Public Expenditure

HC Deb 21 April 1982 vol 22 cc286-366 4.18 pm

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 1982–83 to 1984–85, Cmnd. 8494. The White Paper is the third full public expenditure White Paper of this Government and the first resulting from a public expenditure survey that I have seen through from the outset. We have taken the opportunity to change the format of the document, and I hope that hon. Members have found the new format, and particularly the tables, an improvement. It is also, of course, the first White Paper to be expressed in cash—a point to which I shall, of course, return later. This debate will also be informed by the report of the Treasury and Civil Service Committee, for which we are grateful.

The Government's broad strategy with regard to public expenditure is to reduce it gradually as a proportion of gross domestic product. To achieve this, when real GDP is growing, we must at least hold public expenditure steady, and preferably reduce it. But when GDP is falling, as it has been over the last couple of years, progress towards this objective would mean not only reducing public expenditure but actually doing so at a faster rate than the fall in GDP. This would be a formidable task, and in my view we have been right to accept that some, at least, of the pressures for expenditure that arise in time of recession should be accommodated.

Apart from the inevitable increases in spending on unemployment and social security benefits, there are measures to alleviate or mitigate the effects of the recession that a Government should take, even if they do not believe that the recession can itself be brought to an end by a massive dose of reflation. The very large increases in special employment measures that we have introduced are a clear example of this approach in action.

It is also important to recognise that there are limitations on the Government's control over expenditure. This is particularly true of local authority current expenditure, where there has been an overspend in 1981–82, compared to plan, of over 1½ billion. We can exert strong pressure on local authorities, but under our present arrangements we cannot, in the last analysis, stop them spending more than they should if they are prepared to inflict excessive rate increases on their unfortunate ratepayers. In planning for 1982–83, we were therefore faced with a choice between sticking to unrealistic plans or increasing the plans to realistic levels. I am sure that we were right to choose the latter.

Therefore, it is not at all surprising that a Government with a strategy of reducing public expenditure have found in present circumstances that they have had to defer the reductions when they get to the year for actually implementing them. In the case of 1981–82 and 1982–83, as I have explained, I believe that there were good reasons for this. However, it is important to point out that in 1982–83, even with the increases to planned expenditure that we have announced, the GDP ratio will be the same as in 1981–82. As the economy recovers, I believe that our plans for reducing public expenditure, expressed as a percentage of GDP, from 44½ per cent. in 1982–83 to 41 per cent. in 1984–85 are reasonable and realistic. To achieve this requires proper control as well as the appropriate policy decisions. In this respect it is significant that, in terms of outturn compared with plans, 1981–82 shows a distinct improvement compared with 1980–81. The 1981–82 outturn cannot as yet be finalised, but it is now thought likely to be very close to, if not below, the planned cash figure of £104.8 billion, compared with an excess of £1.7 billion in 1980–81.

As I shall explain, there have been some overspends and underspends within the overall total, but the real problem in 1981–82 has been one of monitoring. The effects of last year's Civil Service strike meant that for the early part of 1981–82 no good information was available on Government expenditure and that many of the subsequent data have proved unreliable.

At the time of the Chancellor's December statement, he was pressed to give a figure for the estimated outturn for 1981–82. He stressed the unreliability of the estimate of £107 billion that he then gave, for the reasons that I have given. By the time that the White Paper went to press early in February, the estimated outturn was put at £106.1 billion. This reflected the fact, indicated in the White Paper, that a saving of £900 million was expected on the Contingency Reserve compared with the December figure. By the time of the Budget, the estimated outturn was put at £105.2 billion, which reflected later information on the spending on Government cash limits and by nationalised industries.

The further reduction in the estimated outturn now expected mainly reflects lower spending on central Government cash limits compared with the estimate at the time of the Budget. One effect of this further reduction is that public expenditure as a percentage of GDP in 1981–82 is now expected to fall from the 45 per cent. estimated at the time of the Budget to 44½ per cent. This reduced expenditure was a reason for the lower than expected 1981–82 outturn figures of Government borrowing published last week, which were over £1 billion down on the Budget estimate. Preliminary figures for public sector borrowing as a whole will be published tomorrow.

A breakdown of the latest estimate of outturn for 1981–82 is not yet available, but, within the overall outturn estimated at the time of the Budget, the main expected increases over the plans set out in last year's White Paper were as follows. The most significant was overspending by local authorities on current account of some £1.7 billion. Higher nationalised industries' net borrowing of £700 million and higher social security payments of £500 million both reflected in their different ways the effects of the recession. Special sales of assets were £300 million lower than planned, due partly to the decision not to proceed with a further programme of advance oil sales in a weak market, and partly to the delay of the sale of Wytch Farm, announced in the Budget. There was one major change in Government expenditure. The defence budget cash limit was increased by £350 million.

To set against these increases, local authority capital expenditure was lower than planned by some £¾ billion, mainly due to lower tender prices and higher than expected capital receipts. About £½ billion of this underspend was on housing. Net payments to European Community institutions at £400 million and housing expenditure at £300 million were also lower than planned. Finally, central Government cash limits were underspent by about £½ billion, and there were savings of over £1 billion on the Contingency Reserve.

