§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
I beg to move,That this House takes note of the White Paper on the Government's expenditure plans 1981–82 to 1983–84 (Cmnd. 8175.)This is the second full expenditure White Paper of this Government and the first with which I have been personally associated. Once again, we published it on Budget day in order to emphasise the link between spending and taxation, and to make clear the general shape of our plans and projections for the economy as a whole.
Yesterday the Treasury and Civil Service Select Committee published its report on the Budget and the White Paper. I am sure that the House will appreciate the efforts that it has made to make this report available to the House in time for this debate. I do not propose to comment on all its points this afternoon but there are certain passages—in particular on nationalised industries and the topical question of current and capital expenditure—on which I intend to comment in my speech.
On public expenditure generally, our broad strategy is unaltered. We are still firmly committed to making significant reductions in the medium term. The pressures of recession and our recognition of its consequences have led to higher spending than originally planned for 1980–81 and will do so again for 1981–82. But we do not accept the argument that in today's conditions the right course is for the Government to abandon totally their previous plans and add still further to the present levels of public spending. It remains the case that in the end public spending can be financed only by the private sector, either through taxation or through borrowing. There simply is no third way.
It is of course argued that by spending more the Government would revive the economy and expand real output, and that the increases in expenditure would create the increased resources required to finance it. Recent British experience just does not confirm that theory. What has actually happened has been that reflations have had a diminishing impact on real output, and turned out to be in reality re-inflations. It has been mainly money income that has risen. The Government's expenditure has had to be financed by the extra burden of taxation and the impoverishment of the saver which inflation brings rather than by a real expansion of output.
We shall not make the mistake of today producing a wildly optimistic assumption about the growth of real resources and then planning expenditure to rise in line with it. It is the excessive burden of taxation and borrowing which we believe is at the heart of Britain's economic difficulties. That is why public expenditure has to be restrained.
If that is our aim, what has been the picture of our first two years of office? In 1979–80 and 1980–81, public expenditure, in volume terms, was 3.½ per cent. lower than the amount planned for each year by the previous Government. This is a major achievement, and was made possible only by taking and implementing difficult 1124 decisions. None the less, in 1980–81, the actual cash expenditure on programmes it now seems, was about £2¼ billion higher than we had provided a year ago.
The recession directly accounts for £1 billion of this excess, through higher expenditure on social security and unemployment benefits and by the redundancy fund. There are other areas of expenditure where the recession has had an indirect impact. For example, the rapid completion of contracts and submission of bills by private sector suppliers, who have had fewer private orders than usual, is a major factor underlying the additional provision for defence of about £470 million Whatever one's views of the pattern that has emerged, it is worth pointing out one important fact. The defence overspend is the only significant case of a failure of control by central Government.
Elsewhere, in some cases, extra expenditure was caused by the implied decision of Government to allow spending on such items as unemployment benefits to continue to increase by, for example, not changing the rules of eligibility or making substantial reductions in levels of benefit. In other cases, the Government more specifically decided to incur extra spending as a result of the recession. For example, we increased the finance available to the nationalised industries in large measure because of the difficult trading conditions resulting from the recession. Both of those categories of decision were in my view, in the circumstances, wholly justifiable.
§ Mr. Brittan
I should like to develop this part of my speech a little further before giving way.
For the coming year 1981–82, and the years beyond, we planned last year a large reduction in total public expenditure. Since then we have taken further policy decisions which will reduce planned expenditure. First, we successfully negotiated a major reduction in our net contribution to the European Community budget. Secondly, the Chancellor of the Exchequer announced on 24 November 1980 further reductions in expenditure for 1981–82 of almost £1½billion in cash.
But, as the House knows, the effect of these reductions on spending for 1981–82 and beyond has been overlaid by the unavoidable consequences of the recession having a different character than expected—falling more heavily on manufacturing industry and employment. For 1981–82, as for 1980–81, we have deliberately decided to make certain increases in spending—for example, extra support for industry and employment—as a response to the effects of the recession on the economy.
Nevertheless, the recent White Paper shows that we are planning a level of expenditure in 1981–82 almost 5 per cent. lower in volume terms than that planned for by the Labour Government.
After this coming year, our decisions for future public expenditure are designed to ensure that the volume of spending actually falls. The White Paper shows a planned fall in real terms by 1983–84 of 4 per cent. compared with current levels. We have also made it clear that we shall be looking hard at the possibility of further reductions in those plans.
§ Mr. Wainwright
Speaking of the control of public expenditure, the right hon. and learned Gentleman gave 1125 the House figures for last year in cash terms and in volume terms. Will he complete the picture by giving the figures in terms of cost?
§ Mr. Brittan
I cannot conveniently do so in response to an intervention. As the hon. Gentleman knows, some figures have been made available in relation to cost. I shall be happy to make them generally available. There is no mystery on that point.
§ Mr. Brittan
I should like to proceed with my speech. The hon. Gentleman may care to intervene later.
§ Mr. Brittan
I should like to proceed. I should like to continue to look at the question of future expenditure and future plans.
Some will argue that the increases that I have been talking about in 1980–81 and 1981–82 cast doubt on our plans for later years. The Treasury and Civil Service Select Committee, for example, in the report to which I have referred, described the figures for the nationalised industries as "optimistic". The answer to this charge lies in the explanation which I have already outlined for the overspend in 1980–81. That overspend was, by and large, not a failure of control. It was a failure to estimate correctly the extent and the increase in the costs of certain demand-determined programmes.
We are much more cautious now in our working assumptions than we were a year ago. For example, we have substantially reduced our provision for shortfall on expenditure—by £340 million a year in 1980 survey prices—and we have rephased the expected improvement in the financing of the nationalised industries to take account of the continuing effects of the recession. Moreover, the contingency reserve provides an extra cushion against underestimates of spending. In the case of the plans for the nationalised industries, on which there are particular uncertainties and difficulties, substantial additional provision in 1980–81 was successfully accommodated within the contingency reserve without any effect on the planned total of expenditure. We have provided a substantially higher contingency reserve in the later years to guard against the need to increase individual programmes beyond the present plans. I shall illustrate it. The contingency reserve in the later years is about one-third higher in real terms than this year's.
The House will, I know, be concerned about the distribution of expenditure as well as its total. We are planning for a downward rather than an upward trend in total expenditure. We also have a different order of priorities within the total.
It is not always recognised what a very large proportion of total public expenditure is accounted for by a few major programmes. Social security, consisting of pensions and other benefits paid out to millions of people, constitutes over one-quarter of the total. Three other programmes on which we are deliberately aiming to increase expenditure are health, defence, and law and order.
§ Mr. Brittan
I should like to explain the pattern of expenditure. It might be convenient to the House if this 1126 were taken as a block. I am now explaining the distribution of expenditure within the total. I believe that this matter is of considerable interest.
I was saying that social security, consisting of pensions and other benefits paid out to millions of people, constitutes over one-quarter of the total. Three other programmes on which we are deliberately aiming to increase expenditure are health, defence, and law and order. These together account for more than a further quarter of the total. This means that about 60 per cent. of total expenditure is accounted for by programmes that are increasing even though the programmes themselves have had to contribute some savings to counterbalance increases on our previous plans.
§ Mr. Bob Cryer
During his discourse on the distribution will the Minister explain how the Government will cope with the problem of increasing unemployment pay, which contributes so much to the increased public sector borrowing requirement, without reducing the number of people who are unemployed? The Government do not seem to have any plans for bringing about such a reduction. If that is so, the PSBR will inevitably increase.
§ Mr. Brittan
The figures both for last year and for this year take account of the extra expenditure needed for precisely the reason the hon. Gentleman has given. The way to deal with the unemployment problem is through the Government's economic strategy and policy as a whole. The best way of securing a long-term reduction in the level of unemployment which vie all seek is to make a success of the Government's economic strategy, which puts at the forefront success in the battle against inflation. I believe that inflation is the cause of unemployment rather than the reverse.
§ Mr. Straw
The Chief Secretary made a breathtaking statement at the beginning of his speech, because he made a virtue out of the fact that the Government had not reduced the rules of eligibility for unemployment benefit or cut its real level. I assume that he means that they had not cut its real level beyond the 5 per cent. cut which they have already made. Does that statement mean that both a change in the rules of eligibility and a cut in the real level of unemployment benefit were seriously contemplated?
§ Mr. Brittan
It means nothing of the kind. At that stage in my speech I was seeking to explain what has happened to public expenditure. I said that the increase over what had been planned was caused by two decisions, one express and the other implied. I gave examples of the express decision. The implied decision was the decision not to make the change. The very fact that I described it as implied indicates that there was no such consideration. The hon. Gentleman, with the intellectual rigour to 'which I know he aspires, will agree that I would have been less complete in my account of what had happened had I not given that explanation. He reads too much into it.
§ Mr. Brittan
I ought to proceed. I shall give way later. Some points have been raised with which I know the House would wish me to deal.
§ Mr. Bruce-Gardyne
I apologise to my right hon. and learned Friend for intervening. He referred to the increase 1127 in defence expenditure provision in the White Paper, which is entirely consistent with the policy on which the Government were elected. Will the substantial overspend in the cash limits on the defence budget in the 1980–81 White Paper be recouped in the forthcoming year?
§ Mr. Brittan
At this stage I am not in a position to inform the House precisely how that will be dealt with in the coming year.
§ Mr. Brittan
I shall not give way. I must proceed. I have given way several times to Labour Members, and I know that the House wishes me to deal with some of the points that were raised by the Select Committee.
§ Mr. Allaun
On a point of order, Mf. Deputy Speaker. The right hon. and learned Gentleman suggested that if I waited a minute he would give way. He then refused to give way to me, but gave way to one of his hon. Friends. I take it—
Mr. Deputy Speaker (Mr. Bryant Godman Irvine)
Order. That is not a promising start to a point of order.
§ Mr. Brittan
The score is three to one. If the hon. Gentleman bears with me, he may improve it.
I was explaining the areas of public expenditure in which there had been increases. I was about to say that the large size of those programmes means that if the total of public expenditure is to fall we must make very large cuts in the remaining two-fifths of expenditure. In fact, the cuts must largely fall on four other main expenditure programmes, accounting for about one-quarter of public expenditure—housing, education, support for industry and employment, and finance for the nationalised industries. The last two programmes have increased while the recession lasts, but we plan large reductions in them over the medium term, and it is right to do so.
§ Mr. Brittan
Perhaps my hon. Friend will bear with me while I proceed a little further.
A recent complaint is that almost 90 per cent. of public expenditure consists of administration. If that were so it would be much easier to cut it. But that is simply not the case.
I draw the attention of the House to table 1.8 of the recent White Paper. It shows that, indeed, current expenditure as defined there accounts for almost 90 per cent. of the total. But one-third of this consists of current grants to persons—that is, the actual pensions, child benefit, unemployment benefit and other benefits paid out to various beneficiaries—and that actually excludes the administrative costs of those benefits. Another fifth consists of the procurement of goods and services supplied by the private sector, much of it for defence. Another tenth comprises other kinds of grants and subsidies. Only one-third of the total of current expenditure—that is, less than a third of total public expenditure—consists of the wages and salaries of people employed in central Government and local government. The cost of those wages and salaries is a source of major and legitimate concern, but I should point out that the numbers employed are falling.
We have already reduced the Civil Service by 5 per cent. since we came to office, from 732,000 to 695,000 1128 and we plan to reduce it further to 630,000 by 1984 making it the smallest Civil Service since the war. The cuts so far achieved yield annual savings in administrative costs of about £350 million in cash.
None the less, between 1978–79 and 1980–81 the public service pay bill rose by about 50 per cent., or £10 billion. The 6 per cent. provision for pay increases in the 1981–82 cash limits should be seen against that background. The taxpayers' purse is simply not bottomless, and I think that many public service employees themselves recognise that after such large increases, and when their job security is taken into account, moderation on their part can reasonably be expected by the community as a whole.
§ Mr. Frank Allaun
The right hon. and learned Gentleman has talked about cuts in housing and an increase in defence. He has not said that housing is being cut by 51 per cent., whereas so-called defence expenditure is being increased by between 3 and 5 per cent. in real terms each year for five years. Does he not think that that is utterly anti-social?
§ Mr. Brittan
I do not share the hon. Gentleman's public expenditure priorities. He has not taken into account what has happened in relation to heavy spending on housing in previous years or the nature of previous spending on defence. From the outset, the Government have made their spending priorities quite clear. I think that they command the support of the majority of the people in the country. They were put to the electorate fairly and squarely in the 1979 general election, and the electorate voted for them.
§ Mr. Brittan
I hope that my hon. Friend will forgive me, but I want to refer to the proportion of capital expenditure in the total of public expenditure. The contrast is often drawn between expendable current expenditure which should be cut further and virtuous capital expenditure for which more funds should be found.
The Treasury and Civil Service Select Committee and others have pointed to the desirability of reversing the decline in capital spending relative to current expenditure. To some degree, I share that concern. But, leaving aside the comparative ease of making the cuts, the balance is by no means so one-sided. Cuts in current expenditure can involve a real cost in terms of services provided by the public sector, and capital expenditure does not necessarily provide benefits that outweigh that cost. A careful consideration of expenditure priorities both between programmes and then within any one programme will show that there may sometimes be good reasons for not increasing the proportion of capital expenditure.
As a Government, the policy priorities that we have, and should have, are between the various functional programmes such as health, education and transport, and not between the technical categories of expenditure such as non-pay current expenditure on goods and services and gross domestic fixed capital formation. It would be quite wrong to start at the other end with a decision to spend more on some particular statistical category of expenditure and then passively to allow functional programmes to expand or decline accordingly.
It so happens that the four main programmes to which the Government attach priority, and to which I referred 1129 earlier, have a low capital expenditure content. Police, pensions for the elderly, nurses, even defence equipment, all count as current expenditure. Social security and defence expenditure have one thing in common; they have a negligible capital content.
That does not mean that the distinction between capital and current expenditure is of no relevance at all; still less that information on it should not be clearly provided. It certainly should. A substantial amount of information is provided at the moment. The annual Financial Statement and Budget Report contains tables which divide public sector receipts and the expenditure of general Government, nationalised industries and other public corporations into current and capital categories. At the end of each Vote we provide an analysis of its public expenditure component into its current and capital elements. Table 5 of the Chief Secretary's memorandum summarises this information.
Last, but not least, the public expenditure White Paper analyses public expenditure in this way in tables 1.8, 3.2 and 4.5. None the less, we are now considering carefully whether the distinction between capital and current expenditure should be given greater prominence and should play a greater role in the presentation and determination of our spending plans. I think that there is a good case for its doing so.
To some extent, the concern about the balance between capital and current expenditure in the public sector arises from a mistaken analogy with the use of the same distinction in commercial accounting. By separately indentifying capital assets and depreciating them over their useful life, private sector companies obtain a fair measure of a capital element in their annual costs which can be set against the flow of benefits from their investment. But, with the major exception of nationalised industries, which I shall be dealing with specifically later, the public sector's investments are not revenue-earning in this way. The Thames tidal barrier and school buildings do not generate income in the way that oil rigs or factories do.
Consequently, applying this distinction to the public sector can be misleading because the purpose of the public sector is not to generate revenue from assets but to provide special services for the public. Both capital and current expenditure serve this one purpose. There is no particular reason, for example, why hospital building should always be a better way of improving health care than employing more nurses.
§ Mrs. Kellett-Bowman
Does my right hon. and learned Friend agree that while many public services do not generate income, universities do'? When he drew up his plans for expenditure on higher education—page 106—did he take into account the very severe drop in applications which would occur'? For example, in my own University of Lancaster there are 42 per cent. fewer applications this year than last. These people generate income. Would it not be better to make it possible for these overseas students to continue to come here and generate income by making more generous provision in this sector?
§ Mr. Brittan
I am not persuaded that they are generating income. I think that the pattern of spending prescribed in that area is entirely justified.
§ Mr. Joel Barnett (Heywood and Royton)
Is the right hon. and learned Gentleman arguing seriously that in the new idea which he has put forward of dividing capital 1130 expenditure from current expenditure he will consider capital expenditure on the basis of whether it is revenue-earning?
§ Mr. Brittan
No, I was not saying that. I was trying to point out the conflict between capital spending and investment in the private sector.
I ended by pointing out by way of example that there was no particular reason why hospital building should always be a better way of improving health care than employing more nurses. We all know that hospitals have been built where there is not the staff to run them. But I am absolutely sure—this has been the cause of much of the criticism—that capital spending should not take the lion's share of cuts simply because it is the easy option. That is a quite different matter and can, and indeed does, happen all too easily. I shall tell the House when it happened so easily.
Between 1975–76 and 1978–79 public capital spending fell by over one-third—or £6 billion in 1980 survey prices—while current spending rose by over £3 billion. Nationalised industry investment, of which vv e hear so much, did not escape its share in those years; it fell by £700 million. What an easy option it was for the right hon. Member for Leeds, East (Mr. Healey) to take—and the right hon. Member for Stepney and Poplar (Mr. Shore), too, whose actions then as Secretary of State for the Environment were absoliutely central to the massive onslaught on our national infrastructure. [Interruption.] I am reminded that the right hon. Member for Heywood and Royton (Mr. Barnett) had his share in this as well.
I am glad to say that we are not following that path. The fall in capital expenditure has been much smaller—a decline of about £1½billion in 1980 survey prices between 1978–79 and 1981–82. Moreover, this is taking place in areas in which in some cases the need for major new investments is less than it used to be.
There are capital-intensive programmes where the economic case for high levels of capital expenditure is less powerful than it was. The road building boom of the late 1960s and early 1970s has provided us with an extensive network of motorways and trunk roads. We have therefore stabilised capital expenditure on roads and allocated more resources to motorway renewal, which, as it happens, does not count as capital expenditure.
Within programmes, too, current expenditure can be more important in enabling us to provide the services which the public expects from capital expenditure. As an example from the education programme, the school population is falling rapidly and there is less need for a major programme of school building. But what is of much greater importance is the provision of school textbooks and related equipment, which counts as current expenditure. Our plans allow for a 2 per cent. increase in real terms each year from 1981–82 in the provision of books and equipment per pupil.
§ Mr. Donald Anderson (Swansea, East)
Would the right hon. and learned Gentleman apply those same tests to the housing programme in terms of new building and the maintenance of the existing supply?
§ Mr. Brittan
I am not sure that I have enunciated a test that is capable of application in that way. I merely illustrated what had happened and pointed out that the advantages and disadvantages are not necessarily in every case as has sometimes been suggested.
1131 The main argument currently put forward in favour of increased public expenditure, however, relates to the nationalised industries. The Treasury and Civil Service Select Committee referred to this matter with tantalising brevity. Its thesis seems to be that public sector investment, particularly by the nationalised industries, should be increased, because in the short run it would give additional business to private industry and in the longer run it would add to the economy's productive potential.
The Treasury and Civil Service Select Committee is not alone in failing to make absolutely clear whether such investment should be allowed to increase the totals of public sector spending and borrowing or whether they should be accommodated within the existing totals by cutting back other public spending. But this distinction is a crucial one. This is where hard choices and hard decisions have to be made. Whatever the medium-term benefits, in the short term every pound of additional public investment has much the same effect as a pound of public expenditure on current goods and services.
§ Mr. Tim Eggar (Enfield, North)
Is not my right hon. and learned Friend aware that the Conservative Members on the Treasury and Civil Service Select Committee made it clear that in their view any increase in capital expenditure should be at the expense of a reduction in current expenditure?
§ Mr. Brittan
I am glad that I gave my hon. Friend the opportunity to make that point clear. I welcome that clarification. I was about to say that if the additional public investment—contrary to the views of Conservative Members on the Select Committee—were allowed to add to the borrowing requirement, it would tend to raise interest rates and discourage other items of expenditure, including some private sector investment.
Nor, I am afraid, can this problem be avoided by redrawing the statistical boundaries of the public sector. As the Chancellor of the Exchequer put it so clearly to the Treasury and Civil Service Select Committee the other day, one does not alter the real world simply by shifting around the definitional furniture. This is not to say that the present definitions of public expenditure and the public sector are inevitably perfect. I have been at the Treasury for too short a time to be persuaded that that is so. There is always a case for looking critically at definitions to make sure they reasonably reflect present realities. But the problems of financing the nationalised industries are ones of substance, not of definition. As long as the bodies doing the investment are publicly controlled, their borrowing in any meaningful sense must be borrowing by the public sector.
It is sometimes said, in effect, that if the Government cannot finance the investment the City can. The distinction that this argument seeks to draw is not meaningful. The Government have no surplus funds of their own; on the contrary, they have a large borrowing requirement. They finance that requirement mainly by borrowing from the City. All that is in question here is whether the City provides the finance directly to the public corporations or to the Government, who then lend the money on to the corporations. Either way, that borrowing is part of public borrowing.
In certain circumstances there may be some advantages in direct financing for the corporations that outweigh the 1132 disadvantages. I shall return to those in a moment. But the essential point is that there is no magic by which changing the channels of financing will enable additional public investment and borrowing to be financed without additional pressure on interest rates or money supply.
The only effective way in which these financial pressures could be avoided would be to ensure that the new investment was not an addition to public spending but was in place of some other spending already planned. But that raises the question of what other spending should be cut, and whether, if such reductions could be achieved, they should be used to reduce the level of total spending rather than to change the balance of different programmes within it.
One must beware of jumping to too many general conclusions on nationalised industry investment. One would think from many recent remarks that there had been a massive slump in investment by public corporations. We are in fact providing for substantial increases in nationalised industry spending on fixed assets—up from a little over £4½ billion in each of the years 1977–78 to 1980–81, to about £5.2 billion a year for the next three years—and that is excluding any provision for capital spending by the British Steel Corporation. It may be of interest that British Telecom is planned to be the biggest beneficiary of this increase, with—in 1980 survey prices—about £300 million a year more in 1981–82 to 1983–84 than over the three years just ending—an increase of some 25 per cent. between the last three years and the remainder of the period covered by the White Paper on public expenditure.
