope that the Committee will also be conscious of the reasons given by my distinguished predecessor for not offering, for example, any medium-term Treasury forecasts of the level of unemployment. I suspect that if we examine each par ticular case about which the Committee seeks information, and if we analyse each case by reference to principles of that kind, it should be possible to lead to agreement between the Select Committee and myself on the great majority of issues that arise. On this occasion, of course, we were examining, over a short period, a large number of issues that we were not able to analyse as fully as we should have liked.

The important point—as, I believe, the Committee appreciates—is that we should have the opportunity of discussing the question of what should, or should not, be forthcoming about the information in a less broad-based way and by reference to particular cases for particular purposes.

I hope that I may take this opportunity—as, of course, I am no longer addressing the Committee, but a wider audience—of uttering a warning against undue preoccupation with prediction and measurement.

Mr. Healey

Oh!

Sir G. Howe

The right hon. Gentleman may well laugh. He should know. However, I utter a warning against undue preoccupation with prediction and measurement of more and more detail at the cost of less and less concern for the essence of the policies themselves.

As I see it, that is the message embodied in the amendment moved to the report of the Select Committee by my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). I understand why my right hon. Friend the Member for Taunton and his colleagues may have taken the view that the Birmingham amendment did not fit too naturally into the structure of the report at that stage. However, I hope for the sake of the members of the Committee, as well as my own, that all of them had at least a degree of sympathy with the view expressed by my hon. Friend the Member for Selly Oak, who said:

the basic issues with which this Committee, the House and the country at large are most concerned are the policies the Government are pursuing rather than the fine detail of the documents they publish. In seeking to assess those policies what really matters is to understand the reasoning behind them, the determination and realism with which they were being pursued and the consistency of the objectives and instruments of policy. The fact is that forecasts are vastly uncertain. Forecasts are subject to huge margins of error and can at best be no more than speculative. That is true not merely of forecasts of the future but even of measurements of the past. That is why we must beware of the illusion that because Government can control some things, they can forecast, and so control and dictate, almost everything to the ultimate degree. That attitude is reflected in the belief that because the Government, like others, have the means to make forecasts they must therefore, in some sense, be responsible for and capable of promoting or preventing the events to which those forecasts relate. The resulting danger, if we take this process too far, is that people may attribute to Government powers that Government do not, cannot and should not possess; but they will then go on to use that attribution of power to Government as an excuse for irresponsible economic behaviour and so seek, consciously or unconsciously, to slough off on to Government responsibilities that properly rest with the people themselves.

Those are some of the reasons why the forecasts and projections that we offer first in White Paper and then in the Red Book have been presented with a degree of diffidence and with a recognition that every kind of qualification must be attached to them. Those are some of the reasons why the Government's medium-term strategy concentrates on those relatively few elements—responsible management of the public finances—that lie within the power of Government to control.

I cannot too strongly emphasise the extent to which the power of Government—not just in this country, but in this country, perhaps, more than most—is strictly limited by the nature of the economic world in which we must live. It is a rather bleak world to contemplate.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The Chancellor made the point about omissions of forecasts. What about those gaps in the White Paper that are not matters of forecast but of Government policy? Why has the right hon. and learned Gentleman chosen to give no information whatsoever about the Government's housing intentions? These are not forecasts; they are indications of what the Government intend to do but keep secret from the country.

Sir G. Howe

I welcome the right hon. Gentleman, I think for the first time, to a debate on the White Paper. It contains full details of the Government's plans for the current year and future years. When the decisions have been taken they will be published.

Mr. Healey

Oh !

Sir G. Howe

The right hon. Gentleman may laugh. He has the grotesque habit of laughing at almost every point that is made. In fact, he should know as well as anyone that decisions about the precise pattern of public expenditure, especially in housing, are subject to decisions by local authorities and local authority associations from year to year. One of the misleading features about previous White Papers has been the extent to which they have sought to convey certainty when no certainty could exist or be portrayed. I was going to say a kindly word about the right hon. Gentleman, if he would forgive that.

Mr. Healey

Never.

Sir G. Howe

When I was in Hamburg a couple of weeks ago I noticed that the Finance Ministers there assembled appeared, to some extent, to miss the right hon. Gentleman's distinctive and inimitable contribution as chairman of the Interim Committee. The Ministers asked me to convey to him their good wishes. At least in one part of the world he is remembered with affection.

At that meeting I was struck, as the right hon. Gentleman must have been previously, by the extent to which none of my colleagues dissented from the view then expressed by the managing director of the International Monetary Fund. It is important that the House should have this in mind. He said: The world economic picture is decidedly grim.… Projections for 1980 and 1981 depict a severe worldwide problem of inflation; a general pattern of slow growth of output, with a threat of recessionary tendencies in the industrial world; a sharp slump in the growth of the volume world trade; and a sudden and major worsening of the distribution of current account balances among the major groups of countries—resulting mainly from the ' second oil shock '. He went on to say: The rise of inflation rates in the industrial countries has been both dramatic and widespread. Inflation in the seven major countries accelerated from an average rate of less than 7 per cent. a year in the closing months of 1978 to one of 13 per cent. in late 1979 or early 1980. That is the background against which the Government's economic strategy has been constructed and the context in which our plans for public spending must be judged. That is why the Government's overriding priority is to reduce the rate of inflation.

The dominant feature of the past 10 years has been the high rate of inflation, not only here but in other industrial countries. It is no accident that the 1970s turned out to be a decade of declining growth and rising unemployment, again not just in this country but throughout the world. It is no accident that that happened, because inflation is bad for growth and bad for unemployment. It inhibits investment and consumption. Until we get it down there can be no prospect of a return to the comparative economic stability—

Mr. Healey

rose—

Sir G. Howe

and prosperity—

Mr. Healey

rose—

Mr. Deputy Speaker (Mr. Bryant God-man Irvine)

Order. Sir Geoffrey Howe.

Sir G. Howe

The right hon. Member can hardly suggest that I am unwilling to give way to him. Even he has no right to rise to his feet when I am in the middle of a sentence and expect me to sit down.

To return to what I was saying. Until we can get inflation down, there is no prospect of a return to the comparative economic stability and prosperity of the 1950s and 1960s.

Mr. Healey

The right hon. and learned Gentleman rightly said that the IMF prediction for the average rate of inflation was 13 per cent. for the current year. The rate in this country is 20 per cent., and that is due entirely to the fiscal measures taken by the Government in raising public sector charges and doubling the rate of VAT. How on earth can the right hon. and learned Gentleman expect us to take him seriously in saying that his aim is to reduce inflation when he has doubled it since he took office?

Sir G. Howe

I understand that the right hon. Gentleman has to strive particularly hard to make points of that kind, but that intervention is unworthy of him. [HON. MEMBERS: " Answer it."] Perhaps he will be patient enough to contain himself and listen to an answer for a change. He knows that the underlying rate of inflation has not risen to that level, and that at the end of 12 months after the increase in VAT that figure will drop out of the index. He knows that the impact of high and rising oil prices is having an effect in the United Kingdom, exactly as it is in every other OECD country. He knows that when we came to office he left us with a rapidly expanding money supply and a rapidly rising rate of price inflation. He, more than most, for two years during his first term at the Treasury was fond of blaming his predecessors for the inflation that he had to deal with. Let him recognise the extent to which we are entitled to do exactly the same.

The next link in our strategy is the commitment to a progressive reduction in the rate of monetary growth. That is now widely accepted as essential if we are to defeat inflation. Inflation cannot indefinitely continue unless monetary growth accommodates it. That is why we have our medium-term financial strategy, providing so plainly for the progressive reduction in the rate of money supply growth over the medium term. That is the basis on which the strategy provides the framework within which inflation, interest rates and taxes can fall over that medium term.

As the Red Book makes clear, it is neither possible nor desirable to set out an exact specification of the path that all the various elements of the economy might be expected to follow under this strategy. We have not tried to do that.

The history of the past decade alone shows clearly enough that it is not within the power of Government to determine output or employment. That is the reason why the strategy is confined to those elements that are within the Government's power to control—public spending, taxation and the money supply. This means that the achievement of the strategy does not depend upon one particular set of circumstances prevailing. If things turn out differently from the projections underlying the strategy, changes can and will be made to maintain the counter-inflationery thrust of the policy.

That is the importance of our approach. We mean to stick to the monetary targets and the medium-term financial strategy, and we have every reason to believe that we shall succeed in that, because those elements are under our control. There is no question of departing from that money supply policy, because that is now widely seen to be essential to the success of any anti-inflationary policy.

Fiscal policy plays an equally central role in the medium-term strategy. It must be part of our purpose to achieve slower monetary growth without prolonged recourse to higher interest rates. Indeed, we must create the conditions in which interest rates can fall. That is the reason why fiscal policy has a crucial role if the growth of money supply is to be reduced over the medium term. That is why in the financial strategy, we chart a declining path for the public sector borrowing requirement as a proportion of GDP. It is why the heart of the strategy is the relationship between public spending and revenue.

If we had kept to the public spending plans that we inherited it would have been necessary to increase taxes by several pence in the pound even without the benefit of revenue from the North Sea. That would defeat the entire object because high taxes stifle enterprise. We had to plan for a massive reduction in the spending plans of the previous Government if we were to have any chance of putting forward a strategy for reducing inflation while at the same time encouraging enterprise and initiative.

Mr. Bob Cryer (Keighley)

In his first Budget the Chancellor said that the basis of his whole strategy was to encourage enterprise. Since that first Budget, unemployment has inexorably risen. When does the Chancellor expect his tax concessions to the entrepreneurs to start producing the jobs that are the basis of his economic policy?

Sir G. Howe

I have no doubt that the tax changes made in my first and second Budgets are an important factor in sustaining the willingness of people to invest in this country and to return to this country. I have no doubt that the tax reductions designed to promote enterprise are and were of a kind that would have been wholly unforthcoming had the previous Government been reelected.

Mr. Cyer

When will the jobs come?

Sir G. Howe

The jobs are far more likely to come if we are able to sustain this policy than they would be if the Labour Government had been returned to office. Opposition Members must contemplate the consequence of their actions. Had the previous Labour Government been returned to office, despite all their protestations to the contrary at the last election we should have seen reductions in public spending, increases in taxation, and the curtailment of opportunities in business and enterprise in every direction.

The changes that we have made in our two Budgets make a very substantial contribution to the restoration of conditions in which enterprise can once again play a part in creating jobs in this country. What never ceases to astonish me is the extent to which Opposition Members appear to live in a world of their own and ignore the fact that we are not alone in the analysis which I am commending to the House.

In our clear recognition of the need to reduce public spending we are marching in line with most of the other Governments of countries with successful economies. By way of example, substantial public spending cuts are being implemented at this time in the United States, the Netherlands, Denmark, and Sweden. In Japan, Government spending is growing more slowly than at any time in the past 20 years. There are signs that public spending will have to be still further restricted in France next year. Expenditure cuts are an early priority for the new Belgian Government. It is remarkable that Opposition Members should continue to criticise the expenditure cuts that we are making when we are not the only Government doing so and when even a Labour Government were compelled, after two years of reckless expansionist spending, to undertake expenditure cuts in exactly the same way.

It is interesting that, although we are planning for the steady and substantial reduction in public spending that I have been talking about, the main anxiety that seems to come through from most critics is not that our planned spending reductions are too severe but that they may not be ambitious or effective enough.

That is the effect, in sum, of many of the questions raised by the Select Committee. It asked " What if nationalised industries cost more than you think? " That is a fair question. " What if the relative price effect is more adverse than you suggest? " " What if public sector pay continues to take too large a share of resources? " They are all questions that I well understand being asked, all leading to the conclusion that the case for a reduction in public expenditure is stronger, not weaker. I welcome that analysis and that pressure.

Mr. Tony Marlow (Northampton, North)

Will my right hon. and learned Friend sustain his point by telling the House that public expenditure this year will be more than it was last year, so the need for public expenditure cuts is even greater now than it was before?

Sir G. Howe

That is the point that my right hon. Friend and I have been making to the House from many directions. I am endeavouring to underline the stark contrast between the realism of the great majority of those who support the Government and the unreality of the Opposition. The realism of our policy is that which commends itself to most successful Governments in the rest of the world.

My hon. Friend's point touches on a matter raised by the Select Committee, which draws attention to anxiety over the scale of cuts in capital spending and asks for more substantial cuts in current spending. I claim credit for the fact that this Government are pioneering reductions in public spending in areas that have not been touched by previous Governments. We look for the full support of this House in continuing to reduce current spending in that way. Once again we are addressing ourselves to real questions.

I apologise for concentrating on my hon. Friends, but it is they who are addressing themselves to the substantial problems of this country.

Mr. Bruce Douglas-Mann (Mitcham and Morden)

Has the Chancellor even considered the provisions of the Brandt Commission's report on North-South relations and its proposals for world economic recovery, which would involve increased contribution to overseas aid? How is that taken into account in the proposed reduction of 15 per cent. in overseas development?

Sir G. Howe

That is an interesting question, which no doubt could have been raised in the debate that the House had a few weeks ago in private Members' time on the report of the Brandt Commission. No doubt it will be raised when the House returns to debate that report on a future occasion.

Even in relation to overseas aid, however highly one may prize it, one is bound to adjust one's expenditure according to what one can afford. When one has regard to the extent to which a large proportion of public spending going through the Budget is being transferred overseas on defence expenditure, the Community budget, and aid amounting to several billions of pounds, I make no apology whatever for having curtailed our expenditure on aid to a figure that is consistent with what this country can afford. In doing that I am confident that I am doing what the majority of people in this country want

The point that I was dealing with a moment ago is put in another way, although it is not always recognised as such, by those who fear—again I refer to the Select Committee—that the growth assumptions underlying the strategy may be unduly optimistic. They imply that if that is the case, and if growth, even on the modest scale suggested, is not forthcoming, even the reduced spending programme could be unsustainable.

I remain of the view that the assumption of 1 per cent. annual growth after 1980, on which the illustrated projections in the Red Book are based, can properly be described as deliberately cautious. In passing, it is interesting to compare that figure of 1 per cent. per annum with the 5 per cent. or 6 per cent. per annum at which the Leader of the Opposition was aiming in 1964, or the 4 per cent. per annum that he regarded as inadequate in 1965. In fact, 1 per cent. was the rate of growth achieved between 1973 and 1979, a period that appears to span a complete cycle in economic activity.

We expect the British economy, as well as the world economy, to be recovering from recession from 1981 onwards. Over the comparable period in the last cycle, from 1975 to 1979, GDP grew at over 2 per cent. a year. The economy should certainly be capable of growing faster than the 1 per cent. a year set out in the public expenditure White Paper. However—this is the important point to realise—even if GDP does not grow at the assumed 1 per cent., there is room for manoeuvre. The modest and reducing plans for public spending that we put forward are compatible even with that.

There is one aspect of spending that has attracted a good deal of interest—that which concerns the future of nationalised industries. In that respect the White Paper is no less detailed than its predecessors. Moreover, I have already explained to the Select Committee, in broad terms, where and why we expect improvements to be achieved. The aggregate financing figure in the White Paper was built upon a basis of detailed discussion between sponsoring Departments and the industries. I have suggested that if Parliament wishes to inquire into the prospects of individual industries, the best way is for the relevant specialist Committees to discuss them with the sponsoring Department. I understand that the Select Committee on transport is already doing that.

We may or may not be right in our view that the Government's policies will secure a major transformation in the aggregate financing requirements for nationalised industries over the four-year period. I hope at least that the House will agree that that transformation is highly desirable, because the nationalised industries account for about 10 per cent. of the GDP. They are an important part of the enterprise sector and no-one, surely, can doubt that they need to be efficient, competitive and profitable.

Of course, the problems of some of the nationalised industries are very deep-seated, but it would be foolish in today's world, for example, to continue to allow energy to be underpriced. Over much of the loss-making field of the nationalised sector, as over much of the entire economy, there can be no substitute for improved performance, which is desperately needed. Indeed, it is essential if we are ever to turn more of the nationalised industries into wealth-creating instead of wealth-consuming industries.

That point serves to illustrate the most important feature of the debate—the extent to which a large part of economic performance is beyond the power of any Government to control or command. Some aspects of economic policy may be predictable, but it does not follow that they are capable of correction by Government. Some economic prospects may be understandably described, in that beguilingly convenient word, as unacceptable, but it may not be in the power of Government, and certainly not of Government by themselves, to prevent the unacceptable coming to pass. That is the proper background against which to judge the adequacy of the Government's policies for the corporate sector of the economy—perhaps, more accurately, the non-oil corporate sector.

No one doubts that there may be real difficulties ahead for those who work in that changeable part of the economy, whether in manufacturing or service industries. Even so, I hope that the House will take to heart on this issue the warning given to the Select Committee by the Governor of the Bank of England against what he called a too generalised pessimism. As he said, there is unsurprisingly, a great deal of variety, with many firms having sizeable order books for profitable business. There is also a good deal of healthy industrial adaptation going on. We should bear that in mind as we ask the question, how far are Government able to help the enterprise sector?

What are the pressures on the financial position of business? They may be listed: firms' inability to raise their prices because their competitive position in home and overseas markets rules that out; the high level of interest rates that firms have to pay on their bank borrowing; the weight of taxation—corporation tax, national insurance surcharge, and so on; pay demands beyond what can be financed through higher productivity or sustainable price increases; and, finally, declining markets that affect world re cession or the strength of sterling.

What should the Government do about those pressures? Should we somehow reduce the exchange rate? Fundamentally, the value of sterling depends on market forces. We have removed the artificial prop to the exchange rate represented by exchange control, but we could not intervene significantly to reduce the rate without endangering monetary targets and giving a twist to the inflationary spiral. Any benefit to companies would soon be countermanded by still higher pay demands, and the consequences would further damage the prospect of economic recovery.

Mr. Michael English (Nottingham, West)

The right hon. and learned Gentleman made the same statement to the Select Committee. He said that the Government could not do anything about the inflow of capital without endangering his monetary targets. The Government could do so if they chose. They could impose reverse exchange controls. I do not necessarily advocate that. I merely point out that the right hon. and learned Gentleman's statement is not strictly true.

Sir G. Howe

In the field of the practicable it is true, but one should not be prepared to accept that suggestion, which even the hon. Gentleman does not urge.

The alternative suggestion sometimes made is that we should seek to cut company taxation, but if the revenue lost by reducing company taxation were not recouped in another way it would mean either once again putting monetary targets at risk or increasing interest rates to keep the money supply under control. If we tried to increase other taxes to lighten company tax—income tax, VAT or excise duties—it would add to pressures for higher gross pay. None of the outcomes would help companies. They would all tend, directly and indirectly, to push up prices, industrial costs or interest rates.

What about the prospect of reducing interest rates? As I made clear in my Budget speech, our policies are directed towards securing lower interest rates. That is why we have acted firmly to hold back public spending and reduce public sector borrowing. However, we cannot expect to see interest rates moving down and staying down until the money supply is firmly back under control and the forces that made for rapid growth in money supply in 1979 have subsided. In practice, the money supply is coming under control and interest rates have come down a little. Figures published earlier today show that the rate of growth of sterling M3 over the past 10 months has fallen to an annual rate of about 10 per cent., and in the past six months the rate has been less than that.

These figures are encouraging, and show that our policies to reduce money supply growth are working. In recent weeks the gilt-edged market has also demonstrated its confidence that our policies will bring down the rate of inflation and, with it, interest rates. We have sold substantial volumes of gilts, and long-term interest rates have fallen. But although these figures are encouraging it would be incautious for the authorities to follow them too quickly with a reduction in MLR. The details of today's figures are not yet available. We shall not be sure of the position until it is clear that current interest rate levels are restraining the persisting excessive rate of growth of bank lending in recent months.

To reduce MLR prematurely would risk undermining our policy to bring down the rate of inflation. We might then be faced with having to increase interest rates again late in the year. That would be damaging for industry, home owners and consumers alike, and would push the prospect of resumed growth further into the future.

Mr. John Bruce-Gardyne (Knutsford)

We were delighted by the progress that the Government made in bringing M3 back on to the path, but, against the background of a balance of payments deficit, should we not pay some attention to the domestic credit expansion statistics? Do they not contain some element that requires careful scrutiny?

Sir G. Howe

As my hon. Friend knows, we seek to pay regard to all the statistics, as I have often emphasised. However, the single indicator of sterling M3 is not the only figure that we have in mind.

I come back to the company sector in the broader sense. I recognise the difficulties particularly of those companies that are producing goods and services that face competition from overseas in both home and export markets. They are very much in my mind today, since I spent the morning at the National Economical Development Council discussing just these problems. However, it must still be said, as it was said this morning, that in the great majority of cases by for the most effective action to help companies still rests with companies themselves, their managers and their workers.

In the short run, as they adapt to the relatively poor prospects with the world economy this year companies may be able to reduce their stocks and so reduce their interest rate costs. More fundamentally, however, they have to become more competitive, and that means keeping unit labour costs under better control. That is not something that Government can do. We certainly cannot go back to institutionalised incomes policies, the backwash of which is now presenting such huge problems for public finance.

We cannot get away from the issue of pay. If negotiators on both sides of industry will recognise the inevitable constraints set by monetary targets, which are the inescapable condition for controlling inflation, and if they will face the facts of the world's economic climate, the prospects for British companies will improve substantially. Inflation will fall more quickly and more effectively, and the foundations will have been laid for the durable reduction in interest rates that the company sector wants and needs.

We have always recognised and asserted that the struggle against inflation will take time. We have always stressed that it will involve costs in the short term. That cannot be repeated too often. The short-term costs of reducing inflation can be reduced if people recognise that a firm monetary policy will in the end mean a lower rate of inflation and adjust their behaviour accordingly.

In effect, the process of reducing inflation can be to some extent short-circuited. That is what has happened in countries such as Germany, Switzerland and Japan. People know that their Governments will not accommodate inflation, so they bargain on that basis and not on the basis of some going rate of pay settlements or of recent changes in the retail price index. For their part, the Governments will do everything within their power to seek to ensure that moderation in public sector pay contributes to a gradual lowering of inflation.

Monetary control bites on some parts of the public sector by way of interest rates and the exchange rate—in some ways as it does on the private sector. We have also the discipline of external financing limits and cash limits, which are particularly important in the case of the public corporations, which are monopoly suppliers of certain products. No one should doubt the Government's determination to make that discipline bite.

I note the extent to which the Select Committee expressed concern about that aspect of the problem of controlling public expenditure. I hope and believe that we can count on the full support of the House in our efforts to achieve moderation in pay bargaining within the public sector.

I have tried to deal with some of the anxieties about our policy while spelling out the policy itself. It begins to appear that most of the anxieties that people have in mind in effect reinforce the case for our strategy. To the extent that it is difficult to achieve the spending and other objectives that we have set ourselves there is all the more reason to persevere resolutely with that strategy. I assure the House that we shall do just that. What we have heard so far does not invalidate our general approach. Nor, above all, does it offer an acceptable alternative means of reducing inflation without adjusting future public spending along the lines proposed in the White Paper.

We have made absolutely clear our determination to bring down the growth of the money stock so as to defeat inflation and to pursue the fiscal policies necessary to achieve that aim. That is the message of the medium-term financial strategy, and it is the objective of all our policies. Of course, the figures will vary from time to time. New decisions will have to be taken. Existing expenditure and other plans will have to be reviewed and adjusted as we move forward. However, I have no doubt about the correctness of the strategy that we have set out.

Success will come more quickly and with less pain if decision makers throughout the economy work with the grain of that strategy. It is not, as is so often believed, Government policies that are threatening or destroying jobs. All too often that is done by unrealistic pay increases. There are now some encouraging signs of realism, but how quickly we can return to higher output and higher employment depends largely on how soon greater realism and moderation begin to prevail. In getting that message over to the British people I shall welcome the support of the House, of the Select Committee, and of all those who have the nation's best interests at heart.

4.27 pm

Mr. Denis Healey (Leeds, East)

I beg to move, to leave out from " House " to the end of the Question and to add instead thereof: ' rejects the Government's Expenditure Plans 1980–81 to 1983–84 [Cmnd. 7841] on the grounds that they will increase unemployment, raise the cost of living, and lower the standard of the public services.'. The Chancellor of the Exchequer was untypically guilty and defensive in his speech this afternoon. As I understood his closing remarks, basically he was saying that all that he is doing will take time. I am sure that he would be Miss Mae West's favourite Minister, because she is reputed to have said " I like a man who takes his time."

One of the oddest things about the right hon. and learned Gentleman was that he spent most of his speech attacking the forecasts that he has published. After all, we are supposed to be debating the forecasts of public expenditure over the next four years as published by him. Those forecasts are designed to be compatible with the medium-term financial plan for the next four years which he has also published.

However, now the right hon. and learned Gentleman tells us that we should not take the slightest notice of anything he says about the future because the future is so uncertain. The one thing on which I agree with the right hon. and learned Gentleman is that one should not pay the slightest attention to what he says about the future, and I shall demonstrate why that is so.

The right hon. and learned Gentleman spent almost none of his time discussing the public expenditure White Paper which is the subject of this debate. He made a speech which I daresay he hopes that his right hon. Friend the Chief Secretary will make tomorrow. He may be right in thinking that the Chief Secretary will not make that speech. I shall deal with what he said about the Government's general economic policy—exchange rates, interest rates, and so on, in my speech tomorrow afternoon. I propose this afternoon to devote myself to the White Paper. Almost the only reference by the right hon. and learned Gentleman to that was at the beginning of his speech when he attacked the previous Government for being impulsive and unsustained. I think that those were his adjectives in respect of public expenditure.

This is the third batch of public expenditure cuts that the right hon. and learned Gentleman has presented to the House in nine months. This new White Paper on public expenditure accompanies his third set of fiscal measures over the last nine months. I confess to the right hon. and learned Gentleman that in terms of the sheer quantity of measures that he is putting before the House, he beats me to a frazzle.

A question that the right hon. and learned Gentleman did not even attempt to answer was why the Government are making this third further set of cuts in public expenditure only five months after we debated the last set. When the right hon. Lady the Prime Minister discusses this question in public, especially on television, she tends to say that public expenditure must be cut because the people of this country must be free to choose how they spend their money.

I remind the right hon. and learned Gentleman and the right hon. Lady that the people of this country were free to choose last Thursday. They chose public expenditure at the expense, if necessary, of an increase in rates. Whatever may be said about the results of the local authority elections last Thursday, the one thing they prove beyond any possibility of denial is that the people of this country are not prepared to see the standard of their public services reduced even if this means that they have to spend more money in order to keep them up to standard.

The right hon. and learned Gentleman is a little more sophisticated than the right hon. Lady. He explains in paragraph 3 of his White Paper—I do not know if he read it before having it published—that the reason why he is producing a new set of public expenditure cuts only a few months after the last lot is that he failed to control the money supply and adopted a fiscal policy of savage deflation in the hope of getting monetary policy back within the target range. I remind the right hon. and learned Gentleman that his hon. Friend the Financial Secretary told us a year ago that the target for this year was a 9 per cent. increase in money supply. That was the target figure given in the Financial Statement and Budget Report last June. The right hon. and learned Gentleman says that even in the last 10 months, ignoring the appalling record of the first two months that he was in office, the increase was 10 per cent. That does not include at least 2 per cent. from acceptances. The right hon. and learned Gentleman is way outside his financial target even now.

Sir G. Howe

I should merely like to know whether the right hon. Gentleman, in his generous mood, is prepared to accept his personal responsibility for what he describes as the appalling monetary growth during my first few months in office. Surely, the right hon. Gentleman must at least accept responsibility for that.

Mr. Healey

Absolutely not. In the year up to May last year, when the present Government took power, monetary growth was well within the target that I set as Chancellor of the Exchequer. The right hon. and learned Gentleman published the figures in the Financial Statement and Budget Report. The increase in the money supply during the last year I was in power was 11.7 per cent. According to the Financial Statement, which the Chief Secretary to the Treasury must have read, although I am sure that the Chancellor did not read it, the increase in acceptances started last year. This is stated in terms in the Red Book, as the right hon. and learned Gentleman knows. The excuse that the right hon. and learned Gentleman presents for his monetary profligacy in his first few months does not wash according to the statements and figures that he has published in the current Financial Statement and Budget Report.