The public expenditure totals for 1982–83 announced in December and reflected in the White Paper showed an increase of some £5 billion compared with the cash equivalent of the previous year's plans. Some of the main increases—defence, employment measures, nationalised industries—reflect our priorities as a Government. The increase in employment expenditure reflects the Government's determination to provide worthwhile training opportunities for those who are unemployed, particularly school leavers. The social security increase reflects both the effects of high unemployment and higher payments of supplementary benefits, and the Government's decision to make good in the November 1982 uprating the 2 per cent. shortfall for some benefits, later extended to all benefits in the Budget. For nationalised industries, we are providing finance to protect capital investment that would otherwise have been affected by the shortfall in receipts resulting from the recession.

The remaining major increase was for local authority current expenditure. It is a regrettable necessity. We have had to increase the planned provision for local authorities' current spending by £1.3 billion in 1982–83 and by a similar amount in 1983–84, because overspending by local authorities in 1981–82 had made unrealistic any prospect of their containing expenditure within the original 1982–83 plans. The future years' plans allow less rapid cash growth in order to get local authority spending back on course.

The plans now contained in the White Paper will not be easy to secure, but they are perfectly realistic provided that local authorities are prepared to make real efforts to achieve them. Many local authorities have heeded the Government's plans. We need to build on the co-operation of the majority and intensify our pressure on the remainder to achieve savings. Action through the rate support grant using the block grant mechanisms is one way of doing this.

As in previous years, we have published the White Paper at the time of the Budget to try to bring together consideration of public expenditure and its financing. This year, however, the Chancellor announced in his Budget a number of measures affecting the spending plans, and these overtook some of the programme figures set out in the White Paper, which was already in the press. In particular, the Government decided to increase public spending in a number of areas that would benefit industry, in tune with the overall tone of the Budget. The construction industry will benefit from the additional £100 million being made available in 1982–83 for the improvement and insulation of private houses. Large industrial users of electricity and gas will benefit from the changes announced to pricing arrangements estimated to cost £160 million in 1982–83. The increased spending on industrial innovation—£20 million in 1982–83 rising to £45 million in 1984–85—will help firms to take advantage of the latest advances in technology.

On employment, the Government have put forward an imaginative scheme to enable the unemployed to use their skills for the benefit of the community on tasks that otherwise would remain undone. As my right hon. and learned Friend said in his Budget Statement by way of illustration, £150 million, excluding supervision costs, would support around 100,000 places. We are ready to back this kind of development on an even larger scale if the demand is there.

Finally, on social security the Chancellor announced that the restoration of the 2 per cent. uprating shortfall would be extended to all benefits, not just to retirement pensions and associated benefits.

The cost of these Budget changes was £368 million, but some of that was charged to the Contingency Reserve, so that the increase in the planning total amounted to £200 million. This was more than offset by reductions of £460 million elsewhere. There were three main reasons for this.

First, the upratings in social security benefits were based on a forecast price movement of 9 per cent. between November 1981 and November 1982, whereas the White Paper figures were based on an assumed movement of 10 per cent. Second, the gas levy was reduced, and special sales of assets increased by the postponement of the Wytch Farm sale. Third, the Chancellor announced in his Budget a reduction in the national insurance surcharge. This reduction applies to all employers, public and private, because the legislation does not permit differential reductions. But the intention of this was to benefit the private sector.

Accordingly, the Chancellor announced that the Government will reduce the 1982–83 Government cash limits, rate support grants for local authorities and external financing limits of the nationalised industries to offset the benefit of the national insurance surcharge reduction in the public sector. Thus, the net effect of all the Budget changes was to reduce the total of public expenditure by some £260 million in 1982–83 and by some £700 million in 1983–84 and 1984–85, as compared with the figures published in the White Paper.

Mr. Reg Race (Wood Green)

Will the right hon. and learned Gentleman confirm that the parliamentary answer given to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) on 18 January to the effect that the Government changes to social security benefits have cut £1,520 million from the level of benefits in the financial year 1982–83 in relation to the way in which benefits were calculated when the Labour Government were in power?

Mr. Brittan

I do not have that particular answer to hand. If it was given by one of my hon. Friends in answer to a question, I am sure that it was accurate.

The changes to the spending plans, which had been announced in outline last December, have led to renewed interest in the proposal by the Institute for Fiscal Studies committee, chaired by the late Lord Armstrong, for a unified draft Budget incorporating public expenditure plans in the autumn. The Treasury and Civil Service Select Committee is of course, currently considering this proposal, and the Chancellor and I await its report with interest.

To return to 1982–83. Although I regard the increases in expenditure that have been made to our original plans as necessary and realistic, most of them are increases in current expenditure. In principle, I would have preferred to see more capital expenditure, although I do not accept any simplistic equation between capital expenditure and "good" or productive expenditure, and long-term comparisons of capital spending are vitiated by changing expenditure needs. Even so, the picture on capital spending is a creditable one.

In cash terms, capital spending in 1982–83 is planned to be about the same as that expected to be achieved in 1981–82. But the recent fall in tender prices means that most programmes will be carried out as planned. In addition, the construction package announced in the Budget will add £100 million to planned capital spending in 1982–83. Local authorities should be able to increase their housing investment output in 1982–83. There should be a slight increase in work actually done on water and sewerage projects in 1982–83.

Mr. John Maxton(Glasgow, Carthcart)

Will the right hon. and learned Gentleman say what percentage of the construction package is coming to Scotland? That important figure has not been made available to my Scottish colleagues and myself.