Hon. Members who are concerned about this issue should therefore note that it is the Labour Government who should be the proper targets of their criticism, and that in circumstances of much more acute financial stringency, we are already giving much more effective priority to capital spending, particularly in the nationalised industries.
§ Mr. Nigel Forman (Carshalton)
In his recent remarks my right hon. and learned Friend has demonstrated his refreshingly open mind on these matters and the fact that he is prepared to consider them dispassionately. Will he give an assurance that he will give due consideration to what happens in France? I understand that quite a bit of nationalised industry borrowing does not count against the general Government borrowing requirement. Might not the Treasury examine that?
§ Mr. Brittan
I assure my hon. Friend that we are considering the French experience. Indeed, Treasury officials recently visited France.
The uncomfortable truth is that the rate of return on much of those industries' investment has been appallingly low. In many cases this reflects a failure to control current costs with the same efficiency that most private sector companies have to enforce. This in turn is often the reason why nationalised industries have to cut their investment programme for lack of finance. Just 2 per cent. off the pay bill of the nationalised industries would release £250 million for investment. Although there is a wide scatter of pay settlements in the nationalised industries, some of them have settled in this round for as much as 12 to 13 per cent. Moreover, a saving of only 1 per cent. of the total current costs of nationalised industries would yield £300 million.
1133 The ability of the nationalised industries to invest is therefore inextricably bound up with the whole question of pay and productivity within them. If they controlled their costs more, this would both raise the rate of return on investment and help provide the finance for it.
If there are now several projects with the prospect of offering good rates of return, I hope that it will prove possible to accommodate them within the present totality of the nationalised industries' external financing limits. Indeed, all the criteria applied to public investment are designed to favour projects showing high prospective rates of return. The real trouble, I suspect, is that such projects are rarer than is sometimes suggested.
None the less, as the Chancellor of the Exchequer indicated in his winding-up speech in the Budget debate and in the evidence that he gave to the Select Committee, we are still giving considerable thought to these matters and we are ready, among other things, to consider alternative methods of financing nationalised industries.
There are at least two criteria which any new financing arrangement would have to meet. First, it should introduce a market discipline for the management of the industries concerned. It should also tap new sources of finance and avoid adverse effects on interest rates and so private industry. I am afraid that so far it seems to me that methods of financing which meet those criteria have yet to be found, but I assure hon. Members that the Government themselves are as anxious as anyone to find them, and we shall continue to look actively for them.
§ Dr. Jeremy Bray (Motherwell and Wishaw)
I am glad that the Treasury has an open mind on these matters. Indeed, I hope that the Treasury and Civil Service Select Committee will pursue them. The right hon. and learned Gentleman's justification of the general attitude towards capital expenditure would seem to be that because the Labour Government made cuts the Conservative Government can do so. May I refer him to the capital expenditure cuts in the construction industry? Since 1975–76 there has been a 35 per cent. cut in construction work in the public sector. The Labour Government are responsible for half of that cut, but this Government are responsible for a further 17 per cent. cut despite the fact that the capital stock of houses, roads and sewers has deteriorated.
§ Mr. Brittan
I was not putting forward the argument that the hon. Gentleman has put in my mouth. I was merely saying that what the Government are doing compares very favourably with the actions of the Labour Government. By implication, I said that although some may have the right to call for higher capital spending those who supported or were members of a Government who, between 1975–76 and 1978–79, achieved the outcome that I have described are the last people in the world to have any right to expect to be heard with respect on this subject.
I come now to the other main issue arising from the White Paper, namely, the switch to cash planning. My right hon. and learned Friend the Chancellor referred in his Budget Statement to the changes that we are making in the way in which we propose to take spending decisions, so that cash rather than volume is given primacy. When I was at the Home Office I always felt strongly how absurd it was to plan in the funny money described in the jargon as survey prices. I therefore very much welcomed the 1134 opportunity of helping to make the changes that have been announced—changes that are as radical as any in the past decade.
The cash limits system introduced by the previous Government was the first recognition that cash counted as well as volume. It has meant that as far as it extends in the current year—that is the one in which spending actually occurs—cash and not volume has been paramount. That was an important advance, and I am happy to pay tribute to those responsible for it. In the area covered by cash limits the Treasury has no longer had to provide art open cheque. To that extent it has given an incentive to managers to cut their costs.
We have made one immediate further change. We are publishing for the first time in the White Paper, alongside the volume plans, cash figures for expenditure on each programme in 1981–82 and also the cash limits.
The cash limits represent the cash that can be afforded for the services in question. If costs rise more than provided for, services are bound to suffer. The message to firms is that price increases will inevitably reduce the work available. They cannot expect a given volume of work and at the same time to impose any price increase that they consider appropriate. The Government cannot and will not be a soft touch for suppliers and contractors. The message for public service pay negotiators, who are responsible for over 30 per cent. of public expenditure, is that their negotiations on pay have implications for jobs and services.
We are also taking a further step to strengthen the cash limits system. The presumption is, and remains, that cash limits once set will not be changed, but experience shows that occasionally some adjustment is inescapable. In the past, if a proposed increase arose simply because of higher prices or pay it was not a charge on the reserve. It added to the PSBR. It amounted to a charge on the reserve only if it involved a decisions to increase the volume.
From now on increases in a cash limit, whether because of decisions to vary the volume or to make an adjustment for special reasons for pay and prices, will be charged to the contingency reserve. So there will now be a tighter constraint on changes in cash limits during the year. For example, the increase of £200 million in the defence cash limit for 1980–81 was not charged to the contingency reserve, because it was designed to cope with the extra cost of the Armed Forces pay increase and the rising cost of the defence equipment programme. The consequences for improved expenditure control of a fixed limit on such increases are easy to see.
In addition, as indicated in the White Paper, we shall continue to look at the possibility of extending the cash limit system to some areas at present not covered by it. I am not persuaded that every non-cash limited programme is so demand-determined, or in some other way so out of our reach that cash limits cannot be extended to it.
I turn to the major change we are to make in our planning system. Cash limits, important as they are, are only a means of controlling expenditure over part of the field once the spending decisions have been taken. They are the red lights which control the traffic when it is already on the road. But we must also change the framework within which the decisions are taken. We must get away at that stage from funny money and enable proper account to be taken of the cash required to finance what we decide to do.
1135 It remains as vital as ever that decisions about particular items of spending should be taken in relation to the prospects of total public expenditure. But that does not, in my view, imply the need to plan in funny money—that is to use throughout the annual cycle of official analysis, of ministerial discussion and decision, and the White Paper, the prices of the autumn before that cycle even started.
We shall be changing the system so that cash figures are used as a basis for Ministers to take their decisions on expenditure. That is, in the 1981 public expenditure survey the figures for at least the focal year, 1982–83, will be in cash. With regard to the later years of the survey we are still considering whether decisions should be taken in cash or in the prices that are expected to rule in 1982–83.
I see two major advantages in this change to the public expenditure survey system. First, it means that at least for the coming year, public expenditure will be planned in the language that matters. Ministers will be talking about the cash that will actually be spent, and, therefore, the amounts of expenditure that will have to be financed by taxation or borrowing.
Secondly, this reform should bring home to managers that there cannot be any commitment to particular levels of volume provisions stretching away into the future. I accept that those responsible for individual programmes must have as one element in their forward planning the volume of the service that they wish to provide. But this should not be the only element. Hitherto managers have been assured, or have believed they ought to be assured, of their future plans in volume terms. It was assumed that except for the restraint imposed by cash limits in the current year the burden of adjustment for any unexpected price increases would fall on taxpayers and the private sector rather than on the spending programmes themselves. This attitude will now have to change. The presumption will now shift in favour of maintaining planned cash expenditure, rather than a given volume of provision regardless of cost. This will give a strong incentive to use the cash sensibly.
Governments have inevitably suffered from living in the artificial world of volume planning, which ignores the fact that some programmes become more expensive than others. Most businesses, whether they be multinational companies or corner shops, and most households tend to shift their patterns of buying when prices change. The Government should not have a system which obscures the need to do so. The new system will show clearly the full effects of such changes between programmes.
I do not think for one moment that the important changes that we are now making in the planning system will in themselves make the decisions about future policies easier, or will make reductions in public expenditure any more palatable to those who are directly affected, but they will at least help Ministers to take those decisions by letting them see the consequences clearly. They will change the ethos, helping to ensure that spending decisions are better related to the resources from which they have to be financed. To do that remains, as it has been for many years, a fundamental priority for the British economy.
In November 1979 this Government's first White Paper on public spending stated:To limit severely the resources devoted to our public services for the time being is not to deny that many of them need improvement. It is rather to recognise that the only way in which 1136 that improvement can be secured is to earn the money and resources by higher output … To plan more public expenditure before the required output is available to support it would ensure that, in the event, that growth of output does not take place.Those words remain every bit as true today, and it is in that spirit that I commend the White Paper to the House.
§ Mr. Peter Shore (Stepney and Poplar)
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:rejects the White Paper on the Government's Expenditure Plans 1981–82 to 1983–84, Cmnd. 8175, because it will increase unemployment, raise the cost of living, reduce public investment, damage public services both locally and nationally and because it reflects the erroneous belief that public expenditure is itself the principal cause of Britain's economic difficulties".This is an appalling White Paper. It is appalling because of the perverse priorities that it embodies, because of the further reductions in vital community services that it will enforce, and, above all, because of its refusal to use the power of public expenditure to help alleviate the misery of growing unemployment and to counter the continued economic decline of our country.
The salient and most worrying feature of the White Paper is that it is placed within the context of a planned decline in national income and output. As yesterday's timely report of the Select Committee on the Treasury and Civil Service brought out, the fiscal deflation of the measures announced in the Budget and last November total nearly £5 billion this year. The Select Committee was right to examine and challenge the extraordinary assertion of the Treasury team that this Budget is not deflationary—in particular, the absurd claim of the Financial Secretary that because the target growth of the money supply this year is broadly in line with the expected rate of inflation, that in itself will have a marginally reflationary effect on the economy as a whole.
Leaving aside the point that money supply has hitherto always been claimed to have not an immediate but a lagged effect on output and inflation, how can the Financial Secretary argue that the Budget measures will have no contractionary fiscal impact upon the economy?
§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)
I shall deal with that matter when I wind up.
§ Mr. Shore
We await with interest the explanation that the Financial Secretary has volunteered to give us later. How does he explain the downward revision in the Treasury evidence from 1 per cent. to ½ per cent. GDP growth in the first half of 1982, knowing that virtually all of that will come from increased North Sea gas and oil?
It is surely incontrovertible that by the end of 1980, before this new financial year began, GDP—output data of Britain—had fallen by no less than 7 per cent. since the second quarter of 1979—a period which covers the responsibility of this Government—and this year's Red Book anticipates a further fall of 2 per cent. during 1981. Although the current White Paper covers the longer period of 1981–82 to 1983–84, it contains no forecast of GDP during the survey period.
It is instructive, therefore, to look again at the White Paper on Government expenditure that was issued in January 1979 by the Labour Government. Our plan was for a modest expansion of public expenditure—an increase of about 2 per cent. a year. However, that was placed 1137 within the context of estimates of GDP ranging from a growth of 3 per cent. to a growth of 2 per cent. per annum. Total public expenditure would have increased by about £3 billion during the past two years, and would be running, at today's prices, at about £83.5 billion. If GDP growth, at the lower end of the range, had been sustained at 2 per cent., that enlarged public expenditure would have claimed between 41 per cent. and 42 per cent. of GDP.
It is, of course, through an expansion of GDP that we have been able, almost throughout the post-war period, under different Governments, to finance a rising total of public expenditure without imposing insupportable burdens on total resources or on the taxpayer.
§ Mr. Bruce-Gardyne
The right hon. Gentleman mentioned the projections of GDP growth in the Labour Government's White Paper. Will he accept that even the lower range predicted was out of kilter with the experience of the previous Government? Is it not time to recognise the folly of predicting— as his Government and previous Conservative Governments did— rates of growth in GDP which are never fulfilled as a justification for increases in public expenditure which most certainly were fulfilled and which the economy could not sustain?
§ Mr. Shore
I disagree with the hon. Member. One cannot plan public expenditure in a rational manner unless one takes a view, however preliminary or subject to correction, on the growth of GDP. If one says "It is black as night and I do not know where I am going", what use is there in even publishing a public expenditure White Paper covering three years? As for the reality of our expectation of a minimum 2 per cent. growth if we had won the general election, I remind the hon. Gentleman that we had achieved 3 per cent. growth in our final year and that for the first time North Sea oil was coming in at full flood.
The difference between what has happened under this Government and what did not happen under the Labour Government is the difference on the balance of payments of £6 billion in North Sea oil and gas, which has been squandered because of the incompetence of this Government.
The Government, pledged as they were to change the fortunes of Britain and break with the post-war trend, have succeeded in doing just that. During the past two years they have turned slow and at times nil growth and relative decline into an absolute decline. I doubt whether any country in the Western world, at any time in this century, has experienced in a three-year period such a massive decline of its national wealth and output as Britain will have experienced by the end of this financial year under the bold new policies of the Prime Minister and her Chancellor.
§ Mr. Forman
I refer the right hon. Gentleman back to his somewhat hyperbolic comments a few moments ago. Is it not a fact that the compound rate of growth in the five and a half years of Labour Government was about 1 per cent. in real terms, and that, with the exception of the final pre-election spurt, engineered by himself and his right hon. Friends, there was no realistic basis for the sort of public expenditure projections that he and his right hon. Friends made?
§ Mr. Shore
When we came to power in 1974, the result of the fourfold increase in oil prices was equivalent to a 1138 transfer of 3.5 per cent. of our total GDP to countries basically in the Arab world. We began with a minus 3 per cent. and the most formidable balance of payments crisis in our history. We gradually overcame that difficulty and developed North sea oil in the most remarkable way. By the end of our period in office we were ready to enjoy for the first time the benefits of oil self-sufficiency.
Mr. Deputy Speaker
Order. ther hon. Gentleman knows perfectly well that if the Opposition spokesman does not give way the hon. Gentleman must resume his seat.
§ Mr. Shore
The implications for public expenditure of a declining national output are obvious. First, in spite of massive cuts in important and vital community services and in public industries, the proportion of the GDP taken by public expenditure has actually increased.
In 1980–81, public expenditure rose from 41½ per cent. to 44½ per cent. of GDP. Taking account of the impact of the most recent cuts in public expenditure, the Government according to the White Paper, do not expect that that share will fall in the coming year by more than 1 per cent.—and that figure excludes debt interest. I shall be surprised if public expenditure claims a lower share of the GDP this year than in 1980–81.
That is not the only effect of the Government's pursuit of a minus growth policy. The composition of public expenditure has already substantially changed, as the Chief Secretary made clear, from expenditure on public services and public investment to the maintenance of a growing army of unemployed and subsidy of essential public industries. As the White Paper admits, the self-induced recession hasexerted upward pressure, for example on unemployment benefit and special employment measures.In the current financial year social security payments are due to rise by £884 million over the provision made last year and by a further £1,700 million in 1982–83. The great bulk of that reflects increases in the direct expenditure costs of increased unemployment. There has also had to be a great increase in expenditure on employment measures and industrial support—both recession-induced.
Under the general headingIndustry, energy, trade and employmentin table 1.11 in the current White Paper, Government expenditure increased by £600 million last year and will rise to £1,276 million in 1981–82 and by £900 million in the following year.
Of course, there have been real cuts too. As my hon. Friends pointed out earlier, housing expenditure fell by nearly £700 million last year and will fall by a further £1,100 million in 1981–82. Education spending was down by more than £300 million in 1980–81 and will be reduced by another £360 million in 1981–82. In the past two years local authorities have suffered a total cut of £2,500 million—about 12½ per cent. of their total income.
The net result of a totally misconceived economic policy—a policy of minus growth—is not a swift and 1139 radical reduction in public expenditure as a whole but a reduction that falls far short of the Government's intentions and hits major services and investment in order to release public funds to keep more and more people in idleness and to prevent the collapse of basic industries.
The short table on page 2 of the White Paper brings out all that. Last year, in their innocence—if that is the right word—the Government planned to cut public expenditure by £4.3 billion from the plans of the previous Labour Government. They further proposed to cut it in 1981–82 by £6.6 billion and next year by £9.7 billion over the programmes that the previous Government had planned.
The reality has turned out to be different. Far more modest, though still very damaging, reductions are now forecast for the next two years. The Government have yet to realise not only that important, indeed vital, public services suffer from those cuts, but that the cuts actually contribute to the collapse of production and the continuing decline of GDP. After all, 25 per cent. of total Government expenditure goes on the purchase of goods and services, the range of which was outlined by the Chief Secretary. Those purchases are overwhelmingly from firms in the private sector.
Capital investment, as shown in the figures for gross domestic capital formation in table 1.8 of the White Paper, has fallen from just over £7,000 million per annum in 1978–79—a figure that was far too low, according to the Conservatives in Opposition—to £5,392 million in 1981, and it will fall yet again in 1981–82 to £4,637 million. That is a fall in three years of about one-third from a figure that the Conservatives complained about when they were in Opposition. Nearly all the expenditure under that heading provides employment and payment for firms in the private sector.
In his Budget Statement the Chancellor of the Exchequer had little to say about public expenditure, at least in the current financial year. However, he gave some indication of his future intentions:Our decisions for the future are designed to ensure that the volume of spending falls after 1981–82. The public expenditure White Paper shows a planned fall of 4 per cent. by 1983–84. Whether we can spend even on that scale must depend on how far we can afford to do so. During the annual review later this year we shall be looking hard at the possibility of further reductions in those plans."—[Official Report, 10 March 1981; Vol 1000, c. 767.]Those words were basically reiterated by the Chief Secretary in opening this debate. What a prospect that 4 per cent. threat presents for public expenditure and national and local services.
Have we any reason to believe that there will be a recovery from the recession in the years ahead? Do the Government seriously believe that the public expenditure totals will not be inflated yet again by their having to increase counter-recession expenditure, whether on unemployment benefits or on rescue operations for firms and job maintenance?
The Chief Secretary and his team have learnt nothing from the bitter experience of the past two years. They are determined to go on cutting public expenditure as part of the medium-term financial strategy announced 12 months ago, a key element of which is a reduction in public expenditure.
Once again we have to ask the basic question: why have the Government committed themselves to such an 1140 evidently damaging policy course? There is no doubt that we have vast unused capacity in Britain, and there is no evidence of any anticipation of claims upon that capacity arising from any other sector of the British economy, including our exporters.
There is also no evidence to suggest that public expenditure in Britain is out of line with that of our major industrial competitors. The latest EEC figures show, as they have shown in previous years, that the United Kingdom is substantially below the EEC average and is below its three main industrial competitors—Germany, France and Italy—in terms of public expenditure as a percentage of GDP. In addition, the Financial Secretary and the House are well aware that the British are well down the international taxation league table. There is obviously no connection between Britain's general economic performance and the level of our public expenditure and the taxation measures that we need to take to finance it.
In Opposition the Prime Minister and her colleagues argued that too much public expenditure went on current spending and too little on capital projects. That is an arguable proposition, and I thought that the Chief Secretary was dealing with that when he discussed the rival claims of public current and capital spending. But the Government must surely understand that the effects of their policies have been most severe precisely on the capital programmes of public authorities.
What is the justification for continuing the assault on public expenditure? As far as I can see it is still the stale old argument of last year and the year before, that the Government believe that the public sector borrowing requirement is much too high and that a large PSBR creates inflation, drives up interest rates and crowds out funds that would otherwise be used by private industry.
I shall put the counter case against these propositions. First, if this year's PSBR, of 4¼ per cent. of GDP is acheived, it will be the lowest that we have had for the past eight years, regardless of the fact that we are in by far the most profound depth of recession since the war. Secondly, there is no evidence that the PSBR leads to inflation. The experience of recent years has shown that public borrowing has been overwhelmingly financed by genuine savings from the non-bank public. Only a small part has been raised from the banks. The use of genuine savings for investment in the public sector is no more inflationary than if the same savings had gone to finance the expansion of private sector companies.
§ Mr. Anderson
Is not the absurdity of the Government's proposition underlined by the distinction in their privatisation measures, in which 51 per cent. of the Government holding is meant to be within the PSBR and 49 per cent. is not, although there is the same effect on total calls on capital?
§ Mr. Shore
I absolutely agree with my hon. Friend. It is extraordinary that we have to play with the 1 per cent. to make feasible and possible what we all agree is sensible and worthwhile capital investment because otherwise it would apparently fall within and swell the PSBR.
Does Government borrowing inevitably push up the rate of interest? There is no reason why that should be so unless there is at the same time a great demand for borrowing and expansion arising from the private sector. That clearly is not so now, whatever it may have been in 1141 the past. Far from expanding, the private sector is contracting. That is happening at an appalling rate. Investment is falling. The history of the eight years since the first oil strike and the subsequent enlargement of Government borrowing demonstrates that there is no direct link to be found between the size of Government borrowing in any one year and the rates of interest that Government stock has to carry.
Last year was a classic example of the demonstrable untruth of the claim that the growth of the PSBR inevitably leads to higher MLR and higher interest rates generally. The Government began the previous financial year with a declared target of £8½ billion for the PSBR and with an MLR of no less than 17 per cent. As the year wore on the PSBR grew from £8½ billion in March to about £12 billion in November and to an outturn figure, as we heard a few weeks ago, of no less than £13½ billion. According to the Government's reasoning, the MLR should have risen well beyond the 17 per cent. with which the financial year began. In the event, and in spite of the swollen PSBR, interest rates were lowered from 17 per cent. to 14 per cent. and currently to 12 per cent.