I shall deal in detail with the points that the right hon. and learned Gentle man made about his monetary and fiscal policies and economic policies in general at the appropriate time when we debate the Second Reading of the Finance Bill tomorrow. I am glad that the right hon. and learned Gentleman has given me a little more ammunition for the speech that I shall prepare in the morning. I propose now to deal with the subject of the debate—the so-called public expenditure White Paper, "The Government's Expenditure Plans 1980–81 to 1983–84."

Mr. Peter Bottomley (Woolwich, West)

For those hon. Members who cannot wait for tomorrow, will the right hon. Gentleman remind us that his view of economic management depends on demand management, monetary control and incomes policy? Will he say whether he considers all three were under control when he stopped being Chancellor of the Exchequer in May last year?

Mr. Healey

I think that fiscal policy and financial policy were under control. There was certainly a collapse in pay policy a year ago, but the increase in pay up to May last year was about 14 per cent. Immediately after the new Government took office, pay settlements rose in those last three months to an average of 16 per cent. They are now running at 20 per cent. In the public sector, for which the right hon. and learned Gentleman took direct responsibility, settlements are running at 25 per cent. It is a little thick for the right hon. and learned Gentleman and his hon. Friend the Member for Woolwich, West (Mr. Bottomley) who, I believe, takes a more balanced and moderate view, to criticise the previous Government for weakness in their pay policy which resulted essentially from a vote in the House of Commons forced by the Conservative Party in December 1978.

I now come to the question: Why should we cut public expenditure further? We should not cut it further for the reasons that the right hon. and learned Gentleman gives in his plans—that it is too high in relation to other countries or in relation to the Government's fiscal and monetary targets. Our public expenditure is already lower as a percentage of our gross domestic product than that of any other country in Europe. It is running at 42.7 per cent. against an average of 46.8 per cent., with both Germany and France both well over 46 per cent.

There is no relationship between money supply and the percentage of public expenditure. This is a point that I have made previously to the right hon. and learned Gentleman but he has totally failed to deal with it. I hope therefore that the Minister, in winding up the debate, will try to deal with it. The best proof is the fact that even in 1975 when public expenditure was running at nearly 50 per cent. of GDP, money supply was running at 10 per cent. It ran at that the year before, and the year after. There is no relationship between the level of public expenditure and the public sector borrowing requirement. Our public sector borrowing requirement and the money supply were running at 10 per cent. of GDP in 1974–75.

There is no relationship between the level of public expenditure and the level of interest rates. The level of interest rates in 1975 was only one-half to two-thirds of what it is now running at. The right hon. and learned Gentleman's failure, as he knows, because he says so from time to time, to control the money supply is due to the high level of corporate borrowing.

Corporate borrowing is very high because companies are having to borrow heavily to finance excessive pay increases generated by the inflation rate that the right hon. and learned Gentleman created. He has not attempted to deny it. The inflation rate is 7 per cent. higher than the average in the industrial world, entirely as a result of his own fiscal and economic policies. The level of corporate borrowing is also high because companies are carrying excessive stocks at an excessive cost due to the Government's decision to raise minimum lending rate to 17 per cent., a higher level than has ever been known in this country and sustained for a longer period than ever before. That is a direct result of the Government's fiscal and monetary policies.

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

If the right hon. Gentleman is asserting that there is no relationship between the public sector borrowing requirement and the rate of interest and that there is no relationship between the public sector borrowing re quirement and the rate of monetary growth, why was his first action on becoming Chancellor to seek to reduce the public sector borrowing requirement?

Mr. Healey

I thought that it was too high, not in relation to financial factors. That was not the problem at all at that time. The money supply and interest rates were low; the exchange rate was firm. I reduced the public sector borrowing requirement because I thought that it was too high in relation to other factors in the economy. I explained that. The Financial Secretary must try to understand these matters if he wishes to make progress. He has done badly in his first year. I hope that he will improve. He should read the speeches that I made at the time in which I explained why I was reducing the public sector borrowing requirement.

The recession from which Britain is now suffering is the heaviest of any country in the Western world, yet Britain is the only industrial country which benefits from increases in oil prices. Yet we are increasing public spending. Public spending on benefits goes up £100 million for every 100,000 extra people on the dole. The Chancellor of the Exchequer told us last month that an extra 300,000 would be unemployed as a result of his policies and he admitted to the Select Committee that the number would be much higher than that. The PSBR increases a great deal more than public expenditure because revenue is lost when people are out of work and living on social security instead of earning money.

The right hon. and learned Gentleman's deflationary fiscal policies are creating the very problem which he is trying to solve by using measures which can only increase the scale of the problem. The result is clear. It was pointed out by the Select Committee and it is clear in the White Paper. The net result of the agony of cuts in summer and autumn last year and in the early months of this year is that the Conservative Government spent £289 million more at constant prices in 1979–80 than the Labour Government did the previous year. In the current year, 1980–81, the Government are spending about £400 million less than they were spending last year. Given the Government's deflationary policy, the net result of all the agony involved in public expenditure cuts is that public expenditure has been kept roughly level in the last three years at constant prices. However thanks to the deflationary policy, as a percentage of gross domestic product, public expenditure after all the cuts, will rise in the current year.

Those are the facts that are revealed in the White Paper. I know that the right hon. and learned Gentleman will not seek to deny them because he cannot. The cost of this minuscule achievement is an appalling increase in the length of the dole queues. The right hon. and learned Gentleman might wipe the grin off his face when I talk about that. The cost is also an increase in prices and falling standards in the public services. The measures in the White Paper will increase both the depths of the recession and the level of inflation which Government policies have already generated.

Mr. Tim Eggar (Enfield, North)

The right hon. Gentleman cannot have it both ways. On the one hand he decries the cuts that the Government are making and, on the other, he says that they are making no cuts. What does he want?

Mr. Healey

I hope that the hon. Gentleman will reflect on what I say. The Government are adopting a policy of gross deflation so that the recession in Britain will be worse than anywhere else in the industrial world in the coming year. Yet we are receiving benefits from North Sea oil—an increase of 5 per cent. in our gross domestic product—which no other country enjoys. Deflation in itself enormously increases public expenditure and the public sector borrowing requirement. The result is that the Government are having to cut public expenditure heavily simply to stand still. Does the Chancellor of the Exchequer really think that that is a sensible way to approach the country's problems at this time? I hope that he will reflect on that.

Mr. Nigel Forman (Carshalton) rose—

Mr. Healey

I have given way a great deal. I give way regularly during my speeches. I enjoy interruptions but not beyond limits.

We shall discuss the wider economic implications of the Government's policies tomorrow. I shall enjoy investigating some of the points which the right hon. and learned Gentleman made this afternoon. An important point came out of the Select Committee's investigations. It is that, if the Government stick to the plans in the White Paper, if they really fill the empty shelves displayed in the White Paper, there is no chance whatever of the feeble upturn in economic activity which the Government forecast in their Financial Statement.

The right hon. and learned Gentleman told the Select Committee that manufacturing output will fall by 6 per cent. in the next four years. He said it would fall by 4½ per cent. this year and by 0.5 per cent. in each of the following three years. He said that output from the North Sea will increase by only 0.5 per cent. of GDP each year. The World outlook is gloomier with every month that passes. The increase in the output of services, which is the only other item in economic activity beyond public expenditure, cannot conceivably produce the turn-round in output forecast by the right hon. and learned Gentleman in his financial plan.

We must have higher public expenditure and a higher public sector borrowing requirement if at the end of four years we are to have any hope whatever of getting output back to the level at which the right hon. and learned Gentleman found it when he took office in May last year. The facts are displayed in detail in evidence to the Select Committee.

Even if we judge the White Paper by the standard which the right hon. and learned Gentleman set for it, it cannot survive even the most gentle scrutiny. I congratulate the Select Committee on the Treasury and Civil Service on producing such a thorough report in so short a time. I should particularly like to congratulate the right hon. Member for Taunton (Mr. du Cann)—I doubt whether I shall do so on any other occasion—on securing unanimity among Conservative, Labour and Liberal members of the Committee on findings which are severely critical of the Government's policy.

Mr. Eggar

They are not.

Mr. Healey

I have read it, my dear fellow.—[Interruption.] You, Mr. Deputy Speaker, are far more dear to me than the hon. Member who interrupted me. I read every last thousand words of the report.

As the Select Committee report says, after five years in which the Labour Government steadily increased the amount of information available to the House, the present Government have put the process into reverse. The Chancellor talked about explanation as being his job. If hon. Members take the trouble to read the evidence which was given to the Select Committee, they will find not explanation from the Chancellor but prevarication and equivocation in answering all the questions put to him. The right hon. Member for Taunton was compelled to animadvert on the Chancellor's lack of candour in dealing with the Select Committee. I see two hon. Members from different parties nodding their heads in agreement.

The main criticism by the Select Committee cannot be denied. Indeed, the Chancellor did not attempt to deny it. There is no breakdown by category of public expenditure plans for the coming four years, so it is impossible to judge the economic effects of the cuts in particular programmes.

The Secretary of State for the Environment, when he was questioned about this by the Select Committee on the Environment, described the attempt to get more information as an exercise in academic curiosity. Yet it makes all the difference in the world whether the housing cuts are achieved by raising rents, which has an immediate effect upon the cost of living and wage settlements, or by cutting building programmes which has an immediate effect on employment.

Mr. Bruce-Gardyne

The right hon. Gentleman is making great play of the extent to which the Government of whom he was Chancellor published those detailed figures which he accuses my right hon. and learned Friend of withholding. Is it not arguable that no great purpose is served in achieving better government in regularly publishing, as the right hon. Gentleman did, detailed categoric programmes which had then to be adjusted every six months as he produced successive new Budgets to accommodate changes in events? What was the advantage in that?

Mr. Healey

Of course it is arguable. It was argued by the Chancellor to the Select Committee, but the Select Commit tee rejected the argument—that is the important point. A great deal more information was provided in previous White Papers, in particular the breakdown by economic categories and the breakdown between capital and public spending which I shall come to in a moment. That information is vitally important if one is to judge the wisdom of the Government's plans and that information has been denied to the House of Commons by the present Chancellor. It was given to the House by myself and by previous Conservative Chancellors.

I give an example. There are additional cuts in the White Paper this year which fall almost entirely on housing. Indeed, those cuts were announced to the House long before the White Paper was published. But to take future years—the following three years—we are presented, as my hon. Friend said, with a series of empty boxes. We have not the slightest idea how these cuts in housing expenditure will be achieved. The right hon. and learned Gentleman had to admit that no decisions have yet been taken. These are just pious hopes from the point of view of the Government. From our point of view, they are pious fears.

In answer to the hon. Member for Knutsford (Mr. Eruce-Gardyne) I say that decisions on capital spending must be taken years in advance if the profile of Government spending as a whole is not to have bulges in particular years which will throw the whole of economic management out of kilter. The hon. Gentleman knows that perfectly well. That is a reason why Lord Plowden—Sir Edwin Plowden as he then was—persuaded the Government 30 years ago to adopt a five-year volume plan for public spending. All that is lost in the present White Paper.

The shortfall figures in the White Paper are unrealistic. It is quite clear to anyone who has worked in the Treasury, as I have, that they have simply been treated as residual to ensure that the total for each year comes out all right from the point of view of the Government. The assumption on the growth of costs in the public sector is also unrealistic and the assumptions in the White Paper are contradicted by the Financial Statement and Budget Report published on the same day. The FSBR assumes that public sector prices rise by 7 per cent. more than the increase in the RPI whereas the White Paper assumes that they rise by only 0.7 per cent. more.

The right hon. and learned Gentleman, when he was faced with this contradiction by the Select Committee, could only answer to the effect that the FSBR was produced at a different time from the White Paper although they were, in fact, published at the same time. The difference between the relative price effect in one and the other is a difference of 10–1.

The whole of the White Paper is in " funny money " as critics of the last Government used to call it; that is, in constant prices. But those figures are contradicted by table 20 in the FSBR where the figures are given in money terms and are irreconcilable with the figures in the White Paper. I hope that when the right hon. and learned Gentleman replies he will deal with that side of the problem because it was not dealt with by the Select Committee.

This so-called White Paper is a sort of house of mirrors in the funfair. There is nothing substantial in the White Paper whatever beyond the figures for the coming year. It is quite impossible to make any judgment on the figures. That was the view of the Select Committee—made up of Labour, Conservative and Liberal Members—from the facts given to it. Either the White Paper was designed simply to bamboozle this House or it reflected confusion and indecision among the Government themselves. I suspect that it reflects a little bit of each.

This White Paper took twice as long to produce as any earlier White Paper in British history. To produce a White Paper three months late which lacks the vital information given earlier in White Papers; which is inconsistent with the FSBR published on the same day, and which is also lacking in any detail in the most important areas, is an insult to this House and to the country which the House serves.

What emerges from the questions put to the Chancellor by the Select Committee is that the cuts are achieved mainly by different ways of financing existing activities in the public sector—by financing these activities not through income tax but by levies on the sick, the unemployed and the disabled. The cuts also result in increases in local authority rates which are in turn at the expense of business. A great deal of the White Paper is not so much about cuts in spending as about increases in what most of us would call taxation.

In so far as there are real cuts in spending in the White Paper, they disproportionately fall on capital spending which will reduce the future efficiency of the public sector in the long run and the cost of which, in the short run, will be carried mainly by private industry, particularly the construction industry.

I wonder how many Conservative Members recall the policy document published in 1977 by the Conservatives and called "The Right Approach to the Economy ". Talking of public expenditure under a future Tory Government the document said: The necessary economies can be so phased as to give the most benefit to the nation's productive capacity. This will be in contrast with Labour's recent panic cuts, which fell too heavily on capital rather than current spending and did great damage to the construction industry. Let us judge those promises on which right hon. and hon. Gentlemen fought the last election alongside the facts in the White Paper. This year capital expenditure falls from 13 per cent. in 1978–79 of total public spending under the previous Labour Government to 11 per cent. only in 1980–81. The cut in public investment—excluding the nationalised industries—is 15 per cent. on the level in 1978–79. The impact will be felt overwhelmingly in the construction industry.

I come now to some of the details. We have debated the cuts in social security benefits at length in recent weeks. Therefore, I will not go over that in any detail. I say one thing only. Of all the squalid and underhand devices dreamed up by any Conservative Government in the past to cheat the needy, the worst is the decision to increase pensions and other benefits two weeks later this year so as to make pensioners pay for their own Christmas bonus. I cannot understand how Conservative Back-Bench Members—I can understand the motives of Ministers—can really support a dirty device of this nature.

I wish to concentrate on the cuts in specific programmes and look at them one by one. First, the specific cuts planned in programmes are bad enough. There is a 7 per cent. cut in social services this year on top of a 3 per cent. cut last year. There is a 4½ per cent. cut in education this year on top of a 3 per cent. cut last year. Housing allocations have been cut by 25 per cent. this year on top of an 11 per cent. cut last year.

How can the Chancellor of the Exchequer suggest that the central Government have nothing to do with housing expenditure? Does he know anything about the system of housing allocation and how local government financing works?

But that is only part of the picture, because the Government are using cash limits which are unrealistic in relation to the rate of inflation, which they themselves have created, and increases in public sector pay which they themselves have agreed, in order to cut public expenditure still further. For example, with regard to education, local authorities have been given a cash limit of 13 per cent., which means that they will have to levy a supplementary rate this autumn to raise about £1,500 million unless they can keep the next normal pay increase of teachers down to 7 per cent. On top of that, the local authorities will have to find an extra £30 million because the House of Lords rightly threw out the Government's scandalous proposal to limit free school bussing.

This year, according to the housing industry, fewer houses will be built than for more than 50 years—in fact, since the 1920s. In order to achieve the cuts envisaged by the White Paper in future years, as the Select Committee discovered, either there will be no house building at all in the public sector over the following three years or there will be an astronomical increase in council rents. Of course, to the extent that there is a further collapse in council house building, that will mean further unemployment and bankruptcies in the construction industry.

The social effects will be catastrophic, I readily admit not across the country as a whole, but in certain areas. Only this morning, the director of Shelter pointed out in a letter to The Times that in London housing waiting lists have grown by more than 100,000 over the last 18 months, so that 210,000 families are now waiting for a home in London, and more than 1 million people are waiting in England and Wales as a whole.

The cut of £100 million in the road programmes will mean at least 10,000 construction workers out of a job in road construction and maintenance alone. The savage cuts in social services are bound to increase delinquency to such a degree that the extra police under the law and order provisions in public expenditure will be totally incapable of coping, and they will force old people who would have been housed more happily and much more cheaply in old people's homes into desperately scarce hospital beds instead.

The worst effect of the new cash limits will be felt by the nationalised industries. The only good thing that I can say about the White Paper in relation to the nationalised industries is that the Government are now relying so much on public revenue from BNOC that they have been compelled to give up their idea of selling off BNOC to the private sector.. But in other parts of the nationalised industries, the Government's cash limits have already led to the resignation of one of the ablest chairman of the nationalised industries—Sir William Barlow—who asked in vain for an increase of £150 million, or 10 per cent., in order to produce telecommunications equipment which he could sell at a profit once it was there. It will mean higher charges throughout the nationalised industries on top of the real increase of 10 per cent. a year in gas prices envisaged in the White Paper—that is, 10 per cent. above the increase in the retail price index each year for the next four years—big increases in the real price of electricity as well, or heavy cuts in capital investment, which is vital to the country's industrial infrastructure.

Indeed, as the Select Committee pointed out, the net reduction of £2.7 billion in public spending, to be achieved by the nationalised industries over the next four years, cannot be achieved either without a terrifying increase in the prices they charge in all areas, not just in electricity and gas, or further cuts in essential investment or cuts in vital activities. I am glad to see that now even the Financial Times has recognised the need for more investment in the finishing end of the: steel industry if we are to have an in dustry in the coming years which is worth keeping at all.

The only way in which the Government can achieve their target is by abolishing existing subsidies to coal and rail, because they have said that they will find the savings in nationalised industries, outside gas and electricity, by compelling the other industries to eliminate their present deficits. However, the total scale of present deficits in the other industries is only £500 million, whereas the Government are asking them to find a saving of more than £1,000 million in the coming four years. Does it really make sense to abolish subsidies for railways and coal, which are already far lower than the subsidies paid by other countries? Germany's subsidies for its railway system and coal industry far exceed the subsidies in Britain. Of course, those are subsidies to all the industries which use railway and coal. It is madness to allow this disparity in subsidies for vital infrastructure industries not only to continue but also to increase at a time when the excessive strength of the pound is already crippling the competitiveness of British industry.

I believe that the chairmen of the nationalised industries are quite right to argue, as they have argued in recent months, that we shall have to change the whole basis of nationalised industry financing. There are 18 such industries, which together employ 7 per cent. of our country's work force and produce 10 per cent. of the output. There are great opportunities for profitable investment in many areas for all of those industries. For example, as Sir Peter Parker recently pointed out, British Rail is now carrying more people more miles than it was in 1961 when it had 30 per cent. more track. If it had the opportunity to pursue its current plans for electifi-cation and a single track Channel tunnel, that would be certain to pay a handsome profit, but it is forbidden to do so because of the cash limits which the Government have imposed on its borrowing. Why cannot those industries, which have prospects of profitable investment, go to the markets for their borrowing, just as BNOC has done over many years?—[Interruption.]—Perhaps the Financial Secretary will answer that question. We did allow BNOC to go to the market I think that we should have gone further, but I want to know why the Chancellor now thinks that we should not go further.

Let me give some other examples. Over the weekend—and this may cause some unjustified pleasure to some of my hon. Friends—London Transport revealed that it may have to withdraw buses entirely from some of the Tory suburbs, such as Bromley and Harrow, in the coming year because it cannot afford to continue running those services with its present cash limits. Of course, the one good result is that it makes it more certain than ever that London will join all our other great industrial cities in voting Labour when it has the chance to do so in 12 months' time.

Mr. Robin F. Cook (Edinburgh, Central)

Is my right hon. Friend aware that when the Select Committee on Transport investigated the external financial limits proposed for British Rail, it found that over the period of the White Paper they are not merely to be reduced to zero but at the end of the period there will be an actual net repayment of £5 million to the Government? Is it reasonable that British Rail users should have to pay increased fares in order to make a net repayment to the Government?

Mr. Healey

I agree with the thrust of my hon. Friend's remarks. I shall deal with that aspect shortly. The plain fact is that the Government are forcing nationalised industries to make unnecessary profits, by charging private industry more than they should. The Government are supposed to be in favour of private industry, but that is an odd way of going about things.

British Gas now wants a share in the North Sea pipeline. I gather that that will cost £1½ billion. That is not in the White Paper. Where will that money come from? British Gas will not be allowed to participate in that project—I understand that the Secretary of State for Energy is rightly taking a different view from the Chancellor—for a reason based on pure statistical accounting convention, namely, that it would count as public expenditure.

The water authority is losing about 25 per cent. of its water in leaks. However, it will experience a savage cut in the amount of capital expenditure avail able to deal with that type of problem. The Government have given nationalised industries flexibility in only one area. The Secretary of State for Industry has just given a £2 million bribe to an American bank. The bribe appears to involve the public financing of tax avoidance. Mr. MacGregor will reap the benefit of that money on retirement, in his capacity as a board member of Lazard Freres. There has been a lot of talk about that. I hope that there will be more talk about it in coming weeks. It has been said that that £2 million represents a transfer payment. It is a very odd form of transfer fee. Mr. MacGregor has no experience of steel, nor of any major manufacturing industry. The Government might just as well have told Leeds United to pay the Brooklyn Dodgers, in order to get an elderly baseball star as its manager.

I can never decide whether the Secretary of State for Industry is Rasputin disguised as Tommy Cooper, or Tommy Cooper disguised as Rasputin. He should take his responsibility towards making British industry more competitive more seriously. All other Governments are using Government money in order to achieve that objective. With the agreement of the Secretary of State for Industry, the Chancellor of the Exchequer has decided to halve the industry budget for the next three years. As I said to my hon. Friend the Member for Edinburgh, Central (Mr. Cook), nationalised industries are being forced to make excessive profits out of private industry, as a result of unnecessary price increases. Hundreds of thousands more jobs will be lost to private industry. In addition, hundreds of thousands of jobs will be lost as a direct result of the Government's deflationary policies.

The other day I heard that Talbot, the old Chrysler company, had increased its productivity by 25 per cent. in the past three months. The Peugeot Citroen ownership of Chrysler may have to put any new investment into other countries. They offer much better investment incentives. In recent years, Japan has invested £500 million in the micro-processing industry. However, the Government are still arguing about whether to give the second half of £50 million to our microprocessing industry. Our competitors are subsidising interest rates for industrial investment. It has been calculated that the cash flow cost of borrowing for investment by Japanese companies is only one-tenth of the cost incurred by British companies.

We all know that German banks arrange finance for their industries. The French Government do not conceal the fact that French banks give interest subsidies to firms which can show that increased investment will increase their activity and employment prospects. We have an unparalleled and unique opportunity that no other Government enjoy. We have oil revenues. The Chancellor of the Exchequer told us that those revenues will amount to £4,000 million. However, every penny is being spent to finance not investment, but unemployment and recession.

The other day, the Minister of Agriculture, Fisheries and Food had the courage to point out that Britain will lose its various battles for world trade, unless it puts that money into industry. The director-general of NEDO made the same point in a paper which I gather was discussed at the NEDC meeting this morning. We have had no sign that the Prime Minister or the Chancellor of the Exchequer is listening.

The nearest thing to a " U-turn " occurred on Sunday. The Prime Minister gave a long interview. [hon. members: " Too long! "] Indeed, I have a feeling that she was fulfilling her own description of a tedious and loquacious companion on every stage of life's journey. No doubt some of her Front Bench colleagues feel the same. She suggested that money should be spent on a massive propaganda campaign, using big transmitters. She made that suggestion only a month or two after she had decided to cut the amount of money given to the BBC's external services. When she was compelled by her Back Benchers to change her mind, she decided to cut the programme for making those transmissions audible. I do not know whether the Chancellor of the Exchequer has taken account of the implications of that " U-turn ".

The White Paper is not a serious economic document. It is another exercise in fetishism by a Government who have no feeling for the real world in which real men and women live and work. The cuts are unnecessary and damaging. They will lead to a massive increase in prices, and in the cost of living. Above all, they will lead to increases in rent, rates, heating and lighting. Hundreds of thousands will be thrown out of useful work, particularly in the construction industry. Indeed, the Government promised to protect that industry. There will be a steady decline in the standard of public services. In particular, education and the social services will suffer. Like the proposals in the White Paper on public expenditure—debated only five months ago—the cost of these proposals will fall disproportionately on those least able to bear them. For all those reasons, I ask hon. Members to support the amendment.

5.17 pm

Mr. Edward du Cann (Taunton)

Following, as I am, the former Chancellor of the Exchequer, the right hon. Member for Leeds, East (Mr. Healey), I shall address my remarks primarily to the White Paper. I think that I speak for all Conservative Members, and perhaps for the House, when I say that I was amazed when the right hon. Gentleman, who began his speech with a modesty that was as engaging as it was typical, denied himself the title of the most productive Chancellor of the Exchequer. It will be a long time before the nation forgets or forgives his unparallel record of productivity in issuing Budgets.

I am more than grateful to the right hon. Member for Leeds, East for the kind and personal remarks that he made about the report of the Select Committee. I know that those remarks were well meant and that they will be much appreciated. I speak for the other members of that Select Committee when I acknowledge his kindness.

Mr. Healey

I thank the right hon. Gentleman for those words. I forgive him his sop to Cerberus.

Mr. du Cann

I do not know whether the House agrees with the title that the right hon. Member for Leeds, East gave to this White Paper. I do not know whether the White Paper is fetishist or. as the right hon. Gentleman pronounced it, " feetishist ". It is a radical document. It is intended to reduce the volume of public expenditure over four years. In 1983–84 the expenditure should be 4 per cent. lower than in 1979–80. It should be 11 ½ per cent. lower than the figure in the plans published in the last year of the right hon. Gentleman's period of office. There will be a fall of no less than £9 billion at 1979 survey prices. That is not just a contrast, but a sea change.

The White Paper—a minute spent looking at it will be valuable—describes it as modestly as did the Chancellor: as a " change of direction ". In paragraph 2 it states: The change of direction is central to the achievement of the objectives set out in the earlier short White Paper... These are: to bring down the rate of inflation and interest rates "— which incidentally have now endured for six months; six months too long perhaps— by curtailing the growth of the money supply and controlling Government borrowing; to restore incentives; and to plan for spending which is compatible both with the objectives for taxation and borrowing and with a realistic assessment of the prospects for economic growth. I want to address myself particularly to those objectives. I speak as a strong supporter of my right hon. and learned Friend's medium-term economic strategy. I agree totally with those objectives, so clearly defined as they are. I congratulate my right hon. and learned Friend on the simultaneous publication of all elements of his economic policy, about which he was talking earlier. In particular, I congratulate him on the publication of that strategy. It is a bold thing to do. It was the wry comment of the late Sir Winston Churchill that statesmanship involved a vision of the future and subsequently an ability to explain why it did not occur. I am sure that my right hon. and learned Friend will not be in that position. He well knows that if there is anything that any of us on the Government Benches can do to help him to achieve those objectives, it will be done.

I am grateful to my right hon. and learned Friend for what he said about the work of the Select Committee. If he will work with the grain—a phrase that he used—I am sure that he will find that the Select Committee and the work that it does will be allies of the Chancellor of the Exchequer.

We are engaged on a new parliamentary process, and it may be difficult to live with, not least because the Select Committee is so well advised by distin guished people who give their services virtually free. I pay tribute to them for that.

The comparative economic decline of our nation throughout the whole of my adult life is a shocking indictment of the policies followed in past years. The present levels of unemployment and inflation—the most obvious barometers of success or failure—are wholly unacceptable. Indeed, they are intolerable. I have no doubt that the whole House agrees about that.

It is right to be ambitious, to change these things, to be impatient to succeed. But, as my right hon. and learned Friend said, and as the former Chancellor the right hon. Member for Leeds, East so rightly commented, the international climate for success was never worse. There is the competition from the new Japans, the uncertainties that flow from our membership of the EEC—for we are no longer anything like masters in our own house—the unsettled world conditions, not least the problems over energy, the fact that the United States economy has started a major downturn, and the implications for world trade and our position are ominous. The moral is that this is all the more reason for the United Kingdom to be determined to have its own house in order.