Mr. Brittan

I shall be happy to try and give the hon. Gentleman the figure, either in the course of the debate or in another form.

Mr. Peter Shore (Stepney and Poplar)

All hon. Members are concerned about the decline in capital expenditure during the period since the Government came to power. A table in the Select Committee report shows that, taking 1978–79 as 100, general Government capital expenditure is down this coming year, 1982–83, to 65.9 per cent. How can the right hon. and learned Gentleman claim that this is a creditable performance particularly when he, like his Back Bench colleagues, was vociferous in the past, with some reason, in criticising earlier cuts in capital expenditure?

Mr. Brittan

I think I can make the claim on the basis that I have just explained. If tender prices fall, as is the case, and it is possible to secure the same provision for lower costs, that is to be regarded as an achievement. Criticisms of cuts in capital expenditure do not come well from the lips of the right hon. Gentleman who was a member of a Government responsible for a massive cut in capital expenditure unprecedented in recent years.

I remind the House that the nationalised industries' investment in 1982–83 is planned to be 26 per cent. higher than expected in 1981–82 and 40 per cent. higher than in 1980–81. It is also important to remember that the Government definition of capital spending is different from that of a commercial concern. Most defence expenditure for example, whatever its purpose, is classified as current expenditure because of international accounting conventions, although about half is spent on what anyone not familiar with those conventions would unquestionably regard as capital goods.

Mr. Terence Higgins (Worthing)

Will my right hon. and learned Friend agree, in the light of the intervention that has just been made, that complaints from the Opposition that the ratio of capital expenditure and current expenditure has moved in the wrong direction overlooks the extent to which the deterioration in that ratio is due to excessive pay claims made in the past and the fact that the Labour Government left a big inheritance of large pay claims that increased current expenditure at the expense of capital expenditure?

Mr. Brittan

That is unquestionably the case. I have not noted—I am not necessarily criticising the Opposition—any reticence in the call from Opposition Members for increases in social security benefits which, however meritorious, are current expenditure and not capital expenditure. The lesson that the right hon. Member for Heywood and Royton (Mr. Barnett), at least, has learnt, if not the right hon. Member for Stepney and Poplar (Mr. Shore), is that it is not possible to have one's cake and eat it and to demand increases in social services expenditure and capital expenditure without a consequence in terms of inflation or interest rates.

As I have already said, the increase in current expenditure, which has caused the fall in capital expenditure as a proportion of the planning total, reflects in part the Government's priorities and the needs of programmes. That is particularly true of the increases for defence and employment measures, which I regard as wholly justified but which happen to count as current expenditure. The increases in nationalised industry expenditure to which I have referred and which are substantial are designed to protect the capital investment of those industries.

Within the total of current expenditure, we have taken steps to secure substantial reductions. There has been an overall reduction of at least 2 per cent. applied to all Government cash-limited programmes except defence. But within that we have applied a specific reduction of at least 2 per cent. to staff and administrative expenditure. Since we entered office, we have reduced Civil Service numbers from 732,000 by about 60,000—at 1 April 1982—and are on course for achieving the planned reduction to 630,000 by 1 April 1984. Further, the 4 per cent. provision for public service pay increases is a significant move to contain current costs. It should also be remembered that not all capital spending is necessarily productive while current expenditure on such things as research and development and teacher training is of lasting value.

Mr. Jack Straw (Blackburn)

On the question of public sector pay, is the Chief Secretary therefore saying that if the arbitration panel recommends a higher increase than 4 per cent. overall, the Government will automatically block it in the House?

Mr. Brittan

I am not saying that at all. There is a variety of ways to deal with that situation. The hon. Gentleman must await the outcome of that consideration before he will be in a position to see what route we are to follow.

Mr. Anthony Nelson (Chichester)

On that point, would my right hon. and learned Friend confirm that any settlement by the arbitration panel outside the suggestion put forward by the Government so far of 0 per cent. to 5 per cent. will have major consequences for the next pay round, which is bound to affect other parts of the public service? If the Government made a settlement outside the 4 per cent. norm, or what they have already put forward, the situation would be very serious.

Mr. Brittan

I agree that an excessive determination would have the serious consequences to which my hon. Friend has referred.

The objective of the public expenditure survey is to set realistic planning totals year by year, within which resources can be managed in the most efficient way. Each successive survey, therefore, consists of a re-examination of the plans drawn up the year before, and tends to concentrate on the year immediately ahead—in this case 1982–83. But it is important not to neglect the future years, and we have tried this year to embody in the White Paper realistic planning totals for 1983–84 and 1984–85. Of course, the composition of individual programmes will be subject to ministerial review in the usual way. But the Contingency Reserves in both years have been deliberately set high to reflect the increased uncertainty in those years, which is inevitable in a cash planning regime. It should be possible to accommodate any changes thought necessary to programmes without affecting the overall planning totals.

It is obviously more difficult to look ahead beyond 1984–85, but I do not think that relieves us of the obligation to attempt to do so. I do not think one can set sensible planning totals more than four years ahead. This is why we decided, in last year's White Paper, to drop the fifth year of the survey. But, as I have said, our fundamental objective is to reduce the ratio of public expenditure to GDP.

Dr. Jeremy Bray (Motherwell and Wishaw)

rose——

Mr. Brittan

A little later, please.