How did the Government finance that vastly increased borrowing requirement? Did they print money? Of course not. They borrowed money. They did so because the money was available. They were able to borrow it at a rate far lower than their own MLR.
§ Mr. Lawson
Is the right hon. Gentleman aware that his right hon. Friend the Member for Leeds, East (Mr. Healey), when Chancellor of the Exchequer, said:Our aim will be to bring about a reduction in interest rates from their present high level as soon as this is feasible. There is no short-cut available here … It will depend on our ability to restrict the public sector borrowing requirement".—[Official Report, 26 March 1974; Vol. 871, c. 284.]What does the right hon. Gentleman have to say to that?
§ Mr. Shore
I shall answer the right hon. Gentleman's question when he answers the far more pertinent question of how it was that he had more than a 50 per cent. increase in last year's PSBR and at the same time reduced interest rates. He had better answer that. I think that we shall leave it at that for the time being.
What is the justification for making further cuts in public expenditure in the midst of the worst recession that we have had for 50 years? I can find no reason other than blind prejudice. First, I see the Prime Minister's instinctive hostility to services—other than defence and internal security—which are collectively provided, because they are collectively provided. Secondly, I note the primitive belief of the Prime Minister, the Chancellor of the Exchequer, the Financial Secretary and the handful of monetarists who advise them—namely, that, once they have flattened the economy there will be some spontaneous growth, some phoenix from the ashes, in the private sector. There is no evidence of that. To base national economic policy on what is no more than prejudice and blind faith is utterly wrong.
The Labour Party's approach to public expenditure is in sharp contrast to that of the Government. We believe that the collective standard of living plays as crucial a part as the individual standard of living in the welfare and life of our community. Moreover, we believe that the public sector, especially publicly owned industry, public infrastructre and capital investment, makes a direct and indirect contribution to the growth of the economy.
1142 We are not alone in that belief. For example, there is the CBI's submission of evidence shortly before the Budget. I recommend Ministers to re-read it. It came to some important conclusions from the distinctions that it drew between what it described as our over-interest, as it were, in the quantity of the PSBR and our insufficient interest and analysis in what it called the quality of the PSBR.
The CBI referred to Interest rates. It made the now familiar point that every 1 per cent. reduction in interest rates means a reduction in costs for industry of about £350 million a year. It also said that every 1 per cent. reduction in interest rates means a saving to the Government in debt interest of about £250 million a year. That is an argument that I had not previously seen emphasised or confirmed.
In spite of the stubborn tenacity with which the medium-term financial strategy has been pursued and in spite of its brutal reaffirmation in last month's Budget Statement and in the White Paper before us, I do not believe—I have a feeling that many in the House do not believe either—that the Government's position can be held for much longer. However, as the Government have nailed themselves so firmly to the mast of dogma, movement is bound to be both painful and slow.
In my concluding remarks I shall make some suggestions and comments that are designed to assist not so much the Government as the bruised and battered nation that we should all seek to serve. First, let the Government propagate the truth about the PSBR. Even now, in the midst of this deep recession, the Government cover all their current expenditure, including debt servicing, from their own tax revenues and receipts. Borrowing is related entirely to capital expenditure and reflects in large part the fact that we are a mixed economy with a large public sector of industry and with active policies for the support of private industry.
Secondly, let the Government explain to their blinkered supporters that the United Kingdom's PSBR is, when the public sector of industry is allowed for, broadly in line with that of other countries. At the back of the economic paper presented by the Commission to the recent Maastricht summit there is a table that sets out the net Government borrowing of the member countries of the EEC. As right hon. and hon. Members will have noted, the United Kingdom in 1980 had, on the definitions employed there, a general borrowing requirement of 2.3 per cent. of GDP against an average 3.6 per cent. for the whole of the Community.
Thirdly, surely it is time that we looked again at the definition of the PSBR. I am glad that the Chief Secretary said that he was willing to think and to think again about that. The last Labour Government—I pay tribute to my right hon. Friend the Member for Heywood and Royton (Mr. Barnett), the former Chief Secretary—made important and helpful changes in what was previously the PSBR. However, it is time that we thought more radically about the whole matter. There is a growing view, which I share, that it is nonsense that public corporations that borrow in order to finance capital expenditure—no one doubts that, for example, British Telecom and British Rail could increase substantially profitable investments—should, because of the Treasury guarantee, be counted within the PSBR in the same way as subsidies for local authority tenants and defence appropriations.
This is a deplorable White Paper which will add to all our difficulties. We shall not get public expenditure right 1143 and we shall not be able to make the contribution which public expenditure could make to the alleviation of our national problems and the alleviation of the great problem of unemployment until Ministers remove or have removed for them their mental blockage, and until they are able to free themselves from the intellectual prison in which they have placed themselves. Meanwhile, the Opposition will vote with conviction for the amendment that I have moved this afternoon.
§ Sir Hugh Fraser (Stafford and Stone)
I congratulate the right hon. Member for Stepney and Poplar (Mr. Shore) on his powerful attack on the Government, ending with the clarion cry to the British nation that we should redefine the precise meaning of the PSBR.
One of the problems of debates such as this is that they become too technical. I am no economist, so I shall not delay the House for long. With 364 economists deciding that the Government are largely wrong, especially those who have been advising them over the last 30 years, one hears but the cacophony of men blowing their own trombones and sounding their own uncertain trumpets. The debate should be not so much about the technicalities of the PSBR as about the use of national resource. That is why one can agree to a certain extent with both the right hon. Member for Stepney and Poplar and my right hon. and learned Friend the Chief Secretary.
Over the last few years two problems have emerged. One is stagnation and the other is the obsolescence of our national heritage and of our infrastructure, such as roads, railways and sewers. That comes out clearly from the expenditure on capital account by both the Labour Government and the present Conservative Government. There has been a drop in investment in permanent assets. That will have to be put right.
Opposition Members say that the way to solve that problem is to borrow and to borrow again, and to buy oneself out of the situation. I believe that that is wrong. It will not work. But one new factor could be used, which is our greatest asset; that is, youth, our young people, who at the moment are neither fully engaged in practical purpose nor properly employed. Right hon. and hon. Members may have seen an article which I wrote in The Times yesterday. It was about some form of national service and its reintroduction. They may have also seen a letter in The Times today from Dr. Dickson, a distinguished man, who founded Voluntary Service Overseas.
At the moment about £1,000 million is being spent on the creation of non-jobs, through youth employment schemes and others. The time has come to see whether we can put this money to better and more effective purpose.
Many of the buildings and much of the infrastructure of the country were constructed with cheap labour in the 1850s, 1860s and 1870s. They are now in dangerous decline. There are no major programmes for reconstitution, whether by local authorities or Government. Others have said before that youth must be asked to make some sacrifice and to give its labour for a year or so below the going price. That is happening in Nigeria, Singapore and Spain, to considerable purpose.
That is why I believe that the time has come for the Government to study the question whether better use could 1144 be made of young people through some form of compulsory service. To that purpose, I suggest not that a Royal Commission should be set up but that there should be an immediate investigation involving the CBI and the TUC. The hon. Member for Newcastle-under-Lyme (Mr. Golding) and my hon. Friend the Member for Chelsea (Mr. Scott) were discussing the problem of youth yesterday.
Much harm is being done to young people by the present situation. The lack of training and our inability to get ahead with doing what we need to do should be investigated. I hope that the Prime Minister will seriously consider setting up a group to report to her, with representatives of the TUC, the CBI and Ministries involved—Treasury, Defence, Home, Education and Employment. It should see whether it can find in a national service scheme something more effective than the present system, which for many young people is unsatisfactory, gives them little hope and does not contribute in any way to solving our problems. Perhaps I am asking for something which is outside the scope of the debate, but we should be talking about the use of national assets. One asset which is not being used by this Government, and was not used by the Labour Government, is the youth of this country.
§ Mr. William Hamilton (Fife, Central)
Like the right hon. Member for Stafford and Stone (Sir H. Fraser), I am not an expert in technical economic jargon, particularly that used by the Chief Secretary. There was a stark contrast between his speech and the speech of my right hon. Friend the Member for Stepney and Poplar (Mr. Shore). The right hon. and learned Gentleman's speech was prepared by the Treasury pundits. The Treasury's approach has brought us to our present situation. My right hon. Friend brought us down to reality.
§ Mr. Hamilton
I shall reply to the right hon. Gentleman in a moment.
The Chancellor of the Exchequer's track record since the election is one of catastrophic failure from the word "go". His first Budget increased VAT from 8 per cent. to 15 per cent., which immediately put 2½ per cent. on the retail price index. It distributed the tax burden in the most unjust and inexorable way from the rich to the poor. Almost exactly a year ago the Chancellor presented his financial strategy with the panache for which he is well known, and claimed yet again that it would lead to growth, the creation of real jobs and low inflation. Instead, we have real dole queues—not Saatchi and Saatchi dole queues—increasing day by day. Instead of real and sustained growth, we have endured the most catastrophic fall in manufacturing output in 50 years.
In November last year the Chancellor said that the one thing that was under his control was the money supply, but that has widely overshot his target by about £5,000 million—a mere bagatelle in Government terms. So glittering has been the Government's success in the past two years and so bright the prospects that at least half the Government have decided to continue the process. It is a bit like the charge of the Light Brigade, which also decided against a U-turn, with the same devastating results.
With unemployment rising remorselessly and with the clear need to extend demand directly and indirectly to 1145 create jobs, by building houses, schools and roads and investing in the infrastructure, such as railway electrification, the Government produce a White Paper that tells us to keep taking the medicine, as we have not yet died—but that will come. That is what is so devastatingly incomprehensible about the White Paper.
The Chief Secretary went out of his way to say that the previous Budget was not deflationary. Phillips and Drew is a highly respected stockbroking firm, which the Government quote when it is to their advantage. I do not know whether he has read that firm's forecast, but it says, as do the CBI, the TUC and almost everybody else, that that Budget and the previous one and this White Paper will enormously exacerbate unemployment and price rises.
The Treasury and Civil Service Committee was chaired by the chairman of the Tory 1922 committee, who, as a great City man, knows what he is talking about. My right hon. Friend the Member for Stepney and Poplar made the point about the increase in public expenditure as a percentage of GNP, despite the Government's attempts to cut it. The more that they try to cut public expenditure, the more it grows. More and more money is being spent on keeping people sitting on their backsides or on their feet in dole queues, doing nowt, while thousands of people are waiting to get into hospitals or into local authority housing and are prevented from doing so because of the shortage of wherewithal to provide facilities.
The Committee was unanimous. In paragraph 20 it stated:a large part of the fall in public expenditure from 1981/1982 to 1983/84 arises from reductions in expenditure on the industry and employment programmes".Support for aerospace, shipbuilding, steel and vehicle manufacture will have fallen from £820 million in 1981–82 at 1980 survey prices to £30 million in 1983–84. More startlingly, in view of unemployment, Department of Employment expenditure will fall from £1,797 million in 1981–82 to £1,290 million in 1983–84. As the report states, the Government are running down special employment programmes at a time when even the White Paper is projecting a rise in unemployment. Unemployment will rise progressively over the next two years, but the Government are cutting drastically the money that they are prepared to spend. That is one example of the mess into which they have got us.
§ Mr. Hamilton
The hon. Gentleman was on the Committee, and presumably agrees with the report, which was unanimous. Over the next few years there will be a big cut in Government help for the unemployed—
§ Mr. Hamilton
—at a time when all the signs are that unemployment will increase to at least 3 million before the end of the year.
I turn to some of the specific points in the White Paper. The country's future welfare depends greatly on our investment in the younger generation, but education, right through from nursery schools to universities, is being 1146 slashed by the Government more harshly than anything else. Universities are faced with cuts of £150 million in the next two years. The University Grants Committee can either opt for fair shares of misery all round—to use a favourite expresson of the Secretary of State for Energy, who has his fair share of misery—and ask universities to cut uniformly or close a few universities or faculties within universities.
In Scotland, two teacher training colleges are already threatened with closure and an amalgamation is also threatened, without consultation or adequate explanation. Glasgow university is not under immediate threat, but it plans to reduce its academic staff by 317 over the next three years, and further job losses are possible in the same period. In this session Glasgow university has lost £½ million in fees for overseas students because the Government have increased fees beyond the level that poor students can afford.
§ Mrs. Gwyneth Dunwoody (Crewe)
Is my hon. Friend aware that the London School of Hygiene and Tropical Medicine and other such establishments may have to close altogether?
§ Mr. Hamilton
The Government know that. Some universities are in danger of bankruptcy, which has never been heard of before in the history of British education.
The Secretary of the UGC and the Permanent Secretary to the Department of Education and Science appeared before the Public Accounts Committee only a couple of weeks ago, on 17 March.
They told us that, on the most optimistic view, if these plans are carried out there will be at least 3,000 redundancies among university academic staff in the next three years.
When my right hon. Friend the Chairman of the Public Accounts Committee and former Chief Secretary to the Treasury asked what the redundancy pay for those 3.000 would be, the secretary of the UGC said that it would be anything from £40,000 to £80,000 each. When we asked what the total would be, he said that by extrapolation—multiplying £40,000 to £80,000 by 3,000—it would be anything from £100 million to £200 million. Redundancy payments alone would amount to more than the cost of keeping those people on their existing salaries. In order to save money the Government are actually spending more. The situation is exactly the same when translated to the dole queues.
The situation in Scottish schools tells the same story. The Glasgow Herald of 12 March states:Government spending in Scotland is to be cut by £128 million next year, with further cuts to follow, according to the White Paper …It shows that over the three years up to 1983–84 there will be a cut of 7 per cent.According to local authorities and education pundits in Scotland, a 7 per cent. cut in the schools programme must mean a deterioration in the quality of education provided. At the same time, the Government are providing increased public money for a minute, private fee-paying sector. Working-class taxpayers in my constituency will have to pay increased taxes, VAT and so on in order to provide aid for a minute, privileged section of Scotland's child population, while the others will have to take the rap all round. Those are obscene priorities.
Some sectors, however, are not for cutting. I shall put on record some other facts obtained by the Public 1147 Accounts Committee. Before doing so, I remind the House that in the interests of saving taxpayers' money a moratorium has been placed on the construction of 10 houses in Glenrothes new town, in my constituency, for tenants in wheelchairs. Apparently, we cannot afford perhaps £100,000 to build those houses. That is what the Government have done, and that is how they will continue.
In some areas, the Government can afford to spend money. Not long ago, the Navy department at the Ministry of Defence informed the Public Accounts Committee about the construction programme for new ships. For obvious reasons, I shall not identify the ships, but I put the figures on record. For ship A, the original cost was estimated at £165 million. Adjusted for price variation, the estimate is now £247 million.
§ Mr. Hamilton
It does not matter where it is being built. I am concerned with the principle of priorities in public spending. We cannot afford £100,000 to house 10 people in Glenrothes who are confined to wheelchairs, but we can afford £247 million to build one ship.
For ship B, the original estimate was £236 million and the adjusted estimate is £301 million. For ship C, the original estimate was £133 million and the adjusted estimate £193 million. For ship D, the original estimate was £102 million and the adjusted estimate £124 million. For ship E, the original estimate was £82 million and the adjusted estimate £104 million.
§ Mr. Hamilton
The hon. Gentleman can make hos own speech. I am making mine.
If one adds up the totals, original estimated cost was £718 million for the five ships—that will terrify the Russians—and the adjusted cost is estimated at £969 million.
Those priorities are unacceptable to us. They will create massive unemployment and hardship, combined with the cuts in education and in certain areas of social security. Having sat in Committee on the Social Security Bills, I know that many people endure tremendous hardship. They will suffer even more in the future. At both ends of the chronological scale—the young and the very old, together with the sick and the disabled—people will suffer as a result of the Government's policies. They will suffer even more if the proposals in the White Paper are implemented. As my right hon. Friend the Member for Stepney and Poplar said, it is a devastating White Paper for the welfare of the British people both now and in the future. The sooner we get rid of the people responsible for it, the better.
§ Mr. Tim Eggar (Enfield, North)
I shall not try to follow the hon. Member for Fife, Central (Mr. Hamilton) except to observe that he might like to explain to his hon. Friends in shipbuilding constituencies that he wishes to put out of work their constituents who are employed in British shipyards. His priorities may differ in this instance from those of some of his right hon. and hon. Friends.
I think that there is general agreement among Conservative Members that the Government have not gone far enough in reducing public expenditure, despite the very 1148 determined efforts that they have made. One must go on from that to see whether there is a consensus on how further reductions are to be achieved.
It is easy to single out public sector pay, but it is not much good now referring back to the Clegg awards, which were as much a part of our election programme as expenditure on defence. We all now recognise that the Government are at long last taking strong action to restrict increases in the public sector wage bill.
However, it is totally unrealistic for Conservative Members to say that the necessary savings can be made through restrictions on cash limits, administrative savings or restrictions on wages. Although every 1 per cent. above the 6 per cent. limit on pay increases in the public sector adds £300 million to public expenditure, which is no inconsiderable amount, that must be set against total spending on social services of well over £20 billion. Although restrictions on public sector pay make a significant contribution, they must not be taken out of perspective.
There is a general feeling on the Conservative Benches—I think that the Chief Secretary recognised it by giving the amount of time to the subject that he did in his excellent speech—that we have to consider seriously whether we can increase the total percentage of public expenditure that is taken up by capital expenditure. Yet we have to recognise that it is just at a time of declining national wealth, at a time of deep recession, that the pressure for public current expenditure increases. It increases from the lobbies inside and outside the House.
The reality of both Conservative and Labour Governments over the past 20 years is that, consistently, in the fight over allocating public funds between current and capital expenditure, current expenditure has won time and time again.
Conservative Members have to be honest. If we believe in further public expenditure cuts, where are we to find them? We can, of course, find a little bit on wages, as I have said, and on administrative savings. But basically we have to ask ourselves "What is the largest sector of public expenditure that has been growing significantly and inexorably over the past 10 years or more?" It is the social services budget.
Only one Conservative Member has faced this problem—my right hon. Friend the Member for Daventry (Mr. Prentice). He was absolutely clear about it. He said that, given the position in which this country finds itself and given the need to reduce public expenditure, there is only one logical area to look at, and that is the area dealing with pensions, unemployment benefit, and current transfers to the disadvantaged in our society.
My right hon. Friend was honest about the problem, but I regret that at times Conservative Members, when they call for additional reductions in public expenditure, do not spell out what this implies.
§ Mr. Eggar
I suspect that when it is spelt out the political and social implications of calling for reduced public expenditure will overweigh the rhetoric that is swelling through the Conservative Benches, and we shall recognise that politically we cannot do what so many Conservative Members are calling for. We have to face reality. If we are to have significant further reductions in public expenditure there is only one place to look for them, 1149 and the sooner the Government put it clearly to the party and to the country, the better. We cannot go on fudging this very important issue.
I hinted earlier that I thought that within the same approximate total of public expenditure, and within the same PSBR, we should be looking to increase the role of capital expenditure. I should like to make three suggestions which I hope will go some way to being compatible with the Government's PSBR targets and with the general economic strategy while at the same time meeting the criteria that were set down so admirably and so clearly by the Chief Secretary in his speech this afternoon.
I say immediately that I am not of the school that says that all capital expenditure is good and all current expenditure is bad. I take the reservations and the points that are made so forcefully in different ways by what might be called the "Brittan Brothers'. Nevertheless, there is a case—and a case in particular—for increasing the amount of public resources that are directed into revenue-producing capital projects.
My first suggestion is one that has hit the headlines and is widely discussed—the introduction of private sector funding into specific public sector projects. That is terribly easy to say; it is extremely difficult to do. The one thing that we do not want to do is to introduce funds that are, in fact, an alternative to gilts—a sexier form of gilts, another way of lending to the Government.
If we are to pursue this objective we have to ensure that funds coming in from the private sector are true risk capital. I differ from the Chief Secretary in that I think that he failed to differentiate between true risk equity capital coming into the public sector and additional loan capital. I agree that if all that we can come up with is additional loan capital there is little to be said for the schemes that have attracted so much publicity. I think that we shall find that there is limited scope—I stress the word "limited"—for the introduction of risk capital into the public sector.
§ Mr. Bruce-Gardyne
I apologise for interrupting my hon. Friend. Before he leaves the subject of the injection of risk capital, will he explain how it is possible to achieve the concept of genuine risk capital in institutions which, by definition, cannot go bankrupt?
§ Mr. Eggar
That is the main problem—how to get away from the Government guarantee. That is why I said that the role was extremely limited. I would see it as being mainly in the form of joint ventures between private sector companies and a public sector nationalised industry, where the nationalised industry might be holding more than 50 per cent. of the shares. But I totally accept the point that was made by my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne). As I said at the beginning, it is much easier to say than to do.
Secondly, the logical way for the Government to increase public capital expenditure and to relieve the pressure on the PSBR—I am surprised to find how little this is mentioned—is to denationalise the profitable nationalised industries. We have had some success in this area. We should not underestimate the considerable achievement of floating off 50 per cent. of British Aerospace. It was particularly pleasing to see the high proportion of shares taken up by employees in that issue. 1150 But I hope and trust that the Government will go further, and the obvious targets are the British National Oil Corporation and the British Gas Corporation.
I hope that the Government's decision not to proceed with the further stages of the Petroleum and Continental Shelf Bill will mean that when that Bill is reintroduced there will be measures to ensure that BNOC is denationalised as soon as the Bill becomes law. It simply is not adequate merely to give the Secretary of State for Energy powers to denationalise in the future.