How shall we change the plans into confident reality? I believe that the House has two duties at this time. The first is to examine carefully the assumptions on which the plans are based and to check them to the best of our ability. That is what the Treasury and Civil Service Select Committee has endeavoured to do, and it has reported to the House. A measure of our work was the frequency of the references to the Select Committee by both Front Bench speakers.

I do not wish to reiterate seriatim the conclusions in the report. It is there to be read. However, perhaps I could make some general observations. Let me start with the good news. I believe, as I think the whole Committee does, that the Chancellor's targets are probably obtainable because his assumptions about oil revenues are very conservative indeed. All private estimates are higher. However, it would be as foolish to rely upon this for success as it would be for an unemployed man with minimum income and maximum expenditure to rely upon a pools win to see him through.

As to the remainder of our conclusions, the Committee recorded its several reservations. In aggregate, the list is formidable. It is so formidable as to suggest that the whole strategy may be at risk unless there are variations in policy. I state that plainly in the hope that, by bringing out these matters more publicly, there will be a better chance of achieving success in realising the objectives of the strategy.

Perhaps I might consider three matters, all of which have been referred to in the Front Bench speeches. First, the projection of 1 per cent. real growth after this year—" cautiously conservative " as it is described in the White Paper—is, I am sure, too optimistic. I hope that I am wrong, but I do not believe that I am, and I do not believe that the Committee was wrong. Equally, unemployment, assumed to be 1.8 million maximum over the next four years, is certainly underestimated, as the Chancellor has now agreed.

It seems certain that manufacturing output, as far as any of us can predict the future, will fall by at least 6 per cent.—a compounded figure—by 1983. I think that the figure will probably be higher than that. It may be considerably higher. I find that shrinkage utterly unacceptable.

The private sector is already substantial. The implications of present policies for the companies sector are disturbing. We know what they are; they have been discussed. Interest rates, the high exchange rate, the increase in local rates and the taxation that comes with the national insurance scheme in conjunction with that will be lethal to some companies.

I do not know what is the experience of right hon. and hon. Members on both sides of the House, but I find it frightening, as I go around industry, that we seem to be losing the race. This country's industrial decline is not being arrested or reversed; it is continuing. In all seriousness, I say to my right hon. and learned Friend that deflation must not be pushed too far, in case it does incalculable harm.

Secondly, we in the Committee saw no information to indicate that the forecast turn round in the public sector was achievable. The nationalised industries' net financial requirement in 1979–80 is £2.3 billion. That is to be transformed into a £400 million net repayment in 1983. Without this huge reversal of current form—a £2.7 billion turnround, which even the elimination of all the losses on coal, steel, shipbuilding and rail will not achieve—the Government's public expenditure reduction plans cannot succeed. The Financial Times made an apt comment: without further information the figures do not appear credible. What worries me is that in our discussions in the Committee about these matters we were left with the impression that the Government were flying blind—that there were no specific plans to this end.

Thirdly, and lastly under this head, I believe that as serious a matter as any is the Government's record. This is nothing new. It is a continuation of the unsatisfactory record of previous Governments over many years. Whatever the reasons for it, the 25 per cent. increase in pay of central Government employees has worrying implications for the cash limits system of financial controls. Not only that—it is a pace setter in the economy.

My right hon. and learned Friend is right to say that the Government cannot control everything. Nor should they attempt to do so. Again, he was right when he said that perhaps there is a new mood of realism in our nation in that people are understanding better the realities of our economic situation. That is all the more reason why the Government should set an example of good management in their own house.

More serious still is the continuing emphasis that is being given to cutting capital rather than current expenditure. I do not understand—this is not the first time that I have made the remark, and I hope that I do not bore my lion. Friends—why we always cut the muscle and so rarely cut the fat.

In that regard, the Committee received extremely worrying evidence. A statistic or two will illustrate my point. Capital expenditure will fall in 1980–81, as a proportion of total programmed spending, from 13 per cent. last year to 11 per cent. It was twice that six or seven years ago. Between 1972 and 1978 public sector capital investment fell by nearly 20 per cent. The result of all this neglect over many years is that large parts of the nation's vital capital structure are ageing, deteriorating, not being built or not being modernised. The longer the work is delayed, the more expensive it will be to undertake.

I confess to a great sense of disappointment and bewilderment that the machinery of government and the surveillance of Parliament should apparently be so impotent to arrest and correct this failure of administration. Our national life, especially the process of government, is still characterised by too many talkers, too many administrators, too much complexity, too few doers and too little that is practical. An outstanding example is the way in which we have allowed transfer payments to be the growth industry in recent years. It is as complex as it is wasteful.

On 6 December 1979 L'Expansion, a French economic and business magazine, published a comparison of the numbers employed in the public service in the various EEC countries. The definition that is used is that of the EEC Commission. I do not know whether that is right or wrong, but I guess that it is probably not so far wrong. The magazine said that the definition covered everyone paid by the State except the Armed Services and those who, such as postmen, sell their services to the public.

The comparison illustrates the situation and the trend. There are 16.6 million employed in the public service in the EEC as a whole. It appears that 21 per cent. of the total British work force are public servants. That is the highest percentage of any country in the EEC. We have 48 per cent. more public servants than Germany, 68 per cent. more than France and 100 per cent more than Italy.

Our gross national product has grown more slowly over the past 20 years than that of any other EEC member State. However, our public service has, until recently, grown faster than any of theirs. It has doubled in my time in the House, namely, since 1956. According to the figures, Britain's proportionate expendi-public expenditure on paying public ser-ture on public investment is the lowest of any country in the EEC, while our vants is the highest. Note that, Mr. Deputy Speaker, if you will. To my mind it explains exactly what the Government must rectify. We have a habit of investing too little and paying overselves too much.

I know how difficult it is to make comparisons that are fair. If the figures that I have quoted are wrong, let us have the right ones. Even if they are only partly true, they seem to represent a shocking indictment of our failure in the House, because we are responsible for managing our affairs competently. The figures bear out a public feeling that is widespread. It appears that the Government, who should set an example to the nation of effective and economical administration, have a record that does not bear comparison with that of our competitors.

I put one question to my right hon. Friend the Chief Secretary, who is to reply to the debate. I hope that it will be answered at the end of the debate or some time soon. Is it thought by the Government that the Civil Service Department has enough weight to persuade or to require Departments to undertake the necessary reforms to cut down unnecessary manpower and to promote productivity and value for money in administration? What investigation are we undertaking? What action are we taking?

This morning I heard the Prime Minister say during a radio broadcast that if she had a regret it was that public expenditure had not been subject to greater cuts at the beginning of this Administration. I am not sure that I altogether share that opinion, but there is good sense and wisdom in it. However, are we not too preoccupied with the figures in the White Paper and in other documents? Should not we have new forms of audit that are related not only to money but to such matters as management efficiency, progress towards objectives, systems, methods, measures of achievement and performance indicators? Are we getting value for money for the huge sums that are so casually tossed around in debate and in White Papers such as the one that is now under examination?

If the first duty of the House in the context of the White Paper is to examine carefully the assumptions on which policies are based, the second is continuously to review those policies. That the Select Committee will undoubtedly wish to do and, having done so, to report further to the House. It will do so in no carping sense, but in an endeavour, by persistence and application, to ensure that Parliament is better informed, that weaknesses in policy are exposed in good time so that they may be rectified and that successes, when they occur, may be exploited.

There is so much to do. Indeed, there is too much to do. However, I hope that the House will feel that the Select Committee has made a reasonable beginning to our constructive and heavy task.

Mr. David Crouch (Canterbury)

On a point of order, Mr. Deputy Speaker. The purpose of the debate is to take note of the White Paper on expenditure or to amend it and so to reject it. In italics on the Order Paper there is a reference to the report of the Select Committee on the Treasury, and we have heard a notable speech from my right hon. Friend the Member for Taunton (Mr. du Cann), who is chairman of that committee.

I believe that the debate sets a precedent for the pattern of the House now that it has 14 new Select Committees. It could be that this afternoon we shall have a debate on the report of the Select Committee rather than on the White Paper. It may be that we shall listen to members of the Select Committee more than we listen to other Back Benchers. That would not be a disadvantage in terms of the contribution to the debate, but I suggest to you, Mr. Deputy Speaker, as you have the responsibility of balancing the debate, that it will be detrimental to future debates in the House if we allow them to become Select Committee debates on reports, however valuable they are, rather than debates of the whole House.

It may be that you will care to reflect on that point, Mr. Deputy Speaker, because I think that this is the first occasion on which we have had a major debate when there has been a major report from one of the new Select Committees.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

I have no doubt that the observations of the hon. Member for Canterbury (Mr. Crouch) will be noted. We are debating public expenditure, and anything relating to public expenditure would, therefore, appear to be in order.

5.39 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Taunton (Mr. du Cann) referred to some of the important issues to be considered by the Select Committee. It is a great pleasure for me to take up the right hon. Gentleman's remarks. He has been a dedicated chairman of the Select Committee. He has won the admiration of us all in that committee by the way in which he has chaired it. It has been a pleasure for me, too, as I have tended to accompany him in a number of his journeys through various Committees of the House—for example the Public Accounts Committee, the Expenditure Committee and now the Select Committee on the Treasury and the Civil Service.

The hon. Member for Canterbury (Mr. Crouch) raised a serious point of order. He has raised an issue that must worry the House as it comes to examine matters that are dealt with by a Select Committee. I have always regarded the task of the Select Committee as being to help the House of Commons examine issues brought before the House and to be able to give some information which is of use to ordinary Members of the House, not members of the Select Committee concerned, so that the advantage in the debate will be made clear. If it does not do that, I would be particularly disappointed. Therefore, I hope that the hon. Gentleman will not consider this to be a normal way of proceeding, because we have had so little time to study the Select Committee's report before the debate. It would certainly be the intention to have that much more time and that much more understanding of the issues raised, so that the debate could be better informed about the arguments of Members of the House and those of the Government.

The Committee has been working very well. The questioning of witnesses by II Members obviously presents some difficulty, particularly in the ability to follow a clear and persistent line of questioning; and diversions are possible in that regard. However, due to the assiduous attendance of members of the Committee—it is always a 100 per cent. attendance, with members meeting to exchange views some time before the actual meeting starts—they understand one another's line of questioning. We have been able to make it rather more effective than it might otherwise have been thought. I hope that we shall improve on that.

I was particularly sorry about the Chancellor's opening remarks when he spoke of the difficulties of providing information to the Select Committee. I refer to the statement made by the Leader of the House on 25 June 1979: The objective of the new Committee structure will be to strengthen the accountability of Ministers to the House for the discharge of their responsibilities. Each Committee will be able to examine the whole range of activity for which its Minister or Ministers have direct responsibility. The Government will make available to Select Committees as much information as possible. He went on further to assure the House that departmental Ministers would make every effort to ensure that the fullest possible information is made available to them. Last of all, he gave this pledge: I give the House the pledge on the part of the Government that every Minister from the most senior Cabinet Minister to the most junior Under-Secretary will do all in his or her power to co-operate with the new system of Committees and to make it a success. I believe that declaration of intent to be a better guarantee than formal provisions laid down in Standing Orders."—[Official Report, 25 June 1979; Vol. 968, cc. 44–46.] That was said because of the criticism that was being made that there would be some concealment of information that could readily be given to the Select Committee

The point about all this is that information from the Treasury is not sought because we are looking for information per se. We are not looking to find out what the assessment of the future might be. Members of the Treasury and Civil Service Committee are not supplicants trying to get an understanding of the future. We have a quality of advice that is second to none. Some of it will be highly regarded by the Treasury, which may wish that it had some of that quality of advice available within that Department.

The reason why we need this information and to know its essential nature, is to know whether the Government are making the right decisions based upon the information available to them. We can make our own forecasts, every one of us, as a result of the information that is made available to Members of the House by the work of the Select Committee. We can all come to our own conelusions about what the future will bring. What we do not have, unless we get the information from the Treasury, is a knowledge of how the Treasury is basing its judgments. We have a very large number of expert bodies providing us with vast ranges of expertise and information. We are able to select from those which we think to be the best My experience of the Treasury leads me to believe that its advice is in the upper range of quality. It is not unique in this respect. What is needed, however, is knowledge of the basis on which the Chancellor makes his judgment.

The types of secrecy that the Government have made plain have been numerous in the past. They have claimed in the past secrecy for secrecy's sake, because there are great advantages to the Minister at the Dispatch Box in not having the basis of his information revealed to the rest of the House. Secrecy is very much like a wall around a castle. It protects weak Ministers, and the braver or more able Ministers ought to be able to dispense with it. To some extent it is a test of the Minister's ability. That kind of secrecy should not be required.

However, there are other forms of secrecy which have a greater claim to our attention. Some matters are market sensitive, and some matters involve commercial confidence. We must accept that these are matters about which we have to tread carefully. I am sure that the Select Committee will make no claim for information of that kind.

But then there are the questions of secrecy concerning those matters which, if revealed, are held by some to be self-fulfilling—matters such as retail prices, on which, if the Government's indication of what they felt would be the level of prices in future were known, pay claims would follow.

As I have mentioned before, however, the Treasury is not alone in the forecasting business. Today we have the National Institute, the London Business School and many, many others. The number of such bodies is large and is increasing, and the trade unions' wage claims will be dependent not upon Treasury forecasts by themselves but on the general atmosphere that is created by the others who are in the business of examining the future and trying to make some sort of assessment.

It is the general view of Chancellors of the Exchequer as they come to the Dispatch Box to scorn forecasts—their own included—or assumptions, expectations, predictions—call them whatever they like. The Government deride these but pay close attention to them. After all, what is the Budget judgment? It is an assessment of what is going to happen and how the Government should react. They must take into account the likely consequences of the action they take, and they have to make the best kind of estimate they can as to the future. It has something of the character of opinion polls. We as politicians always deride those polls—but, my goodness, we certainly examine them most closely.

The Government must take account of these matters. If the Chancellor believed that as a result of his measures the inflation rate would be 20 per cent., as a result of forecasts that are laid before him, he would hardly behave in the same way as if those forecasts were for 10 per cent. If unemployment figures were put before him that suggested that there would be 3 million unemployed as a result of the measures that he has taken, he would hardly continue on the same path as if they were for 2 million.

As politicians we are well used to weighing up these matters and examining the trade-off between unpleasant choices. That is precisely what the Chancellor does. What is needed is the ability to look at the way in which he regards these figures and to see whether his figures, the figures on which he very largely bases his future policy, are consistent with the information that is laid before him.

I agree that forecasts must, obviously, be used with great care. There must be doubt and scepticism. I regard these forecasts as signposts, not as milestones. They show the direction and the broad movement. They do not provide the precise quantities. It is judgment that makes up the difference between slavishly following—which no Chancellor could conceivably do—those indicators put before him, and the conclusions to which he comes.

The Chancellor and the right hon. Member for Taunton rightly pointed out the enormous change that the Government predict as a result of this White Paper—the change arising from public expenditure declining from £75,100 million in 1979–80 to £71,000 million in 1983–84. Over the four-year period it will be reduced by £3,700 million. Of that £3,700 million reduction, £2,500 million will come from the nationalised industries. Frankly, that stretches belief very considerably. I note that the Chancellor, when he came to the Select Committee, tried a very rudimentary breakdown. He estimated that 40 per cent. of it was due to increasing productivity and reducing the losses of nationalised industries. I hope that that is so. I should be delighted if it is so. Over £1 billion will come from that—£600 million from gas and electricity and £900 million from other sources.

That £½ billion will create these wonderous new advantages in the nationalised industries. I think that the Select Committee got it exactly right when in paragraph 17 of its report is said: The improvement in nationalised industries' finances assumed in the White Paper is approximately £2½billion... This seems an optimistic assumption. I think that we shall be seen to be right there, and if we are not I shall be more than delighted. But before I am convinced that the Government will get this kind of money I want to know something about the productivity deals, the savings, and improvements in working practices which must underlie this optimistic forecast.

Generally speaking, no one can doubt that the way to determine policy is to decide the way in which it should go and then seek to discover the means by which to get there. The trouble is that by leaving out of account so much of the means, one also leaves out of account those means that might be quite unacceptable—methods such as the halving of subsidies. The reduction of £½ billion means either ending capital expenditure on housing or eliminating subsidies and doubling council house rents, which in turn, means an enormous increase in inflation. The Government might find that when they try to do this the climate of the time and the levels of inflation on which they set such store will be damaged, in the same way as they were damaged by the increase in VAT.

The other aspect of this, which was raised by the right hon. Member for Taunton, is the downturn in manufacturing output. This is one of the saddest aspects of this Government's policies. Manufacturing output is expected to decline by 4½ per cent. in the current year and then by another ½ per cent. for each of the next 3 years. Frankly our advisers do not believe that even that states the full position. They believe that it will be even worse. This decline in manufacturing output, together with the increases in unemployent, the problem of the high pound, and the trade unions finding themselves unable to reach any agreement on Government policies, will prove to be a very difficult period for the Government.

Today we have had a survey by the mechanical engineering short-term trends working party. It suggests that output in the industry is likely to be 10 to 20 per cent. lower next year than in 1979. The Guardian comments that in present circumstances this makes the Finniston report largely redundant ". Faced with all this gloomy news—and the Secretary of State for Industry is the first to admit that it is gloomy—there is not much hope for the immediate future. But according to the White Paper this will be the launching pad for an improvement. Where will this improvement come from after all the suffering? I have always felt that beneath the concerned look of every Chancellor of the Exchequer that I have ever known, from Harold Macmillan onwards, there lies an incurable optimism. He looks at the economic indicators before him, searches for the best of them and adds a little for luck. This is the only way in which a Chancellor of the Exchequer in modern times can preserve his sanity. I suppose it is the Chancellor's optimism that is responsible for the upturn he hopes to see. It is based on nothing firmer than hope in the face of a miserable expectation.

I believe that revenues from oil taxation are seriously understated. I find it impossible to do the sums that produce an answer that is anything remotely near the level of oil revenue that the Chancellor of the Exchequer claims he will get. We have heard from Treasury and Inland Revenue officials that 80 per cent. of the revenues from North Sea Oil will accrue to the Government in the form of PRT, royalties and corporation tax. The trouble is that the more wealth we receive from oil, the higher the pound goes, the more imports come into this country and the weaker our manufacture ing economy becomes. The only way in which one can offset the amount of revenue from North Sea oil is if there were to be a change in our depletion policy. That may be what the Government have in mind. This is a matter of great importance which should be stated as such. The best vaults for our reserves are not those of the Bank of England where we store our gold, but those of the North Sea where we keep our oil: there are no storage charges, the value increases and there is an absence of any security problem associated with guarding a precious metal.

I turn my attention to the Civil Service and the Treasury. There has been concern throughout the Committee that the Civil Service Department's relations with the Treasury are far from being ideal. When we look at the tasks being placed on the CSD, and the amount of control and efficiency that exists, none of us can be sure that the balance between those two great Departments of State is right. This is a matter for further investigation.

Running the economy of our country is obviously a complex business. The Government look at it in too simple a way. They do not take account of investment, the trade unions or manufacturing industry. They subordinate all these matters to the money supply. It is no use reducing all this complexity to the simplification that the Chancellor has just used. The comment has been made that to every complex problem there is one solution—simple, comprehensible and easy to implement—and wrong. That is a fair summary of the economic solution put forward by the Government. Let us hope that they will soon look for workable answers which fit in rather better with the real world in which we live.

5.57 pm

Mr. Robert Taylor (Croydon, Northwest)

There can be no doubt that the Government were elected with a specific mandate to reduce taxation. That implies a specific mandate to reduce expenditure. During the last two decades successive Governments have encroached into areas where their presence should never have been accepted. I confess that many of those encroachments have taken place under Conservative Administrations. Regrettably, it is a fact that when an intruder attempts to gain entry it is easier to repulse him than to get him out after he has gained entry. We are in a similar situation today. It is easier to prevent new follies by Governments than to rid ourselves of those that are entrenched. Powerful vested interests arise for the sole purpose of ensuring that where the Government have become involved they should not withdraw.

I wish to refer to a specific area of expenditure covered in the White Paper. I draw the attention of the House to the projected expenditure of the Department of Employment, and particularly the Manpower Services Commission. We have heard speeches in this debate criticising the overall expenditure, either for being too great or too small, but we have had few suggestions for specific action either to reduce or expand it. On page 39 of the White Paper the projected real growth of the Manpower Services Commission between 1978–79 and 1980–81 is shown as 13¼ per cent. As one who was elected on a mandate to reduce this expenditure, I want to know why this increase is still projected.

The Manpower Services Commission presides over two areas of expenditure-one big and one small—where in my view, the taxpayer fails to get value for money and where I wish to see substantial reductions.

To deal with the small one first, because it is a good example of where Government intervention has become an accepted feature and where a weak decision has recently been taken to allow the expenditure to continue, I refer to the Professional and Executive Recruitment Service. This has been criticised by the Public Accounts Committee over the years. Each year the books of this small service are balanced by what is known as a social subvention.

The Manpower Services Commission's accounts for 1979–80, which have only just been received by the House, in April 1980, over a year after the closing of the books, show that for the first time the subvention tops £3 million. The payments have gone up by £286,000, and the so-called profit, which has been further sub-vented, has gone up by £175,000 to the princely sum of £275,000. I do not believe that any right hon. or hon. Member would claim that the 7,000 vacancies that have been filled by the service would have remained empty if the service had not existed. It is a typical example of a Government service that should not be in existence. It is costing the taxpayer money that could be better spent in other directions. In the name of common sense, why did the Minister announce last week that that service would continue under this Administration? It was a weak decision. If the alternative decision had been taken, some small part of the gigantic hogweed of Government intervention could have been dissected.

I now deal with the larger area of expenditure, one which, curiously enough, merits only a small mention in the White Paper. I refer to the Government's involvement in industrial training. The amount involved is hidden under the general heading of the Manpower Services Commission. On page 49 of the White Paper the enormous expenditure is dismissed in one sentence. It says: The role of the MSC and ITBs in promoting training in industry is currently under review and the MSC expect to report to Ministers during 1980. It is inconceivable that the commission will report to the Minister other than to advise a continuation of an activity that forms a substantial part of its organisation. In my view, the same announcement will be made after that review as was made after the review of the activities of the Professional and Executive Recruitment Service. In other words, it will be allowed to continue.

The industrial training boards were set up under the unfortunate Act of 1964. The cost to industry since has been enormous. If these boards are useful, they should be handed over to employers' associations and trade unions, who will ensure their continuity. There is no justification for continuing to pour taxpayers' funds into these organisations.

There are no grounds for claiming that the skilled labour that will be required in boom times will be available as a result of the activities of these boards. Indeed, there are no grounds for claiming that industry is better trained today than it was in 1964.

I mentioned that the accounts of the Manpower Services Commission had only just reached us, although they are a year old. However, they tell us what the White Paper does not tell us. They tell us the amount of Government funds that go to the industrial training boards and training services. The net amount for the last year for which figures are available is no less than £309,780,416. The White Paper suggests that that will be increased by 13 ¼ per cent. That, to me, is unsatisfactory.

I have spoken against this activity of the Government ever since I first arrived in this House 10 years ago. I must warn the Minister that unless, when he comes to conclude this debate, he tells me that there will be another review—not one conducted by the Manpower Services Commission—the only way in which I can express my anger at this increased expenditure will be to withhold my vote from the Division Lobby.

6.5 pm

Mr. Richard Wainwright (Colne Valley)

When the Chancellor of the Exchequer, earlier this afternoon, made it clear that he would keep miles away from the White Paper, which is supposed to be the subject of the debate, I supposed that he would at least use this occasion to get a message across to the nation about the ruinous anarchy in pay settlements at present, which should be the greatest preoccupation of those in charge of the economy. But not even to this did he seriously attend. Instead, we had a repeat performance of his well-known and rather shop-soiled contempt for economic forecasting and for any attempt to make intelligent glances at the midterm future.

Throughout the hearings of the Select Committee and again this afternoon, whenever I have heard the Chancellor on the subject of forecasts I have been painfully reminded of inbred, old-fashioned manufacturers in the late 1940s whom I attempted to persuade to introduce budgetry control into their businesses. That was a long time ago. No longer do we hear in business those negative and despairing cries asking how a business could possibly be asked to forecast its sales 12 months ahead. How could the directors possibly take account of uncontrollable factors that might occur, and all the rest of the rigmarole that was very quickly swept away when budgetary control became an ordinary fact of life throughout the business world.

In politics and so often, indeed, in this House, we are decades behind the times. That is true also about the quality of the information. The quality of statistics, including some of those in the White Paper, with which on the whole this House somehow still seems, broadly speaking, to be content, is not usually of high standard.

True, the Select Committee approached the White Paper with a great deal of caution, in some cases probably amounting to suspicion. We had reason to do so, because at our first examination of Treasury witnesses a Treasury official, at page 42 of the minutes of evidence, said this about public expenditure White Papers: Ministers have taken the view that some of the detail given in previous White Papers, for years some way ahead, has been spurious, because it simply is not practicable, nor is it necessary, to take decisions in that degree of detail for a period so long ahead. Previous White Papers, ever since Plowden was adopted by this House, have apparently been partly spurious. At a later sitting of the Select Committee, the Chancellor said that in the past earlier White Papers had been to some extent misleading.

In my view—and, naturally, I speak only for myself; a role to which I am well accustomed—all this is not a reason for abandoning the sensible—indeed, essential—job of forecasting; it is simply to try to do it better, and to use with greater care and thoroughness the many sophisticated tools for forecasting that are now available.

I am sad that the Select Committee, under its perceptive and resolute leadership, to which tribute has already rightly been paid this afternoon found itself literally obliged to spend so much of its time auditing the informatison in the White Paper. That was a handicap to us. I conceive that our main job is to examine the policies and the possible consequences of what is set out in the White Paper rather than to audit the statistics that are provided.

I hope that eventually we shall have a national comprehensive auditing service for public statistics, so that the House will receive information of a proper quality and hon. Members, who are not usually trained in this matter, will not have to spend their time checking the figures, exposing the gaps and showing up the defective computation. That is what should be done by a professional service.

One of the facts that emerged from the audit that the Select Committee performed was the cost of unemployment and how it is met, and it is to this that I shall devote my ration of time this afternoon. The answers that we received in examination on this subject alarmed me, and probably alarmed many of my colleagues. The cost of unemployment is assumed by the Treasury without question to be borne by the dwindling number of people still in work and by their employers, who must become more and more unable to bear the cost as the recession deepens. That was made clear when a Treasury official was asked this question, which is recorded on page 35 of the minutes of evidence:

If you have an increase in unemployment of about 700,000, what effect would that have on the PSBR? The Treasury official replied: None in the way we have done these predictions because we have assumed that the flow into the national insurance fund is balanced, so that if you have an increase in unemployment and, therefore, further increases in social security payments, they are balanced, as it were, by an increase in national insurance contributions. That is a procedure that the House should not tolerate if it wishes to have proper control of enormous sums of public money. The yield of national insurance contributions is almost half the total yield of income tax, and rather more than one-third of the total yield of all taxes on expenditure, VAT, excise duty and the rest. That is an enormous sum, yet the Budget speech contained no reference to this heavy tax on jobs, or to the fact that within five days of the Budget national insurance contributions were to be jerked up once again. There is very little control by the House of, and very little debate on, a major part of our taxation system.

I hope that I shall not weary the House by giving briefly two examples. It was estimated that one consequence of the Budget was that a single person, without a mortgage, earning £100 a week, with very little expenditure on taxable goods, would benefit from the income tax changes by 49p per week but would lose from the increase in the national insurance contribution—which was not even mentioned in the Budget and has no part in the Finance Bill—36p per week. Whilst the press, the tame media and all the rest of the Tory apparatus of brainwashing the people have a tremendous bonanza about the marvellous lift in the income tax threshold, not a word is said, either in the House or outside, about the cancelling-out effect of insurance contributions.

The result is much worse for a self-employed professional man, married, with a small child and a mortgage. His estimated benefit from the income tax change in the Budget has been reliably estimated at £1.78 per week, but the national insurance contribution increase makes him £2.36 worse off. The net result of public fiscal changes during the past month for this chap, who is by no means untypical of our professional groups, is that he is seriously worse off.