To do this successfully, we need to frame our medium-term decisions in the light of likely longer-term trends. Some of those are distinctly ominous. The four largest public expenditure programmes—social security, defence, health and education—between them account at present for about 60 per cent. of the total. That is a static picture, an analysis of where we are now. But expenditure planning is obviously a dynamic process. We can already discern patterns in our society that create great pressure to increase expenditure unless present policies are changed.

Dr. Bray

rose——

Mr. Brittan

Not just for the moment.

Demographic pressures alone mean that an ageing population will require, by way of social security benefits and health care, a larger slice of the cake. The proportion of very old people, who naturally place greater demands on the Health Service, will rise quite quickly thoughout the next 10 years. The demographic pressures exist quite independently of the improvements in health care that we can expect from medical advances and the new technology. Desirable though these things are, they tend to drive up the cost. Clearly, increases in efficiency will become even more important as a way of containing costs. Demographic trends work in the opposite direction at present in the education service, reducing the demand on existing facilities. But who can be sure whether that pattern will reverse istelf in the next few years?

As for the defence programme, the uncertainties are all too clear. These four big programmes alone have an inbuilt momentum of their own which can only be arrested by quite fundamental policy decisions. Smaller economies in other programmes are, of course, desirable for their owl sake and will be vigorously pursued. But they are not enough to compensate for the dynamism of the big programmes. I say all this to illustrate and to demonstrate that the control of public expenditure requires, and deserves, a long-term strategy as well as the unrelenting day-to-day war of attrition that the right hon. Member for Heywood and Royton has described so vividly.

Dr. Bray

rose——

Mr. Brittan

In a moment.

Governments are sometimes accused of concentrating too much on the immediate problems to the exclusion of these longer-term trends. I am very well aware of that danger, and am determined that we must analyse the long-term trends and carry back what we learn into our present decisions. That means giving up the soft options and easy promises, despite any apparent short-term political advantages. It means being realistic about what we are likely to be able to afford. It means avoiding new long-term commitments. It means looking very critically at the thin ends of thick wedges. In the remaining years of this Parliament it means denying ourselves the luxury of pledges that we might not be able to deliver when we come back to office in the next one.

Dr. Bray

I am grateful to the Chief Secretary for giving way. He referred to the role of the £6 billion Contingency Reserve for 1984–85 as an insurance against a higher rate of inflation than he is assuming with his present cash planning process. Can he assure the House that if the rate of inflation turns out to be lower than he is expecting, he will allow real public expenditure to increase above the levels that he expects them to take?

Mr. Brittan

I am happy not to give such an assurance because that might not be the appropriate response in the circumstances in which such a happy event might occur.

For 1982–83 the increase of £5 billion on our previous plans is in my view entirely justified in present circumstances. It is justified above all because it is needed by the current circumstances and it is being financed responsibly without pushing the level of borrowing to a dangerous point. What I do not accept is the argument that reflation, primarily through increased public spending, would encourage long-term economic growth and produce a lasting reduction in unemployment. Nearly all our major overseas competitors realise this is not the case. Fiscal policy in most industrial countries is now dominated by efforts to restrain public expenditure and, thereby, to reduce, or at least contain, budget deficits.

In Germany the federal budget shows an actual decline in real terms, and in consequence federal borrowing is to be cut by 30 per cent. The Government there propose to cut planned youth, family and health expenditure by 7 per cent. and social security expenditure by 1 per cent. That is the Social Democratic Government in Germany. In the United States the budget proposed by the President also shows a slight reduction of expenditure in real terms. The Japanese Government have tightened their fiscal policy for the third year in succession.

France's Socialist Government—not just a Social Democratic Government but a Socialist one with Communist members—are showing mounting concern over their deficit. President Mitterrand has decided that they must not exceed 3 per cent. of GDP in 1983. The Dutch Government have just announced economy measures designed to rein back their public sector borrowing requirement. Belgium is another example of a country where the Government have announced their intention to cut public expenditure plans this year. The Governments of Italy, Denmark, Ireland, Canada and Australia are all committed to holding back in the long term the public sector's claim on their nation's product.

Mr. Derek Foster (Bishop Auckland)

Is it not remarkable that all the countries that the Chief Secretary has quoted, with very different rates of inflation and with very different levels of public expenditure as percentages of their gross domestic product, are pursuing rather similar policies? Is it not true that this Government have pursued a fiscal and financial policy which is three times more restrictive than that of any other European country? Is it not because of the tremendous conservatism of financial opinion throughout the world that we are all pursuing these mad policies? Will he not use his influence to transform world opinion and to get things moving again?

Mr. Brittan

I do not accept the hon. Gentleman's analysis. In contrast, I would say, without agreeing with the figure that the hon. Gentleman gave, that it is precisely because of the policies that we have been carrying out that we are emerging from recession in a better shape, while many of the countries to which I have referred are encountering increasing difficulties.

I am not pretending that the consequences of doing the sort of things that I have described those other countries as doing are not painful in the short term. The Dutch Government's decision earlier this month included economies in child benefit and some shifting of the burden of social security payments from employers to employees. Such decisions are never easy. Although the Governments of our competitor countries are of very different political complexions, they are united in recognising that the restoration of their economies to health and their companies to full profitability requires firm resolve of the kind that I have described.