I say to the Financial Secretary to the Treasury—I know that he has some sympathy with my approach—I hat we must look beyond the BNOC, to the BGC. As far as I am aware, there has been no public discussion in the party about the possibilities of privatising the British Gas Corporation. I fully recognise that if we are to go down that route we have to take measures to limit the BGC's monopoly powers, because it is no good replacing a public monopoly with a private monopoly.
The Government have to tackle the whole area of the introduction of competition into the gas industry as part of the effort to take the British Gas Corporation out of the public sector.
It is worth while spelling out the advantages of denationalisation, purely from the economic point of view, and leaving aside the question whether it increases competition. Privatisation reduces the public sector borrowing requirement in the year when it occurs. It relieves the PSBR of capital investment charges in future years and, due to the tax regime, there would be limited—if any—reductions in future revenue accruing to the Government as a result of privatisation.
Thirdly—I am conscious that I am stepping on sensitive ground—the Government need to consider carefully the establishment of a North Sea revenue investment fund. I appreciate the Treasury's reluctance to hypothecate revenue. It is a reluctance shared by Treasury Benches of both parties. I understand the Treasury's argument that. North Sea revenues are already spoken for. That is why I make a limited suggestion, which I hope will enable the Treasury to fight off the pressures from the spending Departments and lobbies, to try to ensure that at least some future North Sea revenues go into capital investment.
The idea is that as from this financial year any increase in real income from North Sea revenue should be put into a separate fund under the control of the Treasury and the Treasury alone. The Treasury, appropriately, advised, as it would have to be, would decide which projects put forward by the still nationalised industries, the private sector and spending Departments, made sense and were viable. It would be up to the Treasury to allocate what funds would be available for those various applicants.
The Treasury should expect interest on the money lent and in time it should expect capital repayments. I accept all the difficulties and problems about project selection, how one decides whether a project will be profitable and how one decides between different priorities. Nevertheless, unless steps are taken by the Treasury to safeguard the real increase in revenue from the North Sea against the ravages and attacks from spending Departments and lobbies, in two or three years' time, despite all our good intentions—good intentions that the Labour Government shared—the benefits of the North Sea will flow into current spending.
In times of recession and economic difficulty—and in the relative prosperity of the past 20 years—in the battle 1151 between allocating funds for capital expenditure and current expenditure under both Governments, current expenditure has always won.
We have a duty to try to ensure that the net capital disinvestment that has been occurring for a number of years should be reversed. We have been eating up the capital left to us by our predecessors. It will not be easy, given the likely economic outlook for the next three or four years, whatever economic policies are pursued. But we should show a determination to try.
§ 6.4 pm
§ Mr. Richard Wainwright (Colne Valley)
I imagine that I am not the only hon. Member who feels that the hon. Member for Enfield, North (Mr. Eggar) has proved himself to be a shining light among the flickering candles on the Conservative Benches, because, at last, after we have been debating the matter for two and a half hours, he has introduced the highly relevant subject of North Sea oil revenues. It is astonishing that neither Front Bench deployed that important element of our resources.
In speaking to the Liberal amendment, I am glad to follow the hon. Member for Enfield, North on the subject of capital expenditure. I dissent entirely from his view—a view that I know he holds deeply—that increases in capital expenditure must be at the expense of reductions in current expenditure. It is worth recalling that the hon. Member for Enfield, North was unable to persuade the Select Committee on the Treasury and Civil Service, despite its majority of Conservative Members, to adopt that view. The report makes no suggestion that increases in capital expenditure would be at the expense of current expenditure.
I shall discuss how capital expenditure should be increased. But I hope that it is common ground that before we pass any plans for public expenditure, whether they are small or, in the opinion of some Conservative Members, too large, we have a duty to examine whether systems of control exist that will ensure value for money. In that respect the Government are proving themselves poor stewards. The Select Committee was informed of poor control and the Treasury accepted our adviser's paper. In his Budget Statement the Chancellor of the Exchequer was eloquent about the importance of the cost of public expenditure. The cost in 1980–81 seems to have been higher by £750 million, at 1979–80 outturn prices, than was intended by the Labour Government in their public expenditure plans for 1980–81. From the same adviser we have the information, accepted by the Treasury, that at 1979–80 prices the unforeseen rise in relative costs added £700 million to planned expenditure in the health programme in 1980–81.
Those are formidable figures in the light of the revelation of what has been happening to the cost of public expenditure, having regard to the much higher rate of inflation in public spending items than the general rate of inflation. The Chief Secretary was too coy to reveal that in his speech when I challenged him. Because of my worries about that revelation I am alarmed that the Chancellor of the Exchequer proposes that a further change in the control of public expenditure will be based on a system of cash limits.
Cash limits were necessary as a desperate expedient when the traditional accounting controls in Government 1152 Departments broke down. When accounting officers no longer felt shame at losing control of Government spending there had to be a desperate and primitive expedient of cash limits, but to use that as a basis for a whole new system of controlling public expenditure seems to be perverse.
When the Financial Secretary winds up the debate I hope that he will tell us what consideration the Treasury gave to the recommendations made by the Armstrong committee on budgetary reform. That committee devoted a considerable passage, with much detailed evidence in support, to the proposal that we transfer to a system of controlling programmes by cost. Unless the Government have some compelling reasons to feel that the Armstrong committee was completely on the wrong track, they are arrogant to announce the change without consulting the House and without giving hon. Members the opportunity to debate the Armstrong report.
§ Mr. Wainwright
That fact has dawned on me. I forget what age I was when that truth was revealed to me. As the Financial Secretary must have realised since his early youth, cost measures value for money. It is not a question of how much cash is poured out. That is a primitive test. The real issue is what value the country gets from its expenditure. In that respect the Armstrong committee's views are important.
My concern about the whole rocky basis of the proposed new system was heightened when I heard the Chief Secretary's speech today. In an earlier stage of my life I was accustomed to the vagaries of even the best-trained lawyers when talking about accountancy. However, this afternoon the Chief Secretary surpassed anything that I have heard from a lawyer on accounting.
The right hon. and learned Gentleman talked about public expenditure. He dismissed the difference between capital expenditure and revenue expenditure. At one moment he called it statistical and at another technical. His main argument was that in Government spheres capital items are not depreciated. He said that the reason why the Government do not depreciate their fixed assets was that most of them were not revenue-earning.
Such a flouting of fundamental accounting principles cannot often have been aired in the House with a straight face. The Chief Secretary used the Thames barrage as an example, perhaps because it is not yet built. Whether the Thames barrage will earn revenue does not matter a fig in terms of depreciation or obsolescence. Everybody knows that it will wear out. If we are to have Governments accounts worthy of the name and are to rescue the head of the Government's accountancy service from his refugee quarters in the Department of Industry and bring him to the Treasury, where he should have been 30 years ago, we shall have to allow an amount each year for the depreciation or estimated obsolescence of the Government's fixed assets. Until then everything is bound to be cockeyed, and we shall have to make the best we can of a bad job.
The way to patch up the system is not to rely on the primitive device of cash limits. I hope that the House will have the opportunity to express its views before the Government persist in introducing yet another control measure that is bound to fail.
1153 Another consequence of having inadequate systems of control over any expenditure, whether in a private corporation or in the Government, is a lack of confidence, especially in capital spending, and an over-cautiousness amounting to timidity. That is what has happened to the Government. They know that their systems will let them down. They are therefore cautious to a fault when launching capital expenditure. The dismal history is well known. The Government are deliberately coy about the future, and they have good reason to be.
Paragraph 16 of the Select Committee report states:It is still not possible to tell how much the Government intend to spend on, for example, capital projects as opposed to say subsidies or lending, and it is not possible to assess satisfactorily the full implications of the expenditure plansThat is for the years after 1981–82.
That concealment has a purpose. That measure of concealment came in with the present Government.
The past gives us a grim enough guide to what is happening. The Select Committee report reveals—although the figures were known already—that the percentage of total public expenditure devoted to fixed capital expenditure at 1980 survey prices has come down steadily from 19.4 per cent. in 1975–76, to 12.5 per cent. in the year just ended. The estimated figure for 1981–82 is 12.4 per cent.
That is an appallingly steep decline. The Government have said nothing to suggest that it will be arrested. A drop in public capital expenditure immediately knocks private industry. With the exception of a few workshops in the nationalised industries, the public sector draws its capital goods from the private sector. Many public corporations spend the bulk of their capital moneys in this country, so that the spectre of a rush of imports is not involved.
There are many urgent needs for capital expenditure. In the manufacturing areas of the North of England huge main sewers, on which public capital was spent well over a century ago, are collapsing every week. If citizens are gathered round an enormous gaping hole in a street in central Manchester, even the author of the article on public investment in today's Financial Times will not say that they should stubbornly refuse to get the council to do anything about it until somebody has produced a certificate about the rate of return on the new capital employed in reconstruction.
Mr. Samuel Brittan's lecture this morning on the dangers of public money being spent on swimming baths with artificial wave-making machines was an illustration of him at his most frivolous. Expenditure is needed on the sewerage systems in the manufacturing areas of the North.
The increasing dilapidation of our railways is another example. The British Rail corporate plan for 1981–85 envisages an expanding investment programme from £287 million in 1981 to a peak of £461 million, at 1980 prices, in 1987. The programme is designed mainly to recoup the backlog of renewals in track, signalling and rolling stock and to renew the totality of the system at an improved level of performance.
The chairman of British Rail says firmly that the decision year for the whole of the plan is this year. It is astonishing that the Government should turn such a relatively deaf ear to such obviously necessary expenditure, which could provide work for a large number of skilled unemployed people.
I have deliberately chosen obvious examples to which even Mr. Samuel Brittan cannot take exception. My third 1154 example is the increasing inability of British citizens to make the telephone calls for which they rent their instruments. British Telecom is frank about it. The chairman does not disguise his dismay at the dilapidated state of the system. His predecessor, Sir William Barlow, handed in his premature resignation because with the meagre capital that the Government allowed him he could not be responsible for the future of the system.
The chairman of British Telecom, Sir George Jefferson, said on 19 March:Even if we implement substantial economies in the current plans, unless we can bank on very substantial increases in external borrowing, we win not be able to sustain the very minimum programme necessary to avert serious damage to our supply industries and avoid a disastrous telecommunications situation developing over the next few years.I understand from British Telecom that it estimates that 90 per cent. of such moneys would be spent with firms in this country. In the face of these obvious needs—there is no need for elaborate computations to establish notional rates of return down to the last digit—it is perverse that the Government should refuse to provide the necessary finance. The unemployment effects of such schemes would be subject to considerable lag, but at least a decision now would have enabled the supplying firms to get design work going and to get tooled up for production. Gradually, the whole programme would have gathered momentum.
Before concluding, it is necessary to face the question of raising the money.
§ Mr. K. J. Woolmer (Batley and Morley)
Before the hon. Gentleman deals with the question of investment in the nationalised industries, will he consider the argument that the likelihood of even a meagre level of investment being achieved will depend largely upon the nationalised industries' ability to generate internal finance to pay for the investment. A large part of the Government's plans depends on a massive switch to internal finance, amounting to between £2 billion and £3 billion over two years. Will the hon. Gentleman comment on the likelihood of this having two effects? The first is a large increase in prices, in addition to the big increase in gas and electricity prices, which will give another inflationary push. The second, equally probable, is the likelihood of the non-fulfilment of those investment plans because the finance will not be available.
§ Mr. Wainwright
I am grateful to the hon. Member for Batley and Morley (Mr. Woolmer) for making that point, even though he has tempted me to take a minute or two longer. The hon. Gentleman is right in his inference. I am sure that I am not the only hon. Member who finds it impossible to say to my elderly constituents "Never mind, chum, about this vast rise in your electricity bill. Think of the marvellous power station that will go up when you are dead and buried. Your grandchildren will be very grateful that you worked yourself to the very bone to pay for their power station". It is not honest financing to raise money now from people who will never, in the course of nature, enjoy the benefits.
I was referring to British Telecom. I am advised that until five years ago the rough rule of the Post Office telecommunications division, as it then was, was to raise 50 per cent. of its investment needs by borrowing. It estimates that this year only 15 per cent. of its investment capital will be borrowed. The hon. Member for Batley and Morley has drawn attention to the point. A perverse percentage of nationalised industry investment is being 1155 raised unfairly at the expense of today's consumers by the peculiarly uncivilised device of enormous leaps in cost that completely destroy any attempt at household budgeting.
I had been about to conclude by mentioning the question of raising the money. As is well known, we on the Liberal Bench have no time for the Government's preoccupation with screwing down the PSBR on the wholly unjustifiable excuse that in some way or other—the Government never come clean about it—that is the only way to bring down interest rates. The history of the past year, if there was not already enough history on the point, disproves that assertion. In any case, there are many inventive ways, still not explored, of raising money for wealth-creating projects.
I would like to mention one. The Government are guilty in that they sit back and passively accept the prospect that this country's marvellous propensity to save—one of our greatest national assets, exceeded only by the French—is bound to fall. In their Red Book the Government accept—the Financial Secretary must take responsibility—that the savings ratio is expected to fall. There is no reason why a Government who claim to be the Government of entrepreneurs should sit back and allow that to happen. The Government say that it will happen because in times of high inflation the British people feel the need to save in order to preserve, so far as possible, the worth of their financial assets. Yet one was brought up on the opposite maxim—that if inflation goes over a certain point and shows every likelihood of persisting, people lose the propensity to save. That has happened in the United States of America. The Governor of the Bank of England reminded the Select Committee only a few days ago that it happened in America as soon as inflation began to take off there.
There is no reason for the Government to sit back and say that far less savings must be expected from the public. If the Government were able to come forward with investment schemes in public services—schemes that would have an appeal throughout the country to every type of person—and make these the motive force for a big savings drive, they might be astonished by the results. It happens elsewhere. Many countries make a direct appeal to the savers in the community in order that they themselves shall have a better standard of service from public corporations.
Whether the Government choose that method or pursue some more ingenious course, which they have every opportunity to explore, no hon. Member will doubt that the Government, as stewards of our public assets, are allowing them to deteriorate. They are failing to modernise. When we have such a vast army of unemployed skilled people, who are desperately anxious to work, that is perverse indeed.
§ Mr. Mike Thomas (Newcastle upon Tyne, East)
I share the views of the hon. Member for Colne Valley (Mr. Wainwright) in most of his strictures concerning the White Paper. It is an appalling indictment of the Government's economic and social policies. As a recipe and, indeed, a record of this Government's capacity to get the worst of all worlds, it would take some beating. After all the bravado and the ballyhoo, all the election slogans, all the careful balance of tough talking on public expenditure 1156 cuts, rash and seductive promises on tax reductions and smooth, cosmetic compassion for those in need, the White Paper yet again demonstrates the reality. Public expenditure is rising, not falling. The burden of taxes has increased by almost a quarter since the Government took office. Despite all that, the incompetence of the Government is such that the availability of public services to those who need them most is in savage decline.
It would be bad enough if there were any evidence that the Government's approach had a shred of logic and common sense or practical experience to support it. It is interesting to witness the notable lack of enthusiasm on the part of Conservative Members to support the Government's policy in this debate. I suspect that the majority of hon. Members who speak from the Government Benches will be opponents of the Government and the line that they are taking—in so far as this can be understood—rather than supporters.
We are told that even in a recession public spending must be cut to get inflation down and to allow the economy to prosper. Countries such as West Germany, France, Belgium, Holland and Austria are all instanced to us as golden examples for Britain to follow. They have had higher growth rates, lower inflation, and higher real living standards for their people. If the Government are right in their analysis it is strange that those countries should also have generally had higher public expenditure as a percentage of GDP than Britain. The right hon. Member for Stepney and Poplar (Mr. Shore) was right in his analysis.
The relationship between public expenditure and the issues with which the Government claim to be concerned is not only not proven; it almost appears that there is no direct relationship at all except in the theology of the right hon. Lady the Prime Minister. We are told that it is critical that taxation should be cut in order to provide incentives. It is strange then that the tax burden should have risen from 40 per cent. of gross domestic product in May 1979 to about 48 per cent. now and that this, including national insurance contributions, should be helping to sustain our high level of inflation. That high level of inflation in turn threatens the Government's public expenditure plans and cash limits through public sector pay pressures.
From what the right hon. and learned Gentleman said earlier about public sector pay one could be forgiven for thinking that it was someone other than the Government who caved in to the miners and who, through successive Budgets, set the tone for public sector wage demands which, naturally and reasonably, are far in excess of 6 per cent. It is also strange that, in turn, the Government's policy should be deepening the already desperately severe recession and, through the cost of supporting industries and the unemployed who are hit by the recession, further increasing the pressure on public spending.
Indeed, the Government's figures in the White Paper do not seem to add up. How can they on the one hand postulate an increase of at least 500,000 in the unemployed by 1983–84, yet on the other anticipate that they will cut £500 million off their employment support programmes in that period? That cannot be the case. The very minimum that will happen to the Secretary of State for Employment, if he survives, is that every time another 100,000 move inexorably on to the unemployment figures, he will come back to the House with more palliatives and will need more money to spend on those- measures.
1157 We are left with the worst of all worlds. Despite all of that, there are continuing reductions in the real amounts left to pay for public services to those who need them, and panic cuts in public capital spending which will ensure continued public squalor for the future. All that comes from a Prime Minister, who said in the election broadcast allocated to compassion during the 1979 election campaign:We regard it as a privilege to say to the old, the sick, the needy and the disabled 'Don't worry, we'll look after you'.That is from a Government who in February had the effrontery to issue a handbook on the personal social services entitled Care in Action". It even listed a series of Government priorities. However, today's White Paper, even without the further cuts about which they are talking, effectively rules out any chance of the Government fulfilling even one of the priorities which they set themselves less than two months ago.
In March, in this progression of public ministerial hypocrisy, we had another expression of concern in the form of a White Paper on the elderly, called "Growing Older". Again, every road that it suggests we ought to go down if we are to care properly for the old, is turned into a cul-de-sac by today's public expenditure White Paper discussion.
What does all this mean in real terms and for real people? I shall give a few examples as they affect one important group—the elderly. Let us take income. Anyone who glances at the proceedings on the Social Security Bill, or looks at a page of the material which the Child Poverty Action Group regularly sends us, will see that the elderly have already suffered, and have been cheated, by the Government. A pensioner couple is now between £250 and £300 a year worse off as a result of the Government's not making the earnings-related increase on pensions and as a result of the other clawbacks, such as the 1 per cent. on all the rest. I shall not bore the House by rehearsing that argument again. That is a substantial sum—£5 or £6 a week—for people who are often trying to get by on a disposable income of £15 or £20 at the most.
The most exceptional piece of niggardliness, again reflected in the White Paper, is the Government's attitude towards exceptional needs grants. For the elderly, those on supplementary benefit, one-parent families and others such as the invalid and the disabled, the new regulations effectively mean that the provisions which used to exist for people to achieve a reasonable standard of clothing and shoes, bedding and furniture and other items have now disappeared. It is now back to the jumble sales, secondhand clothes and second hand shoes. It is a return to living without the prospect of attaining even the minimum standards which the Government claim they propose to continue and support.
Other aspects of the Government's spending plans also affect the old, because it is not all income.
§ Mr. Eggar
In a notable speech, the hon. Member for Gateshead, West (Mr. Horam) made it clear that the Social Democratic Party believed in a higher PSBR even at the expense of an inability to lower interest rates. After listening to the hon. Gentleman it occurs to me that the whole of the permissible increase in the PSBR would be devoted to social services spending. Is the hon. Gentleman saying that his party does not believe in additional capital investment? How does he square his speech with that of his hon. Friend?
§ Mr. Thomas
I am saying that if we do not entertain the economics of the madhouse we do not have to deal with such problems in the first place. The elderly, the sick and the handicapped are now paying the price of nearly two years of economic lunacy.
Let us consider what the Government have said and what they have done about other measures affecting the elderly. I shall be more than pleased to have some answers from the Financial Secretary when he speaks later on, but I suspect that he will have no answers to the points that I am making on behalf of my party.
Speaking at a meeting of the WRVS in January, the Prime Minister said that the Government wanted to keep the elderly in the community. I agree. She said that it was a good thing that 95 per cent. of the elderly were still in the community. However, if an old person is reaching immobility, approaching the time when incontinence becomes a problem and is thinking with some trepidation about the prospect of residential care or a long-stay geriatric ward, what makes it possible for that old person to stay in the community? It is home helps and meals on wheels, yet charges for those have been increased, and about 33 or 34 local authorities out of 55 surveyed by the Association of Directors of Social Services have made substantial cuts in their provision of home helps and meals on wheels. What enables old people to stay in the community once they become infirm or handicapped`? It is the provision of aids and adaptations, and a telephone, an alarm bell, or some other means of communication, which will make them feel safe in the home. However, between 14 and 22 out of 44 or 46 local authorities are making major cuts in the provision of such items.
What makes life tolerable for a family which has an elderly person living at home? It is being able to get that person to a day centre, in order to provide some relief for the wife who cannot cope with an elderly relative 24 hours a day, seven days a week, 52 weeks a year. Yet because of Government pressure on local authority spending, the number of day centres is being cut. Most lunatic of all., in authority after authority charges are either being imposed on transport to the day centre, which puts it out of reach of the elderly, or transport is no longer available at all.
What is happening to residential care is reflected in the public expenditure plans. I understand that 48 out of 63 authorities have told the Association of Directors of Social Services that they are cutting residential care provision, sheltered housing, the possibility of holidays, and so on. Not only will that make it more difficult for elderly people to stay in the community; it will mean that those who go into hospital, sometimes temporarily—perhaps because of the hip problems which particularly affect elderly ladies—will find that their chances of returning to the community are diminishing.