Where is all this leading us? Because of the absurd convention that the whole cost of unemployment is borne by those who are still in work and those who are still employing people, my forecast is that if, as the Select Committee was advised, unemployment reaches about 2 ½ million in 1983, the total "take" of national insurance will be not the present rate of just over 20 per cent. of gross pay met by the employer and employee together, but well over 25 per cent., which is a staggering increase in a peculiarly arbitrary and clumsy form of direct taxation.

All that is wrapped up in the public expenditure White Paper, and had to be chiselled out by severe questioning in the Select Committee. It is high time that all these taxes were brought within the House's direct control. The national insurance contribution has become a major budgetary item and should have to figure in the Finance Bill so that it can suffer the scrutiny of the House, just as do the smaller taxes.

That is only one part of this immense White Paper, but if the Select Committee has done a service in bringing it out into the open it is a good augury for the future of that procedure.

6.16 pm

Mr. Geoffrey Rippon (Hexham)

The hon. Member for Colne Valley (Mr. Wainwright) frequently reminds me of the observation made by Lord Curzon that Liberalism is in theory a pestilential heresy and in practice a typical illusion, but lately he has been in good company as a member of the Select Committee on the Treasury and the Civil Service. The House should be grateful to the Committee for its extremely important second report, which lends greater weight and usefulness to our discussions on public expenditure.

I wholeheartedly support the Government's objective of bringing inflation under control, particularly by reducing public expenditure and the public sector borrowing requirement. However, from the time of the Chancellor's first Budget last June, I have had serious reservations about the means by which this objective is being pursued. My reservations are similar to those expressed in the Select Committee's report and reiterated by my right hon. Friend the Member for Taunton (Mr. du Cann) this afternoon. They are reservations that, in the words of my right hon. Friend, put the whole strategy at risk.

First and foremost, I believe that interest rates should be reduced, and quickly. To a large extent they dictate rather than follow the inflation rate. Necessary borrowing is being made dearer rather than unnecessary expenditure avoided.

In public expenditure terms, higher interest rates over the past year have added more than £500 million a year to the taxpayers' and ratepayers' bill. Investment, not consumption, has suffered most. Exchange rates have been distorted, trade is running down and unemployment is rising, and still the inflation rate nudges 20 per cent.

I entirely agree with the Chancellor of the Exchequer that this does not affect Britain alone. These tendencies are to be found elsewhere. I am disappointed that the International Monetary Fund has made so little contribution to solving these problems. The Government should take an initiative in a collective action to stop an interest rate war which to some extent we started but which might be as dangerous as the protectionism of the 1930s.

The doubts that I expressed on 13 June last year about the dubious nature of the Government's statistics, particularly with regard to the money supply, their failure to distinguish adequately between productive and non-productive expenditure, and their allowing the Clegg Commission to continue its work, have been reinforced by the report of the Treasury and Civil Service Committee. I also express reservations about the extremes of monetary policy. I therefore welcome the fact that the Committee has in mind a wide-ranging review of that aspect of economic strategy.

However, while one can draw a distinction between assumptions and forecasts, one must admit that the Chancellor was right when he said that we should be wary of undue preoccupation with predictions and measurements. If the policy is changed, the statistics change, and it may be that we shall have to change the policy.

Whether they are an assumption or a forecast, the projected unemployment figures are not acceptable, either at 18 million in 1981–82, as the Government assume, or between 2.2 million and 2.5 million, as the Select Committee suggests. That level of unemployment is socially and economically unacceptable. It represents a tragic waste of human and national resources. As we heard this afternoon, it not only adds hundreds of millions of pounds to the cost of social security benefits but results in a loss of revenue as well as productivity. No doubt excessive wage claims and foolish strikes and stoppages have destroyed jobs, and may continue to do so if the situation is not reversed, but there appears to be a greater realism today. Most people want to work. The plight of jobless school leavers must be a matter of increasing concern.

I remember the late Iain Macleod saying that he agreed with everything that the right hon. Member for Down, South (Mr. Powell) had to say about market forces except in terms of regional policy. In the next few years we shall have to give higher priority to regional policies as part and parcel of our general strategy.

In the past, too much emphasis was placed on attempts to preserve existing jobs or on aid and subsidies that did not get to the root of the problem. However, the Government must now help to ease industrial change in those regions dependent on older declining industries. More emphasis must be placed on regional initiative and self-help, but the Govern ment have a definite role to play. Direct Government assistance must be given to projects most closely related to the number of new jobs created. The procedure for regional development grants now under review must be overhauled to ensure simplification, greater cost efficiency and greater assistance for smaller firms and first-time applicants.

There is a further important manner in which the Government influence events. I am all for the operation of market forces, but we must recognise the extent to which the Government are directly in the market and part of those forces. They determine the minimum lending rate; they are responsible for the levels of public sector pay; and they fix cash limits for nationalised industries. All that has a direct influence—to some extent even dictates it—on what happens in the private sector.

I am all for cash limits rather than direct day-to-day interference in nationalised industries, or, if I may say so, in the activities of local authorities. However, there is no escaping ultimate ministerial responsibility. At present, nationalised industries are half slave and half free. Having been at one time or another the political head of virtually all the nationalised industries except the Post Office, I have some sympathy with an observation of the late Aneurin Bevan when he said that it was time to bring nationalised industries into public ownership.

Whatever the terms and conditions of their appointment, and whatever they may think when they walk into their new offices, the chairmen and boards of nationalised industries have to conform to Government policy. That is why I am glad to note that the Select Committee will look into the important question how to finance nationalised industries, which is essentially the responsibility of the Government and the House.

The Government are in the market as a major purchaser of buildings, goods and services. That is why I welcome what the Select Committee said in paragraph 23 of its report about the balance in the Government spending proposals between capital and current spending. The Committee is right to say that too muco emphasis has again been given to cutting investment expenditure rather than current expenditure, at least in 1980–81. I have always asserted that the Government should use their power as a client, particularly of the construction industries, which are in great difficulty at present, selectively to create national assets and wealth and to assist areas with the highest levels of unemployment.

A lot has been said this afternoon about the North-South dialogue in global terms. In Britain today we have to avoid the creation of two nations, the South and the North—the South relatively stable and prosperous, as indeed it was virtually through the 1930s, and the North steadily declining, with industrial stagnation and growing despair, especially among the young. That danger must be, but is not yet, comprehended in the Government's expenditure plans.

6.26 pm

Mr. Gordon Wilson (Dundee, East)

The speech of the right hon. and learned Member for Hexham (Mr. Rippon) was powerful and showed signs of a social conscience that is sadly lacking in many other Conservative Members. That is where the Government are failing in their approach to the problems of the economy and people.

My constituency by no means has the worst unemployment statistics, but male employment there is up over 10 per cent. I believe that the precarious situation of our local economy is partly due to problems created by this Government, yet they show no wish to try to bring down the rate of employment. That belief has been consolidated by studying the public expenditure White Paper.

When the Prime Minister came to office a year ago she was gracious enough to quote from the healing words of St. Francis of Assisi. Perhaps she should have chosen the words of another biblical text: To those who have will be given, and from those who have not, there will be taken away. That is the philosophy that the right hon. Lady's Government have exemplified.

About 40 primary teachers will graduate from the Dundee college of education this year. So far, not one has the offer of a job. That can be laid at the Government's door in cutting back education expenditure—a policy implemented by a Conservative local authority even more radical than the Government.

Young people will be leaving school without work. I shudder to think what unemployment in my area will be if the Government allow the local shipyard, with its 1,000 jobs, to go to the wall.

The Chancellor of the Exchequer hinted that Government policy may change. Their policy so far has helped us on the road to industrial ruin. Harm has been done to manufacturing industry, output and regeneration in areas of high unemployment.

The figures quoted in respect of the Government's overall strategy are nebulous. That judgment was upheld by the Fraser of Allender Institute at Strath-clyde university in a recent report. That report also commented on nationalised industries and said that it was the aim of the Exchequer partly to eliminate overall deficits—currently about £2.2 billion—over the next three years.

The economists at Strathclyde said: If this is done, as in the past, by requiring them to raise the prices of their products, then of course that will directly contradict the ultimate objective of reducing the rate of inflation. If, on the other hand, it is done by improving the aggregate product'vity of their industries, then this will require quite radical changes in some of their organisation, incentives and attitudes, about which neither the government nor the relevant civil service departments have had (apparently) any thoughts. The third point that they make is that with their obsession with aggregate monetary and fiscal variables the Government are in danger of falling into the same trap as their ' Keynesian ' predecessors. They point out that even the most dedicated anti-Keynesian these days would favour increasing rather than decreasing Government investment.

The White Paper will have a substantial impact in Scotland. It is worth putting it into the Scottish context, as the oil revenues have been mentioned. In the last fiscal year the revenues were estimated at around £2 billion. That would represent 30 per cent. of public expenditure in Scotland. By 1985–86, the revenues, on a very low estimate, of about £10.5 billion—some forecasters have put them at about £15 billion—would exceed expenditure by 109.4 per cent.

It is against that background that we see the cuts. No one is against cuts if they are designed to eliminate waste, but when they affect social services, cause human despair and create an inability for families to cope, a halt must be called. There is a danger that, in relating our comments to macro-financial aspects, we shall forget that the policies now being pursued will make it very difficult for families and individuals to cope.

One of the mistakes that the Government may well have made is to underestimate the contribution from oil revenues. The stockbrokers, Phillips and Drew, made an interesting estimate a short time ago, and I hope that the Government will take this matter on board.

Industrial investment is of particular worry to Scotland. To this end I draw attention to the figures for the period 1969–70 to 1977–78. In the first year of that period industrial expenditure in Scotland rose by 9 per cent. The following year it fell by 3 per cent. and the year after by 8 per cent. However, in 1972–73 it rose by 12 per cent. In 1973–74 the increase was 27 per cent.; in 1974–75 it was 35 per cent.; and in 1975–76 it was 56 per cent In 1976–77, under the last Labour Government, it fell by 5 per cent. and the year after by 33 per cent. So the Opposition have to take responsibility for the diminution, if not the destruction, of the then existing regional policies.

The relative figure for unemployment in Scotland, which was improving during the early and middle 1970s, has been worsening in recent years. The Government should therefore put more money into the development of industry. That would be one of the best uses to which the oil revenues could be put. It would generate assets, which would create wealth.

In recent years there has been evidence that industrial investments have been inadequate to cope with the competition from the Republic of Ireland in attracting industry. The United Kingdom incentives have been found lacking, or too complex. The result has been that thousands of manufacturing jobs have been lost to the Republic. That would not have happened if this country had maintained its expenditure on regional assistance. As the right hon. and learned Member for Hexham said, there will be a cleavage between the North and the South—between the rich and the poor. Those who want a fair society would not welcome that.

Equally, those who seek a fair society will not accept the peculiar and drastic way in which housing expenditure has been cut in the White Paper. The Shelter report for Scotland shows that there will be a drastic cut-back. Housing, of all the recipients of public expenditure, has been singled out for the most extreme treatment—a cut of 292 million, or 42 per cent. of the housing budget. I represent a city in which there are many old dilapidated tenement flats and buildings, many of which need to be knocked down. Many housing estates require to be renovated and brought up to standard. Indeed, the same applies to many modern housing developments. Peculiarities in design—the responsibility of central Government, as they stem from central Government advice and guidance to local authorities—must bear some blame for houses that are inadequate. In them insulation and ventilation are so poor that people are being driven out by dampness and condensation. That alone will require millions of pounds to put right, yet in the face of that the Government are to cut back on expenditure. The situation in England is similar, but there are 170,000 families in Scotland on public sector housing waiting lists. Anyone who imagines that the housing problem has been dealt with is living in cloud-cuckoo-land.

There will also be an impact on the construction industry and employment in it. If there is any way of curbing some of the excesses of unemployment and of quickly expanding and reflating the economy, while turning out the productive assets to which the right hon. and learned Member for Hexham referred, it is by helping the construction industry. In Scotland the industry is not exactly operating at peak capacity. Some private contract and industrial work has been coming through. Once the housing sector cuts have an impact there will be gross increases in unemployment in construction. I cannot understand why housing has been singled out for such savage treatment and why the Government are prepared to allow the rundown in the economy to be channelled through the construction industry in this way.

I could go on at some length picking out many examples where Scotland will be affected by these public expenditure cuts—cuts that are unnecessary and undesirable in current circumstances. The Government should think again. They have seriously miscalculated how much money will be available from oil revenues, and they should make sure that the economy does not crunch further into recession. If they are cynically hoping that in two or three years' time they will be able to reflate the economy and thus float themselves home at a general election, they will find, if they run into too deep a recession now, that not all the money arising from oil or any other source will be sufficient to do that, so in their own political self-interest they should think again.

There is to be a cut-back in research into non-nuclear methods of generating electricity. I cannot see that happening. I cannot see the reason, when we are obviously on the verge of an energy crisis. I cannot understand why no allowance is made in the White Paper for increased expenditure on conservation and improved methods of insulation to ensure that we surmount the energy crisis when it comes. To cut back on energy development and alternative uses at this stage beggars the imagination. I can only hope that the Government will think again.

It is for the Government to decide how best to run the economy. I have serious doubts about their methods. The Opposition have been flushed by success following the recent local elections. My party did not perform all that well, although I would make clear to those who have not studied the figures that our vote has improved since the general election a year ago. That fact has been obscured by the loss of seats.

The Opposition in Scotland have a duty to push and cajole and if persuasion does not work, to bully the Government into changing policies that are doing so much harm. If the Opposition fail in that task within the currency of this Government I am sure that the people of Scotland will have an alternative to which they can turn.

6.42 pm

Mr. Eric Cockeram (Ludlow)

I seek to join in the debate because I have serious doubts about the level of Government expenditure envisaged in the White Paper. We are going through a period of world recession from which industry in this country, a trading nation, cannot be insulated. Yet, this year alone, the Government are planning to spend some £8 billion more than they are raising in taxation, further adding to the national debt. It is to the shame of this Government that if they continue on this path, they will have the unfortunate distinction of presiding over the nation's affairs when the national debt passes £100 billion. That is a formidable sum. I believe that the Government Front Bench needs to be reminded that only 11 years ago the national debt under a Socialist Government was reduced. That could also be done under a Conservative Government.

In consequence of this heavy borrowing requirement by the Government, small businesses have to labour under a very expensive borrowing rate of 17 per cent. Unless the Government tackle the level of their expenditure, they cannot expect industry to survive with a burden that has gone on longer, I believe, than the Government expected when the rate was announced.

My right hon. Friend the Member for Taunton (Mr. du Cann), in a lucid and helpful speech, drew attention to the number of civil servants. He pointed out that there are 48 per cent. more civil servants per million population in this country than in Germany and 68 per cent. more than in France. I do not believe that we are getting value for this level of expenditure.

We have 40 permanent secretaries, 150 deputy secretaries, 575 under-secret-aries, 1,150 assistant secretaries, 5,200 principal secretaries, 8,000 senior executive officers, 22,000 higher executive officers, and over 50,000 executive officers. Those are the officers. I have not yet come to the troops. The cost is enormous. In addition, there are the Civil Service index-linked pensions, for which civil servants make a notional contribution of only 2.6 per cent of salary. Anyone in the private sector would willingly make a notional contribution of 2.6 per cent. of his income in exchange for an index-linked pension when he retires.

The cost of financing these index-linked pensions in 1978–79, the last year of the previous Labour Government, was £390 million. At the end of this Parliament, presumably in 1983–84, the cost will be £560 million in constant terms—a 40 per cent. increase. The cost of financing index-linked pensions in the Civil Service represents one of the highest increases in Government expenditure in the whole White Paper. A 40 per cent. increase in real terms means, inevitably, more than a 100 per cent. increase in sterling terms.

What is to be done about this situation? The Government are nibbling at the problem. They are not cutting the Civil Service with a knife. They are waiting for Annie to get pregnant or Betty to leave when she gets married and failing to replace them. In consequence, after a year of Conservative Government, the Civil Service has been cut by under 5 per cent. It is easy to cut the Civil Service by the first 5 per cent. It becomes more difficult not to make replacements as the second 5 per cent. of people leave and is virtually impossible thereafter.

The only way to cut the Civil Service is to cut the functions performed by that administration. The public do not believe that for the taxes they pay they are getting value from the Civil Service and a level of administration that is greater than that of any of our partners in the Western world. We must cut functions. That involves paying compensation to those who have to leave.

Generous compensation has been paid to dockers to leave an industry that was overmanned. The dock labour force is about one-third of its level a decade ago. A similar approach is being adopted in the steel industry. The number of miners is infinitely smaller than it was 20 years ago. British Rail has also offloaded labour. Why cannot this be done in the Civil Service? It can be done, if the will exists.

Such action has been taken by the Government to a small extent. My right hon. and learned Friend the Chancellor eliminated exchange control. A group of civil servants ceased to have jobs. That was not a matter of waiting for someone to leave and failing to appoint replacements. It was a positive decision that a function performed by Government was no longer necessary. That is an example of what has to be done to a greater degree.

Hon. Members can all make sugges tions about where cuts could be made. I suggest that our training boards are not fulfilling a need. At a time when there are 1½ million unemployed and a training board exists in the construction industry, it is nonsensical that plasterers, plumbers, carpenters and bricklayers should be unobtainable. It should be possible to train people to fulfil those functions. I do not believe that people are served any better in shops, or that cars are filled with petrol more efficiently than 20 years ago, because there is now a distributive industry training board. This sort of quango and bureaucracy should be stopped.

In my constituency in Shropshire, and in the two constituencies immediately to the west and to the east, there are three different quangos offering money to tempt industry into that rural area. A number of hon. Members have spoken of the North-South divide. In some areas of the North of England there is a desperate need for labour, while Government money is employed through three different quangos in my constituency and its immediate neighbours.

If the Government really want to cut the number of civil servants and produce in Britain the ratio of bureaucrats to people who actually work and earn their living by contributing to the national wealth that exists on the Continent and elsewhere, they must cut functions instead of relying merely on a policy of failing to replace those who leave.

6.50 pm

Dr. Jeremy Bray (Motherwell and Wishaw)

When hon. Members turn their minds to cuts in public services or other services they sometimes run out of ideas. I ask the hon. Member for Ludlow (Mr. Cockeram) when he last put petrol in his car or when he was last served in a shop. He attacked the Financial Secretary for not getting Annie pregnant quickly enough. Treasury Ministers are guilty of many things, but that is an undeserved slur.

Mr. Cockeram

I run one of the businesses that the hon. Member instances, so I have some knowledge.

Dr. Bray

I hope that the hon. Gentleman gives as good service to his customers as some of the shops in my constituency.

The Select Committee has given a sharper focus to the debate on the public expenditure White Paper than has been the case in previous years. However, it can be regarded only as a start. I accept that it did not tackle the most difficult issues. The Chancellor of the Exchequer was able to present the Committee's conclusions as pointing to bigger cuts in public expenditure in general. The Committee commanded unanimous agreement on the Conservative Benches because that thought was in the minds of Members on that side.

I probably speak for my colleagues when I say that we wanted to point to the inadequacies of the arguments in the public expenditure White Paper because they point to the breakdown in Government policy in that the consequences of following through the arguments would be as totally unacceptable on the Government Benches as on this. The explanation does not lie in the peculiar membership of the Committee, as some newspapers tried to suggest. That theory does not give sufficient weight to the effort that the Committee made to arrive at dispassionate conclusions.

The conclusions would not have been much different if the membership of the Committee had been entirely different. It is a good Committee, particularly, if I may say so, in its Conservative Members. In the balance of their opinion, the Committee members were representative of the views of 90 per cent. of hon. Members from either side of the House.

The dangers are real. I hope that they will make an impression on the House and upon Government policy. First, there is the unwarranted optimism about the cash requirements of the nationalised industries. We must examine investment criteria and pricing policies. It cannot be right to cause industries to be wholly self-financing when the private sector—the commercial and industrial companies—are running a £6 billion deficit on a far larger proportion of their total turnover or assets than the nationalised industries.

The vicious effect of Government housing policies is mentioned in the report. The Committee was right to refer to the failure to spell out how the policy is to be implemented. Council house sales will not be a source of finance, because they will be financed by borrowing from local authorities.

The scope for tax cuts is highly vulnerable to the assumptions. Only a 0.5 per cent. fall in the average rate of growth of GDP is needed for the possibilities of tax cuts in the last two years of this Parliament to disappear. The underestimation of North Sea oil revenues is not an unconvenanted benefit. Certainly it would help to ease the public sector borrowing requirement, but it would exacerbate the problems of manufacturing industry, which faces an unrealistic exchange rate. The net effect on the economy would be to put the industrial and commercial sector further into deficit, which is the most grave threat that we face.

In terms of the arguments in the report, the medium-term financial strategy, which we are not allowed to call a plan, far from reducing the uncertainty of Government policy, has increased it. The Government have left uncharted the whole impact of public expenditure for future years.

The reasons that the Chancellor gave for refusing the Committee the information that it sought were disingenuous. If the Government believe that they should not forecast matters that they cannot control, as one of our advisers said in Committee, they should abolish the meteorological office. The Government are shy about publishing economic forecasts because they have an element of responsibility for the economic out-turn.

While economic forecasts are highly uncertain, uncertainty overall is reduced by publishing forecasts and by showing how policy will respond to departures from the expected course of events. The Government accept the logic of that argument in their medium-term financial strategy, in the monetary sector. However they reject it everywhere else, thus compounding the uncertainty. I suspect that the real reason why the Chancellor does not want to come clean and provide fuller information is that he does not want to be pilloried for planning the unpleasant consequences of policy, such as rapidly rising unemployment and the decline of manufacturing industry.

I am sure that the Chancellor does not want to make a direct challenge to the Committee or to the House. I hope that he will go cautiously as we try to work out a modus vivendi between the Treasury and Parliament, represented by the Committee, on the question of disclosure. The issue must be seen in the context of the developing work of the Committee. We have produced only our first economic report. We have embarked upon a major inquiry into monetary policy. The line that we have taken is to establish communication with all the prime economy watchers—the forecasting teams at the London Business School, the Cambridge economic policy group, the National Institute, Phillips and Drew and the Economist Intelligence Unit with the Treasury model.

Give or take one or two groups, most people would accept that they cover the field. With their combined evidence and advice we were able to carry out a serious review of the Budget and the public expenditure White Paper. Treasury Ministers should not have been surprised by the general tenor of our conclusions. Behind that there is a level of analysis underlying policy which we shall attempt to tap in our inquiry into monetary policy. We shall go straight to the operators in the Treasury and the Bank of England and to the primary researchers, both as advisers and witnesses, and not only to the gurus, interpreters, and traders in secondhand ideas.

There has been a sea change in the level of technique required to carry out a serious economic analysis, It has become highly technical, even mathematical. Some in the older generation of economists and economic journalists cannot cope with the technique, and scoff at it. However, there is not much dispute in the younger generation about where the significant work lies and how to approach it. We have ample help among our advisers. We have sent out an exhaustive questionnaire on monetary policy which is being worked upon not only in the Treasury and the Bank, but by a long fist of witnesses at home and abroad. The question is whether the Committee can successfully interpret the evidence for the House. I believe that it can and, indeed, that it must if it is to illuminate dispassionately, as the current report has, some of the assertions underlying present and recent policies.

I sympathise with the Chancellor when he is attacked in another place by Lord Kaldor who argues that one relationship does not exist, that another has broken down and that the reality is the opposite of what the Chancellor believes. Lord Kaldor's arguments need looking at, because they are not necessarily above criticism. A great many other arguments also need to be looked at and their balance weighed by people with the proper political preoccupations and experience—the kind of experience and judgment that can be offered by the Committee.

With the Committee—as the Governor as the Bank of England put it—formidably advised, if Ministers and the Treasury withhold information and seek to obstruct rather than to work with the Committee, we face a serious position. Against that background, let us examine the Chancellor's reasons for not giving the information that is sought.

First, the danger of undue reliance on specific figures and the need for due regard to past errors is cited. We can accept that any Government would be extremely foolish to work with a single set of assumptions or a single forecast. A Government will have a view of the pattern of probabilities and probable responses to the situation as it develops. The Chancellor acknowledges the obligations of the Government to make clear their view of monetary strategy to assist in the formation of expectations and to reduce damaging uncertainty.

Those precise arguments apply to the construction industry, to the industrial trading boards, to manufacturing industry, which must make massive investments for the future, and to the oil companies investing in the North Sea. Are they to be left in the dark, completely uncertain, because no one is marshalling the evidence and no one is saying how the Government will react to situations which will deeply affect their own plans? Will nobody spell out the depletion policy which perhaps lies behind the conservative estimates of the Government on North Sea revenues? If the Government are so highly selective about their pattern of disclosure, that gravely damages the effectiveness of decision-making in the economy as a whole.

I suspect that the Chancellor is not aware of the practical methods by which a view can be presented. By all means let him express it within a framework of monetary targets if he wishes. But the Chancellor has never sought to meet the Treasury's own academic panel. No Treasury Minister has done so. The Chancellor has not asked for simulations of how his own rules can be expected to work in practice in an uncertain world. He has not sought the design of better rules to take into account his own role in the formation of expectations.

As for market sensitivity, I hope that the markets are sensitive, and I hope that we will shift them. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) is not in the House at the moment, but he will recall that he asked a parliamentary question in 1967, shortly before devaluation. I do not know whether he would ask that question again had he the opportunity.

Of course we need to act responsibly in this respect. It is a reason for caution, but not for non-disclosure. It is, partly, a matter of timing. The Treasury has undertaken to give us a commentary each month on the rationale behind its operations and those of the Bank of England in the money markets. It will give us that not at the time when the operations are being carried out—we can understand the force of that argument—but shortly after the money supply figures are published: that is to say about a month later than the event.

The publication of information will certainly have an effect on the markets. That information is needed to enable the markets to react constructively. Those who have spoken to brokers in gilts and others will know the acute criticisms now being made by some people of the ways in which the markets are being discouraged from responding to information by the way tap prices are set. If we get the general logic right the movement should be from the sensitivity argument towards greater disclosure and not away from it.

Ideas on the mechanics of disclosure were, I thought, spelt out in the Industry Act 1975, which would not be on the statute book if the Chancellor and other Treasury Ministers had not voted for it in the last Government. I thought that I had agreed with Mr. Edmund Dell, at the time, on how that schedule would be implemented. What is called for is a base forecast, and variants, about none of which the Chancellor is asked to put his hand on his heart and say that that is what he believes.

I disagree with my right hon. Friend the Member for Ashton-under-Lyne when I say that I believe that the Chancellor is entitled to his private thoughts and to the ways in which he particularly balances the conclusions he reaches. What the Chancellor is not entitled to do is to preempt half the economic and analytical capability of this country by cooping it up in the Treasury and not telling the rest of the world what kind of balances of arguments are emerging. It is that disclosure of the structure of the argument which I believe the Committee needs, and towards which I believe it is moving.

I agree that the real world out there—of which the Chancellor is so fond of speaking—is where things happen. But they also happen in this place, and we cannot expect others—whether they be fitters operating numerically controlled machine tools, accountants called upon to operate budgetary control or municipal treasurers having to gee-up the rent collection system in their boroughs—to act more efficiently in the modern world if we in this place, and the Treasury, refuse to use modern methods and analytical techniques that are available to us.

As the Select Committee has already shown, there is room for improvement in our decision-making methods and I hope that we shall see progress. I hope also that that progress will be encouraged—as I believe it can be—by Treasury Ministers themselves.

7.7 pm

Mr. Terence Higgins (Worthing)

My right hon. Friend the Prime Minister, in a widely reported speech a few weekends ago referred to public expenditure and said that the Government were determined to follow the right policies even if that meant that the Conservative party lost the next general election.

That was a remark that we would all recognise as reflecting the forthright attitude of the Prime Minister on these issues. We could also add that, if the Conservative Party does not follow the right policies on public expenditure, it will most certainly lose the next general election. That being so, I think that there are a number of important points which arise in this debate.

I most certainly do not argue for a U-turn in Government policy. On the contrary I argue that that policy needs to be pursued with even greater vigour in relation to public expenditure than it is being pursued at present. I believe that my hon. Friend the Member for Ludlow (Mr. Cockerham) would share that view.

I view with concern a tendency for some of the positions adopted by the Chancellor of the Exchequer a year ago to have been, to an extent, reversed in the recent Budget. For example, we have witnessed a tendency for taxation to be raised rather than reduced and a tendency also for the move away from direct to indirect taxation to be reversed. More particularly I think that in the context of public expenditure we have not made the progress which many of us hoped for.