We have only to look at our own experience over the past decade to realise how essential it is to maintain that resolve. Between 1970 and 1980 real output grew at only a twentieth of the growth in money GDP. In short, our economy did not respond flexibly to the stimulus that that growth afforded. It was dissipated in higher inflation and higher imports. As we can now see only too painfully, it did not prevent higher levels of unemployment emerging during the 1970s. If anything, it caused it.

If increased public spending is not to increase inflationary pressures, it needs to be financed responsibly. That means higher interest rates or higher taxes. I do not believe that either of those alternatives would assist our recovery. It is in the context of this approach to spending that we must consider the question of medium-term cash planning and short-term cash control.

As I said at the beginning, this is the first White Paper to have been planned in cash, rather than in the "funny money" of constant prices, or so-called "volume". It is a change that I regard as of the highest importance. It is essential, if we are to tailor our planning to the financial resources likely to be available, and to achieve more effective control of public expenditure. It certainly needs full discussion, if its implications and advantages are to be properly understood. That is why I welcome the recent report of the Select Committee on the Treasury and Civil Service.

But although experience of operating cash planning will no doubt suggest modifications to the present arrangements, I am convinced that our primary effort must be to ensure that the new system works and is understood. To do that we must be clear about the disadvantages of the volume system and the reasons for the change. The old system had become outmoded and damaging, because it encouraged an all-too-easy assumption that, whatever the cost of maintaining or enhancing a programme, the money would have to be found for it. It led to an assumption that one was always entitled to more cash. It sometimes even led to a lack of appreciation of just what the cash implications of a decision might be. Those contemplating spending lived in the world of funny money, and those paying for it had to provide for it in the cash of the day. Planning in volume also tended to provide automatic so-called "validation" of past inflation and to build in the latest estimate of future inflation. That simply consolidated people's exaggerated expectations of inflation.

It was essential to break the pattern. But to do so meant little short of a revolution in the way in which we handle these matters. It is not surprising that that has taken a little assimilation. The new system will work quite differently. Public spending decisions are now taken in a financial framework. The gains are manifold. The key task of the public expenditure planning system, controlling the spending total in the year next ahead, is improved. In the past this was achieved by cash limits, but this meant that survey decisions were not final decisions on control totals, because they were taken in funny money which had later to be translated into cash limits. Ministers could not clearly see the cash implications of decisions that they were taking, nor could expenditure decisions be readily related to revenue projections.

Under cash planning, survey decisions for the year ahead automatically translate into cash limits. This means, in particular, that Ministers can take into account forecast relative pay and price movements in the survey discussions and make any adjustments that they wish during the survey as a conscious policy decision. Previously, this was added on rather mechanically as an afterthought.

A more subtle but perhaps equally important effect is that cash planning does not automatically carry forward increases in public sector costs. In the past, these might have been contained for one year by cash limits, but any containing effect was automatically lost by the revaluation for the next year's survey, which was based on the actual movement of pay and prices rather than that for which it had been thought right to make provision. Programme managers knew this and were tempted to cope with cash limits by short-term measures, rather than measures that would have a continuing effect into the following year, such as improving efficiency or obtaining greater value for money.

The real advantages of cash planning mean that our first priority must be to make it stick. This is one reason why we have made such a clear break with the old volume figures.

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. and learned Gentleman will have read the article in theFinancial Times by Mr. Samuel Brittan, headed The Last Laugh for Funny Money", in which Mr. Brittan pointed out that what was happening would play into the hands of those people who want to bring back funny money", because, as he put it, imagine his horror when the public expenditure White Paper appeared as a string of meaningless numbers. That is the criticism that the right hon. and learned Gentleman must answer.

Mr. Brittan

It will not be the first time that I have not agreed with my brother, however eloquently and elegantly he expresses himself. I have had the opportunity of discussing these matters with him and explaining to him that it is necessary, for the reasons that I have given, to move to the new system. I shall come in a moment to the point discussed in the article and covered by the Select Committee.

Mr. Douglas Jay (Battersea, North)

rose——

Mr. Brittan

I should like to develop the argument a little further before giving way to the right hon. Gentleman.

There is a more fundamental point. I agree—and this, rather than the comprehension problems of transition, is the real area of debate—that a major concern of the Government must be the level of service that is provided. But it is wrong to believe that the old volume figures were a measure of the level of service. They were not. To believe that they were is a mistake, and a dangerous mistake, which lies at the root of the failings of the volume system.

The volume figures simply measured the resources that were put into programmes—the inputs. They did not measure the efficiency or effectiveness with which they were used, or the value for money that was obtained, and it is that which in large part determines the level of services actually provided. Indeed, as I have said, volume figures tended to distract programme managers from concerning themselves with greater efficiency. What we should be concentrating on is indeed the level of service provided—the output—taking account of not only the resource inputs, but the efficiency and effectiveness of their use and the value for money obtained.

In order to do this properly much greater effort will have to be put into developing a more effective range of measures of output over the next few years. Some progress in this direction had already been made in the last years of volume planning, but the move to cash planning has given this work a new impetus and importance. Of course, one must be realistic about it. There are large areas of public expenditure where it is difficult even to define, still less to measure, what we mean by final output. In some cases, such as defence, it may be particularly difficult. In such cases one may have to be content to use measures of intermediate output as proxies.