Increasingly, what this means to the 15 per cent. or more of the population who are 65 or over is that they live in fear and trepidation that a move towards becoming less mobile, as people inevitably do, and towards incontinence, which is a problem that cannot necessarily be avoided, will mean either that they stay at home in wholly inadequate circumstances, without adequate support and in what increasingly become squalid surroundings, or they go into a long-stay geriatric ward that is wholly inappropriate to their needs, locked away and isolated, very often, in a hospital, in circumstances and surroundings that are less than satisfactory and with very little hope that anything will ever be done.
1159 All of this, of course, is exactly the reverse of what the Government said they would do, claimed to be doing and wanted to do in publications in February and March of this year. And what proposals do the Government make to deal with all this? They make just two. The first is privatisation of medicine and health care and residential provision—a proposal which simply amounts to sayingUnto every one that hath shall be given,I challenge the right hon. Gentleman to find me a widow aged 75, living in a council flat in my constituency, and starting, perhaps, to lose her capacity to get around, who will get any benefit from a private residential home, private medical care, BUPA, or, indeed, anything else. He knows that that is a cynical suggestion to make and that it is not a practical reality.
The second thing that the Government say is that there ought to be more voluntary community work. That is not a bad thing in itself. Before I entered the House I ran the Volunteer Centre, which was particularly concerned with that aspect of our community life. But it is hardly a convincing alternative when the Volunteer Centre tells me that the Government are effectively cutting the funds available for the appointment of voluntary service coordinators in the Health Service, when the National Council for Voluntary Service says that the pressure on local authorities is leading it to cut grants to voluntary organisations, and when relations between volunteers and paid staff in the present climate of public sector wage bargaining are coming under real stress as paid staff increasingly, although often mistakenly, believe that volunteers are being used as a cheap substitute for paid staff.
All in all, this public expenditure White Paper has the aura of "Alice in Wonderland". No one in this House will have much doubt as to who is cast as the Queen of Hearts in that scenario. Indeed, the compassionate right hon. Member for Chelmsford (Mr. St. John-Stevas) has already learnt that when she says "Off with their heads" she means it. No doubt, as the Treasury demands further cuts, other right hon. Gentlemen will have to look to their necks. But it is the sick and the elderly, whom not a year ago the right hon. Lady told Conservative trade unionists the nation hada moral duty to care for",who are the pawns on this particular Lewis Carroll chessboard, and they will not readily forgive the Government for what they have done.
§ Mr. Nigel Forman (Carshalton)
It is particularly interesting for me to speak after the hon. Member for Newcastle upon Tyne, East (Mr. Thomas), because it was interesting to see the way in which he concentrated on certain aspects of public spending which, as my hon. Friend the Member for Enfield, North (Mr. Eggar) pointed out earlier, seemed to be at odds with some of the priorities of his hon. Friends in that fledgling party. We do not hold that against the hon. Gentleman and his friends, and we share very fully the concern of hon. Members on both sides of the House about the plight of the elderly, the sick and the unemployed. Such concern is not the exclusive preserve of any one party, least of all the Social Democrats. It appears that the Social Democrats, as at present constituted, have almost as many priorities as they have Members. I think that that tendency will do them 1160 harm over the weeks, months and years ahead as the electorate comes to see the incompatibility of many of the vague and otherwise unexceptionable positions that they hold.
When considering the aspects on which the hon. Gentleman focused some of his attention—health and personal social services, and so on—one sees that it is clear that the record of this Government to date, in difficult circumstances, has been very good. I think that any fair-minded observer would agree with that. We have preserved health spending in the National Health Service, we have protected the position of pensioners in a very difficult period, and we have introduced improvements in both mobility allowance and child benefit. I think that such a record is not at all bad in difficult economic circumstances.
I do not want to devote the main part of my remarks to that subject; rather, I want to concentrate on certain important themes that I believe arise out of the White Paper that we are discussing this evening. I will preface what I have to say on that document by the simple observation that while nobody on the Government Benches would wish to see a panic U-turn of any kind, there is none the less one kind of U-turn that would be most welcome to all sensible right hon. and hon. Members, and that is a reliable and sustained upturn in the British economy. That is the kind of U-turn with which we could all live and of which we should like to see more. I am convinced that if the Government pursue their policies with resolution, as the Prime Minister said, but also with a considerable degree of tactical flexibility, such a U-turn is indeed achievable.
The three matters upon which I wish to focus in my remarks are, first, the Government's objective, which is stated very frequently, of reducing overall public spending as a proportion of the economy; secondly, the objective of reducing current spending as a proportion of total public spending; and, thirdly, the objective of increasing the quality and efficiency of public spending of whatever kind.
On the first point, it is very noticeable that overall public spending as a proportion of GDP has increased, even in the relatively short period during which we have been in office, from 41½ per cent. in the financial year 1978–79 to 44½ per cent. in the year 1980–81. That is apparent from paragraph 11 of the Red Book, part III. Clearly, this reflects the increase in both the volume and the cost of public spending at a time when real GDP has fallen by 5 per cent. over the past two years. It is not often realised how steeply real GDP has fallen over those two years. I am sure that this is a matter of deep regret to hon. Members on both sides of the House.
The possible answers to these problems must obviously include, as my right hon. and learned Friend the Chief Secretary indicated in his opening speech, policies that lay the basis for a return to real economic growth. That must be the top priority, however it is achieved. I submit that such policies must also include action to limit the relative price effect, because quite clearly one of the difficulties from which all recent Governments have suffered is this damnable relative price effect, which so often puts awry so many of the best-laid calculations of Treasury Ministers. Of course, as my hon. Friend the Member for Enfield, North said, this implies the need to look at the very disagreeable question, if only to reject the answers 1161 that it suggests, of those areas of public spending in which the spending concerned is virtually obligatory and open-ended.
This is a very serious point in relation to the overall balance of public spending. It is very quickly made clear that whatever may be the theoretical justification for tackling that very buoyant part of overall public spending, in the real world we are all democratic politicians and we must seek the consent of the people. Therefore, it may well be politically impossible to attack this area of buoyant public spending at more than its fringes.
I turn to the proportion of current spending in total public spending. According to my calculations, current spending by central Government as a proportion of total public spending has increased in round figures from £45 billion, out of a total of £51 billion in 1976–77—that is, about 90 per cent.—to £51 billion, out of a total of £56 billion in 1980–81—that is a total of about 92 per cent. That is a reflection of the buoyancy of obligatory spending on social security at a time of deep recession. It is also a reflection of defence spending at a time of a strong relative price effect as bills come in faster due to the absence of other orders. The right hon. Member for Stepney and Poplar (Mr. Shore) did not recognise sufficiently that it also reflects the tendency of the Labour Government to go for the easy, soft option of postponing capital expenditure instead of attacking the problem of current spending. All Governments tend to do that. It proves that the same savings cannot be made twice.
Some capital projects having been postponed and pushed out of the Treasury's window, once such a percentage reduction has been achieved it cannot be achieved again. The decisions facing my right hon. and learned Friend the Chancellor of the Exchequer and other members of the Government are that much more difficult, because such options are no longer available. In local authorities there is a tendency for current expenditure to increase its share almost remorselessly. Indeed, the problem is perhaps more serious in local authorities than in the Government.
According to figures in my possession it would appear that total local authority current expenditure increased from about £15.9 billion in 1976–77 to £16.1 billion in 1980–81. That does not sound like a large increase, but it is significant that over the same period total local authority capital expenditure decreased from £6.4 billion in 1976–77 to £3.5 billion in 1980–81. The conjunction of those two movements leaves us with this serious problem. Therefore, local authority current expenditure has increased from about 70 per cent. of its total expenditure in 1976–77 to about 85 per cent. in 1980–81. Once again, that reflects the postponement of many capital projects and the concentration on statutory obligations, notably the recurrent cost of the education service, which is particularly labour-intensive.
As my hon. Friend the Member for Enfield, North pointed out, if we want to make significant savings—particularly in local authorities—we must take account of the fundamental fact that we are asking for more redundancies and unemployment. As hon. Members know, that immediately means a further cost to the Exchequer and could add to the public sector borrowing requirement. Therefore, answers to these problems are even more difficult to find than answers to the problem of overall public expenditure. As a result of a question that I tabled to my right hon. and learned Friend the Chancellor 1162 of the Exchequer not long ago, I discovered that 44 per cent. of total current spending represents transfer payments backed by statute in some form or other. This is an inherent part of our society and of our responsibility to all sections of the community. It underlines the difficulty that inevitably faces those of my hon. Friends who would like to make more easy savings in this area.
In the coming months and years the greatest service that we, can do for our constituents is to refrain from making the glib speeches that all too often we tend to make when in Opposition. They may receive quick and easy applause, but once in office more realistic calculations have to be made. One finds to one's disappointment, and to the bitterness of the audience that listened a few years before, that those incautious promises cannot be delivered.
The remaining 56 per cent. of expenditure is on essential goods and services, which are often purchased from the private sector. Therefore, as the hon. Member for Colne Valley (Mr. Wainwright) said, they have some beneficial effect. A large part of that remaining 56 per cent. is inevitably public sector pay. As all Governments know to their cost, it is often difficult to limit such pay. Once again, the problem would be easier to solve if there were a return to real economic growth and if there were action to limit the relative price effect, particularly as influenced by public sector pay.
There is some ground for a mild degree of confidence and optimism in the recent teachers' settlement, of 7.5 per cent., and in the settlement for local authority manual workers. If such modest settlements in the public sector can be retained, that will go a long way towards helping us to solve the problem. In the long run, closer attention will probably have to be paid to limiting or more efficiently conveying the great amount of expenditure involved in open-ended and obligatory public expenditure. The difficulties will be great and will merit the closest attention by the Treasury and spending Departments.
What one Government can do, as opposed to another, is often asymmetrical. When the Labour Party was in power in the 1960s it should have dealt more bravely with the trade union problem. Only the Labour Party was in a position to tackle that problem and to make a new legal framework stick. On the other side of the argument, it is difficult for a Conservative Party, which is, unfortunately, not well represented north of a line from the Humber to the Severn, to cut severely that buoyant, obligatory, open-ended expenditure. It consists mostly of transfer payments and is a token of our strong commitment—which I applaud—to the principle of "One Nation" and to the idea that those regions and sections of the community that are in deep trouble should be supported during the recession.
The best way to restore a more healthy balance between current and capital expenditure is not to make a savage attack on current expenditure but to increase capital expenditure on necessary and viable projects in the public sector. I am not alone in thinking that. Recently, I tabled some questions on this subject. I received a helpful letter from the Federation of Civil Engineering Contractors. The secretary of the federation pointed out that opportunities exist for an increase in sensible capital expenditure on roads, sewers, rail electrificiation and telephone exchanges. Expenditure could also be made on energy conservation. All these things could be valuable to the community in a broader cost-benefit analysis.
If a narrow, short-term, accounting point of view is adopted it may be difficult to make those projects stand up 1163 against others. If a broader view is adopted, and if the cost penalty to society of not carrying out such long overdue works is considered, it is easy to establish the wisdom of getting on with them while the going is good. How are we to increase the quality and efficiency of public expenditure? We could put more emphasis on those capital projects with the prospect of a good, discounted rate of return. More emphasis could also be placed on investment spending in general, including investment in training and retraining. All too often, investment spending is thought of simply as bricks and mortar, and the pouring of concrete, but our greatest natural resources are the skills and enthusiasm of the British people. We need only to channel those skills and enthusiasm in the right way.
My right hon. Friend the Secretary of State for Industry made a speech on industrial policy to the Bow Group some time ago. He said:Certainly there should be scope in addition for some privately financed, risk-taking but potentially profitable investments in nationalised industries.I entirely agree with my right hon. Friend. I hope that his Department, as the lead Department for British industry, will continue to press the Treasury on this so that we may find ways of boosting sensible capital spending at this time of deep recession.
We should not discount by any means our efforts in the public sector on training and retraining. This is a vital part of our effort to come out of the recession in good shape and in a position in which we can take advantage of a revived national and world economy. In this context the House needs to be deeply concerned about what it can discover in table 2.4.3 of the White Paper, which refers to the TOPS training programme. Here we find that only 67,000 people are being trained directly by the Manpower Services Commission under the TOPS training programme during 1980–81. A further 25,000 are being trained indirectly for the private sector, at a charge. That makes a total of 92,000, which, as I pointed out to my right hon. Friend the Secretary of State for Employment, is regrettably only about ⅞per cent. of the total working population.
I know that in a sense it is an unfair figure, because one should also take account of the Government's admirable efforts to help young people. There are now 440,000 opportunities for young people under the youth opportunities and other programmes in the years 1981–82. None the less, I return to my main point.
If we believe in investment and the quality of public spending, for goodness sake let us do more through the public sector agencies concerned for training and retraining, so that we shall be in a better position to take advantage of the upturn—that vital U-turn of which I spoke—when it comes.
I want to deal next with the efficiency of public spending. It will be necessary to change the ways in which we do things in the public sector if we are to have a significant effect in raising efficiency. I think that that will mean, for example, a continuation rather than an abdication of the so-called Rayner exercises in the public sector. It means that we shall have to re-examine some of the Whitehall conventions that up to now, in an effective and insidious "Yes, Minister" kind of way, have prevented the changes that we might make in the bureaucracy.
1164 It will also mean that over a period the Government will have to begin eliminating some of the complexities and overlaps within our tax system. It is horrifying to do a little primitive arithimetic on the cost of our Heath-Robinson tax system in which all the reliefs and allowances to individuals, to industry and everything else totalled about £47,000 million in 1980–81. I base that figure on an answer that I received from the Treasury a short while ago.
We have, therefore, to tackle this problem. As I have said on previous occasions, we must move towards some form of negative income tax—a system in which the help that we give to our many deserving and needy people is based to a greater extent on cash and to a lesser extent on care. Behind those two words lie two different approaches towards helping people. It is much more consistent with our commitment to individual freedom to put greater emphasis on cash. If greater emphasis is put on care, that merely takes one into the trap of relative price effects in public sector pay and the provision of public services through increasingly bureaucratic organisations.
These, then, are among the steps that we need to take to increase the efficiency of public spending. We could put more of these tasks out to the private sector and see that less is done "in house" as they say. I can give examples from the public sector. One is the CEGB, and power station design. We could, to the benefit of the country, take some of the Board's research and development responsibilities out of the public sector and rely on contracts with the private sector. The same is true of local authority planning departments and of certain aspects of the activities of the Ministry of Defence, both of which are unnecessarily over-staffed for the purpose of some exercises.
Another idea, on which I am glad to see that my right hon. Friend the Secretary of State for Industry is keen, is finding more joint ventures between the private and public sectors so that gradually we can break down the over-simple divisions between the two and rely instead upon a permeability of the two sectors. That would be to the benefit of the whole economy.
We must therefore continue to control public spending overall within the limits of what the nation can afford. We must be cautious, however, about beguiling arguments that favour slashing current spending, particularly since 44 per cent. of the total is transfer payments on a statutory basis. We must restore what I would call the national investment priority, with more capital spending on a continuing basis, as France, Japan and others have done. If there were to be one long-term task above all others to which the Government ought to be committed, it is this national investment priority.
If we believe in the necessity of staying in power for 10, 15 or 20 years—as I hope we shall—that must be the priority task, and we must never cease to raise the quality and efficiency of all forms of public spending. We must not fall back into the trap of a dogmatic approach that sees public spending as bad, private spending as good, and everything else as incidental.
§ 7.6 pm
§ Mrs. Renée Short (Wolverhampton, North-East)
I am sure that everyone on the Labour Benches will agree with the concluding remark of the hon. Member for Carshalton (Mr. Forman) that public expenditure should not be regarded as all bad. That applies particularly to public capital expenditure. I agree entirely with him that an 1165 enormous amount of capital expenditure needs to be undertaken in important sectors of engineering and building. The hon. Gentleman referred to some of those, as have some of my hon. Friends, and I shall therefore not repeat them.
It seems incredible that the Government are prepared to sit back and allow such an enormous amount of our resources to be used up in paying nearly 3 million people and their families and dependants to be idle and to be supported by social security benefits which are far from adequate for their current needs. If we continue to use our resources in that way it will amount to an appalling policy.
Part of the job of the Select Committees is not to look at policy matters but to examine the White Paper on expenditure as it affects their Departments. The Select Committee on Social Services was pleased to see, in line with its recommendation last year, the reappearance of the table showing total expenditure by broad groups of beneficiaries on social security benefit. That is greatly to be welcomed. I hope that the Government will take on board our other proposals as well.
The table shows that by 1983–84 the supplementary benefit system, which is administratively very expensive—we drew attention to this—will be providing two-thirds of the income support of the unemployed. That underlines the Committee's concern that there should be a better, more coherent and more effective system of income support for the unemployed and their families. We hope, therefore, that we shall get a response from the Treasury on that.
Last year the Select Committee asked for an explanation of the rising number of people receiving invalidity benefit. The reply that we received suggested that an explanation for most of the increase is probably to be found in rising unemployment. This year's White Paper shows a drop of 20,000 in the number expected to receive benefit. In 1979–80 and 1980–81, about 50,000 claimed sickness benefit—about 9 per cent below expectations. That was the main reason for the reportedlower than estimated social security expenditurein 1979–80.I wonder why there have been those unexpected and unexplained changes.
Then there are administrative costs. Last year the Committee criticised the way in which administrative cost projections were reached. I see that they are rounded to the nearest £10 million this year as against the nearest £100 million last year. Reductions in administrative costs are given as another explanation for lower than estimated expenditure in 1979–80. We do not yet know the whole story, but administrative costs are expected to grow in real terms, according to the White Paper, by over 11 per cent. from 1980–81 to 1981–82, while real benefit expenditure rises by 6.8 per cent. When we asked the Minister for Social Security to explain what then appeared to be a 10 per cent. rise in administrative costs between 1980–81 and 1981–82, he said that it reflected the practice of rounding to the nearest £100 million. He suggested that the real increase would be only about 4 per cent. I hope that we shall be told why the projected increase is now over 11 per cent. The figures are confusing.
The document "Care in Action" has already been mentioned. I am glad that the Secretary of State has accepted the strong recommendation in the Select Committee's report on perinatal mortality that maternity services and neonatal care should be given higher priorities than they have received in the past. I see that the Secretary 1166 of State has added maternity services and neo-natal care to his list of priorities—which includes elderly people, the mentally ill, mentally handicapped and physically handicapped. The aim, of course, is to reduce the number of perinatal deaths and handicaps.
The document contains no reference to the costs or resources that are to be made available to those priorities. I do not know how anyone can know how those priorities are being observed and financed. Part of the difficulty is that although many health authorities have been asked to accept some of the Select Committee recommendations, there is no method of monitoring what the Department does or how it spends its resources. There must be a proper system of monitoring the Department's activities, how the resources are allocated, and whether the aims are being achieved. Without monitoring it is impossible to know.
We have repeatedly requested such a system. I hope that the Treasury will ensure that a good monitoring system is set up so that we may know where there is under-provision or over-provision. Such a system would be an important weapon in terms of public expenditure.
Members of the Select Committee returned yesterday from a visit to Scotland and Newcastle, where they saw the effect of the Government's proposals on medical education and the Health Service, and the training of and career structure of doctors. We took evidence in Newcastle from Professor Sir John Walton, the dean of the medical school, chairman of the education committee of the General Medical Council and chairman of the BMA. I am sure that no one in the House would question his credentials. We heard him give evidence in Committee on a previous occasion.
Sir John wrote a long letter in the British Medical Journal last week in which he described the appalling effects of the cuts in education on postgraduate institutions, including Hammersmith—probably the most important—and 13 other medical institutes where important postgraduate research is being carried out. He drew attention to the dangers that arise from insufficient money being given to teaching in academic establishments to the continuing detriment of research. He said thatbuildings have deteriorated for lack of funds to repair and maintain them, and frustration and conflict have inevitably increased when different academic disciplines have been compelled to fight for every tiny morsel of new resource—or even in an attempt, often vain, to protect and preserve the resources, however inadequate, which they have built up painfully in preceding years".Those are strong words. He used equally strong words in the evidence that he gave to the Committee.
The infrastructure has crumbled rapidly during the past three years. Sir John says that the new Government proposalswill dismantle it beyond repair. All around us we see in universities and in the Health Service alike able, well-trained, enthusiastic, and dedicated clinicians, many with the capacity and training to contribute effectively to new knowledge with consequential improvements in patient care".During our visit we met some of those newly qualified doctors—many of them junior doctors, including many women—who were most enthusiastic and have much to contribute. But many of them have little chance of becoming consultants—and that will mean a decline in patient care—because of a lack of resources in the fight against killing diseases.
The Department has agreed, in conjuncion with the University Grants Committee, to an increase in the number of medical students—up to 4,080 by the mid-1980s. It will 1167 mean further expenditure on medical schools, new buildings and an increase in academic staff. Considerable resources will be necessary, but by all accounts they will not be available.
The new medical school in Newcastle was designed for an annual intake of 200 students and it should be open within two or three years, but Sir John said thatthere must now be very grave doubts about whether we shall be able to afford the funds to open and run it, let alone staff it.How can the Government view that situation with equanimity? It would represent an enormous waste of human resources, equipment and materials. The university has been asked to increase its annual intake from 130 to 200, but that will require additional equipment and teaching resources.
The problems facing medical institutions in London will affect undergraduates, but the first effects will be suffered by postgraduates. The results of the Flowers report have been compounded by the increases in overseas students' fees, which have created an immediate cash crisis for many postgraduate teaching institutions. The London School of Hygiene and Tropical Medicine has been referred to and, as I told the Prime Minister recently, the Hammersmith school has lost almost £1 million in fees so far this year. A serious crisis is facing those important establishments.