It is worth noting that the Chancellor referred today to bringing down the level of public expenditure rather than to cutting public expenditure. I believe that the House probably recognises now that the White Paper dealing with 1980–81 public expenditure—introduced last autumn—was an extremely inadequate document and I was worried at hearing the Chancellor say today that he had now completed his review of the previous Government's public expenditure programme. I believe that we must make further progress in this direction if we are to get the right economic policies which will bring down interest rates and get the economy back on an even keel.

There are one or two particular points which I would like to make in relation to the Select Committee report which has featured so much in speeches in this debate. In particular, I should like to say something about public sector pay, which, after all, is a massive element in Britain's public expenditure. I should also like to say something about the extent to which estimates of the future can be quantified.

In that context, it is right to stress that the Select Committee was not concerned with appraising the Government's economic policy in its report. By and large, it took that economic policy as given and sought to examine the foundation on which the Chancellor formulated that policy. No doubt, in due course, the Select Committee will examine Government economic policy, but that is not what it did in its report on this occasion.

I turn first to public sector pay, The evidence which we took and the report which we published attracted considerable attention, because many people thought at the beginning that the cash limit on public sector pay was 14 per cent. It then transpired in the evidence that the actual increase in the central Government pay bill for the year was likely to be between 24 per cent. and 25 per cent., a very much greater figure. As a result, there was correspondence between my right hon. Friend the Member for Taunton (Mr. du Cann) and the Chancellor. We can all understand the Chancellor's anxiety, which I certainly share, not to create the impression that a 25 per cent. increase in pay was the current going rate. But at the same time we can recognise that the 25 per cent. figure is the relevant figure in relation to the public sector borrowing requirement and the control of the money supply. Therefore, what gives me great cause for concern is the way in which it is proposed to control public sector pay both this year and next year.

We were told that the main reason why there was a difference between the two figures was the lagged effect of staged agreements made under the Clegg decisions, which rightly or wrongly the Government felt obliged to implement. That being so, the Select Committee's first report made a recommendation with regard to next year's control and cash limits. Certainly, I do not think that the situation this year can be regarded as satisfactory. But if I understand it correctly, the reality is that the cash limit for increases in pay is 14 per cent., although one can perfectly well reach a settlement within that limit and promise that next year, and if need be the year after, one will give staged payments which are not covered by that cash limit.

The position in which we shall find ourselves next year is that the individual Departments which are covered by cash limits will have a cash limit which covers the previous pay bill and the amount of the staged increases. There will then be a separate cash limit for extra increases next year. It does not seem to me that that double system will be an effective way of cutting public expenditure. Indeed, if it were to be an effective way of controlling public sector pay next year, there is no reason why that effective control could not have been exercised this year as well. Therefore, I believe that the Select Committee is absolutely right to draw attention to what could prove to be a major loophole in the system. We shall need to consider that very carefully when the matter comes before the House in the form of cash limits—Estimates.

The other point to which I want to turn my attention is the medium-term financial strategy. I greatly welcome the fact that the Government have set out that strategy. But we must recognise that it is a target and that, so far as we can establish, it is nothing more than that. It is simply the way in which the Government hope and intend to see taxation, public expenditure and the money supply moving over the period of the White Paper.

That being so, there are again some causes for concern with regard to the foundations. In the short term, I find it very worrying to be told " We shall control the money supply effectively, but we shall squeeze another £700 million out of public expenditure by a rigid imposition of cash limits. At the same time, we still expect there to be a substantial shortfall between the cash limit and what is actually spent by Departments". Taken together, those two things seem to me to be open to considerable doubt. On top of that, there is a contingency reserve.

We then come to the longer term, where about half the increase will be in savings from the nationalised industries, either in making them more efficient or, presumably, by increasing prices. I think that the Committee was right to say that it is difficult to ascertain the credibility of that statement and, indeed, the whole medium-term financial strategy, unless the breakdown is given. Although the Chancellor gave some indication of particular items, we need to see the whole picture.

It was all very well for the Chancellor to say this afternoon "Fine, the Committee can go and see the individual Department concerned." I hope that it will do that. But it was rather odd that not already been done and summarised within the Treasury. That being so, there are very grave doubts; because, if that is so, the PSBR will be higher than we would like it to be.

Nowadays, it has almost become a platitude to say " Well, it is very dangerous that the Government are having to cover this enormous PSBR at very high rates of interest, because in those circumstances the Government will hardly be able to afford to see a reduction in the rate of inflation ". What is more puzzling is the fact that apparently the Government are borrowing a very long way ahead. They do not recognise the fact that high interest rates are now being paid. In fact, they are borrowing at very high interest rates way into the future. Goodness knows, we are all familiar with the problems which our constituencies face as a result of the War Loan. We have all been told how terrible it is that our constituents lent money to the Government through the War Loan, and we have been asked whether the Government will do something about it. This is almost the reverse of War Loan. We shall be stretching years into the future and finding that the Government are paying out much higher rates of interest than they need do. Here again, there is considerable concern.

On top of that, we find that the Government have been so successful in selling this long-term debt that from time to time they must pump in another £500 million or so in order to get the thing back on an even keel and ensure that there is not too large an upsurge in money supply. Therefore, although I recognise that the medium-term financial strategy is a great advance in terms of the Government stating explicit targets, all those points are one reason for saying that the Select Committee ought to look into the matter further and that the House of Commons itself ought to do so, as it is doing this evening.

In that context, I find it worrying that in regard to the period covered by the White Paper, though not the period covered by the Red Book, the Government seem to be adopting an anti-quantitative attitude, for want of a less eloquent expression—[Interruption]—I am glad that my hon. Friends agree, and I am open to any suggestions that they may care to make. The fact is that having set out the he created the impression that that has medium-term financial strategy, the Chancellor is right when he says " I am very doubtful about economic forecasts. They are terribly unreliable and there are great uncertainties in the economy ". We all recognise that that is the position. But, none the less, when planning public expenditure five years ahead, all Governments must take a view as to what they think will happen, if not explicitly either internally or externally, at least implicitly in relation to the Government machine itself. If that is so, there is a case for making that explicit and for letting the House know what the position is.

We all recognise that the forecast may well turn out to be wrong, but unless we have an overall picture there is no way in which we or the Chancellor can ascertain whether the figures are internally consistent and add up. Therefore, it is important to have more information. It is not enough for the Chancellor to say " Well, we have set out our target in the medium-term financial strategy of public expenditure and taxation and, therefore, of the money supply ". We all know that the economic impact of those variables on the money supply and on the public sector borrowing requirement depends on a detailed breakdown. A case can be made for going into this issue in detail, but not necessarily in terms of enormous and elaborate economic models. Such models are for experts and enthusiasts. We should be given a breakdown similar to that in the Red Book, covering a year or 18 months.

The White Paper points out that one should look in the Red Book for an economic forecast. However, the Red Book does not cover the period considered by the White Paper. There is a strong case for greater detail. I hope that we shall get some co-operation. The Chancellor of the Exchequer and the Select Committee are on the same side.

Mr. Bray rose—

Mr. Higgins

I shall not give way, as I wish to bring my remarks to a close. We should work towards a system which encourages a free exchange of views, and an opportunity for frank discussion. However, the uncertainties must be known. The Government may publish such forecasts, but that does not mean that they can necessarily control the economy. We know that the Government's ability to control the economy is extremely limited. The Chancellor of the Exchequer has not applied the argument that I quoted to forecasts in the Red Book. I am unclear why the Red Book's forecast cannot be extended.

I am deeply concerned about the level of public expenditure. I am worried about its effect on the public sector borrowing requirement. We are still trying to control the money supply. We have a very large PSBR, and we are borrowing at high rates of interest. It is important to improve the supply side of the economy. However, at the end of the day an increase in the supply side turns not merely on greater efficiency, better management and industrial relations, but also—crucially—on the level of investment. We must therefore reach a position that enables us to cut the PSBR and reduce interest rates. The rate of interest, in relation to the rate of return that industry can get, will then allow industry to make a profit.

On a more partisan note, the Conservative Party is in danger of being in favour of the profit motive and sanction of losses at a macro-economic level. Indeed, I have always been in favour of that. However, at the same time it is difficult for profits to be made, because of the way in which the economy is being managed at a macroeconomic level. Profits must be created. People must be given the opportunity to make them. Unless that is done, we shall not be able to get the supply side of the economy right. It is therefore essential to get public expenditure under control. In addition, we should cut it significantly in real terms. I must tell the Chancellor that I do not believe that we have made sufficient progress in that direction.

7.23 pm

Mr. David Ginsburg (Dewsbury)

A noteworthy feature of the debate has been the anxiety expressed by hon. Members from all parties about the Government's policy. In particular, I must mention three speeches by Conservative Members. I refer to the speeches of the right hon. Member for Taunton (Mr. du Cann), the right hon. and learned Member for Hexham (Mr. Rippon) and the right hon. Member for Worthing (Mr. Higgins). The right hon. Member for Worthing made some important remarks about pay policy and about pay projections in relation to public expenditure. I hope that the Government will take heed of them. He also spoke about interest rates, together with the right hon. and learned Member for Hexham. That topic has been under-estimated. The right hon. and learned Member for Hexham said that unemployment was unacceptably high. He spoke about the problem of two nations.

Speaking as one who is not a member of the Select Committee, I notice that supporters and opponents of the Government's economic policy have combined to throw grave doubt not only on the Government's objectives but on the assumptions behind their economic policy. Perhaps I can return the compliment. Had the same Committee examined the assumptions of a Labour Government and Chancellor it might have come to similar conclusions. The Committee propose to examine the link between the public sector borrowing requirement, the money supply, inflation and growth. I should be surprised if it came up with any firm conclusions.

One thing is clear. We are living in an era in which assumptions are being challenged. Long-cherished techniques of economic management are being discarded. I accept that faith in established Keynesian economics has been shaken. High levels of unemployment, and their tendency to grow, mean that in purely Keynesian terms the Government have an inescapable duty—if we are to get the unemployed back to work—to prime the pump, to unbalance the Budget and to print money. Dare the Government do that? Few people would have the temerity to advocate such action at a time when inflation rates and interest rates are at record levels. Premature action to reflate the economy would not only fail to cure the disease; it would also kill the patient. We would have hvper-inflation. At best, we might suffer the experiences of South America, and at worst those of Germany in the pre-war years, particularly the early 1920s.

In the current debate on economic policy, two important facts have been insufficiently understood. The Select Committee has commented on one of them. It has pointed out that Britain has a petrocurrency. The second important fact concerns the cost of interest payments in our public expenditure. I venture to say that those payments represent almost the largest social service in Britain.

The currency problem has arisen because Britain has become a major oil producer. Not only does that provide the Government with a major source of revenue; the amount of foreign currency needed to pay for imported oil is rapidly falling. We also enjoy growing petroleum exports. They, in turn, bring in foreign currency. The technical position of the pound has been transformed. The pound can now perform safely as a reserve currency. It could not do that during the period of post-war Labour and Conservative Governments. Thus—this point has escaped attention—irrespective of the internal health of the British economy and of our high inflation rate, foreign funds are now seeking a sterling home. The exchange rate has climbed inexorably during the past three years, under both Labour and Conservative Governments. It is likely to climb still further. That process has continued despite the liberalisation of foreign exchange, undertaken by this Government.

The second special feature is that of very high interest rates. As a result of those rates, the pound has become even stronger. As some of my hon. Friends have said, that is a mixed blessing. It also places a heavy burden on public expenditure, which is far greater than people imagine. According to the Government's Blue Book, interest payments are currently running at about £10,000 million per annum. That is a figure as great as, if not greater than, the public sector borrowing requirement. Incidentally, it seems that £2,000 million of that amount is directly due to recent higher Government borrowing and rising interest rates since the oil crises of 1973 and 1978.

I imagine that most, if not all, of this vast total of interest has to be financed by taxation. If it is not financed by taxation it has to be financed by still further borrowing. I cannot believe that that is a healthy condition for the British economy. It encourages Governments to wish to see more inflation to lessen the burden of debt.

Therefore, provided that we practise prudent demand management—this is a criticism of the Government's policy—that is, that the Government now eschew too drastic a policy of tax cuts and do not abandon incomes policy, we have for the first time the option, because sterling is so strong, to move for a drastic cut in interest rates. That was the point that the right hon. and learned Member for Hexham was also trying to make. I am convinced that that is not only the right but is a feasible policy for the country to adopt at this time.

The consequences of high interest rates are serious. The Government, in their economic stategy, are on their own admission relying on private industry rather than on public expenditure to stimulate employment and economic activity, but high interest rates militate against that policy. They increase the cost of public expenditure. Incidentally, I would mention the special problem that arises here with inflation-proof funded pensions. I think that the hon. Member for Horsham and Crawley (Mr. Horden), speaking in a debate on transport finances, pointed out the seriousness of that burden. High interest rates also discourage private investment. Who can make a profit at 20 per cent. interest rates?

High interest rates with an over-strong exchange rate must inevitably stimulate overseas rather than home investment. They have the effect of driving British investment abroad. Some of it may be desirable, but we also forgo employment at home. Such a policy can be carried to excess.

The history of the 1970s has been one of high foreign borrowing by this country to finance private motoring and some public expenditure. Today we are paying the price, and it is a very high one. If the Government wish to cut public expenditure, surely they should begin at this point. Lower interest rates cannot but help to have a buoyant effect on the economy. Surely it is within our power to achieve them.

7.33 pm

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

I should like to make a few comments, not as a member of the Treasury and Civil Service Select Committee, but as a Member of the House, about what Governments can and cannot do. As my right hon. and learned Friend the Member for Hexham (Mr. Rippon) said, unemployment is unacceptable. The implication is that the Government can sit round a Cabinet table, or we can sit here in this honourable House, and decide that 300,000 or 400,000 jobs can be created. Clearly, they cannot.

As I am so new to this House, but not new to what goes on outside, perhaps I might make a few realistic comments about the business man. As a rule, looking at all Government interference, whether Conservative or Socialist Governments, all the help that Governments have given whether by IDCs or grants to encourage industry to go up North, to go to Scotland, to leave Birmingham and go to Wales, has usually ended up as wasted money. Government interference usually leads to chaos. Industry needs Governments not to keep changing their policies, but to do well what they should and can do.

The Government can do two things. They can be consistent about not printing money that has not been earned, because that is what causes inflation, and they can help industry by having a sensible policy on pay and the size of the Civil Service. My right hon. Friend the Member for Taunton (Mr. du Cann) and my hon. Friend the Member for Ludlow (Mr. Cockeram) spelt out the figures. We employ about 2 million more civil servants than France, and Germany, which is a third larger than the United Kingdom, employs 1½ million fewer than we do. It is not that we spend too much on public service; we spend too much on administering that service and the distortions that it causes in private industry.

What do we end up doing when we talk about a wages policy? Many so-called good Conservatives say " We need a wages policy of 5 per cent. or a nil increase ". We are now suffering because we had a wages freeze. I am sure that Professor Clegg is an honourable and sensible man, but what he has been asked to do and is doing is insane. There is no such thing as comparability for the job. Every time we freeze wages, some silly person says " Let Professor Clegg or someone like him judge one job against another". A job can be judged only by the market.

Whether it be this or the previous Labour Government's plans, I can tell the unions how they can get employment to go to the North of England. It is not hard. The thing to do is to have a sensible basis for wages paid in the South and in the North. There is not a comparability of expenditure. A house in the North of England which costs £10,000 will probably cost £30,000 in the South. But no one then says " What about comparability? " because comparability does not seem to work from a union point of view at that time.

If we are unable to be genuine and hope that employment will go where it is most wanted, it has to be because it is profitable for an industry to move. The reasons for distortions in employment lie not the problems of transportation, but in the distortions that successive Governments, with good intentions, build in.

I believe that the Government are right to be vague in the White Paper about how they see the next three or four years. One of the great problems of past White Papers has been that all the wonderful plans that have been laid out—the visions of what will happen always being good, particularly when elections are near—have been based on hope, and hope rarely materialises. What happens is that the income does not come in, but the expenditure still ploughs on. What the Government are trying to do—and I believe that they are right to do it—is to get the income in before spending it. When we see the oil money come in—it may turn out to be the greatest bonanza that we have ever had and we hope that it will be good as well as a soporific for us—we can start to spend it. That will be a good thing for the Government to do.

For too many years we have sacrificed the long term for the short term. I believe that the long term has finally arrived. This Government—any Government—had to do something about the financial situation that we faced. I believe that these plans are as realistic as it is reasonable for them to be.

The Government's task is to lay down guidelines and to lead. That often means that is it is necessary for the people to change their attitudes on what they wish for their country. Governments usually create chaos. They do not usually lead. They often insist on being the benign State leader. They favour the womb-to the-tomb philosophy. They believe that they can do for people that which they cannot. Governments are usually fraudulent with people, because they offer a vision that they cannot meet.

If the Government lead and the people do not wish to follow—if they do not want to have a free economy, if they do not wish to have a prosperous country without inflation and if they do not wish to kill inflation—the Government cannot do very much. Government cannot be a dictatorship. If the unions will not co-operate in reducing wage demands that have not been earned, if civil servants insist on going way above what has been earned, if bank clerks insist on 22 per cent. from profits which they have not earned and which have been obtained because of the nation's problems, and if everyone insists on going ahead with inflation, Britain will have no genuine economic base in future, and within five years we shall have inflation of 30, 40, or even 50 per cent.

For the reasons that I have described, the policy that is being offered to us is sound. It is meant to be, not strength through misery, but strength through realism. It is the first plan to be introduced honestly by a Government who have some hope of success. However, they will be successful only if the people want to follow them. If they do net wish to do that, all that follows will be economic mayhem.

7.42 pm

Mr. Giles Radke (Chester-le-Street)

I, too congratulate the Select Committee on the work that it has done. I congratulate it on the broad advice that it has received and on the report that it has produced. More important than the advice and the report has been the Committee's hearings. I have found them to be extremely instructive. I agree with the Committee that it has not been given enough information. Some information has to remain confidential, but I cannot always think what that information is. There have been some improvements in recent years in the information contained in White Papers. The presentation of the White Paper that is now before us, which includes taxation and public expenditure, is a useful improvement.

There are some wide gaps in the White Paper. Attention has already been drawn to some of them. The consequences of the cuts in housing expenditure are not included. It does not deal with the turn-round in the finances of the nationalised industries. That is likely to mean increased charges, which will have their impact on inflation. We are faced with the problem of North Sea oil. The Government's estimates are conservative. Phillips and Drew has said that the Government's estimate is about £3½ billion too small. That means that the Government have a useful card up their sleeve. That may be their reason for wishing to make a conservative estimate.

The forecast for unemployment is set very low at 1.8 million. It is said that that is not a forecast but an assumption. All the advisers that have appeared before the Select Committee have said that unemployment will be far worse. The Treasury should publish all the forecasts that it has made. We all know that it has made a number of different forecasts of unemployment on a number of different occasions. The publication of its forecasts would not commit it to any one forecast. At present it is committed to unemployment of 1.8 million, and if it goes higher it will have failed. It would be much easier for us if we had the range of Treasury forecasts. The Treasury increases speculation by not publishing them. It would be a good thing if it published more information on unemployment. It is not good enough for the Chancellor, for example, to read to the Committee a rather pompous lecture on confidentiality.

The Treasury must come to terms with the new regime. It must accept that we have the new Select Committees. Indeed, the procedures of the House may have to come to terms with that fact. It may be that one day will be set aside for Select Committee reports. If that is done, more hon. Members may attend debates on economic matters. We must all—that includes the Chancellor—come to terms with the existence of the new Select Committees.

I direct my remarks to Tory strategy, which in a sense we have all been assuming. It is something that we should tackle in this debate and in tomorrow's debate. I sec the two debates running into each other.

The Government believe that strict control of the money supply and cuts in public expenditure will eventually lead to a reduction in interest rates, a reduc tion in inflation, from 1982 a mysterious and substantial reduction in tax, an increase in output, and an increase in economic growth. That is what they believe will happen.

The great problem for the Government and for us all is how we get from now—now is an inflation rate of 20 per cent., unemployment high and rising, a stagnant economy with a decline in output and high interest rates—to the sunny uplands of the future as seen by the Treasury. There are three big question marks hanging over Conservative strategy. First, will that strategy reduce the level of inflation? Secondly, what will it do to British industry in the meantime? Thirdly—this is an important question for those who represent constituencies in development areas—what will be the impact on areas of high employment such as Merseyside, the North, Scotland and Wales?

I shall concentrate on the third question, but I shall make some brief remarks about questions one and two. First, I question very much whether control of public expenditure, cuts in public expenditure and control of the money supply will lead to reduced inflation. The behaviour of wage bargainers, among other factors, is extremely important. It is significant that we have seen earnings increase over the past year or so without an incomes policy. It is significant that the cold realities of public sector wage determination have triumphed over cash limits. We cannot proceed to reduce inflation without having an incomes policy.

The next question is the fate of British industry. The Select Committee is right to draw attention to what will happen over the next two years. The Treasury admits that in 1980 there will be a 4½ per cent. decline in manufacturing industry output and an average ½ per cent. decline over each of the three following years. As my right hon. Friend the Member for Leeds, East (Mr. Healey) said, that could be much worse.

High interest rates, high exchange rates, high inflation rates and a depressed market do not form the best environment in which to create the regeneration and the recovery of British industry that we all want. My theory is that by 1982 British industry will be almost on its knees and in condition to respond either to the upturn in world markets, which may occur, or to an internal consumption boom, which might occur because of tax cuts. By 1982–83 we could be in the middle of a balance of payments crisis, despite having the help of North Sea oil at its most full. That is my worry about industry.

I turn, finally, to the high unemployment in the regions. The general level of unemployment is likely to be high, but those of us who represent constituencies in the regions know that most of that unemployment will be concentrated in a few areas. We already know that there is an unemployment gap between the Northern region and the South and the situation is deteriorating very quickly.

To illustrate the point, I quote a few figures. In November, unemployment totalled 109,000 in the Northern region. By December it had reached 111,000. In January it was 114,800; in February 119,000; in March 121,000; and in April 126,000. If we compare March 1979 with March 1980, we see that there was a 30 per cent. drop in the number of vacancies. At the Newcastle jobcentre, which I visited a few weeks ago, the notice board has been taken away because there are no vacancies to put on that board.

Let us look at the unemployment flow. In the first four months of the year there is usually a decline in unemployment at the rate of 3,000 to 4,000 a month. Exactly the opposite is occurring at present. There is an increase of 3,000 to 4,000. Every hon. Member who represents this kind of constituency knows that there will be new redundancies every week.

I am fortunate in having Washington new town in my constituency. That new town was a joint party effort—it was Lord Hailsham's idea, and he was backed by the incoming Labour Government of 1964. The town was described as " the jewel in the Northern crown ". Certainly its balanced industrial structure enabled it to weather the storms of the 1970s. However, in almost every week over the past two months redundancies have been announced in that area.

It is against that background that we must judge the spending cuts. There will be cuts of almost 100 per cent. in the general and industrial support programme. There will be substantial spending cuts in employment creation and training. All those cuts have been announced in the White Paper. I do not pretend that Government support will solve all our regional problems or that regional policy by itself is enough. Nor do I believe that the regional or industrial policies of the Labour Government were satisfactory. But at a time when unemployment is rising very quickly and Government support is most needed, it is suicidal to cut back as this Government are doing.

Whenever we mention regional unemployment the eyes of Conservative Members tend to glaze over. Secretly they feel that as they did not get much support in those areas in the general election, they can probably get by next time without that support. They feel that they need not bother to do anything about the problems, and that they can still win elections, even if there is high unemployment in the North of England.

I believe that the Government ignore the problems of the North at their peril. They forget that there is a significant difference between the 1930s and the present. In the 1930s there was no television and people in the South did not know what was happening in the North. Today they know. They know that firms are going under and unemployment is rising month by month in the regions. They know when they see the fate of young people in places such as Newcastle, Sunderland and Durham. They know the desperate plight of towns such as Consett, which is about to be destroyed, and they see the decline in social morale and the gradual breakdown in the social fabric. When they see all these things the British people will reject the approach of the hard-faced men on the Treasury Bench and turn to a different approach. Every Government have their Achilles' heel and I believe that unemployment, particularly regional unemployment, will be this Government's Achilles' heel.

7.55 pm

Mr. Nigel Forman (Carshalton)

I wish to follow two aspects of the remarks of the hon. Member for Chester-le-Street (Mr. Radice) because I believe that he has touched on some important matters. The first aspect is the considerable power of the public sector trade unions. That fact alone goes a long way towards explaining the dilemma that was mentioned earlier in the debate—why successive Governments of both parties have found it so difficult to restrain and contain current public spending but relatively easy to defer capital spending.

Secondly, the House would do well to pay close attention to what the hon. Member said about the local effects of national policy, whichever Government are in power. That is especially so when it relates to the large regions—too large in my opinion—of the North and West of the country, which tend, in every recession, to suffer the worst effects of deflationary policies.

One can have long arguments about whether the deflationary policy of a particular Government is right, or whether it should be stronger or weaker. However, one thing is certain. Not all Conservative Members' eyes glaze over when the subject of unemployment is mentioned. I believe that it is principally up to the employees and managements of the undertakings concerned, whether they are in the public or private sector, to mitigate and reduce the tragic consequences of the deflationary policies—particularly unemployment. They can best do that by adjusting more speedily and readily to the new and rather grim realities of the world of low or nil growth.

This all takes me fairly logically to the main burden of my remarks. The most significant thing about the White Paper is the context of virtually nil growth that is forecast over the entire period ahead—possibly the whole period of this Parliament. Obviously this has implications for overall public spending, especially if the Government at the same time want to reduce public borrowing, which is clearly too high, and further reduce direct taxation, to which we are still committed.

Furthermore, it is not really an option for the Government to increase indirect taxation as one way out of the box in which we find ourselves because of the inevitable impact on the retail price index. The same sort of argument would apply to those who seek to be more lax with public borrowing because of the im pact on interese rates and the so-called " crowding out " phenomenon.

If we take all those points as given, we will conclude that as long as the economic growth to which we had become accustomed in the 25 or 30 years before 1973 is no longer available, public spending should not be allowed to grow at all. That is not to say that certain components of public spending cannot grow and should not grow within the overall total. We see that reflected in the Government's public expenditure plans, where they seek to increase quite remarkably spending on defence, law and order, and one or two other things. But inevitably that means bigger reductions elsewhere to compensate for the increases in these programmes.

In that respect, whatever one's views about social justice and transfer payments, it is unavoidable that the social security budget should also be included in the process of economy. It also implies the need for greater efficiency and productivity in the public sector. That has been said by a number of my hon. Friends, although it has also been well said previously in debate that this cannot be done solely by cutting out waste and inefficiency. Indeed, if there was one exaggeration of which my party was, perhaps, unwittingly guilty in the months leading up to the last general election, it was the impression that was left that somehow one could make the sort of economies in public spending that we want to make merely by reducing waste and inefficiency.

Quite clearly, we must look to the possibility of redefining the borders between the public and private sectors and of cutting out certain public functions altogether, as my hon. Friend the Member for Ludlow (Mr. Cockerham) has already said.

In that context, I believe that the key questions that must be asked when we are discussing public expenditure are the questions alluded to by the Chancellor of the Exchequer in his Budget speech—and I remind the House of the two that I have in mind. First, which services are both central Government and local government best able and best fitted to provide? Secondly, where can the role of the State sensibly be reduced? It seems to me that we must come up with answers to those two questions in order reliably to reduce public spending without doing excessive damage in the process.

The answers that I would give are, obviously, that in the first place we must provide adequately for defence. I am delighted to see in the White Paper that this is scheduled to grow by 3 per cent. a year in real terms up to the end of the survey period. The same consideration applies to law and order, in my view, and again I am pleased to see the scheduled growth of 2½ per cent. a year. Once again, the same consideration applies to expenditure on health nationally, which is scheduled to grow by 2 per cent. a year.

However, it is when we turn to the vast spending on social security, in a country with an increasingly large ageing population, and at a time of high unemployment, that one has some most serious worries. I understand from the White Paper that about £20 billion, or one-quarter of total public spending, is now accounted for broadly under these headings, and that this has grown by about 50 per cent. in the last 10 years, as compared with an increase of only 15 per cent. in gross domestic product over the same period. This relationship cannot continue and could not have continued under any Government, whichever party had won the last election in May 1979.