A considerable amount of information on what the cash is being used for is already given in part 2 of the White Paper. Some of the more significant output measures front it were conveniently brought together in the public expenditure press notice issued on Budget day—for, example, of the number of young people engaged in Government training schemes, of the numbers of hospital cases treated, and of school pupil numbers and pupil-teacher ratios. The Treasury and Departments are continuing to develop the use of output measures in the planning and efficient management of public expenditure.

In future years, output measures will increase in quantity and importance, not least because Departments will increasingly realise their importance for understanding what is happening in the services for which they are responsible, for arguing their cases for more cash where this is genuinely needed and for reporting to Parliament and to the public generally on levels of service. But output information will never be comprehensive. It can never be reduced to a single indicator of public welfare. For some purposes I accept that it may be appropriate to take a constant price series of inputs—that is of expenditure—to see what is happening to public expenditure over a run of years, but not to control it or to provide the basis for deciding its cost levels.

Mr. Jay

If the right hon. and learned Gentleman is so much against funny money and in favour of cash value, why is he introducing, at this stage, index-linking for gilt edged bonds which really means funny money for future gilt edged interests?

Mr. Brittan

The two are not related. It is one thing to decide whether to compensate for inflation. That should be a conscious, not an automatic, decision. In terms of public expenditure and the share of resources that it takes, it is not appropriate for the decision to be automatic.

Mr. Jay

Surely, however, if the same system of automatic increases were introduced in the pay of public servants according to the RPI, for example, that would be compensation for inflation. That is what the right hon. and learned Gentleman calls funny money.

Mr. Brittan

I have made it clear that I do not favour doing that. Unless my memory fails me, I recall the right hon. Gentleman being present on Second Reading of the Finance Bill. I explained then why automatic belief in indexation or automatic belief in its reverse was not an appropriate way of dealing with such matters. I also said that in all countries that are remotely comparable to Britain, a range of decisions about the appropriateness or otherwise of indexation was taken. I said that I thought the type of indexation that the right hon. Gentleman suggested especially inappropriate.

A constant price series of inputs for certain purposes but not for control might be appropriate.

One way that a series of constant price figures can be provided is by using, for example, the GDP deflator to provide a series in "cost terms". That has been done by the Select Committee. It has asked us to publish such figures in future White Papers. I shall certainly consider that proposal. I must stress that such series are of limited usefulness, even if they provide some relevant information. As they are adjusted by the general rate of inflation, they cannot truly show whether the quantity of goods and services bought will be greater if costs for a particular service increase less than the general rate—whether because of greater efficiency or for any other reason.

I am much more doubtful about the Committee's related proposal—that we should publish volume figures as a supplement to the cash programmes. I have explained some of the problems that that would cause but, of course I shall not give a final reply today, because I would naturally like to consider all the recommendations carefully and take account of any relevant points made during the debate.

The Select Committee made one further observation on this subject that requires a response. It says in paragraph 6 that the inflation assumptions used in the White Paper were already out of date at the time of the Budget. I do not accept that, as the cash factors used in preparing the new cash programme were not meant to be simple projections of inflation. Obviously, they took account of the best forecasts that the Government then had of the future movement of prices.

As a matter of record, those forecasts were not very different from the assumptions published in the Red Book at Budget time. But that is not the point. The cash factors did more than recognise future inflation. They were themselves a conscious political decision about the increase in public sector pay and prices which the Government were prepared to finance. They were not just a scientific observation or prediction, they were intended to influence the phenomenon being observed. The Government are major employers. They are paymasters to other big employers and they are significant purchasers with considerable power in the market for many other goods. The cash programmes that we have published are themselves intended to exercise some pressure on prices and not passively to accept them. Some of the Select Committee's observations seem to me not to take account of that important point, and I therefore wanted to restate it as clearly as I could.

All the major industrial countries and, in fact, most others do not, in general, plan or control public expenditure in volume terms. They use cash, just like industry, agriculture, commerce or households the world over. Probably only in the United Kingdom's public sector has the funny money of volume expenditure and survey prices crept in. The Government have put an end to that and returned the British public sector to the real world where everyone has to make contracts in cash terms and, therefore, must make their own allowances for inflation.

I have spent some time on the change to cash planning and its implications because I regard it as a major new tool to achieve the Government's overall strategy on public expenditure. That strategy is of course, itself part of an overall economic strategy that has been steadily showing increasing signs of success recently. It is as part of that strategy that I commend the White Paper to the House.

5.5 pm

Mr. Peter Shore (Stepney and Poplar)

I listened with some care, especially to the last part of the Chief Secretary's speech. I shall comment upon that aspect later. I was surprised that he omitted to mention the task force. It would be unrealistic not to say something about the implications for public expenditure that the Argentine seizure of the Falkland Islands has imposed upon us.

As the scale of the British operation begins to unfold, every other day bringing fresh announcements of deployment of men, aircraft and ships, it is clear, even when the task force is only a little beyond Ascension Island, that large and increasing costs are being incurred. They are not necessarily one-off costs—such as is entailed in requisitioning the "Canberra", 14 other Merchant Navy vessels and the chartering of, I understand, another 15. The decision that was announced this week to maintain and re-equip Vulcan squadrons for conventional bombing roles will substantially increase expenditure not only for this year but for some considerable time to come.