If the difficulties continue, lecturers, readers and professors will be made redundant. Lord Annan told the Select Committee this morning that the academic staff of institutions have security for the whole of their academic careers. If they lose their jobs, large sums of redundancy pay will be demanded and, if necessary, court action will be taken to ensure that it is paid. That will be unproductive expenditure at a time when resources for important postgraduate institutions are being cut back.
We face the prospect of severe damage to the NHS—and its impoverishment. Patient care will be further eroded because the work of postgraduate institutions is aimed at improving patient care, curing what is now incurable and finding better methods of treating patients.
Provision has been made for a progressive reduction in expenditure on home students in higher education of rather more than the 8 per cent. below the previous planned level. The outlook is serious and the most seriously affected institutions are the postgraduate medical school at Hammersmith, the 13 institutions that are part of the Postgraduate Medical Federation and the London School of Hygiene and Tropical Medicine.
I hope that the Treasury and the DHSS will reconsider the resources that are being made available and will act quickly to avert the financial crisis in medical research. If we do not provide the resources for good teaching, research and academic work, serious inroads will be made into the NHS, training and patient care. London in particular, but Britain in general, is a focal point for good students who come here from all over the world to learn how we do things. They benefit from the medical work done here and there will be serious repercussions if the best students cease to come. At present they receive postgraduate medical training in this country and go back to their own countries, having learnt a great deal not only of medicine but of many other areas of our national 1168 activity. The advantages that can flow through them when they are established in the professions of their own countries are immeasurable.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
The debate reminds me of the saying of St. Augustine:Give me chastity and continence, but do not give it yet.In the round, everybody believes that we have to make this country more efficient and that ultimately it must pay its way, but a number of people do not believe that it should be done now.
Emotive phrases such as "assault on public expenditure" have been used about the Budget, but we are trying to tackle inflation, which is caused because we spend what we do not have, and I do not see how we can regard the expenditure of £10½ billion more than this country's great efforts earn as an assault on public expenditure.
My hon. Friend the Member for Carshalton (Mr. Forman) said, with great compassion and sincerity, which I respect, that we have to be prudent—I agree with that—and that we must build one nation. I hope that we all agree that public life is about speaking not for one set of people but for all.
§ Mr. Beaumont-Dark
My hon. Friend also claimed that we must spend money that we have not earned on worthy projects
The hon. Member for Wolverhampton, North-East (Mrs. Short) made a good case for more money to be spent on medical schools. I get letter after letter from people who put extraordinarily good cases for more public expenditure. I could put forward such cases myself. The problem is that those who put forward the case for more public expenditure agree, in the same breath, that we must try to be prudent and sensible. The two attitudes do not tally. It is not being harsh to say that one can agree with both views, but one finds it difficult to agree with both at the same time.
Let us take the Civil Service dispute, which is a classic example. Worthy people tell us that they are concerned about the public services and unemployment and about the fact that others should not be hurt, but they will not be concerned just yet—not until their wage settlement is approved. They forget that public sector pay takes 30 per cent. of all public expenditure—the treasure that this country gets together in the course of a long and painful year. A recent report makes it clear that an increase of 1 per cent. on top of the 6 per cent. offered to the Civil Service would add £300 million to the level of public expenditure.
One does not have to be a great mathematician to calculate that a claim for another 6 per cent. means an additional £1.8 billion in public expenditure. The answer is to accept that £1.8 billion or to cut 50,000 jobs for every 1 per cent. that is obtained. Does anyone believe that 300,000 jobs could be saved? Of course, all those who are asking for another 6 per cent. are caring and concerned. They do not wish to cause unemployment or pain to others, but that will be the result of their action.
What was the result of Professor Clegg's activities? He is that wonderful academic with the whiskers whom someone foolishly asked to do a job because Parliament did not want to make a decision. He was asked to engage 1169 in a comparability study. There is no comparability. However, the British people paid £2.4 billion for that exercise. There are many who are unemployed and who may be unemployed for a long time because of the compassion and concern that others have for their own abilities.
It is the people who are concerned. The waterworkers' settlement was disgraceful. The settlements in the gas and electricity industries are all disgraceful. Everybody is involved, or is supposed to be, in Britain. The cost of these settlements has to be paid by other people's jobs if Britain insists on spending what it has not earned.
I have said that some of the comments in the White Paper are pious nonsense. They are pious nonsense because they state the obvious. We all want more capital spending instead of current spending. That is blindingly obvious. It is much more difficult when we get down to the nitty-gritty of how it is to be done. Everyone agrees that we want to spend more on capital. It is said that that is worthy spending, and so it is. It is said "Let us spend £2 billion now and we shall save it later. We shall cut out jobs here and there." In local government it is easy enough to do the one, but the other is not often done. Therefore, one ends up with the worst of both worlds.
Let us take British Rail as an example. Sir Peter Parker talks rightly, splendidly and sensibly about what is needed for British Rail. It seems that a modest £5,000 million will be good enough if stretched over five or six years. Those concerned with the management of British Rail have failed miserably on staffing. The unions know what should be done. The British Railways Board knows what should be done. The only thing on which they can agree is to get more of their feet and toes into the public trough. They cannot agree on how the money is to be found except that it must come from the mythical and hard-pressed taxpayer. That means, nearly always, that productive industry becomes less and less productive.
My own party had a go at reorganising the Health Service in 1974. It was splendid and sensible to have the vision of a better-run Health Service. We spent a little more on hospitals but we spent far more on setting up new regional authorities. There are now 23,000 more administrators sitting upon the back of the Health Service than there were 10 years ago.
I share the compassion and concern that the hon. Member for Wolverhampton, North-East spoke about when referring to medical schools. However, the Health Service should look to itself in deciding and remember those extra 23,000 people. When the PSBR becomes frightening there are those who say "Let us think of another way in which the money can be found. Let us get it from the private sphere." What are we talking about? The assets belong to the country. There are those who say "Let us take the best, borrow thousands of millions of pounds and leave the country with the worst." Those thousands of millions of pounds come from the same pockets. There are not two sorts of pocket. We are not magicians. We should not look around us and ask who created the world in seven days. All that can be said about politicians is that they can ruin it in seven days.
It is the people who have to earn the money. Every person who is not producing has to be financed by somebody who is or who can. That leads to inflation. The Government are right to concentrate upon inflation. All the problems that concern us in society, whether they be to do 1170 with Civil Service pay, medical schools or the universities, come about because inflation has become the great evil that defeats all our hopes of a better future.
The "Crossman Diaries" make interesting reading. We learn from them that Lord George-Brown, as he now is, attended a Cabinet meeting and said to the Prime Minister "I have some awful figures to announce tomorrow. Inflation will he over 3 per cent." I believe that Lord George-Brown was right. We are now saying that we hope for a great victory and that we may be able to reduce inflation to single figures. It will not be a great victory if we achieve 9 per cent.
Britain's prosperity will never be able to grow until we accept that the idea of doubling one's income over seven years, which is what 10 per cent. means, and increasing production by 1½ per cent. over virtually the same period, amount to the economics of bedlam. Britain must gel its sense of realities right. If that is achieved, it has a hope of prosperity. Prosperity will not come on the back of oil. The last boom that Britain had was backed by oil costing $3 a barrel. We are now talking about $43 a barrel. My friends in the oil industry say with confidence that they expect it to be $100 a barrel by 1990.
§ Mr. Beaumont-Dark
It may be amusing to ask "Is that four-star?" It may mean that the Western world will be committed not to a great growth programme but to a low growth programme. Every time that the Western world starts to increase its prosperity the Arab countries, which do not need the money, will increase the price of oil. I do not blame them for that. That is an economic fact.
Anyone who thinks that the Western world is merely passing through a difficult phase is wrong. We are heading for a time when Britain and other countries will have to be far more realistic. The Government's plans are not politicians' plans. If they were, they would be wildly optimistic. If the Government were putting forward such plans they would be telling the British people of an easy world tomorrow or the day after. That will not happen. Britain will have to earn its own way in the world. There are those who say that because we have oil we have a great future. Oil merely gives us a great opportunity to restructure our industry. It gives us a breathing space and allows us to ensure that something will be left when oil has gone. In the end, as we say in the North, someone has to pay the tallyman. Britain has lived on tick, hope, borrowed time and lost opportunities for as long as I can remember. Successive Governments, Conservative and Labour, have sacrificed the long term for the short term since the war. The short term is always easier. The long term is always the responsibility of someone else. The long term is now.
We should accept the problems and anguishes of unemployment. It is an agony for those who think about it, and an abomination for those who suffer it. Anyone who thinks that we look to 2½–3 million unemployment as if it were a virility symbol fails to understand that all of us feel that it is a tragedy. A greater tragedy would be to try quickly to spend one's way out of it now, ending up with no long term.
The policy which we have put forward is grim, but it is hopeful in the sense that it is realistic. If we grapple with that realism this country will have a future. Whether we 1171 have the courage and the resolve is what all the debating is about in the end. I believe that Her Majesty's Ministers have that courage and resolve. I stand with them on that.
§ Mr. R. B. Cant (Stoke-on-Trent, Central)
We have listened to the rambling sayings of almost pre-economic Neanderthal Man.
§ Mr. Cant
I do not propose to take up any of the hon. Member's points. I was going to say something mildly in praise of the speech of the hon. Member for Carshalton (Mr. Forman), but in case that may be interpreted as the kiss of death I had better desist.
However, I shall pick up some of the points that the hon. Member for Carshalton made. He made some rather perceptive comments about local government finance and capital and current expenditure. That reminded me that I am about to stand in the county council elections in Staffordshire. I am certain to get in. The Government have completely dismayed the poor old Tories in that great shire. Sometimes central Government politicians should think a little more about what they are doing to local government. They were helped a little with the rate support grant, but they made themselves extremely unpopular with the cuts. The final insult that will guarantee them defeat throughout the shire counties, apart from the Metropolitan counties, is the Budget.
The hon. Member for Carshalton stated on two or three occasions that we are all—that was a mild concensus between the Government and Opposition Benches—praying for an upturn in the economy. I read an article in one of our great Tory weeklies over the weekend. It was headed:Where the Hell are we anyway?I thought that that was not the sort of language that one should use in the Chamber of the House of Commons, and perhaps it should not be used in The Economist.
The Governor of the Bank of England used more elegant language before the Select Committee. He said:A question which economists find very difficult to answer is where we are now.I thought of all the surveys that I had pretended to read and understand, all the forecasts based on thousands of simultaneous equations of one sort or another, the leading indicators, which I find most fascinating of all—the longer leading indicators, the shorter leading indicators and the coincident series—and finally, the real evidence—the Chancellor's talks with real men. I can only assume that that is a sort of counterpart to the real economy of my right hon. Friend the Member for Leeds, East (Mr. Healey).
It is difficult to say what is meant and whether we are about to take off, as the Chancellor would have it. We used to say that it was all a battle of figures or words, but now it is a battle of letters. We might belong to the V upturn school, which means that one is a professor of monetarism at Liverpool university and that one believes that we are going right down and right up. We might be a member of the W school, in which case one goes down, then there is a recovery, then one falters and perhaps later there is another recovery. We might be a member of the U-turn school, which suits my mentality better. One goes down and one goes up. As my hon. Friend the Member for 1172 Grimsby (Mr. Mitchell) said, the most fashionable school of all is that which believes in the hypothesis in which one slumps and remains at the bottom of the trough.
§ Mr. Cant
I could not say that, as it would be unparliamentary language.
We do not know where we are, and the Government do not know how we shall get out of that situation.
We have had some interesting discussions, which show great insight and knowledge. However, if we ask ourselves whether, here and now, or at the end of the year, or at some time in the first quarter of 1982, we are going to have that delightful experience of upturn in economic terms, we must say, as Keynsians, that we should consider the components of aggregate demand.
It is no good saying that there is any future prospect of an upturn unless one can see positive movement. The Treasury says that investment in the private sector will fall by only 1½ per cent., but everyone else says that there will be a slump. Therefore, in what way can one say that here is something that will give us a vehicle for revival?
We should consider stocking and destocking. We know that the destocking between 1979 and 1980 knocked off 4 per cent. from our GNP. However, the Treasury would like to say that it has destocked at such a rate that manufacturing industry will start stocking again and that stocks in commercial shops will be normal, and so on. In manufacturing industry the process of destocking has not finished—that is the opinion not of the Treasury but of the people who know. It will not finish until the autumn. That is because manufacturing output has fallen more rapidly than destocking has taken place.
I was at a conference in my constituency yesterday at which someone was saying how proud—he was a member of the Establishment, of course—we should be that exporters, despite the pound, interest rates and the world recession, had maintained exports in 1980. He built up a picture of that being maintained in 1981, but we forget the extent to which exports were maintained precisely because, although our oil exports rose only by 2 per cent., oil prices rose by very much more. It was the oil content of exports that maintained the buoyancy. The hon. Member for Knutsford (Mr. Bruce-Gardyne) shakes his head. He is much more learned than I in these matters. Perhaps I should withdraw that statement, but I shall leave it in just in case it is right.
Exports this year are already beginning significantly to fall off, although manufacturers are exporting at nil profit because they are desperate to hang on to the market. There is no prospect of exports being the magic catalyst that will revitalise the economy.
Let us consider the great unknown quantity of personal consumption. The Tories tell us that people who have kept their jobs are much better off because incomes have increased. To some extent, that is right. Many of the apparant paradoxes to be found in an in-depth analysis of the British economy can be explained in those terms, but two things are significant. First, there is a cycle in personal consumption, and we are moving into that part of the year in which it is depressed. It is likely to revive only from the autumn onwards. Therefore, how can it be argued that from personal consumption will come the drive that will get the economy going again?
The Liberal spokesman referred to the personal savings ratio, which is one of the most interesting facets of the 1173 British economy. The norm increased from 4 per cent. to 8 per cent., and even that figure was twice that of the United States. In the last quarter of last year the personal savings ratio swept up to 16 per cent. There is a difference between the gross personal savings ratio, which is the one normally quoted, and the net personal savings ratio, but the latter has also significantly increased. If, because of the uncertainty of the future, people who can afford it continue to save in that way—and I know that the Treasury says that they will not, but that is the strongest argument for believing that they will—it is wishful thinking to see personal consumption as a dynamic component of aggregate demand.
Relatively speaking, I am of monetarist persuasion, much to the disgust of my hon. Friends, but the Government have made nonsense of monetarism.
§ Mr. Austin Mitchell
Without criticising my hon. friend's stance as a monetarist, may I ask him to accept that the relationship between monetarism and the Government is much the same as that between the Moonies and religion?
§ Mr. Cant
I should not like to comment on that, but I recall what Professor Galbraith told us when we assembled in a room upstairs—that never since Stalin embraced Marxism have a Government embraced an economic religion in the way that this Government have embraced monetarism. There is an element of religious fanaticism in their attitude.
The Government have gone well beyond any measures that a sensible monetarist would wish to apply. They have converted me to Keynesianism. When they can view with a measure of calculated complacency unemployment reaching 3 million they should consider whether it would not be preferable to embrace the most primitive Keynesianism—getting people to dig holes and fill them in again. A growing body of people believe that it is time to call a halt when the PSBR is being greatly increased by the loss of taxes and the benefits having to be paid out for unemployment. The PSBR, net of the unemployment factor, is far too small. If public expenditure rose and we approached full employment once again, the increase would be cancelled out by the reduction in the money lost by unemployment.
The argument about financial crowding out is nonsense. A further increase in public spending will not increase the PSBR, make it difficult to finance and so increase interest rates. We have the necessary money, whether in institutions or in individual savings, and we can devise the necessary instruments. The Government are on the road already, with index linking. Everybody is an old-age pensioner over the age of 50. Index-linked gilt securities, plus 2 per cent., are a marvellous idea. Without raising interest rates there are plenty of ways to find money for an even bigger PSBR. If the Government do not do so it will be difficult to maintain the relaxed, democratic way of life which, through the past decades, we have become used to.
§ Mr. John Bruce-Gardyne (Knutsford)
The House always enjoys the contributions of the hon. Member for Stoke-on-Trent, Central (Mr. Cant), and tonight was no exception. Over many years he has demonstrated that there is nothing remotely party political about a monetarist 1174 approach to economic affairs, so I was a little concerned to hear him say that he was returning to Keynesianism—but, of course, Keynes was a monetarist, as my hon. Friend the Member for Carshalton (Mr. Forman) has just pointed out to me. I believe that it is his latter-day disciples who over many years have betrayed much of the sound sense that Keynes himself taught in the 1930s. I am therefore not sure that the hon. Gentleman is making such a great transition as he would have us believe.
The hon. Gentleman also complained that neither the Government nor, indeed, anyone else, including the Governor of the Bank of England, seemed to know precisely where we were. I suggest that we never do, and perhaps we never can. I remember that many years ago Harold Macmillan complained that we were always trying to run the British ecomony on last year's Bradshaw. Ever since then we have been trying to find a bigger and better guide. There is no evidence that in the course of that search we have demonstrably improved our techniques for managing the economy. I suspect that it is impossible even for the greatest collective wisdom that can be assembled to be sure at any given time precisely where the economy is.
If I had reservations about the recent report of the Treasury and Civil Service Select Committee they would be very much connected with that point. My colleagues expressed the courage of their conviction about the course of future events which, much though I admired it, I felt too timid to endorse.
We have a one-day debate per year on public expenditure compared with six days on the Budget. When we debate the Budget and the Government's fiscal proposals the House is usually fairly crowded and the attendance is good. When we debate public expenditure we should be in difficulties if we needed a quorum. I make no criticism of that; I merely note the fact. It follows that in discussing the reform of Supply procedures, as another Select Committee is doing at present, we should be aware that, for better or worse, the extent to which the House is prepared to concern itself with Supply and public expenditure is perhaps not very great. We should therefore not exaggerate the scope for such debates. I greatly regret this, because I believe that we are sent to this place to vote Supply against redress of grievances and that we should pay far more attention than we are prepared to pay to the processes of Supply. Nevertheless, we must face the fact that, in general, we are not.
Reference has been made to the report of the Treasury and Civil Service Select Committee. Like the hon. Member for Oldham, West (Mr. Meacher), I am a new boy on the Committee, and new boys should show respect for their elders and betters. I must confess that I was not one of those who believed that the reforms in Select Committee procedure introduced by my right hon. Friend the Member for Chelmsford (Mr. St. John-Stevas) would necessarily redound to the benefit of the House or the better management of our affairs. At that time I feared that the new Select Committees, attached as each would be to an individual Department, would become the captive balloons of the respective Departments. I freely admit that that charge could not possibly be levelled against the Treasury and Civil Service Select Committee. In so far as I had made that supposition I was totally wrong.
I was also concerned about the load which the new system of Select Committees would place upon Ministers and the Government machine. In that respect, my concern 1175 remains. In the course of our latest inquiry, the Chancellor of the Exchequer and the Governor of the Bank of England each appeared before the Committee for two and a half hours. It is for the House to judge whether the evidence that we obtained in the course of our inquiries has substantially assisted the House in its deliberations and its appreciation of the Government's expenditure programmes.
§ Mr. Bruce Gardyne
I shall give way to the right hon. Gentleman in a moment.
I believe that all Select Committees need to consider the demands that they place upon the Government machine. It is not merely a question of the amount of time that Ministers or officials have to appear before the Committee; it is also the extensive burden of additional preparation work which must be done beforehand. I accept, of course, that if it can be shown that this leads to more effective government of the country and more effective answerability of Government to the House it is well worth while. But, on the basis of our experience to date, I am not sure that it is.
§ Mr. Bruce Gardyne
If the right hon. Gentleman will allow me to conclude this section of my remarks, I shall wilingly give way. On the basis of experience of Select Committees to date I am not at all sure that we can come to that conclusion.
§ Mr. Sheldon
It is surprising to hear such remarks from the hon. Gentleman, as he is a member of two Select Committees. To my knowledge, he was not forced to become a member of either. Indeed, I remember objections coming from all parts of the House to his membership of the Treasury and Civil Service Select Committee. I cannot understand why he tried so hard to become a member of a Committee which he now regards in such a half-hearted manner.
§ Mr. Bruce Gardyne
That comment is unworthy of the right hon. Gentleman. The short answer—and I do not propose to take long on an intervention of that kind—is that I did not try very hard. As the right hon. Gentleman should know, the Committee of Selection made a choice. It asked me whether I was agreeable to my name going forward, and I agreed. One of the reasons why I felt that I should agree was precisely that I had been a public critic of that Committee. I feel that if one is a public critic one has some obligation to serve in a capacity if one is asked to do so. Had I not been a public critic of the Committee I should have been more reluctant to do so. The right hon. Gentleman might save us that type of intervention.
I wish to consider one aspect of the Select Committee's report which I believe is germane to our discussion, but about which we have heard little so far. I refer to the significant reservation that the Committee rightly expressed about the likelihood of fulfilment of some aspects of the Government's public expenditure programme. The hon. Member for Fife, Central (Mr. Hamilton) drew particular attention to paragraph 19, in which we referred to what by current standards one might describe as the remarkable modesty of the profile of commitments to expenditure on the industry and 1176 employment programmes set out in the public expenditure White Paper. The hon. Gentleman's quotations were highly selective. He totally ignored the concluding sentence of that paragraph, which states:In our view it is probable that further expenditure will be approved which cannot be wholly accommodated from the contingency reserve.That is the point.
I refer also to reservations which the Committee expressed—I believe rightly—about the relative price effect and the Government's expectation of the relative price effect. The Committee wisely suggested that there were substantial reasons for doubting whether the Government would find it all that easy to adhere, on present programmes, to the PSBR which has been set out in the Budget.