This suggests to me that the Chancellor was absolutely right to make the point in his Budget speech about the need to reconcile the need, on the one hand, to protect the most vulnerable members of society with, on the other hand, the need to ensure that scarce resources are distributed in a way that does not unduly prohibit the creation of wealth. I believe that in the long term the way for us to do that very delicate balancing act is by revising and eventually implementing our commitment to the tax credit scheme. I am strongly in favour of that scheme.

I hope that my hon. and learned Friend the Minister of State, Treasury, will note this point, because I believe that the Government owe it not only to their supporters but to the country to complete their investigations into this important project We already have some of the building blocks for the tax credit scheme with the child benefit that we have in place and with the recent decision of the Government to tax short-term benefits.

I realise the arguments that there are against the tax credit scheme. It may be initially expensive to raise the thresholds, but I suggest that it need not be so if we abandon the 1972 commitment, which is now quite unrealistic in any case, to leave no one worse off when we make the change. It may be initially complicated with the parallel development of computerisation in the Inland Revenue, but I suggest that this need not pose an insuperable obstacle if there is sufficient political will.

On the point of political will, I remind my Front Bench of our party manifesto pledge. I am not one of those who believe in the mandate theory of Government—but sometimes it is convenient to cite these theories against one's hon. Friends when they seem to be departing from the Ark of the Covenant. In our manifesto we said: We shall wish to move towards the fulfilment of our original tax credit objectives as and when resources become available. That seems a sensible position to take.

My only difference with the Government Front Bench is that I should like us to fulfil that pledge sooner rather than later, if necessary at the expense of other programmes, not least—here is the important point in relation to the Select Committee's examination of public service manpower—because it could lead to some huge reductions in DHSS staff, and we could effect many of our social policies via the auspices of the Inland Revenue thereby winding down a great deal of the already overmanned DHSS.

My conclusion, therefore, Mr. Deputy Speaker—I warn you that it may be a lengthy one—is that any policy on public spending must reflect the new requirements of the world of low or nil growth, to which the Red Book drew attention on pages 17 and 18. It must take full account, equally, of the impact of the relative price effect and, therefore, deal more effectively than the Government have so far shown signs of doing with the problems of public sector manpower and public sector pay.

In this connection I agree entirely—I could not put it better myself—with paragraph 19 of the Select Committee's report, which says: We are not convinced that cash limits are fully effective in controlling public sector pay. Neither am I, and I suggest that the Government need to look to additional mechanisms for that purpose.

Equally, any decisions on public sector expenditure must reflect and will inevitably reflect our own political priorities as a Government. In other words, we have the priorities, as we all know, of defence, law and order, the Health Service, and the safety net principle in social security spending. We must eschew temptations to starve our public services for the sake of imprudent tax cuts that might be financed by the so-called fiscal adjustment of North Sea oil revenues towards the end of this Parliament. Equally, we must eschew the temptation to which the Labour Party might have succumbed if it had been in power, of trying to buy jobs and votes with a reckless expansion of the public sector in areas in which tradeable goods and services are not involved.

We on the Conservative Benches also need to recognise the vital relationship between the State as procurer of goods and services—to the tune of about £20 billion, these days—and the private sector as the main provider of those same goods and services. This is a point that the Prime Minister recognised not long ago in her speech during the debate on the motion of no confidem e, and I very much hope that the Minister who winds up this debate will be able to say something further about the Government's policy on public sector procurement, because at a time of deep recession it can not only create jobs but reinvigorate the economy.

My last remark, Mr Deputy Speaker—I warned you that it would be a lengthy conclusion—is that I believe that for the rest of this Parliament and possibly beyond, we in this country and, indeed, others elsewhere in the developed world, will need to learn how to do more with less—to put it in a slogan. I believe that to be the meaning of a future for the OECD countries based on true economy, and it is a future that we in this country could and should pioneer. I only hope that we have the political courage and imagination to make the necessary effort.

8.8 pm

Mr. Robin F. Cook (Edinburgh, Central)

I hope that the hon. Member for Carshalton (Mr. Forman) will acquit me of discourtesy if I do not immediately take up his remarks, although I shall be taking up some of them during my speech. I am aware that some of my colleagues wish to intervene in the debate, and I can see that the Conservative Benches have now found a further speaker. I shall, therefore, seek to be as brief as I reasonably can.

I should like to begin by going back to the speech of the right hon. Member for Taunton (Mr. du Cann). I am sorry that he is not in his place now. I make no complaint about that because he has been assidous in his attendance throughout the debate. I thought that the right hon. Gentleman's speech was remarkable. In the course of it, he made trenchant observations in which he cirticised the unemployment projections in the Government's policy as unrealistic and criticised their projected decline in output of 6 per cent. as being far too optimistic. He criticised the turnround in the external financial limits of the nationalised industries as hopelessly unrealistic, he criticised their failure to contain increases in public sector wage demands for the current year, and he made an especially vigorous onslaught on the way in which the Government have loaded the cuts on to capital rather than revenue expenditure.

If I were the Chancellor I should be inclined to say " If this is the right hon. Gentleman supporting my policy, I should not like to hear him criticise it." It makes it plain why the Chancellor did not stay to hear one word of what the right hon. Gentleman said in the debate—nor, indeed, that of any other speaker.

The right hon. Gentleman then went on—at this point I diverge from him—to attack the level of public service manpower and the rate of pay which they receive. The theme was taken up by a number of his colleagues on the Government benches.

No member of the Opposition would quarrel with the statement that we must stringently apply cost-effective, cost-benefit techniques to the use of public sector manpower. However, Government supporters really must not fall into the temp tation of deluding the public that there are easy and substantial savings to be made in public expenditure by cutting out bureaucracy. There was a tart passage by the Chancellor in his Budget Statement in which he addressed himself to exactly that view. He pointed out that the total cost of public sector manpower was one-fifteenth of the total amount of public expenditure. Even if one achieves a truly dramatic cut in the level of that manpower, one will achieve probably about 1 per cent. to 2 per cent. of total public expenditure. If one wants to achieve the savings which Government supporters assure us they do, there is no way that one will achieve them by cutting out bureaucracy and reducing manpower. One must cut services. That is what we have seen happening as a result of some of the cuts that have occurred so far and what we shall see happen again under this White Paper.

Every Member of Parliament has been sent the statement by the Association of Directors of Social Work on the effect of public expenditure cuts on social workers' activities. In the course of that paper the directors estimate that this year social work authorities will complete 55 to 60 buildings which they will be unable to use because of manpower constraints. We are talking about 55 children's homes, 55 old folks' homes or 55 day care centres which, when completed, will stand empty like some kind of symbolic Centre Point of the public services.

It cannot be argued that we are already over-provided with such facilities. That cannot be argued by the Government because the previous Tory Government set standards for such provision. The standards they set were as follows: for mentally handicapped children, four places in homes for every 10,000 of the appropriate population. In fact, there are not four at present; there are two. It laid down that we should have six places in day care centres for the mentally ill. We do not have six. In fact, we have one. We should have 12 home helps per 1,000 of the elderly. We do not have 12. In fact, we have six.

Those figures were not dreamed up by the directors of social work. They were prepared by the previous Conservative Government on the initiative, of all people, of the present Secretary of State for Industry. Plainly we are failing to meet those targets. The policy being pursued by the Government on public expenditure will make it much more difficult to achieve those targets.

Of course, as the hon. Member for Carshalton (Mr. Forman) said, the Government are not cutting every service. The law and order services are to be retained. I make no complaint about that. One is grateful for the bright spots among the general retrenchment which is Government policy. However, I am struck by the partial view which the Government appear to take of law and order. Tomorrow we shall debate the Finance Bill. It will become a law, sad to relate. It will have the full force of any statute passed by this House. The enforcement of that law will not be easy. Already some of the brightest brains in Britain will be working in some of the most expensive offices calculating how they can avoid and evade the provisions of that statute. Yet at this same time the Government are cutting back on 2,000 posts within the tax inspectorate. One is driven to conclude that white collar crime and fiddling income tax do not attract the same opprobrium as other breaches of law and order.

Even more serious is the Government's attitude towards the enforcement of the safety laws. In 1974 this House passed the Health and Safety at Work etc, Act. That was the first Second Reading debate in which I sought to take part— unsuccessfully, as it turned out. That legislation had all-party support. The Opposition did not then seek to oppose it. That Act set up the Health and Safety Executive to enforce and police its provisions. The Health and Safely Executive was told last month that it must cut its staff by 6 per cent. That is not a cut in bureaucrats or administrators. That is a cut in field inspectors, who are there to police and enforce a law passed by this House.

The economically active population of Britain have a much greater chance of being maimed at work than they have of being mugged in the streets on their way home after dark. Yet we are cutting back on the enforcement of our safety laws. Are we saying that we are so poor that we cannot now afford to enforce the minimum legislation on safety passed by Parliament or that we do not regard that as a function of law and order?

There are other contradictions in Government policy. I draw the attention of the House to the number of cuts imposed by the Government which will make it much more difficult for British industry to compete with its competitors abroad. The Government are not removing from British industry a burden of public expenditure which will enable it to compete. In many cases we are kicking away from beneath British industry the support that it obtained previously from public expenditure.

In export promotion there will be a loss of 100 posts. I cannot imagine that any Member of Parliament who believes at present that we are doing adequately in the export markets of the world would agree that we could lightly afford to throw aside 100 members of Government staff seeking to increase those exports.

The CBI is no strong supporter of public expenditure. However, it calculates that every pound spent by the Government on export promotion results in £20-worth of export orders for firms in London alone.

The Government propose a cut of 15 per cent. in industrial research establishments. Among the projects that I understand will be cut as a result are research into computer development, research into new machine tools and research into alternative energy sources. These are exactly the areas in which we should invest more money if we want to compete successfully in the next decade.

The Chancellor of the Exchequer told us rather gleefully at the end of last year that in 1980 there would be a record number of bankruptcies. He said that the nation must learn that bankruptcies can be healthy. The House would be divided on that view of bankruptcies. However, if indeed the Chancellor expects more bankruptcies this year than ever before, why is it that his colleague the Secretary of State for Trade chooses this of all moments to wind up the bankruptcy service provided by the Department of Trade, which assists private companies in sorting out the legal and financial tangles that arise from bankruptcy? Nowhere do we see more clearly that the consequences of public expenditure cuts will be to reduce support to industry than in table 1.4 of the White Paper, which refers to the turnround in the net borrowing of the public sector industries. A number of hon. Members have already drawn attention to this table and pointed out the extraordinary transformation of nationalised industries, finance which it presumes. Within five years they are to move from a net borrowing of £2,300 million to net repayment of £400 million. That is a turnround of £3 billion. Members of the transport Select Committee inquired closely of the Parliamentary Secretary—

Mr. Eggar

On a point of order, Mr. Deputy Speaker. Is it in order for an hon. Member to refer on the Floor of the House to the proceedings of a Select Committee before it has reported?

Mr. Deputy Speaker (Mr. Richard Crawshaw)

I understand that this evidence is in booklets that have been published. Therefore, it is in order.

Mr. Cook

The Select Committee took evidence from the permanent secretary. My colleagues and I pressed him closely on how the British Rail component had been made up for insertion in the table. Table 1.4 consists of figures written down on paper. It is pointless to discuss whether they are projections, assumptions or targets. They are merely figures written down on paper with no serious analysis under-pinning them, with no serious attempt to work out in detail how they are arrived at.

All that comes out forcefully from that paragraph in the White Paper is that the bulk of the transformation is to be achieved by added charges. The White Paper is explicit about that. It says that the increase in the repayment of the nationalised industries and the cut in their borrowing powers assume that the gas and electricity industries will be taking steps to eliminate under-pricing over the period. Not many of our constituents would agree that gas and electricity are under-priced. Not even the gas and electricity industries would agree. They will be expected to make major increases in their prices and profits to achieve the figures in the table, if they can be achieved at all.

It is coming home to an increasing number of members of the public that, when the Government talk about public expenditure savings, they are effectively talking about increases in public service charges. Several hon. Members have referred to the substantial cut in housing expenditure. The hon. Member for Dundee, East (Mr. Wilson) wanted to know why housing had been singled out for a particularly savage cut. I can tell him. It is because expenditure on rents can be passed on more easily than can expenditure on other sectors to which he referred by comparison. That cut presupposes that there will be a substantial increase in real terms in the rents of public sector houses.

Mr. Nick Budgen (Wolverhampton, South-West)

Is the hon. Gentleman clear about that? We have no evidence yet whether the Government intend to increase rents or whether public housing will grind to a halt. There might be a very much stronger case if the Government had explained in more detail their proposals for public housing.

Mr. Cook

I should not object to the Government's explaining in more detail what they propose to do. We cannot make perceptive comments on the Government's proposals unless we have more details. I cannot claim any expertise on housing in England and Wales, but in Scotland it will mean more than a total grinding to a halt of the public sector housing programme. Even taking all the capital expenditure on housing in Scotland, we still do not arrive at the proposed saving. Even if no council houses were built and no council houses were modernised, rents would still have to be increased in real terms to achieve the gargantuan saving which the White Paper forecasts.

The Government's strategy depends critically on increasing charges for public sector products and services. That is a curious approach, and it is possible to represent those increased charges as savings only because of the accounting conventions for public expenditure. By increasing charges we do not necessarily reduce the consumption by volume of goods and services by the public sector. What happens is that the way in which it is paid for is shifted, and the burden of paying for it is shifted to those who use the highest proportion of their income to pay for transport and housing; in other words, the burden is shifted to the poor.

It is not part of an economic strategy; it is part of a social strategy designed to redistribute income from the poor to the wealthy. The attempt to dress it up as an economic strategy is farcical. The theory runs like this. If we punch a great hole in the economy by cutting the public sector, the private sector will expand to fill that hole. Where is the sign that the private sector will expand to fill the hole? Investment will not fill it; it is falling. Exports will not fill it; they are falling. The Red Book assumes that exports will fall still further and makes no proposal to arrest that trend. The hole will not be filled by the private sector, and the GDP is likely to decline more or less by the amount by which the demand for goods and services in the public sector declines.

This raises the intriguing question: when there is so obviously little reason to underpin the strategy put forward by the Government of cutting public expenditure to stimulate the economy, why has this strategy such a psychological appeal to a large chunk of the population? It is not difficult for someone who has been brought up in the Church of Calvin to answer that question. We are witnessing an appeal to the puritan ethic; by suffering we achieve salvation. If we indulge in the flagellation of the public sector we shall end up with economic re-birth. There is not a shred of reason to support that article of faith, and the sooner we bring the Government Benches to a healthier view of the role of public expenditure in an advanced industrialised economy, the better it will be for Britain.

8.26 pm

Mr, Tim Eggar (Enfield, North)

I start by commenting on the initial point made by the hon. Member for Edinburgh, Central (Mr. Cook) in his fine speech. Few of my hon. Friends believe that the necessary public expenditure restrictions can be brought about either by a reduction in public sector manpower or by reducing the relatively high wages in the public sector. The attempts that we make to control expenditure on public sector manpower are an earnest of the Government's intention to get public expenditure under control. We go further. We say that unless we can control public sector wages, the spill-over etfect on the private sector will undermine our economic policy, and that goes for all of us, however, monetarist we may claim to be.

Few of my hon. Friends have fundamental doubts about the aim of this public expenditure White Paper. Some say that the Government have not gone far enough; others say that they have cut too much in one area or too little in another; but few challenge the Government's basic hypothesis that economic growth can be achieved only by reducing the proportion of national wealth that is spent on our behalf by the Government.

The Treasury team is rightly sceptical about economic forecasts. We all recognise that the future course of the economy is strongly influenced by events that the Government cannot control. The level of world trade is one example. Private sector investment is another. I understand the Treasury's reluctance to make a series of detailed forecasts. It prefers to make what it calls assumptions about the few variables that it believes it can control. Even then it gives scant information about public expenditure projections three or four years ahead, and is reluctant to give us a breakdown by economic category.

At the same time that Ministers are unwilling to give us information, they are at pains to explain that their economic policy will take five to 10 years to achieve fruition, and I agree. It will not work overnight. They must therefore not be surprised when those who wish to analyse in the medium term what that policy will do to our economy make criticisms which they believe are unjustifiable or unfair. The Treasury must accept that its reluctance to give information will lead to criticisms that may prove to be unfounded, but Ministers are unwilling to give the detailed rebuttals that are essential.

Apart from the squeeze on the corporate sector, which concerns me greatly, but on which I shall not comment tonight, two aspects of the White Paper worry me. I hope that the House will forgive me if I follow the remarks of other hon. Members on the Treasury Select Committee. The Select Committee has reached unanimous views across party boundaries on many salient aspects of the public expenditure White Paper.

My first concern is with the way in which capital expenditure has been drastically reduced while current expenditure, particularly the wages bill, has taken up the slack by the reductions. I recognise that for years White Papers, of both Governments, have been guilty of saying that there will be more expenditure this year, but less in succeeding years, yet those succeeding years go ever further into the future. That same criticism can be made of this White Paper, but it is perhaps not quite so valid as in previous years.

All Governments have found it easier to reduce capital expenditure programmes than current expenditure. Unfortunately, this Government are no exception, despite the courageous efforts made to reduce the apparently inevitable growth in social services expenditure. Capital expenditure this year will be 40 per cent.—almost half—of what it was in 1974–75. One does not have to be a Keynesian to recognise the serious impact that a reduction on that scale has on private industry, particularly the heavy construction industry. We are nearly reaching the point where we have a net disinvestment in public infrastructure in this country. Whatever their political view, no one can welcome that.

I should gain more comfort if I were convinced that that was an essentially temporary point of the Government's strategy, and that they were making strong efforts over current expenditure, particularly the public sector wages bill. However despite extensive questioning, and the provision of written evidence to the Select Committee, the Treasury's explanation of pay rises given to the Government sector is far from convincing. One is forced to the conclusion that, using any reasonable definition, the 14 per cent. cash limit has been breached this year. Proving the contrary has tested even the Treasury's considerable intellectual powers of explanation and persuasion.

I support my right hon. Friend the Member for Taunton (Mr. du Cann) and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) in doubting whether a significant reduction in expenditure on public sector wages can be achieved without decisions about manpower levels being taken from the individual Depart ments and given to the Civil Service Department. There is a case for saying that the CSD should be reincorporated into the Treasury. Even then, however, to achieve the necessary restrictions on manpower levels the Department would need to be assured of the complete and utter personal backing of my right hon. Friend the Prime Minister. Unless the Government move quickly in this direction we shall not achieve the public sector manpower reductions that we promised at the general election, and which the people expect from us.

My second worry has been a recurrent theme for members of the Treasury and Civil Service Committee. It concerns the Government's reliance on a miraculous transformation in the fortunes of the nationalised industries. Real increases in the cost of gas and electricity have already been announced. They are inevitable and totally justifiable. However, I hope that the Government are not relying on those sources for too much additional revenue. Apart from the inevitable effects on the retail price index, it would be most distressing if we went into the next general election with British Gas still fully in public ownership.

Even if we ignore the RPI effects of putting up the prices of the products of the more profitable nationalised industries, a more suspect and questionable policy is whether the Government can secure a £1 billion improvement in the finances of the loss-making nationalised industries. I find it difficult to believe that that could be achieved, and in that context I have only to think of British Rail.

In the scramble to achieve the financial targets of the nationalised industries there is a danger that too much reliance will be placed on Government control being exercised through tight cash limits. Those cash limits might be tailored with the needs of the PSBR more in mind than the needs of the individual industries. Large utilities, particularly profitable ones, all over the world rely to a large degree for their capital expenditure on external funding. There is some evidence that cash limits are already forcing some of the more profitable nationalised industries to take decisions which no private enterprise company in a similar position would ever take.

In particular, there is some evidence that the cash limits may force industries to postpone investment plans in a way that will seriously affect their future effectiveness. In other words, the same is happening in the nationalised industries as is happening with public sector infrastructure. I accept the need for central control of nationalised industry financing. There should be a limit to the amount of external finance available to the nationalised industries.

I believe that cash limits have brought a welcome financial discipline to the nationalised industries. I wonder whether it would be wise to consider separating nationalised industry borrowing for major new capital projects from the general cash limits. I believe, in any case, that cash limits would be better expressed as medium-term financial targets. If the normal cash limit is separated from funding available for expenditure on major capital projects, funds should be available to the Treasury. Nationalised industries could be asked to submit pro posais for funding on capital projects to the Treasury, and the Treasury would allocate funds for those purposes.

For certain capital projects the Treasury might say that it had not the funds available but that the nationalised industry concerned could go to financial sources in the private sector and borrow without a Government guarantee, either explicit or implicit. There is the example of BNOC. An advantage of this course is that capital expenditure, especially on major new, and what effectively may amount to infrastructure, investment is not sacrificed because of current expenditure pressures. Additionally, there would be a centralised Treasury control that could make judgments about the country's need for expenditure by the nationalised industries and give priority to those projects within the nationalised industries which the country feels should proceed.

I may have seemed overly critical of the Government. Everyone favours reductions in public expenditure until reductions affect him or his pet projects. It is easy to pick holes in any Government's public expenditure proposals. I hope that that has not appeared to be my major objective. I have tried to be constructive.

8.43 pm

Mr. Michael English (Nottingham, West)

I shall be brief, in order to allow other hon. Members to speak. This debate began with two right hon. Gentlemen making contrasting speeches. My right hon. Friend the Member for Leeds, East (Mr. Healey) was no more than just to himself when he said that he was talking about public expenditure. I do not believe that the Chancellor of the Exchequer was doing only that. He reached his lowest point when he made his slightly sarcastic remarks about the Select Committee.

I should like to state clearly that whatever the Treasury and Civil Service Committee may prove to be like in a few years' time, following a whole Parliament's experience of it, this debate is not unusual. The hon. Member for Canterbury (Mr. Crouch) was wrong in his point of order. I have personally done the first draft of six reports of the same character as that which we are discussing today with the public expenditure White Paper. The Financial Secretary to the Treasury, now sitting on the Government Front Bench, participated in the old Expenditure Committee in reports of the character that we are discussing.

Although the name—the Treasury and Civil Service Committee—is new, the principle of having a Select Committee report in time for this debate is not new.

The Chancellor damned the Committee with faint praise. Nothing will turn the right hon. and learned Gentleman into a great orator, but he would at least make his speeches more interesting if he did not constantly leak them to the press in advance through his PROs and junior Ministers. Almost every word hon. Members heard today we have read in the press over the weekend and last week. The right hon. and learned Gentleman spoke of how the Committee takes up time. The old Committee apparently never took up the time of anyone, but the present one does.

One of the most reprehensible things is the implication that the right hon. and learned Gentleman has been more forthcoming than his predecessor. I can only say, as the former Chairman of the General Sub-Committee of the Expenditure Committee, that my right hon. Friend the Member for Leeds, East, when he was Chancellor of the Exchequer, was extremely helpful to me personally and to the Committee.

I turn to the substance. Every word in the report is agreed unanimously, although I should like to have seen other matters in the report. Perhaps we spent too much time talking about whether the Chancellor gives us information. There are few secrets about the economy—many uncertainties, but few secrets. If the Chancellor does not tell us what the rate of unemployment will be we ask our advisers. They use their models and computers and we are told that 2.5 million or 2.2 million people will be unemployed. We assume that the unemployment rate will be more than 2 million, and even the Chancellor now accepts that.

I am worried, not so much about the information that the Chancellor did not give to the Committee—although the press took up that—but also about the information that he did not seem to have. When we say, in the technical phrase, that there is no table of the effects of public expenditure by economic category, we mean not that the Chancellor did not provide the evidence but that it was not prepared. No blame attaches to the Treasury civil servants for that. They cannot prepare something on which decisions have not been taken.

If council houses are sold, amazingly, the receipt of capital assets is said to amount to a reduction in public expenditure. It would take too long to explain what an artificial concept that is. If the council houses are not built the subsidy that is not given is counted as a saving in public expenditure. If council rents are increased that is also said to be a saving in public expenditure.

All such activities have one effect, according to the public expenditure White Paper—they reduce public expenditure and contract the PSBR. That is fine, but in economic terms the meanings are different. For example, if one stops building council houses people in the construction industry are put out of work, but that does not happen when rents are increased. Rent increases do not put people out of work, but they increase the retail price index. Selling council houses does nothing; because it merely transfers assets from one person to another. It might achieve something socially, but economically it achieves nothing. The Chancellor waved that argument away by referring us to the Secretary of State for the Environment.

But the Secretary of State for the Environment told another Select Committee that the local authorities must make the decisions. That is the first time that I have heard this Government, who are trying to impose tighter controls on local authorities, say that local authorities should be free to decide something. The truth is simply that the decisions have not been taken.

The nationalised industries are further examples. I was surprised to hear my hon. Friend the Member for Edinburgh, Central (Mr. Cook) say that British Rail told the Transport Select Committee that it must stop making any losses. The equivalent in road transport would be to make all roads toll roads. Some people might believe in market forces to such an extent that they would agree with that and with making all the motorways toll roads. They might believe in an equality between both forms of transport and that the track, in each case, should be paid for. We subsidise British Rail because the track is the equivalent of a road which is paid for out of taxation.

The Chancellor waves these realities away again. He says that each Select Committee must examine its own nationalised industries. There is no suggestion of a unified policy. That was so in the past; I do not blame the present Government, but Government in general are blamable for the fact that the nationalised industries have different forms of accounts. The Treasury never managed to knock their heads together. The industries that make a profit have one type of account and those that make a loss another. No multi-national company would allow its subsidiaries to account in different ways so that some of them put money away because they were making too much and others used the worst practices because they were making a loss. There is no unity in policy and no consideration of what is required by the market.

The Chancellor called my statement grotesque because I said that we were trying to create if not quite a candy-floss economy at least an economy in which more people sell imported candy-floss. What is the Chancellor trying to do? We appear to be trying to contract the public sector as well as manufacturing industry. Whether the Chancellor is saying that he is trying to do that I know not but the effect is, as we have all heard, a colossal decline in manufacturing industry.

Yet we are told that in the latter years GNP will rise by 1 per cent. In that case it will rise in the private sector only. Private services only will increase. If that is not a sort of candy-floss economy I do not know what is. But, as I said, it cannot be a candy-floss economy.

The word " candy-floss " was put into my mind by a high ranking worker in the public sector. I do not think I should identify him in more detail than that. However, he was wrong. It will not be a candy-floss economy because candyfloss is manufactured and we are to have less manufacturing. We shall import our candy-floss.

We shall have more people in services such as distribution, banking, gambling, entertainment and television—there will be the second channel—and all these goodies will increase at the expense of the real wealth—creating agency of our country, namely manufacturing industry. They will also increase at the expense of public sector services.

8.51 pm

Mr. Nick Budgen (Wolverhampton, South-West)

I shall be brief because I have transgressed in the past by taking too much time. I shall be brief, most of all, because I know that there are two hon. Gentlemen who wish to offer their views to the House.

I agree with the hon. Member for Edinburgh, Central (Mr. Cook), who said that there is no opportunity for really massive cuts in public expenditure by axing the beaurocracy. It is right that the only real cuts in public expenditure that will be available over the next few years will be effected by increasing the cost of the various services.

I hope that the Government will offer their supporters rather more guidance about the effect of the retail price index. If we are a monetarist Administration, we should be looking not at the causes for individual price rises, but at the cause of inflation itself; that is to say, the reason why money is losing its value.

I find it somewhat strange when I hear explanations from the Government that, for the sake of argument, over the last year or so the increase in the price of oil has been the cause of inflation. I would have thought that the present Administration had a cast-iron case for blaming the last Government for the way in which they increased the money supply in the period running up to the much-postponed general election.

I do not understand how a monetarist Administration can blame OPEC. Nor do I understand exactly how the effect of a high exchange rate—with its helpful effect upon, for instance, food prices that are not covered by the CAP—has an effect upon inflation. I see, of course, how it has an effect on the RPI.

I say that because I believe that a distinction should be made between the RPI and the going rate of inflation. I understand that it is the common view of the Government that anything affects the retail price index is, if possible, to be avoided. If I accept the argument of the hon. Member for Edinburgh, Central that the real savings in public expenditure are to be made by increasing charges, that must, inevitably, have an effect on the RPI. If we are confusing the RPI with the rate at which money loses its purchasing power, it seems to me that we are in a highly dangerous cleft stick.