Furthermore, whatever the Defence Secretary and the Chief Secretary may say about the composition of our defence forces, I find it almost impossible to believe that major changes in policy decisions, especially those affecting naval forces, will not now be made. It is surely inconceivable that the programme for closing naval dockyards in Britain and Gibraltar and the scrapping and sale of fighting ships that have proved indispensable in the launching of the British armada can proceed at anything like the pace or scale that was originally proposed. Therefore, we are discussing major increases in at least one major component of public expenditure—the defence Estimates. It is plain to everyone that, unless a political settlement is rapidly achieved, we shall be speaking not of tens of millions of pounds, but of hundreds of millions of pounds of additional expenditure.

Speaking in Oxford last Thursday the Chief Secretary assured us that there is no cash ceiling to the cost of this operation. The needs of the Task Force must and will come first. It is remarkable and perhaps not without its unintentional humour that the Chief Secretary should find it necessary even to make such a statement. Nevertheless, no doubt the House is gratified. No doubt, also, whoever is in command of our task force will be equally gratified by the Chief Secretary's words.

The House should consider, however, the wider significance of the Chief Secretary's statement. The sacred cow of cash limits is slaughtered without a murmur when it is considered to stand in the way of an overriding need. I do not complain about that in relation to the task force. I only wish that a similar urgency and overriding need was felt by the Government when dealing with our inner cities and national unemployment problems.

It would be unacceptable to us, if the rescue of the Falkland Islands does involve substantial increases in public expenditure, that that should lead to a cutback in other public expenditure programmes, including the preemption of the Contingency Reserve, or to the imposition of further taxation. With the unused resources of production and people in the United Kingdom on their present scale, it would be a disgrace if either of those courses were pursued.

Mr. J. Enoch Powell (Down, South)

The right hon. Gentleman has made an important statement on behalf of Her Majesty's Opposition; it is important that it should not be misunderstood. I listened carefully. Is the right hon. Gentleman saying that additional expenditure on warlike preparations and, if necessary, warlike operations should not at all be financed out of increased taxation?

Mr. Shore

Indeed I am saying that. I am saying that with massively unused resources we can finance, to the benefit of our economy, substantial increases in stores and other necessary purchases without resorting to any further restrictions or without exerting any further pressures on our underused economy.

The White Paper is as unacceptable to us as its predecessor was last year. Nothing that the Chief Secretary said has made it any more attractive. Our principal objections are as follows. First, it does nothing to alleviate the problem of unemployment. Indeed, it simply accepts it. Secondly, it further damages the range of essential public services at national and particularly local level. Thirdly, it is largely self-defeating in that its stated purpose of reducing public expenditure is offset, as the Chief Secretary confessed, by the extra cost of the recession. Fourthly, it reflects the animus and hostility to public expenditure which have informed the Government's whole policy and philosophy. Last, but not least, in presenting public expenditure in cash terms, the White Paper disguises and confuses when it should seek to reveal and clarify the real implications of Government expenditure decisions. I shall develop the criticisms in turn, I hope at not too great length.

This year opened with the number of registered unemployed being just under 3 million. The Government expect that to continue not just for the next 12 months but throughout the planning period. With 12½ per cent. unemployed, Britain now has the highest percentage unemployment in the seven major industrial countries of the Western world.

Far from using public expenditure to create demand and therefore to create the extra jobs that the economy and the country needs, the Government are still pursuing public expenditure cuts. They believe, as the Secretary of State for Employment recently said, that the Government cannot create demand; only customers can. Such statements blithely ignore the obvious fact that the Government and their agencies are large customers. Such words slipped from the Chief Secretary's mouth only a few minutes before he sat down.

As the White Paper shows, current expenditure on goods and services alone accounts for just over £22 billion a year. Capital expenditure is more than £6 billion. That £28 billion worth of demand is spent overwhelmingly upon the products of Britain's manufacturing and construction industries. There is little evidence that demand from other customers will increase, and if there is evidence it is not shown in Government speeches or in the publications accompanying the Budget. It is common sense for the Government, within reason, to increase demand from British suppliers through increasing their own purchases and their agencies' purchases. The Government's failure to do that and to recognise the central role that Government can play is our principal charge against them in relation to the unemployment problem.

Our second and related charge is that once again vital community services are being deprived of the resources and finances required. Alas, to document that charge is all too easy. I shall content myself with two areas of policy—housing and the inner cities. Anyone who has examined the housing section in Volume Two of the public expenditure White Paper and whose eyes have alighted on page 28 must have caught his breath at the table relating to public sector housing.

Completions of public sector housing, still reflecting starts in previous years, fell steeply from 91,000 dwellings in 1979 to 72,000 in 1981. The figures for new starts show what can be described only as an appalling collapse of the public sector housing programme. There were 93,000 starts in 1978, 69,000 in 1979, 46,000 in 1980 and 31,000 in 1981. In three years the Government have slashed public sector new house building by two-thirds.

Mr. Ian Lloyd (Havant and Waterloo)

One of the most interesting figures in the table is that the largest fall in public sector housing was in the last year of the Labour Government's period of office. Is there a factor common to both Administrations?

Mr. Shore

I do not think that there is. If the hon. Gentleman cannot understand the difference between starts of 93,000 in 1978 and starts of 31,000 last year, I cannot assist him. There was no compensatory increase in private sector house building. Indeed, starts in private sector housing building, which were 157,000 in 1978 and 144,000 in 1979, fell to 98,000 in 1980 and 116,000 last year. Thus, in the past two years we have experienced the; lowest level of housing starts in Britain since the 1920s.