There are some other comments in the report—with which I was not so easily in agreement—about what was suggested to be the excessive emphasis that the Government appear to have placed on the PSBR as a target. As the Committee has pointed out, and as we know well, the range of error in the PSBR has been substantial. Those who argue that we could have safely assumed our ability to finance a substantially larger PSBR on a declining rate of interest in the year ahead are giving a substantial hostage to fortune.
If our experience in the coming year with the PSBR were to be at all in line with our experience in the past year—in other words, if there were to be something like a 50 per cent. overshoot again—I do not believe for one moment that that is the sort of figure that could be financed on the basis of a falling level of MLR. On the contrary, it would almost certainly lead to the need for a significant increase in the MLR.
Because of our understandable concern, with the Chancellor of the Exchequer's projection for the PSBR on Budget day, we are always in danger of overlooking the distance that is sometimes travelled—and could be travelled again this year—from the forecast figure to the outturn figure by the time the year is out.
I draw attention to one other reason for concern about the size of the PSBR in the year ahead, on the other side of the ledger. The Red Book tells us that the Government are expecting to achieve an increase of about £4,000 million in Customs and Excise duties in the year ahead, having missed by about £2,000 million their objective for the Customs and Excise duties revenue in the year that has just ended. Much of the shortfall in that year was related to a shortfall in VAT payments which may well not be repeated, but I am extremely sceptical about the likelihood of the Government raising, as they intend to do, an extra £1,000 million this year from taxes on tobacco and alcohol in the depths of the recession. I do not believe that that money will be forthcoming, and the latest news from the tobacco industry tends to support that proposition.
My hon. Friend the Member for Carshalton said that those Conservative Members who argue for the need for retrenchment in public expenditure programmes have some obligation to be a little more precise. I entirely agree with him. It is very easy to be in favour of retrenchment in public expenditure in general but rather against it in particular.
I should like briefly to make one or two suggestions to which I would be prepared to affix my personal standard, for what it is worth. First, I wonder whether we should have a moratorium on recruitment to administration in 1177 both Government and local authorities, and in the Health Service, for a period of at least six months, and possibly longer. It was tried in 1979 and I suspect that it should be repeated. I realise that it would create substantial inefficiencies, but it would also create substantial savings. We might be amazed to find the number of jobs that did not need to exist.
Secondly, we must look rather closely at the defence budget. We came to power committed to an expansion of the defence effort. That k in the course of achievement and we all welcome it. That is what we were committed to and it was right that we should fulfil that commitment. But that does not mean that we can exonerate the Ministry of Defence—and apparently the Ministry of Defence alone—from the regular rule that if cash limits are overspent in one year they must be recovered in the next.
There was an overspend of £470 million by that one Department in the year just ended—an overspend that we are told was due to the fact that goods and bills were delivered early. If they were delivered early, how can they arise again in the year ahead? There must he a countervailing reduction in the cash limit in the year ahead. I should have liked a more specific assurance on that point from the Chancellor of the Exchequer and others than we have had to date.
In the same context, we shall have difficulties if we are to continue to say that in the case of Armed Forces' pay—and Armed Forces' pay uniquely—some weird and wonderful system of comparability shall apply when, in my judgment, it has been rightly withdrawn in other sections of the public service.
We must act to ensure that the contribution from general taxation—which, incidentally, for reasons which I do not understand, does not appear but should appear in the public expenditure White Paper—to the sustaining of the guaranteed pension arrangements of the public service is absorbed into the contribution that the public service is called upon to make. The Scott report said clearly that the Government Actuary's conclusions on the value of index linkage were far too low. That is something that we ought to correct.
This may seem a small matter, but where really flagrant examples of wasteful expenditure are discovered heads must roll. We have had recently the glorious example of pot plants to the value of £73,000 being ordered for some wonderful new extension to the Welsh Office in Cardiff. There was even £20,000 for gardeners to dust the things. Ministers cannot be expected to identify something like that and knock it out in advance, but when it is identified we must ensure that somebody's head rolls. I submit to the Minister that it would do more good than many other steps that we could take if we suggested to the head of the Property Services Agency, who should be responsible for this sort of thing, that he might find gainful employment elsewehere in the economy.
I should like to mention briefly the topical and fashionable subject of capital investment in the nationalised industries, to which the Chief Secretary to the Treasury devoted an important part of his remarks. I shall read them with care tomorrow morning; it may be easier to absorb them in that way. It has become fashionable to say that none of us believes in vast overspend on current programmes, and that we must get public expenditure under control, but we should wake up to the fact that there are opportunities for productive investment in the public sector from which the private sector can also benefit.
1178 My right hon. and learned Friend drew attention to some of the genuine problems—it is no good trying to pretend that they are some sort of Treasury shibboleth—in trying to get elements of public expenditure out of the PSBR and to finance them as if they were forms of private investment. I go one stage further than that. Do people such as my right hon. and learned Friend the Member for Hexham (Mr. Rippon) really believe that we can ensure a handsome, profitable, commercial return from investment in the railways when the daily mileage of the average freight crew on British Rail is 11? These are British Rail's figures. Does anyone seriously believe that, against that background, investment in the freight services of British Rail will produce a commercial return? The same is true of British Airways—the most over-manned airline in the world, by a long margin. Does anyone believe that investment in British Airways on that basis of staffing will produce a commercial return? I do not.
I hope that before we plunge overboard for the simple argument that all those wonderful schemes for capital investment are being held up only by the obscurantism of the Treasury, we shall care fully consider the record and performance of the industries into which it is suggested the investment should be ploughed.
The Government will probably need to take action to restrain significantly further their expenditure programmes in the year ahead. We should remind ourselves and all our colleagues on the Front Bench in charge of great expenditure Ministries that one of our key commitments when we took office was to ensure that the proportion of resources pre-empted by the State was reduced over the lifetime of this Parliament. We have a long way to go in that direction.
§ Mr. Austin Mitchell (Grimsby)
I do not propose to follow the lengthy speech of the hon. Member for Knutsford (Mr. Bruce-Gardyne) because I shall doubtless have the opportunity of reading in next week's Sunday Telegraph, with some deterioration in style and grammar, that which I have not already read in past issues of the Sunday Telegraph. If the hon. Gentleman went into the Treasury and Civil Service Committee with his proclaimed views on the inadequacy of the Committee, his contribution would be likely to be a self-fulfilling prophecy, because I see from the report that he has become a built-in majority of one in that Committee. Presumably he is an aid to its progress and deliberations.
The public expenditure document, although disguised as a White Paper, seems essentially a cross on which both the country and the Government will be nailed over the coming year. The country will be nailed to it because the consequences built into that White Paper are a further steady and inevitable deterioration in the already shoddy education, health and other public services. A futher deterioration is built in, and with it a betrayal of many promises that the Government have been holding out over the past few months, with a new look in one sphere, a new think in another, and more spending in yet another.
The White Paper is a cross for the Government because it is a recipe for further continuing conflict, more battles in the Cabinet over cuts, more disunity and more bitter arguments in a Cabinet that is already bitterly divided over economic policies.
Even worse, the whole structure is built on shifting sands, if not mud, because it is based on an optimism about 1179 the economy over the next few years which it is difficult to share on the basis of the material that the Government are providing. Sam Brittan, in this morning's Financial Times, says that the bottom of the recession has been reached, so presumably it is on the upturn. That is an argument for believing that it will go further down. He has been so wrong in every prediction that he has made so far that he seems certain to be wrong about that.
It is inevitable for Governments at this stage of the game to go through an "operation optimism" because having got themselves into the mire they have to pretend that they are there for some purpose; that the experience is beneficial and that good will come of it. But it is essentially a pretence, because all the common-sense factors indicate a further decline, rather than a recovery, and suggest that if the Government are prepared to build a structure like this White Paper on their own false optimism it will create difficulties for the Government and for the country.
There can be no recovery. No situation is so bad that it cannot be made worse by a few well chosen words from the Chancellor of the Exchequer, who is rapidly becoming "yesterday's sheep" in his standing in the Government and in the country. If the economy is to be savaged as it has been by yesterday's sheep, further disasters are in store. Common-sense factors imply that further decline is inevitable. The recovery which is built in to the assumptions in the White Paper will not take place, especially now that investment in Britain, in private firms as well as public institutions, has been slashed.
We are eating the seed corn at an amazing rate. There is no future in that procedure. In a competitive world that has become colder and harder over the past two years, competing economies which have been investing are still growing and improving their productivity while our productivity is declining. Despite the claims about one firm producing a miracle in a garage somewhere in Sussex and the mini-miracle and two-man bicycle operation in Yorkshire, the overall trend is for business and productivity to continue to decline. It has declined 7 per cent. since the Government's first Budget. That compares with the increase of 16 per cent. at the end of the Government headed by the right hon. Member for Sidcup (Mr. Heath). All this time our productivity and investment is sliding disastrously, but others are still investing and still growing. We have to face that competition in an extremely bitter and difficult situation in the months and years ahead.
The lackadaisical, outdated firms are not the first to go to the wall. It is the most efficient firms that are under the most severe pressure. By definition, they are the firms that have increased their efficiency to the maximum. They have trimmed their labour force in advance of the depression. Those are the firms which, because they have sought to build up their market share at the expense of profits and because they have had to borrow, are now thrown into disaster by the economic policies of the Government. They are the firms that are more exposed than many others to the pressures that the Government have created.
We are building up a scenario with closed capacity and the bottlenecks which are inevitably being created from that closed capacity in which any expansion will be inflationary. Because the Government have made such a fetish of their so-called triumph over an inflation that they 1180 have generated they will not be able to expand the economy, because any expansion has an increase in inflation implicit in it. Any improvement must mean higher prices and higher profits. Higher profits will provide the investment that British industry desperately needs. So any expansion will result in inflation and the reversal of the Government's central objective.
The main problem is caused by the over-valuation of the pound. There has been a certain amount of glee in business circles and the press about the slight fall in the valuation of the pound in the last few weeks. The hon. Member for Enfield, North (Mr. Eggar) referred to the Brittan brothers. Perhaps he should have referred to the ancient Britons in terms of their economics, because in his column in the Financial Times Sam Brittan defends all that is most harmful to this country's real economy and all that is favourable to the interests of finance, which are contrary to the interests of industry.
In this morning's Financial Times Sam Brittan says that the sterling exchange rate index has fallen by 5½ points from its January high. He says that that is enough to give some encouragement to exports. He wants it both ways. Sam Brittan has been telling us for months, if not years, that a rise in the value of the pound has no adverse consequences, but now there are beneficial consequences attached to a slight fall.
The fall is far too slight to outweigh the enormous appreciation in the value of the pound in the last four years. Last year alone it went up by 12 per cent. in nominal terms and by about one-fifth in real terms, allowing for the higher rate of inflation in Britain compared to that in competitor countries. This is the fourth year in which the pound has appreciated. That scale of appreciation has occurred in no other advanced industrial country on such a prolonged scale at such a level since the war.
These consequences must be disastrous. The consequences take not months but years to feed through. They will accelerate the downward pressure which is built into the deflationary spiral that the Government have created and will invalidate the assumptions on which the White Paper on public spending is based.
Our share of world trade fell in 1980, despite the Prime Minister's claim that it increased. That was at a time when world trade was expanding more rapidly than it had for some time. Firms are holding on to export markets without profits in a desperate attempt to keep their market share and the markets. That is a finite process. They can go on only for so long. They are becoming desperate. Disaster lies ahead in exports. The disaster will be far bigger than that which the Treasury forecasts. The world is more competitive. We race in that world with an enormous ball and chain attached to our leg because of the over-valuation of the pound.
A similar threat is bound to come from imports. When the destocking operation is over who is to say that restocking will benefit production here. Imports stand ready, competitively poised and attractively priced because of the over-valuation of the pound.
Professor Galbraith suggests that Britain is an experimental house for monetarism and that an experiment on the effectiveness of monetarism is being conducted here. That experiment is already over for practical purposes. The real experiment is on the exchange rate and the effect that it has on the economy and on the competitiveness of British industry. We are going through that this year. The consequences will be disastrous, 1181 because industry will be strangled by an exchange rate which effectively is a tax on our exports and a subsidy to our imports. They are imposed by the Government's policies. That must result in higher unemployment, in reinforcing the slide into the depression and a greater need to rescue bankrupt firms. It must lead to more spending on the nationalised industries. The Government are already presupposing an impossible turnaround in the finances of the nationalised industries.
The Government will be locked more firmly into the disaster of their own creation. We shall need more money, more borrowing and probably more taxation to finance the depression, the unemployment and the adverse consequences of the decline of the economy that the Government have created on nationalised industries.
The Government will not even be able to fulfil the limited objectives on public spending in the White Paper because of the depression which they have generated and which will be reinforced by the over-valuation of the pound which they have tolerated. That, in itself, creates the seeds of disaster in terms of public spending. The only solutions are the obvious ones of bringing down interest rates and borrowing more. The Prime Minister, while denying the feasibility of this approach, has demonstrated that it is possible by increasing the public sector borrowing requirement and, at the same time, bringing down interest rates by 3 per cent. It is a process that can, and must, be pursued further.
There is not a problem at the moment of the crowding out of private borrowing by Government borrowing. This is because the private economy is so under-run and slack. If borrowing by the Government is spent on stimulating the economy it pays for itself by creating employment, producing tax revenue and stopping expenditure on unemployment benefit. [Interruption.] I can supply the Financial Secretary with the calculations if he would like them. The right hon. Gentleman sits in his place saying "Rubbish," but the calculations are clear.
Borrowing spent in stimulation of the economy can pay for itself. It is crucial that the Government, if they are to be able to maintain public spending, should tackle the central problem of the pound sterling and the exchange rate that they have created. The importance that the Government have attached to the valuation of the currency and the interest rates that they have imposed on the economy are among the main pressures producing the over-valuation. This becomes a self-fulfilling prophecy. Multinational companies or countries with oil surpluses that bring their money into this country get not only high interest rates but an appreciation in the value of the money that they bring, to the ruination of industry and the British economy.
By reversing that self-fulfilling prophecy and selling pounds on the future market the Government have the power to bring down the exchange rate to the level that they want. They dare not do so, due to their fetish about inflation, effectively admitting that they are strangling British industry to gain minimal success over inflation.
Another necessary policy is the expansion of the money supply. The relationship between the economy and money is far more complex than the crude, simple caricatures that the Prime Minister and the Financial Secretary have given. The relationship is like a plant to water. The plant draws in the money, or the water, that it needs. What is now happening is that because the money supply has been too tightly controlled by all measures except M3, the plant, or 1182 the economy, is withering. The only way to revive the plant is through an increase in the money supply. An increase can only be beneficial.
Money, even printed money, created now, effectively does one of a number of things. It allows the Government to bring down interest rates because it permits the Government to fund their public sector borrowing requirement, if necessary, by printing the money. Secondly, the money is spent stimulating this economy, assuming that the pound comes down to benefit British industry and the British economy. Thirdly, it is saved at an increasing rate, in which case it helps to bring down interest rates, because more money is available to be borrowed. By the law of supply and demand, therefore, the interest rate comes down. Or it goes overseas to bring the pound down further.
All these effects are beneficial to the economy, as it is now. Given the scale of under-employed resources. thanks to the policies pursued by the Government we have an under-employment of about one-quarter, or perhaps more, of our real resources. So this expansion can only be beneficial, by increasing output and productivity, expanding the economy and producing all the financial benefits that spring from such a situation. The Government have been saying for far too long—it has become almost a mantra—that there is no alternative. There are, in fact, several alternatives. Any of these would be better than the policies now being pursued. The Government are preaching a morality, not a system of economics and not any system that is proved or observable. They are preaching a morality which is particularly beneficial to those who have wealth, to financial interests, and to the City of London. The sacrifices countervailing those benefits are imposed on the poor, the less well-off, the working class and industry. That is the essence of what they are doing.
The Prime Minister may see herself as an economic Churchill compared with previous Prime Ministers who have been economic Chamberlains. However, there is no rationale in proving to our people that they are living beyond their means if by doing so we cut the means as disastrously as the Government have. The decline in industrial output has been greater than that which took place between 1929 and 1931 at the height of the Depression. Since this Government came to power almost one in eight industrial jobs has been lost. That is a disaster, and a direct consequence of the morality implicit in their attitude.
There is an assumption that previous economic policies have not worked. However, the record since the war has been one of steady growth, although slower than many competing economies. Certainly, there has been an improvement in our well-being and standard of living which seem to be denied by the Prime Minister.
Implicit in the inevitable decline which is built into the assumptions in the White Paper is the fact that every month's delay in reversing these disastrous economic policies means more borrowing and taxation to pay for the consequences of the Government's own " Depression." It also makes the jolt which is necessary to break out of the spiral of depression and decline even greater. Indeed, it necessitates a degree of what the Prime Minister might regard as Socialism. It will need the power of the State to rescue our economy from the disastrous mess which the 1183 right hon. Lady has created. The use of that will need to be more liberal and generous for each day of delay that occurs.
The Government say that there is no alternative, but in other times when situations were bad, though not as bad as ours, the kind of policies that I have outlined have produced real benefits. I shall not quote the lessons of the expansion which took place under the premiership of the right hon. Member for Sidcup. Instead, I quote the experience of the National Government which came to power in 1931. By 1932 they had effectively devalued the currency by 35 per cent. and imposed a 10 per cent. tariff on manufactured imports. As a result, a deficit in manufactured trade was turned into a surplus and interest rates came down to 2 per cent. There was an expansion of the money supply which was enormous for the time, but there was no increase in inflation. In addition, real manufacturing output, which is what counts, went up by 64 per cent. In seven years, unemployment was halved.
That was the consequence of pursuing the policies which I have advocated. That gave us a better industrial record in the 1930s than either Roosevelt's "New Deal" or Hitler's Germany. Methods which have worked before will work again, but each day's delay makes the scale and toughness of the job greater and the effort much more exhausting.
§ Mr. Edward du Cann (Taunton)
I hope that the hon. Member for Grimsby (Mr. Mitchell) will not be embarrassed if I tell him that I agreed totally with the thrust of his objective. However, I disagreed substantially about a number of the remedies that he proposed.
First, I should like to draw the attention of the House To paragraph 22 of the White Paper, which states:The improvement of efficiency remains a high priority.That is efficiency in the form of public expenditure, which is the crux of the matter. The paragraph continues:Severe restraint on public spending, the setting of strict cash limits, and reductions in civil service numbers all contribute to this objective.Then there is a piece about the scrutiny programme organised by Sir Derek Rayner, and finally it states the Government's intention to publish a White Paper describing the past and future work of the Civil Service Department and Departments generally in the pursuit of efficiency.
I totally support those aims and purposes. If I have a disappointment it is that public expenditure is still so high, and there are more sophisticated questions to be asked. Is the taxpayers' money invariably well spent, carefully spent, productively spent? How steadily are the Government travelling towards the realisation of those objectives?
I shall go through those matters in paragraph 22 seriatim. We now have cash limits covering 60 per cent. of Government expenditure. On the recommendation of the Public Accounts Committee we have assimilated them with the Estimates—I hope that the Treasury and Civil Service Committee will look at the form of the Estimates—but we have done no more. We have never attempted to make them more sophisticated, or more telling. We have never attempted, for example, to isolate capital expenditure. It is not enough to rest on one's laurels for what has been achieved in the past.
1184 The Treasury and Civil Service Committee will be monitoring reductions in Civil Service numbers. My right hon. and learned Friend the Chief Secretary referred to this. The figures are: April 1979, 732,000, now 695,000; target for the end of 1983–84, 630,000. So far, so good. But the total in Government service is not 695,000; it is 5 million, and what is so depressing—to pick up a point that the hon. Member for Grimsby was hinting at—is that 31 out of every 1,000 workers in the manufacturing and construction industries have been made redundant, compared with only three out of every 1,000 in the public service. Is it really appropriate that so much of the weight of the substantial squeeze that is now operating should seem to fall exclusively on the private sector? In any case, numbers alone provide a crude method of assessment. What is much more necessary is to inquire into the functions of what is done in the public service, and that I very much hope to see the Government beginning to do.
We are told that we have a severe restraint on public spending. What are the facts? There were considerable cost and volume overruns last year, but the assumptions on which the sum of the expenditure programmes is based this year and up to 1983–84 look almost as optimistic as they did when the Treasury and Civil Service Committee was expressing its forebodings last year.
In paragraph 6 of the White Paper we see the total cash spending, since it is cash that we talk about these days. It was £77 billion in 1979–80 and it is expected to be £94 billion in 1980–81—much greater than forecast, as I have indicated—and £104 billion in 1981–82. This hardly seems to be severe restraint in public spending.
Pay in the public sector is a major aspect of expenditure—30 per cent. of Government expenditure. It has risen twice as fast as it has in the private sector, and we are entitled to ask why. There is a further question, on paragraph 17 of the Treasury Committee's report. We say that it follows from the fact that a number of people in the public service have had increases in salary beyond the new norm of 6 per cent. that there will have to be reductions in manpower over and above those already planned if cash limits are to be adhered to. I hope that my right hon. Friend the Financial Secretary will be able to tell us quite firmly that the cash limits will be adhered to.
I want next to deal with the question of the nationalised industries. I have no hesitation in saying that it is an indictment of their management that in the context of a 15 per cent. increase in the retail price index last year there was a 30 per cent. increase in shop prices. We must try to instil competition in the nationalised industries. Does my right hon. Friend the Financial Secretary think that the turnround of £200 million suggested in 1980–81 to 1983–84, is a realistic target? As my right hon. and learned Friend the Chancellor of the Exchequer said in evidence to the Seclect Committee, it is not unambitious. I hope that that will be maintained.