I say a word or two about what I regard as the inadequate explanation that the Government have offered concerning their plans for public expenditure in the area of housing. Whether one turns to paragraph 11 of page 72 of the public expenditure White Paper, or to paragraph 18 of the report of the Select Committee, the issue is clouded with vagueness. Why is that? If the Government do not have the political courage to spell out the implications for housing of a £2.5 billion cut over four years, I do not see them dredging up the courage to do so later on as we get nearer to a general election. For the sake of argument, had we lost Southend rather than just won it, or if, as we are bound to do eventually, we lose a few by-elections, in two or three years' time I do not think that the detailed implications for housing that are set out in these projections will be all that easy to spell out. It would be very much better to spell them out now.

I believe that we have the political courage to do that now. I think that the hon. Member for Edinburgh, Central got it right when he said that the Government are appealing to the Calvinistic streak in our people. But while that is a strong, important and honourable streak, it is not one that persists for ever. We tend to have a Calvinistic streak for a period perhaps, followed by a laxer cavalier streak. In my view, now is the time to appeal to the Calvinistic streak.

There are also important economic reasons. At present, in my opinion rightly, the Government are trying to encourage people to buy their council houses. That is taking place against a background of what, inevitably, seem to be continuing high interest rates for some time. We have what is generally admitted to be a rather over-high PSBR. If that is to be properly financed so as to keep to the monetary targets, and while I accept that interest rates will go down somewhat in the near future, interest rates will not be very low in the foreseeable future. Therefore, unless rents go up, the comparative advantage of home ownership will be less clearly felt by those who are currently living in local authority housing.

There is another argument. We all know that the construction industry is likely to go through a difficult period for the next couple of years. The construction and property industries always benefit from inflation. After all, it is those who borrow money against real assets who benefit from inflation, and the inflationary psychosis has taken over so strongly that, in general, people are borrowing more against the best possible real assets that they can find. Therefore, the construction industry will go through a difficult period.

Surely, at the least, the Government ought to try to explain to the construction industry what their views are in relation to public housing. If, for the sake of argument, the Government say " We shall not put up rents because we find that unacceptable "—I believe that is the modern term—" because of its effect on the RPI", the construction industry will know that if the projected figures are adhered to there will be almost no more council house building between now and the next general election. If, on the other hand, rents go up rather more, there will be slightly more money available for new council housing.

While I am strongly and vehemently opposed to the indiscriminate subsidies that are given to those who, for historical reasons, were allocated a council house 20 years ago, when they were genuinely in need, but are now receiving vast support from the taxpayer and ratepayer, I believe that there is and ought to be an important and continuing role for public housing in this country. If those plans were stuck to, a disabled person, or someone who went to work temporarily on an oil rig in Scotland, would not be able to find a council house. He would find that council housing had come to a halt.

Within the next month or so, I hope that we shall be given a clear statement by the Department of the Environment, setting out how cuts of about £2½ billion will be made. We owe that to the people of Britain and to the Tory Party. If we do not have the courage to do it now, it is doubtful whether we shall ever have it.

9 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

If the Financial Secretary runs true to form, there will be a moment between 9.30 pm and 10 pm when he will tell us that the economic health of the country is dependent upon massive reductions in public expenditure. Some hon. Members may find that assertion difficult to accept. They may find it difficult to accept that that is the secret of economic success. We have now reached the end of a year during which the inflation rate has doubled and interest rates have reached record heights, and during which unemployment has risen by 150,000 in six months. The Government expect a fall in output of 2.5 per cent.

The Financial Secretary is just the man to brush all that aside and declare the year to be a great economic victory. He may warn us that that victory will be jeopardised if one more nursery school or old people's home is built. He is also the man to suggest that there is no alternative to that policy. As he is not ill informed on these matters, he will know that a number of solutions to our economic problems are consistent with maintaining public expenditure levels at or about the figures advocated by the Opposition.

The right hon. Gentleman must know that one solution is wholly consistent with the general economic and financial philosophy of the Government. Only a year ago the London Business School was the repository of all wisdom. It has said that the PSBR should be increased to £10 billion if output falls by 2 per cent. Indeed, it suggested that it should be increased to a greater figure if output fell at the rate that the Government have suggested.

I remind the Financial Secretary that his principal economic adviser made a statement six months ago, on 14 November. That was a week before he took on new Government responsibilities. He said: Monetarism does not say anything directly about public spending... the issue of Government spending is essentially a different argument, it is not a necessary part of monetarism. My hon. Friends and I believe that the Government have chosen to ignore such advice. They have chosen not only to pursue a monetarist path, but to wed it to an obsession for cutting public expenditure. They have ignored that advice partly as a result of their obsession with a single idea, and partly because they believe, as a matter of faith, dogma and principle, that public expenditure should be cut.

The White Paper is as much about ideology as about economics. That is illustrated in the Prime Minister's favourite cliché about rolling back the frontiers of the State. As today's debate has shown, the Government's policy has made them few friends. By depressing the economy the right hon. and learned Gentleman the Chancellor of the Exchequer has been unable to satisfy those of his critics who wish to see a large reduction in public expenditure, in terms of the share of gross domestic product.

With regard to national output, the Chancellor has been unable to satisfy any of the critics who talked about cutting deeply and changing the ratio between overall spending and public spending. However, he has managed, and will progressively manage, to do more and more damage to a variety of social services. We believe that those services are essential for the nation's health.

It is in our view—it is certainly my view—that even if, by some wild hypothesis, the economy were to be put right, inflation were to fall, output were to increase, the balance of payments were to move into surplus, there were to be industrial investment again or unemployment were to turn down rather than up, the Government would not choose to restore anything like the services that they are now damaging because they want, as a matter of principle, more private and less public education, more private landlords and fewer rented council houses, more investment in private medicine and a diminished public Health Service.

I take three examples of that point to demonstrate what I mean. The first is an example from the Budget itself. At a time when the Chancellor was talking about massive reductions in education spending—£820 million, almost 10 per cent., over the years 1978–79 to 1983–84—he was at the same time, by adjustments in capital transfer tax and by new exemptions for charities, and all the other related matters concerning charities, providing a massive uncovenanted, unexpected and, in my view, undeserved bonus for the preservation and extension of the public school system.

If that is not a sufficient example of the Government's positive enthusiasm to promote for its own sake the private sector at the expense of the public sector, there were a number of asides by the Chief Secretary in his speech on the second day of the Budget debate—things said not as a central thrust of his speech but in an unguarded moment. He said: we can look to the private sector to meet people's demands. He was talking about housing. He also said: We wish to encourage private voluntary effort in the Health Service."—[Official Report, 27 March 1980; Vol. 980, c. 1698–1700.] He was talking about hospitals.

Time after time there are examples, not simply from what the Government do, but from what they say, of their enthusiasm to reduce the community's responsibility for all its members and to allow the individual to make provision for himself if he is rich enough, powerful enough, foresighted enough and has the financial wherewithal to do so.

I think that that characterises the entire White Paper. There are many areas from which one might take examples but in a speech of this sort examples have to be chosen from a strictly regulated part of the document. The possible examples are endless. They range from the disgraceful but much debated cuts in the social security programme to the squalid, but, I regret, barely mentioned cut in the overseas aid budget—a cut which, on this occasion, the right hon. Member for Daventry (Mr. Prentice) has managed to accept without resigning from the Government, no doubt in the knowledge that he would not be as popular with his new friends as he once was with his old ones.

I do not want to deal with either the social security aspects or the overseas aid reduction. I want to spend my remaining 23 minutes concerning myself, and I hope the House, with the White Paper's effect on local authority spending and two of the areas for which local authorities are particularly responsible—education and housing.

The overall position for councils, with the exception of housing, is summarised in the White Paper on page 13, in paragraph 46. It shows that current expenditure is to be cut each year between now and the end of the period under review. The overall reduction, compounded for last year, this year and the three subsequent years, is about 10 per cent. The reductions on capital account are worse. Compounded for the entire period, they amount to about 20 per cent. As I hope to show in a minute, the position for housing is even worse—a reduction overall of more than 40 per cent. Yet we continue to be told by Ministers that reductions of that order in the entire area of local authority spending in the housing and education sectors can in some way be effected by painless remedies—by solutions which do not cause unacceptable hardship or suffering to working people and their families.

I was sorry to hear the right hon. Member for Worthing (Mr. Higgins), who I know to be a compassionate and humane man, talking about the need to cut deeper into these programmes. I hope that the right hon. Gentleman understands—if he does not, he may like to come to a constituency such as mine, which is very different from Worthing—the suffering that is caused by cuts of this sort. We delude ourselves—I know that the right hon. Gentleman would not seek to deceive others—if we talk blandly of the way in which cuts can be made without great suffering for many who need the services provided under the headings in the White Paper. They will suffer if those services are not provided.

The right hon. Gentleman is not the only person to imply that such cuts may be implemented painlessly. Others adopt the same approach; for example, the Chief Secretary to the Treasury during the Budget debate. He told us that although education was being cut substantially—by £840 million over the period—that did not imply any deterioration of education standards.

I wonder in what sort of world the right hon. Gentleman lives. Does he realise that this year capitation allowances to State schools have been reduced by about £4.5 million because of the cuts? Does he know that the National Book League, which makes it its business to know these things, as its livelihood depends on it, tells us that of the £4.5 million reduction in capitation allowances £2.5 million has been saved by schools providing fewer books for their pupils? Does he believe that we can have a policy that reduces so massively the number of books that are put in the classrooms without deteriorating education standards? The answer is that a real reduction in nursery school provision at one end of the life cycle, and in old people's homes at the other, is causing real hardship. There is much evidence that that suffering will continue. It will intensify if the policy that the White Paper provides is implemented, as I fear it will be.

I concede that in a number of sectors the Government do not know exactly where the hardship will fall and where it will be the greatest. Part of the reason for their not knowing that is that Government Members are the sort of people that they are. They are making cuts in an education system about which they know virtually nothing. They are attacking a housing sector in which they have never lived and in which they expect never to have any relations. They are cutting a Health Service of which they rarely take advantage in preference to the private provision that they make for themselves.

It is not only the Government's constitutional ignorance that prevents them from knowing exactly how bad the cuts will be.

Mr. Eggar

Has the right hon. Gentleman forgotten the events of 1976?

Mr. Hattersley

There are many things that I remember from 1976. The hon. Gentleman will probably recall that during the Budget debate of 1978 his right hon. Friend the present Chief Secretary to the Treasury chided my right hon. Friend the Member for Leeds, East (Mr. Healey), the then Chancellor of the Exchequer, for making cuts in 1976 and restoring them in 1978. That was one of the charges made against that Labour Government. If the hon. Gentleman can assure me that the cuts that are being made now will be restored in a year or two, my criticism of them will not be quite so severe. However, I think that he will find that they will not be restored. The Chancellor is much more likely to respond to Conservative Members who sit on the Back Benches, who want more cuts and deeper cuts and not a mitigation of the suffering—a mitigation which the Labour Government introduced after the 1976 package.

The Government do not know the exact extent of the suffering and hardship that they are causing. In many instances they are making no forecast of the nature of the cuts that they intend to institute under the headings in the White Paper. All that they have done is to decide upon a total for spending and allow individual departmental Ministers to work out the consequences. Those are not the consequences for themselves, but for school children, prospective tenants and old people. It is those people who will have to work out the consequences later. The Government's motto is to cut first and to worry about the suffering afterwards.

I shall give the House two or three examples of why that is clearly so. Education is the first and most obvious example—witness the Government's intention to reduce spending by abandoning rural transport. When the Government found that that intention was frustrated by those in another place, they made no judgment about the necessity of spending. They merely said "The money will have to be found somewhere else ". The Government decided their total sum, and educational necessities had to fit in with the pre-conceived notion of how much had to be spent. That will be the same with the future education budget.

During his Budget speech the Chancellor of the Exchequer told us that although education spending would fall by 6½ per cent. over the period the effect would not be quite as severe as it might superficially appear because school rolls would fall by 13½ per cent. in the same period and therefore the cuts per pupil and per school would be reduced. It now turns out, according to most authorities, that the cut in the school rolls will not be as great as predicted. My suspicion is that the Chancellor of the Exchequer saw that the primary school rolls were expected to fall by 6 per cent. and the secondary by 20 per cent. so he added them together, divided by two and ended up with a net cut across the entire school population of about 13 per cent. But education authorities believe that the fall in the school population is more likely to be 9 per cent., rather than 13 per cent.

If the Chancellor is saying that we should not worry about the education cuts because reduced numbers of pupils will make them easier to bear, and if his judgment is based on that and those pupil numbers do not fall in line with his prophecies, does anyone believe that the Chancellor will provide extra money to make up the shortfall?

Of course he will not. The right hon. and learned Gentleman will say that the number of pupils had nothing to do with it He will say that education must be cut by £840 million and it is for others—local education authorities, teachers, parents and even pupils themselves—to make up their minds how deeply the blow falls. He will say that his job as Chancellor is to cut, and that it is someone else's job to suffer.

The Government's cuts will, I believe, be far greater than they are prepared to admit. They will be made even greater by the public sector wage awards this year. I hope that the Financial Secretary will answer some detailed questions about the effect of those awards. He will recall that after some close questions by my hon. Friend the Member for Nottingham, West (Mr. English) the Chancellor said that public sector earnings would increase this year by 25 per cent. I am not sure whether that 25 per cent. includes the Clegg award for teachers that was announced recently, and whether that substantial award will increase the average.

The Chancellor went on to blame that figure very largely on wage awards—comparability awards—left over from the previous Government. I hope that the Financial Secretary will also tell us whether, even if comparability awards are put aside, the figure that the Secretary of State for the Environment included in the rate support grant covered the awards that are to be paid this year. I suspect that it did not. The Secretary of State for the Environment said that his cash limits this year were consistent with an inflation rate of 13 per cent., which has turned out to be a cruel joke on local authorities, and with pay awards of 13 per cent. plus a realistic allowance for last year's comparability, irrespective of the merits of comparability awards.

I stand by that as an essential part of the incomes policy that I want to see in this country, but we must be told whether the pay awards, the cash limits and the rate support grant arrangements turn out to be a further hidden cut, and whether the local authorities have been given enough money to cover those figures or whether they are being left with bigger bills to pay, more cuts to make and the obligation to accept more guilt and responsibility, when it is the Government's financial mismanagement that has brought this about.

The local authority pay awards are like all pay awards—they are, in part, dependent upon Government policy. The local authority workers have discovered that the Government have made things more expensive. This White Paper has made school meals, bus fares and rents more expensive. Therefore, workers will say that if the Government put up prices they should expect to pay bigger wages. The Government's entire policy has created this vicious circle of increased costs, prices and wages, with the inflationary result that we have seen.

In what is left of the half hour at my disposal I want to deal in as much detail as possible with the housing aspects of the White Paper. I think that it was the Chancellor who quoted from Mr. A. J. Balfour in these respects. He probably knows that his uncle, the great Lord Salisbury, said that in politics dogma is nothing; detail is everything. I blush to think what Lord Salisbury would think about the housing aspects of today's White Paper. It has two main features. The first is that the tables that tell us how much is to be spent are literally blank columns. The second is that the paragraphs that are supposed to justify the Government's spending consist of clichés about the virtues of private enterprise in housing.

I hope that we shall get some information from the Chief Secretary about what is really intended in housing. It was my hope that the Secretary of State for the Environment would speak this evening, but I am delighted that he is here in his place. [HON. MEMBERS: " Why? "] Because he told me so. Perhaps, that is not adequate evidence, but that is why.

I am glad that the Secretary of State for the Environment is in his place, because I must refer once more to what has been said about housing in 1980–81. The Financial Secretary will know what purported to be a statement to the House on the Government's housing intentions was described by two magazines as wilful " obfuscation " and " a statement calculated to mislead." He will know that the figures provided to the House confused outturn with forecast and confused survey prices with outturn prices and, therefore, gave the House a quite misleading impression of the housing prospect for 1980–81.

I hope that we shall have the opportunity to return to the charge with the Secretary of State over this matter in the future. I gave him the opportunity to clear up these matters three weeks ago, but he is so careless about his own reputation that he neither corrected nor withdrew any of the things that he falsely told the House.

Apart from this year, when it is now very clear that house building has come to an almost complete dead halt, I hope that we shall be told what the Government's intentions are for the next year, the year after and the year after that.

I emphasise to the Financial Secretary that this is not a matter of making predictions of the sort that the Chancellor does not like. It is not a matter of forecasts which may or may not turn out to be right. It is simply the Government making up their minds and telling us what they intend. It is really preposterous that in 1980–81 we have not the faintest idea what the Government intend for house building or for rents. I must conclude, with the hon. Member for Wolverhampton, South-West (Mr. Budgen), that the reason why we are not told what the Government intend in those two particulars is that the Government dare not tell us what they intend, because house building is to be virtually abolished and because rents are to rise to astronomical levels.

We are reinforced in that belief by the Housing Bill, which is presently passing through the House of Commons. I am not allowed to quote from that Bill, although I hope to have an opportunity to do so when it reaches Report stage in a week or two. But you will know, Mr. Speaker, and the House knows—I think that it is possible for me to say this—that in the Housing Bill the Secretary of State will be provided with the widest powers to determine rent levels and subsidy levels. The Secretary of State will be empowered to require local authorities to charge rates at such a level that they actually make a profit on their municipal housing.

It is very clear that when the blank columns on housing are filled in, they will be filled in in such a way that rents will rise in a way that they have never risen previously. The only reason why this is omitted from the White Paper is that the Government do not have the courage to tell the country today, and certainly did not have the courage to publish those figures in a White Paper that was published 10 days before the municipal elections.

But as my hon. Friend the Member for Batley and Morley (Mr. Woolmer) pointed out with great precision and great perception in the Select Committee, the size, weight and strength of the cut contemplated for housing is so great—a reduction of about 48 per cent. over four years—that to meet the Government's targets, rents would have to be increased by 50 per cent. across the board, and still council housing—both thinss together—would be brought virtually to a complete halt.

Indeed, my hon. Friend offered the Chancellor a number of alternatives, which ranged from doubling council rents to abandoning building altogether. The Chancellor chose none of the prospects offered to him by my hon. Friend. All that he said was that those were the parameters of policy, and that it may be that no more council houses would be built; it may be that municipal rents are to be doubled.

It is intolerable, in terms of Parliament and the country, that the Government know these things, have decided on them, but do not tell us. I tell the Financial Secretary to the Treasury without a moment's equivocation that if he tells me that the Government have no forecast for council house building next year and the year after I shall be unable to believe him. If he tells me that the Government have no forecast for municipal rents from 1981 to 1985, I shall be unable to believe him. Anybody who has served in Government knows that in the Treasury and the Department of the Environment there are papers that forecast how many council houses will be built and what the average rent level will be.

The fact that the Financial Secretary will not tell us the figures that appear on those papers is a disgrace—not in terms of responsibility of the House but in terms of those living in council houses and those who need and want to know their prospects of getting one, and whether there is or is not to be future building.

Why have the Government done all this? In part, it is because they believe that the private sector must surge forward and that the public sector must be held back. They believe—I have read those passages in the White Paper on housing which speak eloquently about private landlords in the private sector—that a society is better when it relies on the private landlord rather than on local authorities.

I tell the Secretary of State for the Environment frankly that he is right in saying that if he creates a massive shortage of rented accommodation by abandoning council house building, private landlords will step in to fill the gap. However, they will not step in to fill the gap in a way that helps the tenants. They will step in in such a way as to exploit the tenants and produce the maximum advantage to themselves.

It is not simply dogma, doctrine and ideology that prompt the Government to make cuts and reductions and cause suffering and hardship. Until very recently the Government thought that cutting public expenditure and reducing public services were popular in the country. If they believed that last Wednesday, I hope that Thursday convinced them of the error of their ways. I have not been able to raise an eyelid in the House for the past six months without the Secretary of State's accusing me of being the man who personally put rates up all over the country. I wish that I could plead guilty. Were that the case, I would be the man who produced 579 Labour gains in the municipal elections.

I hope that the Secretary of State understands the implications of his policy. He speaks throughout the country no less assiduously than I, telling people that the path of virtue and wisdom is holding down expenditure, at the expense of services if necessary. What kind of response did he get? In Preston, where the Conservatives reduced the rate in the hope of hanging on to power, the Labour Party gained control. In Newcastle, where the rates are the highest in the country, the Labour Party won four seats. In Wolverhampton, where the rate was increased by 56 per cent., the Labour Party gained overall control. The very clear evidence from this country is that the people resent and reject the idea of their services being reduced.

Mrs. Elaine Kellett-Bowman (Lancaster) rose—

Mr. Hattersley

I shall not give way at 9.28 pm.

The country rejects and resents the damage being done to services. The people do not want old people's homes closed. They do not want nursery classes left unoccupied. They do not want home helps and meals on wheels priced out of the pockets of the poorer pensioners. We are a civilised and compassionate country. On Thursday the country defeated and rejected the idea of cuts in services at any cost. I have no doubt that the country will go on doing that between now and 1984.

9.29 pm

The Financial Secretary to the Treasury (Mr. Nigel Lawson)

In the current issue of The Listener there is a charming article by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) entitled "Municipal Memories". When I listened to his speech winding up the debate for the Opposition, I felt that it was a sequel to that article. He showed no awareness whatever that what we are engaged in is a struggle against the appalling level of inflation that the country has suffered these past 10 years. The whole core of the public expenditure White Paper and of the debate is the struggle against inflation and thereby the restoration of the country's sadly ailing economy to health.

In a speech which ended at 9.28 pm, it was not until 9.27 pm that the right hon. Gentleman brought himself to the subject of the local elections, which no doubt he had been hoping would be the glittering crown of his speech. He knows as well as we do that the local election results were very disappointing to the Labour Party. Since we were defending seats that were won in the year of Walsall and Workington, it is not surprising that the right hon. Gentleman managed to pick up a few seats, but he and the whole of the Opposition are disappointed with the result.

An analysis of the results shows that there is no distinction in the swing between councils that held down their rates and councils that put them up sharply. That proves neither the point he made nor the opposite. It proves that local election results are determined by the country's feelings about the Government in office at the time and, with the present rate of inflation, it is not surprising that the Government are trailing in the polls. What is surprising is that the swing is as slight as it is—far less than it was when the previous Government were in power.

The right hon. Gentleman asked me about the housing cuts. He seemed to suggest that we were suppressing figures. I assure him that no figures are being suppressed. Savings in public expenditure on housing will be produced by a mixture of an increase in rents and a reduction in house building, but the precise mix will be decided year by year in advance of the year in question, and has not been decided now.

The right hon. Gentleman said that the raising of rents was intolerable. Has he forgotten 1976, as my hon. Friend the Member for Enfield, North (Mr. Eggar) said? Has he forgotten the public expenditure White Paper produced by bis Government in 1976? When speaking in the public expenditure debate in that year the right hon. Member for Heywood and Royton (Mr. Barnett), the then Chief Secretary said: I believe that we are right to plan in the longer term for the proportion of housing costs to be borne by rents to grow from 43 per cent in 1976–77 to 50 per cent. by 1980."—[Official Report, 10 March 1976; Vol. 907, c. 453.] That is what the Labour Government said then.

As the right hon. Member for Spark-brook seemed to assume that there was an ideological issue here, I will quote further from what the right hon. Member for Heywood and Royton said at a Labour Party meeting later that year: I simply ask if, within the tight financial constraints with which we have to work, it is right socially or for us as socialists to say that 57 per cent. of housing costs shall be part of public expenditure, i.e., transfer payments financed out of taxation or borrowing? That is the line the previous Government were taking then.

What has happened? Has the proportion of housing costs to be borne from rents risen to 50 per cent. by 1980? Far from it. It has fallen to 41 per cent. Rents now cover 41 per cent. of housing costs. There is no point in the right hon. Gentleman trying to pretend that by changing this we desire to impoverish the poor—who get rent rebates in any case.

The right hon. Gentleman asked me a question about public sector wage awards and whether the 25 per cent. central Government pay increase this year included the Clegg award for teachers. He was slightly confused. Teachers are not in the central Government category; they come under local government.

The figure for the total public service increase was 23 per cent. and not 25 per cent., which includes the Clegg award for teachers. The 13 per cent. on the rate support grant, to which the right hon. Gentleman also alluded, does not include the Clegg increase. A further increase was given in the rate support grant to take that into account. I hope that the right hon. Gentleman is satisfied with those answers to his questions, which he seemed to think were of the first importance.

In the time available I shall deal with the main themes that emerged in the debate, which was more than simply a debate on the public expenditure White Paper. Towards the end of my speech I shall come to the points made by the right hon. Member for Leeds, East (Mr. Healey).

Mr. Higgins

Is the whole Clegg award covered within that 25 per cent., or is some staged to a later year?

Mr. Lawson

The Clegg award is included in the 23 per cent. I was out of the Chamber for my right hon. Friend's contribution, but I believe that he was more concerned with the staging of Civil Service pay, which is the 25 per cent. There is an element of staging in order to bring this year's pay award to civil servants within the 14 per cent., but it is a small element of staging of about 2 per cent. [Interruption.] There is no point in hon. Gentlemen laughing. The staging is only about 2 per cent., which is in contrast to what the previous Government did. The 25 per cent. figure has arisen because there was an 11 per cent. overhang from last year. It is a postdated cheque that we had to pay on top of the 14 per cent. cash limit, which makes the 25 per cent. increase in all. The staging that goes on from the 14 per cent. for next year is only 2 per cent.

Mr. Higgins

In addition to the teachers' component of the 25 per cent., is there a further post-dated cheque for them next year?

Mr. Lawson

That is for the local authorities to negotiate. In the rate support grant, full allowance was given for what was thought likely to emerge from the Clegg award, and what, indeed, did emerge. Therefore, full allowance is made there.

May I briefly deal with a point raised by my hon. Friend the Member for Croydon, North-West (Mr. Taylor), who was concerned about the Manpower Services Commission? A review of training services is being undertaken by the Manpower Services Commission, but the Government will be carefully considering the future of those services when the review is complete. The Government's expenditure plans already envisage a substantial fall in the employment and training programme, and the Manpower Services Commission staff is to be cut by about 15 per cent. Moreover, its corporate plan, published in the minutes of evidence of the Employment Committee, shows an expected fall from £305 million to £278 million in expenditure on the Manpower Services Commission's training services division. My hon. Friend and others concerned that there have been no attempts to prune the Manpower Services Commission can be reassured that that is not the case.

Mr. Robert Taylor

I am grateful to my hon. Friend for making that point, but what is the reason for the Manpower Services Commission carrying out a review of its own activities? It will obviously come to the conclusion that that activity should continue.

Mr. Lawson

My hon. Friend made that point in the debate. First, cuts are already planned. Secondly, the Government will scrutinise the review very keenly indeed.

Hon. Members were concerned about forecasts. Far too much play has been made about forecasts. It may be helpful if I quote at some length from evidence given earlier this year to the House of Lords Select Committee on Unemployment by Mr. Samuel Brittan, whom many would consider to be as perceptive a critic of Governments as any member of the Treasury Select Committee. He said: You asked about the previous discussion where I heard a lot about whether unemployment in 1983 was going to be 1.6 or 24 million. Estimates were requested by some members of what the unemployment rate might be in 1990 or the year 2000. May I be humble enough to say that I have not the faintest idea, but arrogant enough to say that most of the economic institutes who calculate this have no idea either. How many people in the First World War would have forecast the unemployment rates of the great depression? If the Committee had been meeting in 1933, how many could have forecast the post-war unemployment rates. He concluded These projections are not merely a harmless distraction. They divert the attention of economists from matters on which they can give interesting views (such as what are the forces making unemployment unnecessarily high and what can be done about them) to crystal-gazing, which is not something they or anybody else has a power to do.

Mr. Healey

Will the Financial Secretary explain, therefore, why he and all his right hon. and hon. Friends compelled the last Government and, now, them selves to publish forecasts twice a year in very great detail?

Mr. Lawson

The forecasts that were published as a result of the Industry Act amendments resulted from an all-party vote and they are short-term forecasts. In implementation of our sceptical attitude to the value of looking so far ahead we shall in next year's public expenditure survey not be including the figure for the fourth year ahead—that is, for the final year. The last year of the next public expenditure survey will be 1983–84, the same as this time.

Mr. J. Enoch Powell (Down, South)

Hear, hear.

Mr. Lawson

I am grateful for the support of the right hon. Member for Down, South (Mr. Powell).

There was also concern about the inflationary effect and the effect on public expenditure of high pay settlements in the public services. Having belatedly discovered during the winter of discontent that pay policies do not work, the previous Administration sought to improve their electoral prospects by setting up the Clegg Commission complete with a bundle of post-dated open cheques with which to bribe their friends in the public service unions to accept reasonable settlements in the last pay round. They did so safe in the knowledge that they were most unlikely to have to foot the bill.

All of the major references to Clegg were made, or negotiations concluded, before the election. In the circumstances we were obliged to honour the commitments which our predecessors had so unwisely given. That is why earnings in the public services have risen faster than in the economy as a whole.

Mr. Rippon

When is it proposed to disband the Clegg Commission?

Mr. Lawson

I was coming to that. We shall in due course have to take a decision on the future of the Commission and I can assure the House that that is under active study at present.

Mrs. Kellett-Bowman rose—

Hon. Members

Give way.

Mr. Speaker

Order. The Minister must be allowed to continue his speech.

Mr. Lawson

I give way to my hon. Friend, Mr. Speaker.

Mrs. Kellett-Bowman

Will action be taken against those members of the Civil Service who gave incorrect evidence to the Clegg Commission about the staging of various awards? It has been a thoroughly misleading report.

Mr. Lawson

That is not a matter for me, but I am sure that it has been noted. The future of the Clegg Commission is under active review.

My right hon. Friend the Member for Taunton (Mr. du Cann) and other hon. Members raised the question of Civil Service manpower. It is worth referring the House to trends in Civil Service manpower over past years. Between 1964 and 1970, when the Labour Government were in power—these figures are adjusted to be on a comparable basis—Civil Service manpower increased by 29,000. During the four years of the Conservative Administration from 1970 to 1974, Civil Service manpower dropped by 6,000. During the subsequent Labour Government's term of office, from 1974 to 1979, Civil Service manpower rose by 39,000. During the short time that the present Government have been in office, Civil Service manpower has fallen again by 27,000. There are plans for a further substantial reduction during our period of office.

I was asked about local authorities. It is true that there has not been a similar fall in local authority manpower. We have no powers to control or determine local government manpower. As my right hon. and learned Friend the Chancellor said in his Budget speech, local authorities must now give high priority to achieving reductions in local authority manpower.

Another theme running through the debate was the distinction between cuts in capital expenditure and cuts in current expenditure. I accept that a high proportion of the cuts that we have announced for this year are in capital expenditure, 57 per cent. to be precise. That may be too much, but it ill behoves Opposition Members to say that. In the IMF cuts of 1977–78, 72 per cent. of the cuts were in capital expenditure and 33 per cent. cuts in construction expenditure directly, compared with 25 per cent. in the cuts that we have introduced.

Mr. English

Do I recollect the hon. Gentleman himself criticising that at the time? The hon. Gentleman now apparently approves of capital cuts when, on the previous occasion, he did not.

Mr. Lawson

I did indeed criticise that at the time. The cuts in capital expenditure, as I have pointed out, form a considerably smaller proportion of the cuts that we have introduced this year than was the case with the cuts introduced by the right hon. Member for Leeds, East (Mr. Healey).

It would be helpful if those who criticise the cuts but accept the overall need for economies in public expenditure and the overall need for a declining profile of total Government expenditure, as advocated by many of my hon. Friends, would come forward and suggest what cuts they would prefer instead of the cuts that we have introduced. I know that this is very difficult. It would, however, be valuable and helpful if the Treasury Select Committee, for example, in its next report, were to propose the cuts that it would prefer to see to the cuts in capital expenditure that we have proposed.

It is no use simply talking about cutting out wastage. As my hon. Friend the Member for Ludlow (Mr. Cockeram) said, functions, too, have to be cut if Civil Service numbers and public service current costs are to be reduced. It is incumbent on those of my hon. Friends who dislike the pattern of cuts that we have introduced to suggest what functions they believe we should cut.

Mr. Healey

Does not the hon. Gentleman recall the present Prime Minister, when addressing Conservative candidates at the beginning of the last general election campaign, said "Do not talk about cutting public expenditure. Talk about cutting out waste ".

Mr. Lawson

I know that, in public expenditure debate after public expenditure debate during the right hon. Gentleman's tenure of the Chancellorship, my right hon. and learned Friend and I made clear, time and again, that there would have to be cuts going far beyond the elimination of waste. We referred specifically to housing and to a number of other areas. There is no point in the right hon. Gentleman throwing that at us.

The right hon. Member for Leeds, East is so anxious to secure the leadership of the Labour Party that he is planning to speak on two days in succession. He is to give us a second performance tomorrow. I hope, for his sake, that tomorrow's performance is better than today's. He gave us 50 minutes of the most turgid animadversions to which I have had the misfortune to listen. Among other things, he said that we were way outside our monetary targets. That is nut so. The monetary figures published today show, as my right hon. and learned Friend said, that monetary growth during our first target period from June last year to April this year worked out at an annual rate of about 10 per cent., and that is within the 7 per cent. to 11 per cent. target.

Mr. Healey

Does the hon. Gentleman agree that he told the House, in answer to a question, that 9 per cent. which was in the Financial Statement last June, was the target for this year? Does he agree with the estimate in the current Financial Statement and Budget Report that 2 per cent. must be added to the figure which he has quoted in order to take account of the evasion of monetary control through acceptances and other devices? Does he agree that the actual increase is 12 per cent., which is outside the range and 3 per cent. higher than the figure which the Chancellor gave last June as the Government's target?

Mr. Lawson

That was a long-winded intervention. If the right hon. Gentleman wants me to include acceptances, he will recall that during the 18 months up to June 1979 under his stewardship the annual rate of growth in the money supply was 15 per cent. Furthermore, including the acceptances leak, in the last six months when we really had the money supply under control, the annual rate of growth of sterling M3 has been only a shade over 7 per cent., right at the bottom of the target range.

Mr. Healey

I remind the hon. Gentleman that he told the House that the target for the year starting last October was 7 per cent. He has just said that in the last six months he has somewhat exceeded that target.

Mr. Lawson

That really is pathetic. The right hon. Gentleman certainly will not achieve the leadership of his party that way. This augurs well—in the year ahead, not necessarily immediately—for the level of interest rates. There is much concern about interest rates, understandably. Just as last year was a year of rising interest rates this year is likely to be one of falling interest rates.

The right hon. Member for Leeds, East seemed to say that we were wholly wrong in our medium-term financial strategy to pay any attention whatsoever to the public sector borrowing requirement. He said that the PSBR had no connection whatever either with rates of interest or with the rate of monetary growth. That is a strange doctrine even for him to espouse. Since the right hon. Gentleman spoke I have looked up what he said in his first Budget speech on 26 March 1974: This does not mean that we can afford a public sector borrowing requirement at anything like the level of last year. The vast deficit in the public sector was then an important factor in the excessive monetary expansion. So I am aiming at a massive reduction in the public sector borrowing requirement ".—[Official Report, 26 March 1974; Vol. 871, c. 294.] He did not think that the public sector borrowing requirement did not matter then. At that time he established a direct link with the rate of monetary expansion. In that same Budget Statement the right hon. Gentleman said: Our aim will be to bring about a reduction in interest rates from their present high level as soon as is feasible. There is no short cut available here. It will depend above all on our success in reducing inflationary expectations, since without question they are a major cause of high nominal interest rates. It will depend on our ability to restrict the public sector borrowing requirement ".—[Official Report, 26 March 1974; Vol. 871, c. 284.] So, there the right hon. Gentleman was saying that there was a direct link between interest rates and the public sector borrowing requirement. It really is absurd of him to come here and try to tell the House that there is no connection between the public sector borrowing requirement and either monetary growth or inflation.

He also asked me specific questions which I think I should answer, on the shortfall figures in the White Paper and on the relative price effect. The right hon. Gentleman seemed to suggest that the shortfall figures were fudged so as to make the sums add up. By that I assume that he meant that we had increased the shortfall figures in order to make the cuts look better than they would otherwise be.

Mr. Healey indicated assent.

Mr. Lawson

I see that he is nodding. We have reduced the shortfall figures. As usual, he is 100 per cent. wrong They are now half what they were in the right hon. Gentleman's White Paper. Far from fudging the figures we have been prudent, cautious and realistic.

The right hon. Gentleman affected to say, in relation to the relative price effect, that there was an unexplained discrepancy between the 0.7 per cent. relative price effect in the White Paper and the 7 per cent. relative price effect—in the medium term financial strategy, a difference of 10:1. I can only say to him that he has got his figures wrong again. There is no 7 per cent. relative price effect in the medium term financial strategy and I challenge the right hon. Gentleman to show me where that figure is. It is not there at all.

Mr. Healey

I can tell the right hon. Gentleman precisely where it is. The 7 per cent. gap is the difference between the 20 per cent. increase in public sector pay and the 13 per cent. increase in inflation allowed for in the FSBR.

Mr. Lawson

In that case the right hon. Gentleman is making the elementary mistake of assuming that the only factor in the relative price effect is the level of public sector pay. There are many other factors which cancel out the pay figures. The net effect is a figure of 0.7 per cent. That figure is explained in the note which was sent to the Select Committee and which I am sure the right hon. Gentleman can go back and read.

He also seemed to think that it was wholly intolerable—his position was a rather curious one—that our public expenditure cuts were so savage and deep. But he then went on to say that there were no cuts at all but that we were increasing public expenditure. I wish that the right hon. Gentleman would make up his mind which of the two it is. He further said that

in so far as the Government were cutting public expenditure those cuts were effected by increases in charges by the nationalised industries, that that was wholly wrong and that we should not do it.

Let me again read to the House from the right hon. Gentleman's White Paper on nationalised industries which he brought out in 1978. That White Paper said this: The Government intends that the nationalised industries will not be forced into deficits by restraints on their prices. When help has to be given to the poorer members of the community it will be given primarily through the social security and taxation systems and not by subsidising nationalised industry prices.

That is precisely our policy. We believe that we can secure the turn-round in the finances of the nationalised industries which are implicit in the public expenditure White Paper and in the medium term financial strategy.

I can tell my right hon. Friends, and in particular my right hon. Friend the Member for Taunton (Mr. du Cann), who was worried about whether the public expenditure figures would be attained and whether the nationalised industry turn-round would be attained, that we believe these figures to be perfectly reasonable and feasible.

Of course, there can be no guarantee over the years ahead that nationalised industry finances will work out precisely like that. But we have made clear that if it does not work out like that we will take other measures to validate the monetary targets to ensure that the strategy is intact.

We have had no remotely acceptable alternative put forward this evening: nothing except more spending, more borrowing, more uncontrolled printing of money and more inflation. That was the policy rejected by the electorate at the last general election. I believe that it will be rejected by them again when they have the chance and I ask the House to reject it tonight.

Question put, That the amendment be made.

The House divided: Ayes 241, Noes 303.

Division No. 286]	AYES	[10 pm
Abse, Leo	Anderson, Donald	Ashton, Joe
Adams, Allen	Archer, Rt Hon Peter	Atkinson, Norman (H'gey, Tott'ham)
Allaun, Frank	Armstrong, Rt Hon Ernest	Barnett, Guy (Greenwich)
Alton, David	Ashley, Rt Hon Jack	Barnett, Rt Hon Joel (Heywood)
Belth, A. J.	Hamilton, James (Bothwell)	Pavitt, Laurie
Bonn, Ft! Hon Anthony Wedgwood	Hamilton, W. W. (Central Fife)	Pendry, Tom
Bennett, Andrew (Stockport N)	Hardy, Peter	Penhaligon, David
Bldwell, Sydney	Harrison, Rt Hon Walter	Powell, Raymond (Ogmore)
Booth, Rt Hon Albert	Hart, Rt Hon Dame Judith	Prescott, John
Bottomley, Rt Hon Arthur (M'brough)	Hattersley, Rt Hon Roy	Price, Christopher (Lewisham West)
Bradley, Tom	Haynes, Frank	Race, Reg
Bray, Dr Jeremy	Healey, Rt Hon Denis	Radice, Giles
Brown, Hugh D. (Provan)	Heffer, Eric S.	Rees, Rt Hon Merlyn (Leeds South)
Brown, Robert C. (Newcastle W)	Hogg, Norman (E Dunbartonshire)	Richardson, [...]
Brown, Ronald W. (Hackney S)	Home Robertson, John	Roberts, Albert (Normanton)
Brown, Ron (Edinburgh, Lelth)	Homewood, William	Roberts, Allan (Bootle)
Buchan, Norman	Horam, John	Roberts, Ernest (Hackney North)
Callaghan, Jim (Mlddleton & P)	Howell, Rt Hon Denis (B'ham, Sm H)	Roberts, Gwilym (Cannock)
Campbell, Ian	Howells, Geraint	Robertson, George
Campbell-Savours, Dale	Huckfield, Les	Robinson, Geoffrey (Coventry NW)
Canavan, Dennis	Hudson, Davies, Gwilym Ednyfed	Rodgers, Rt Hon William
Cant, R. B.	Hughes, Robert (Aberdeen North)	Rooker, J. W.
Carmlchael, Nell	Hughes, Roy (Newport)	Roper, John
Carter-Jones, Lewis	Janner, Hon Greville	Ross, Ernest (Dundee West)
Cartwright, John	Jay, Rt Hon Douglas	Ross, Stephen (Isle of Wight)
Clark, Dr David (South Shields)	John, Brynmor	Rowlands, Ted
Cocks, Rt Hon Michael (Bristol S)	Johnson, James (Hull West)	Ryman, John
Concannon, Rt Hon J. D.	Johnston, Russell (Inverness)	Sever, John
Cook, Robin F.	Jones, Rt Hon Alec (Rhondda)	Sheerman, Barry
Cox, Tom (Wandsworth, Tooting)	Jones, Barry (East Flint)	Sheldon, Rt Hon Robert (A'ton-u-L)
Crowther, J. S.	Kaufman, Rt Hon Gerald	Shore, Rt Hon Peter (Step and Pop)
Cryer, Bob	Kerr, Russell	Silkln, Rt Hon John (Deptford)
Cunllffe, Lawrence	Kilfedder, James A.	Silkin, Rt Hon S. C. (Dulwlch)
Cunningham, George (Islington S)	Kilroy-Silk, Robert	Silverman, Julius
Cunningham, Dr John (Whitehaven)	Kinnock, Neil	Smith, Rt Hon J. (North Lanarkshire)
Dalyell, Tam	Lambie, David	Snape, Peter
Davidson, Arthur	Lamborn, Harry	Soley, Clive
Davies, Rt Hon Denzil (Llanelli)	Leadbitter, Ted	Spearing, Nigel
Davies, Ifor (Gower)	Leighton, Ronald	Spriggs, Leslie
Davis, Clinton (Hackney Central)	Lestor, Miss Joan (Eton & Slough)	Stallard, A. W.
Dean, Joseph (Leeds West)	Lewis, Arthur (Newham North West)	Stewart, Rt Hon Donald (W Isles)
Dempsey, James	Lewis, Ron (Carlisle)	Stoddart, David
Dewar, Donald	Litherland, Robert	Strang, Gavin
Dixon, Donald	Lofthouse, Geoffrey	Straw, Jack
Dobson, Frank	Lyon, Alexander (York)	Summerskill, Hon Dr Shirley
Dormand, Jack	Lyons, Edward (Bradford West)	Taylor, Mrs Ann (Bolton West)
Douglas-Mann, Bruce	McDonald, Dr Oonagh	Thomas, Dafydd (Merioneth)
Dubs, Alfred	McElhone, Frank	Thomas, Jeffrey (Abertillery)
Duffy, A. E. P.	McGuire, Michael (Ince)	Thomas, Dr Roger (Carmarthen)
Dunn, James A. (Liverpool, Kirkdale)	McKelvey, William	Thorne, Stan (Preston South)
Dunwoody, Mrs Gwyneth	MacKenzie, Rt Hon Gregor	Tilley, John
Eadie, Alex	Maclennan, Robert	Tinn, James
Eastham, Ken	McNally, Thomas	Urwln, Rt Hon Tom
Ellis, Raymond (NE Derbyshire)	McWilliam, John	Varley, Rt Hon Eric G.
Ellis, Tom (Wrexham)	Magee, Bryan	Walnwright, Edwin (Dearne Valley)
English, Michael	Marks, Kenneth	Wainwright, Richard (Colne Valley)
Ennals, Rt Hon David	Marshall, David (GI'sgow, Shettles'n)	Walker, Rt Hon Harold (Doncaster)
Evans, loan (Aberdare)	Marshall, Dr Edmund (Goole)	Watkins, David
Evans, John (Newton)	Mason, Rt Hon Roy	Weetch, Ken
Ewing, Harry	Maxton, John	Wellbeloved, James
Faulds, Andrew	Meacher, Michael	Welsh, Michael
Field, Frank	Mellish, Rt Hon Robert	White, Frank R. (Bury & Radcliffe)
Fitch, Alan	Mikardo, Ian	White, James (Glasgow, Pollok)
Filt, Gerard	Millan, Rt Hon Bruce	Whitehead, Phillip
F'annery, Martin	Miller, Dr M. S. (East Kilbride)	Whltlock, William
Fletcher, L. R. (Ilkeston)	Mitchell, R. C. (Soton, Itchen)	Wigley, Dafydd
Fletcher, Ted (Darlington)	Morris, Rt Hon Alfred (Wythenshawe)	Williams, Rt Hon Alan (Swansea W)
Foot, Rt Hon Michael	Morris, Rt Hon Charles (Openshaw)	Williams, Sir Thomas (Warrington)
Ford, Ben	Morris, Rt Hon John (Aberavon)	Wilson, Gordon (Dundee East)
Forrester, John	Morton, George	Wilson, Rt Hon Sir Harold (Huyton)
Foster, Derek	Moyle, Rt Hon Roland	Wilson, William (Coventry SE)
Foulkes, George	Newens, Stanley	Winnlck, David
Fraser, John (Lambeth, Norwood)	Oakes, Rt Hon Gordon	Woodall, Alec
Freeson, Rt Hon Reginald	Ogden, Eric	Woolmer, Kenneth
Garrett, John (Norwich S)	O'Halloran, Michael	Wrigglesworth, Ian
Garrett, W. E. (Wallsend)	O'Neill, Martin	Wright, Sheila
George, Bruce	Orme, Rt Hon Stanley	Young, David (Bolton East)
Gilbert, Rt Hon Dr John	Owen, Rt Hon Dr David
Ginsburg, David	Palmer, Arthur
Gourlay, Harry	Park, George	TELLERS FOR THE AYES:
Grant, George (Morpeth)	Parker, John	Mr. Terry Davis and
Grant, John (Islington C)	Parry, Robert	Mr. Donald Coleman.
NOES
Adley, Robert	Arnold, Tom	Baker, Kenneth (St. Marylebone)
Altken, Jonathan	Asplnwatl, Jack	Baker, Nicholas (North Dorset)
Alexander, Richard	Atkins, Rt Hon H. (Spelthorne)	Banks, Robert
Alison, Michael	Atkins, Robert (Preston North)	Beaumont-Dark, Anthony
Amery, Rt Hon Julian	Atkinson, Daivid (B'mouth, East)	Bendall, Vivian

Bennett, Sir Frederic (Torbay)	Grant, Anthony (Harrow C)	Mitchell, David (Basingstoke)
Benyon, Thomas (Abingdon)	Greenway, Harry	Moate, Roger
Benyon, W. (Buckingham)	Grieve, Percy	Molyneaux, James
Bevan, David Gilroy	Griffiths, Eldon (Bury St Edmunds)	Monro, Hector
Biffen, Rt Hon John	Griffiths, Peter (Portsmouth N)	Montgomery, Fergus
Blggs-Davison, John	Grist, Ian	Moore, John
Blackburn, John	Grylls, Michael	Morgan, Geralnt
Bonsor, Sir Nicholas	Hamilton, Hon Archie (Eps'm&Ew'll)	Morris, Michael (Northampton, Sth)
Boscawen, Hon Robert	Hamilton, Michael (Salisbury)	Morrison, Hon Charles (Devizes)
Botlomley. Peter (Woolwich West)	Hampson, Dr Keith	Morrison, Hon Peter (City of Chester)
Boyson, Dr Rhodes	Hannam, John	Mudd, David
Bralne, Sir Bernard	Haselhurst, Alan	Murphy, Christopher
Bright, Graham	Hawkins, Paul	Myles, David
Brinton, Tim	Hawksley, Warren	Needham, Richard
Brlttan, Leon	Hayhoe, Barney	Nelson, Anthony
Brooke, Hon Peter	Heath, Rt Hon Edward	Neubert, Michael
Brotherton, Michael	Heddle, John	Newton, Tony
Brown, Michael (Brigg & Sc'thorpe)	Henderson, Barry	Normanton, Tom
Browne, John (Winchester)	Heseltine, Rt Hon Michael	Oppenheim, Rt Hon Mrs Sally
Bruce-Gardyne, John	Hicks, Robert	Osborn, John
Bryan, Sir Paul	Higglns, Rt Hon Terence L.	Page, John (Harrow, West)
Buck, Antony	Hill, James	Page, Rt Hon Sir R. Graham
Budgen, Nick	Holland, Philip (Carlton)	Page, Richard (SW Hertfordshire)
Bulmer, Esmond	Hooson, Tom	Paisley, Rev Ian
Burden, F. A.	Hordern, Peter	Parkinson, Cecil
Butcher, John	Howe, Rt Hon Sir Geoffrey	Parrls, Matthew
Butler, Hon Adam	Howell, Rt Hon David (Guildford)	Patten, Christopher (Bath)
Cadbury, Jocelyn	Howell, Ralph (North Norfolk)	Patten, John (Oxford)
Carlisle, John (Luton West)	Hunt, David (Wirral)	Pattle, Geoffrey
Carlisle, Kenneth (Lincoln)	Hunt, John (Ravensbourne)	Pawsey, James
Carlisle, Rt Hon Mark (Runcorn)	Irving, Charles (Cheltenham)	Percival, Sir Ian
Chalker, Mrs. Lynda	Jenkln, Rt Hon Patrick	Pink, R. Bonner
Chapman, Sydney	Jessel, Toby	Pollock, Alexander
Churchill, W. S.	Johnson Smith, Geoffrey	Porter, George
Clark. Hon Alan (Plymouth, Sutton)	Jopling, Rt Hon Michael	Powell, Rt Hon J. Enoch (S Down)
Clark, Sir William (Croydon South)	Joseph, Rt Hon Sir Keith	Prentice, Rt Hon Reg
Clarke, Kenneth (Rushcliffe)	Kaberry, Sir Donald	Price, David (Eastleigh)
Cockeram, Eric	Kellett-Bowman, Mrs Elaine	Prior, Rt Hon James
Colvln, Michael	Kimball, Marcus	Proctor, K. Harvey
Cope, John	King, Rt Hon Tom	Pym, Rt Hon Francis
Cormack, Patrick	Kitson, Sir Timothy	Raison, Timothy
Corrie, John	Knight, Mrs Jill	Rathbone, Tim
Costain, A. P.	Knox, David	Rees, Peter (Dover and Deal)
Cranborne, Viscount	Lamont, Norman	Rees-Davies, W. R.
Critchley, Julian	Lang, Ian	Renton, Tim
Crouch, David	Langford-Holt, Sir John	Rhodes James, Robert
Dean, Paul (North Somerset)	Latham, Michael	Rhys Williams, Sir Brandon
Dickens, Geoffrey	Lawrence, Ivan	Ridsdale, Julian
Dorrell, Stephen	Lawson, Nigel	Rlfkind, Malcolm
Douglas-Hamilton, Lord James	Lee, John	Rlppon, Rt Hon Geoffrey
Dover, Denshore	Lennox-Boyd, Hon Mark	Roberts, Michael (Cardiff NW)
du Cann, Rt Hon Edward	Lester, Jim (Beeston)	Roberts, Wyn (Conway)
Dunlop, John	Lewis, Kenneth (Rutland)	Rossi, Hugh
Dunn, Robert (Dartford)	Lloyd, Ian (Havant & Waterloo)	Rost, Peter
Durant, Tony	Lloyd, Peter (Fareham)	Royie, Sir Anthony
Dykes, Hugh	Loverldge, John	Sainsbury, Hon Timothy
Eden, Rt Hon Sir John	Luce, Richard	St. John-Stevas, Rt Hon Norman
Edwards, Rt Hon N. (Pembroke)	Lyell, Nicholas	Scott, Nicholas
Eager, Timothy	McCrindle, Robert	Shaw, Michael (Scarborough)
Emery, Peter	McCusker, H.	Shelton, William (Streatham)
Eyre, Reginald	Macfarlane, Nell	Shepherd, Colin (Hereford)
Falrbalrn, Nicholas	MacGregor, John	Shepherd, Richard(Aldridge-Br'hills)
Fafrgrieve, Russell	MacKay, John (Argyll)	Shersby, Michael
Faith, Mrs Sheila	Macmillan, Rt Hon M. (Farnham)	Silvester, Fred
Farr, John	McNair-Wllson, Michael (Newbury)	Sims, Roger
Fell, Anthony	McNair-Wllson, Patrick (New Forest)	Skeet, T. H. H.
Fenner. Mrs Peggy	McQuarrie, Albert	Smith, Dudley (War. and Leam'ton)
Finsberg, Geoffrey	Madel, David	Speed, Keith
Fisher, Sir Nigel	Major, John	Speller, Tony
Fletcher, Alexander (Edinburgh N)	Marland, Paul	Spfcer, Jim (West Dorset)
Fletcher-Cooke, Charles	Marlow, Tony	Spicer, Michael (S Worcestershire)
Fookes, Miss Janet	Marshall, Michael (Arundel)	Sproat, lain
Forman, Nigel	Marten, Neil (Banbury)	Squire, Robin
Fowler, Rt Hon Norman	Mates, Michael	Stalnton, Keith
Fraser, Rt Hon H. (Stafford S St)	Mather, Carol	Stanbrook, Ivor
'Fraser, Peter (South Angus)	Maude, Rt Hon Angus	Stanley, John
Fry, Peter	Mawby, Ray	Steen, Anthony
Galbraith, Hon T. G. D.	Mawhinney, Dr Brian	Stevens, Martin
Gardiner, George (Reigate)	Maxwelf-Hyslop, Robin	Stewart, Ian (Hitchin)
Gardner, Edward (South Fylde)	Mayhew, Patrick	Stewart, John (East Renfrewshire)
Garel-Jones, Tristan	Mellor, David	Stokes, John
Glyn, Dr Alan	Meyer, Sir Anthony	Stradling Thomas, J.
Goodhart, Philip	Miller, Hal (Bromsgrove & Redditch)	Tapsell, Peter
Goodhew, Victor	Mills, lain (Meriden)	Taylor, Robert (Croydon NW)
Gow, Ian	Mills, Peter (West Devon)	Taylor, Teddy (Southend East)
Gower, Sir Raymond	Miscampbell, Norman	Tebbit, Norman

Temple-Morris, Peter	Wakeham, John	Whitney, Raymond
Thomas, Rt Hon Peter (Hendon S)	Waldegrave, Hon William	Wlggin, Jerry
Thompson, Donald	Walker, Bill (Perth & E Perthshire)	Wilkinson, John
Thorne, Neil (llford South)	Walker-Smith, Rt Hon Sir Derek	Williams, Delwyn (Montgomery)
Thornton, Malcolm	Wall, Patrick	Winterton, Nicholas
Townsend, Cyril D. (Bexleyheath)	Waller, Gary	Wolfson, Mark
Trippier, David	Ward, John	Young, Sir George (Acton)
Trotter, Neville	Warren, Kenneth
van Straubenzee, W. R.	Watson, John	TELLERS FOR THE NOES:
Vaughan, Dr Gerard	Wells, John (Maidstone)	Mr. Spencer Le Marchant and
Viggers, Peter	Wells, Bowen (Hert'rd & Stev'nage)	Mr. Anthony Berry.
Waddington, David	Wheeler, John

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House takes note of the White Paper on the Government's Expenditure Plans 1980–81 to 1983–84 [Cmnd. 7841].