In this important paragraph reference is made to the Rayner exercise. I have nothing but admiration for Sir Derek Rayner. He has saved hundreds of millions of pounds. I wonder whether hon. Members have had a good look at the evidence that the Comptroller and Auditor General gave to the Public Accounts Committee last Monday. I wonder whether hon. Members know that Government Departments are badly equipped in this respect. Whitehall employs 1,010 accountants. Only 47 work full-time on internal audit in 11 Departments. The 1185 remaining Ministries do not have any accountants working on the subject. The Home Office has two accountants. The Civil Service Department, the Foreign and Commonwealth Office, the Overseas Development Administration, Her Majesty's Stationery Office, the Department of Industry, the Central Office of Information, and the Welsh Office have one each. In the Comptroller and Auditor General's statement to the Public Accounts Committee it was described as a Cinderella activity.
If paragraph 2 means what it says let us sharpen up control of expenditure within Government Departments. If Sir Derek Rayner, working part-time with a small staff, can do so much, what could a determined attitude not achieve? I warmly endorse the Government's objective to encourage greater realism towards our economic situation. Like the fight against inflation, that objective is succeeding. Those are matters for great rejoicing. However, the Government should set an example. What has been the result of the lack of complete success?
Paragraph 5 of the report of the Treasury and Civil Service Committee contains a mathematical aggregate of the measures taken in November and March. The following statement then appears:These measures can therefore be seen as a tightening of the fiscal stance in 1981/82 compared with an unchanged policy position. The tightening comes at a time when the economy is already in deep recession.Interest rates have been high. There are now 1.2 million more taxparers than there would have been if indexation had taken place. The recession is deeper than it would have been. The cost is heavy. We could bear all that, but if we had been able to get a better grip of the Government machine much of this misery might have been avoided.
The purpose of a Select Committee is to monitor and survey the activties of Government Departments and to report to the House. I hope that the House will find this report of use. In addition, I hope that my right hon. and hon. Friends will find it supportive of the Government's polices. I am grateful for the kindly references made to it by my right hon. and learned Friend the Chief Secretary. Many of the speeches contained it as a theme. Although it is not for me to say so, the Treasury and Civil Service Committee has had its successes. It has focused attention on the gravity of pay in the public sector. It has suggested alterations in the medium-term financial strategy, and so on.
It is the task of hon. Members to be constructive and to suggest policies that could assist and accelerate existing policies in order to make them successful and to reinforce the Government's determination. There is a report before the House from the Public Accounts Committee on the role of the Comptroller and Auditor General. It suggests that the Exchequer and Audit Department should move away from the mere mathematical function of audit and should concentrate more on value for money. Let that be accepted; it is very much needed.
Secondly, the matter of internal audit, to which I was referring a moment ago, should be given highest priority. Let us jack up Rayner and support him. The Civil Service should be doing that work.
Thirdly, let us have an examination of the services that the Government are providing to the taxpayer. In his admirable opening speech my right hon. and learned Friend the Chief Secretary said that there was so much Government expenditure that the Government could not affect that the social services now take over one-quarter 1186 of all Government expenditure. That is true, but I repeat something that I said in the Flouse some time ago. We have the most complex, costly and difficult to understand series of transfer payments in the world. I am convinced that out of the £27 billion which they cost each year a considerable proportion could be saved and more help could he given to those who need it most.
Fourthly, let us bring the nationalised industries under better control in terms of the prices that they charge and the wages that they pay. They should be models of efficiency, but what are we doing? We are keeping open pits that are long past their usefulness. Let us break up these large units. We have only begun to do it. What happened to the plan to denationalise the Rover part of British Leyland?
My hon. Friend the Member for Carshalton (Mr. Forman) was entirely right when he so clearly made the point that a good deal of investment work is now inhibited by the lack of new methods of financing. If the French can do it, why cannot we?
Finally, I draw attention to the last paragraph of the report of the Treasury and Civil Service Committee. In a sentence, it says—the hon. Member for Stoke-on-Trent, Central (Mr. Cant) and my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) made the point—that nobody can judge the situation. Recovery does not look to be just round the corner. Why should it be? It certainly will not be automatic. With the greatest respect to my right hon. Friend the Financial Secretary, I do not believe that if the money supply is less than the rate of inflation growth will automatically follow. I wish with all my heart that I did believe that.
We are in the grip of substantial world forces. There are new areas of competition from the EEC, from the new Japans and from elsewhere. However, there is no recession in Japan. Why on earth should there be a recession here? The current level of unemployment is intolerable, as is the shrinkage of the manufacturing base. We can and we must change this waste.
Hon. Members will see in paragraph 21 of the Committee's report the way in which our fixed capital expenditure has declined over the years. I quote four figures. In 1975–76 that expenditure was £15,800 million. The planned figure for 1981–82 is £9,800 million. Those figures represent 19.4 per cent. and 12.4 per cent. respectively of total public expenditure in those years.
My right hon. and learned Friend's admirable and most respected brother refers to me in an article this morning—the hon. Member for Grimsby quoted it—as being like someone out of "Animal Farm" who has a perpetual grunt in favour of more investment. I simply say that I apologise in no way to the hon. Member, to my right hon. and learned Friend the Chief Secretary, or to anybody else if I press the case for further investment. I do not seek investment in just anything,. It must be responsible, carefully selected investment. There is so much to do—roads, nuclear power, electrification of the railways, the Severn barrage, new airports, schools, hospitals—
§ Mr. du Cann
Yes, of course, and defence. How right my hon. and learned Friend is.
Investment is a cost, as Mr. Samuel Brittan says it is, but it is a cost that we cannot do without. The infrastructure is deteriorating. Machinery, plant and 1187 technology all underpin the economy. Then there is "crowding out"—what a ridiculous theory. All the cash in the world is available, as my hon. Friend the Member for Carshalton said, if we just go out and get it. Cash is available at home and abroad on a massive scale.
Why do not the Government make a list of all the desirable capital projects and then a list of those that can be financed privately at home and abroad? We boast that the City of London is the finest financial mechanism in the world. Let us put it to work, in harness with the Government and with national needs. Let us start the process.
Our people badly need hope. That is what we should give them—something to look forward to. It is my experience that tomorrow is always—alas, bitterly—too late.
§ 9.1 pm
§ Mr. Gerald Kaufman (Manchester, Ardwick)
The right hon. Member for Taunton (Mr. du Cann), in his concluding remarks, made a lethal attack upon the philosophy underlying the Chief Secretary's approach to this debate, and it is to his credit that he did so. Until he spoke, the most dramatic moment in the debate was when my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) announced that he had been reconverted from monetarism to Keynesianism. For him, the road to Damascas leads from Milton Friedman's Chicago to Maynard Keynes' Cambridge. The geography may be peculiar, but the politics and economics cannot be faulted.
The Opposition made amply clear that they challenge the whole basis of the Government's approach to public expenditure. Far from sharing the Prime Minister's crude and over-simplified hostility to public spending, we believe that spending by Government and local authorities, properly channelled and controlled, can enhance the life of the community and the nature of our society.
In the House and elsewhere the Prime Minister repeatedly declares that taxpayers and ratepayers know how to spend their money better than central Government or local government, and that, accordingly, central Government and local government should tax less and spend less. She was at it again at Question Time on Tuesday. But, as the right hon. Member for Taunton made cruelly clear, by the Prime Minister's own criteria, she and her Government have failed abjectly. Far from leaving people free to decide how to spend their own money, the Government are taxing more and spending more.
When Labour left office, taxation as a proportion of gross domestic product was about 40 per cent. Last month's Budget increased taxation as a proportion of gross domestic product from 40 per cent. to 48 per cent. Under this Government public spending has risen, too—up by 4.2 per cent. in the past financial year, and up again in the current financial year. Yet the Prime Minister, the Chancellor of the Exchequer and the Treasury Bench continue to inveigh against public spending.
To listen to the Prime Minister's vehement denunciations of what the Government are doing, one could be forgiven for thinking that she has nothing to do with the Government and that the Government have nothing to do with her. She is not so much the Iron Lady as the brazen 1188 lady. Yet in the one area that is constantly subjected by the Government to intemperate abuse—local government—expenditure year by year has actually fallen.
To listen to members of the Government Front Bench, one would think that this country's local authorities were extravagant to the point of incontinence. [HON. MEMBERS: "Hear, hear".] Yet last year, while central Government spending was rising by 4.2 per cent., local government expenditure was falling by 6.9 per cent. Perhaps Conservative Members will cheer that. This year, while central Government expenditure is scheduled to rise still further, local government expenditure is planned to decline by a further 5.2 per cent. Local authority expenditure, as a percentage of total public spending, will fall from 28 per cent. in 1979–80 to 24.2 per cent. this year.
What is more, even on the basis of the Government's own assumptions local authorities consistently under-spend. Only last week the Department of the Environment was forced to admit that in each of the past four years for which figures are available English and Welsh local authorities spent less than was assumed in the rate support grant settlements. Yet the Government continue to blackmail and bludgeon local authorities into spending less and less.
The cuts imposed by the Government are causing enormous damage. Our public transport system is creaking and crumbling, yet capital investment in local public transport is planned to fall by 8 per cent. up to 1983–84. In the first two years of the Government, passenger transport subsidies have already fallen by 10 per cent. and are set to fall even further. In addition, there is a reduction of 6 per cent. in the trunk road construction programme for 1980–81 compared not with the Labour Government's best year but with their worst year of 1977–78.
Not long ago the Prime Minister sent accountants into the water authorities and it was announced afterwards, with a tremendous flourish, that as a result of those accountants bringing their shrewd housekeeping talents to bear, charges to the consumer were to be reduced. But the Prime Minister's accountants found few real savings to be made. Most of the reductions were brought about by fiddling the accounting procedures.
The position was described last month by Mr. Eric Gilliland, the president of the Chartered Institute of Public Finance and Accountancy—the public sector accountants who are constantly cited in evidence by the Secretary of State for the Environment, whose absence we note with interest and, perhaps, satisfaction. The Government have clearly felt that the debate is too important for him to be involved in it.
Mr. Gilliland said about the accountants:There is no evidence so far that they have found genuine overspendings or waste. Rather, what they have basically advocated is financial manipulation—manipulation which will expose the organisations affected to greater risk, and perhaps cost, in the future. That way may be politically attractive, but not necessarily financially prudent".It is fair to say that one genuine saving was made—a cut of £25 million in the water authorities' capital investment programmes. That cut will not only put more people out of work; it will lead to a deterioration in the system which will cost more to put right later.
The effect of the Government's cuts on housing will be even more catastrophic. My hon. Friend the Member for 1189 Fife, Central (Mr. Hamilton) gave an example of a cruel cut in provision for wheelchair tenants in Glenrothes. That is one sad part of a depressing overall picture.
Last week, Mr. Peter McGurk, the under secretary for housing at the Association of Metropolitan Authorities, told a conference of the Royal Institute of British Architects:We are rapidly reaching the stage of running into a monumental housing crisis".In the current financial year, spending on housing will be a little over one-quarter of what it was in the Labour Government's peak year of 1975–76 and less than one-half of what it was when Labour left office. Council house starts in England so far this year are running at the contemptible annual rate of less than 15,000.
Over local government spending in total in the period of office of this Government, current expenditure has fallen by 4.7 per cent. while capital spending has been cut by a disastrous 31.6 per cent., but the Chief Secretary had the nerve to say that the Government are giving much more effective priority to capital spending.
Inevitably the effect of the cuts on jobs has been devastating. Employment well outside local government has been hit because each year local authorities purchase £6 billion worth of goods from the private sector. However, the Prime Minister, the Chancellor and the Secretary of State for the Environment continue to hound local councils and to urge them to spend less.
The situation of local authorities has become so intolerable that even Tory Back Benchers are beginning to stage Adjournment debates to squeal about their own Government's harshness. In one such debate last week the hon. Member for Rugby (Mr. Pawsey) complained that the Government were treating his Tory-controlled council with what he described asunforeseen heavy penalties".—[Official Report, 31 March 1981; Vol. 2, c. 264.]The hon. Member for Abingdon (Mr. Benyon) denounced the Government's block grant system as "obscure, inefficient and arbitrary." He told the House that in the Tory-controlled but romantically named district council the Vale of the White Horse,the savings that are contemplated will cut into the bone because there is no fat left."—[Official Report, 19 March 1981; Vol.1, c. 533–34.]In the Vale of the White Horse they now know that the Prime Minister's favourite film is called "They Shoot Horses Don't They". The Secretary of State still rants on about local authority extravagance in the dark world of conspiracy in which he lives. The right hon. Gentleman now claims that it is all a Left-wing plot. A couple of weeks ago he told Mr. Brian Walden, on television:I cannot allow the Government's economic strategy to be deliberately ignored for party political reasons by the sort of authority that is beginning to emerge on the left of the political spectrum.The right hon. Gentleman has two criteria by which he judges whether local authorities are overspending. First, there are the grant-related expenditure assessments that set down for each local authority what the Secretary of State thinks they need to spend to maintain the service that he says they should provide. If they spend substantially in excess of that grant-related expenditure, they are liable to be penalised.
The second of the right hon. Gentleman's criteria is his expenditure target. This orders each local authority to cut its spending in the current year, compared with the 1978–79 level, by 5.6 per cent. Yesterday I asked him why 1190 he had chosen a cut of 5.6 per cent. He shed dazzling light on the situation by replying that it was because he had chosen a cut of 5.6 per cent. If a local authority does not obey the Secretary of State's instruction to cut its expenditure by a figure for which he gives no reason it is liable to be penalised, but in a different way.
The trouble is that a local authority that spends what the Secretary of State says it needs to spend is liable to be penalised for spending more than he says it should spend. Many local authorities, despite their best or worst efforts, have found it impossible to cut their expenditure to the levels necessary to meet either of the right hon. Gentleman's targets.
The right hon. Gentleman tells us darkly that such councils are the sort that are beginning to emerge on the Left of the political spectrum. I must tell the House that he is tracking down Leftists in the most unlikely places. Among the local authorities on the Left of the political spectrum that have been finding it impossible to meet either of the right hon. Gentleman's targets are Tory Bromley, Redbridge, Sutton, Enfield, Bury, Buckinghamshire, Cumbria, East Sussex, Northumberland, Warwickshire, Hertfordshire, Cheshire, Cleveland, Avon, West Midlands, Greater Manchester and Merseyside, but these frail political butterflies are brutally pinned down by the right hon. Gentleman as Marxist-oriented saboteurs.
One of the guiltiest of all is the apple of the Prime Ministers eye, the leader of the Tory Greater London Council, Sir Horace Cutler. His treasurer's office across the river has admitted to me that it is scheduled to overspend on the grant-related expenditure by 12 per cent. and on its 5.6 per cent. expenditure target by £10 million. Lately, we have been reading a good deal of sensational material about spies and undercover agents, but it still comes as a serious blow to find Sir Horace Cutler unmasked as the secret Red mole of County Hall. If we want to know the sinister culprit who is undermining the Government's economic strategy, the Secretary of State has the answer—the Cutler did it.
Many of those Tory authorities are overspending on the Secretary of State's criteria because they have massively lost grant. The Secretary of State has cut rate support grant this year by £800 million. He has cut housing subsidies by nearly as much. However, even authorities which gain grant are still having to make cruel cuts. Tory-controlled Wiltshire gains £40 million in rate support grant. However, its spending cuts have been so intolerable that one of its principal social services officials, Mr. Dennis Rugg, has resigned in protest. He said about his resignation:I had to protest at cuts to which I am entirely opposed. I have been a Conservative for most of my life, but I have changed because of this Government's policy. The needy are suffering because of the cuts. I was in the front line and living life oar death situations every day. I could not go on coping"—the hon. Member for Enfield, North (Mr. Eggar) can laugh at this if he likes—with things like fighting to get a bed for a woman in an old folks home and then seeing her die first.That is life in Tory Wiltshire today. Yet under the Secretary of State's crazy criteria, Wiltshire is overspending by 4.8 per cent. and is liable to be penalised by the right hon. Gentleman.
What are those offences which authorities such as Wiltshire and the Greater London Council are committing? They are offences which are not known in law. All 1191 the councils which I have named and many others as well are taking decisions which are perfectly lawful. When it makes its spending decision this spring, a council does not know that it is committing an offence. The Secretary of State does not know that the council is committing an offence, because it is not committing an offence, since no offence exists at the time of its decision.
The Financial Secretary may protest, but the problem is that the Secretary of State has warned that later this year he may decide to create an offence out of an action which, at the time it was taken, the council did not know was an offence. The Secretary of State did not know that it was an offence. The Secretary of State did not know that he would make it an offence. In fact, it was not an offence. Moreover, as and when the Secretary of State decides to make it an offence, if he decides to make it an offence, he will think up a penalty for the offence. But he does not know now what penalty he will invent for an offence which he has not yet invented and which he does not yet know whether he will make an offence.
Therefore, the councils do not know whether they are committing an offence or even whether there will be an offence. They do not know what the penalty will be for the offence that they do not know they are committing, because they will not know until after they have committed it—if they have committed it—that they have committed an offence which they do not know they are committing. The Secretary of State does not know whether he will create an offence, what the offence will be, if he decides to create it, and what the penalty will be if he decides to create the offence that he does not yet know he intends to create.
If that were being done in Soviet Russia, the Prime Minister would bitterly denounce it at the Dispatch Box, but she is doing it in Britain. In a democracy one is told in advance what an offence is and what the penalty is if one commits it. In a police State, one commits an offence unknowingly and finds out later what the punishment will be.
The Prime Minister has chosen the method of the police State in her treatment of local authorities. The Government have three weapons to use—the multiplier, the threshold and the taper. To punish local authorities the Secretary of State can meddle with their multiplier, fiddle with their threshold or tamper with their taper, or he can do all three. Whatever method he employs, he will take even more money away from local authorities. In fact, only this evening the right hon. Gentleman had to admit to me that he was reducing by £303 million the payments in rate support grant that local authorities thought that they had every right to expect under his block grant formula. He ominously warns that further punitive action may come later this year, when he threatens to wield yet another of his multifarious disciplinary devices—resetting the poundage schedules.
All that bears out this week's report that the Secretary of State has decided to suppress publication of local authority budgets until after next month's local elections, because so many Tory authorities have smashed through the barrier of his financial targets that the problem has become a serious political embarrassment to him.
However much money the right hon. Gentleman takes away from local authorities, it will inevitably mean more 1192 cuts in services and even more cuts in jobs; and the job reductions in local government have already been devastating.
§ Mr. Kaufman
I shall do two things. I shall refer the hon. Gentleman to the answer that his right hon. Friend gave me yesterday and I shall give the information that I was about to give, which may clarify the situation for him.
The Department of the Environment announced last week that between this Government's return to office and the end of last year jobs in local government had been cut by 65,581. Before hon. Members on the Government Benches cheer at the massacre of pen-pushing, tea-drinking, town hall bureaucrats, let me point out that white collar employment has been reduced by only 0.2 per cent. Almost all the jobs lost have been manual jobs, carried out by workers providing a direct service to their communities—caretakers, cleaners, dustmen and building workers. Comparing this year's public expenditure White Paper with last year's the consequences of the Government's policy of deliberately creating unemployment, not only in local government but throughout the economy, become startingly clear.
§ Mr. Speaker
Order. In the 36 years that I have been in the House that has often happened, although I am not saying that it is happening now.
§ Mr. Kaufman
Not at the moment.
Last year's public expenditure White Paper allocated £846 million for unemployment benefit in 1980–81, but this year's White Paper shows that the figure is actually £1,007 million, an increase of £161 million, or 19 per cent. For the current financial year, last year's White Paper allocated £800 million for unemployment benefit, but for the same year the White Paper before us has increased the allocation from £800 million to £1,238 million—an increase of £438 million, or 55 per cent.
Last year's White Paper allocated £700 million for unemployment benefit for each of the years 1982–83 and 1983–84. This year's White Paper increases the allocation for each of those two years from £700 million to £1,100 million—an increase of 57 per cent. Even that is a grotesque understatement, as the White Paper estimates that unemployment will be even higher in the next two financial years than it will be this year. Even so, for those four financial years, the White Paper allocates £4,445 million for unemployment benefit—£1,400 million more than in last year's White Paper.
That is where the Government's expenditure is going. That is why local government spending has to be cut. That is why, as my hon. Friend the Member for Grimsby (Mr. Mitchell) pointed out, ratepayers have to make do with poorer public transport, darker and dirtier streets, fewer houses and worse educational provision for their children.
§ Mr. Kaufman
If the hon. and learned Gentleman had been present for any of the debate apart from this winding-up speech, I should have given way to him.
1193 The cuts and the unemployment are the result not of some grand economic design but of the need to finance the unemployment that the Prime Minister and the Chancellor have created by their wild and dogmatic schemes.
In a similar debate two years ago, the Chancellor made the following vainglorious boast:Chancellor Barber … left office with very substantially fewer people out of work than when he took office. Indeed, in that respect every Conservative Government have been the same, in contrast to every Labour Government, since the war."—[Official Report, 22 May 1979; Vol. 967, c. 903.]As it happens, the Chancellor was wrong. Unemployment at the end of the period of office of the last two Conservative Governments was higher than it was when they took office. But will the right hon. and learned Gentleman promise the House that at the end of this Parliament there will be fewer people out of work than when he took office? He is here and making a note, but he cannot give that commitment because his own White Paper forecasts the exact opposite. Even if he made that promise, who would believe him? After all, he is the man who issued the following statement almost exactly two years ago during the general election campaign:Conservative Central OfficeNews ServiceRelease time: Immediate/Saturday, 21 April, 1979 GE646/79 Statement by the Rt Hon Sir Geoffrey HOWE, Conservative Parliamentary Candidate for Surrey, East and Conservative spokesman on Treasury and economic affairs.