Mr. John Townend (Bridlington)

Will the right hon. Gentleman give way?

Mr. Shore

No. I shall not be anything like as charitable as the Chief Secretary, who had to explain his own White Paper. I do not intend to explain a White Paper which is not mine. I have no intention of repeating the hour-long seminar which I gave to Government Back Benchers the last time that I spoke in the House on the Second Reading of the Finance Bill.

Mr. Townend

Give way.

Mr. Shore

I do not intend to give way, however pressing the hon. Member for Bridlington (Mr. Townend) may be.

In the inner cities the evidence of need and neglect is overwhelming. At first sight, the figures for the urban programme show an increase in spending and the two urban development corporations have additional funds to dispose of. Unhappily, the increase is more apparent than real. What has happened is that relatively small increases for the worst afflicted inner city authorities in the form of urban aid have been accompanied and more than offset by the withdrawal of block grant and housing investment allocations.

I tabled questions to the Secretary of State for the Environment a few weeks ago about the amount of Government grant and housing investment allocations paid to the 14 local authorities in the seven inner city partnership areas in England, including Liverpool, and parts of London and Manchester, which by general agreement are the areas of greatest need. The House will be interested to know that by 1981–82, while the urban aid programme shows an increase, in the Government's figures, of about £100 million for a three-year period, the rate support grant or block grant was running at £187 million lower in those 14 authorities than it was in 1978–79.

In addition—I found this almost believable but I always believe the figures supplied by the Secretary of State for the Environment—in those 14 local authorities the housing investment programmes were £450 million less in 1981–82 than in 1978–79. The modest increase that is marked in the urban aid programme is dwarfed by the withdrawal of other forms of Government aid as a direct result of Government policy decisions.

I have singled out housing in the inner cities, but the outlook for local authority expenditure as a whole could not be more gloomy. Page 11 of the White Paper shows that, in cash terms, the Government intend to limit the increase in total rate fund expenditure this year to no more that £350 million. That is 1½4 per cent. more in cash terms. In real terms, with the assumption of an increase in inflation and costs of 11 per cent., that must mean a massive reduction in total local authority expenditure and a much larger cut than we have experienced even in the past two years.

My third charge against the Government is that, inadequate as their public expenditure provision is and damaging as their cuts are to the services on which they fall, the Government's central objective of sharply reducing public expenditure is not being attained. That is the paradox. Their reasons are all too clear, as the right hon. and learned Gentleman told us again today. During a recession, cuts in public expenditure and services do not release resources for alternative use in the manufacturing or private service sectors. They leave those resources in idleness and the Government then find that the costs of idleness must be paid for out of public funds. Whether those costs are incurred on special "make work" programmes for the young, social benefits paid to the increasing army of unemployed and their families or in increased subsidies to industries and services whose underused capacity would otherwise force them into liquidation, the costs of recession must be met.

That is what happened last year. The Chief Secretary was obliged to confess to the House on 9 April 1981: 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, we increased the finance available to the nationalised industries in large measure because of the difficult trading conditions resulting from the recession."—[Official Report, 9 April 1981; Vol. 2, c. 1124.] It has been the same story this year. In the main points of the White Paper, which are itemised on page 2, the Government admit that their cash planning for 1982–83 has had to be increased by about £5 billion more than they had hoped for last year. Among the main increases are social security payments, which are up by £0.9 billion, and employment services, which are up by £0.8 billion; and the total net external finances of nationalised industries have been increased by £1.3 billion. Recessions are expensive and cuts in Government expenditure only make them worse. The Government are achieving much more a distortion of the pattern of public expenditure than the overall and massive reduction that they had originally planned.

Just how far short the Government have fallen of their original targets because of their failure to anticipate the costs of the recession, which they helped to bring about, is partly revealed in the summary table of public expenditure on page 2. The Labour Government, in their January 1979 White Paper, planned for a steady 2 per cent. growth in public expenditure and envisaged expenditure in 1982–83 of £120 billion at today's prices. The Government, in their March 1981 White Paper, aimed at an expenditure of just over £110 billion, which is a reduction, if they had achieved it, of no less than £10 billion.

The White Paper of March 1980 showed a figure about £3.5 billion lower than the £110 billion in the March 1981 White Paper. Against the Labour Government's original £120 billion plan for 1982–83, the Government, in the first fine frenzy of their assault on public expenditure in 1980, aimed at an expenditure this year of less than £107 billion. There would have been a saving of no less than £13 billion. Now we have the reality. The figure is not £107 billion as planned in 1980, nor £110 billion as planned in March 1981. If the present White Paper plans are not in turn revised, the figure for 1982–83 will be more than £115 billion.

Another indicator that reinforces my point is table 14 on page 7. There we see public expenditure as a proportion of GDP, to which the Chief Secretary alluded. The public expenditure, which took 41 per cent. of the GDP in 1978–79, the last year of the spendthrift Labour Government, and which remained at 41 per cent. in 1979–80, rose to 43.5 per cent. in 1980–81 and to no less than—we heard the revision—44.5 per cent. last year. This year it is expected to fall because of the anticipated real rise in GDP and the curbing of public expenditure. The Government believe that this year there will be an increase of 1.5 per cent. in the GDP. I am not persuaded that there are sound reasons for that expectation, but I am even more sceptical about the curbing of public expenditure, both because of the unrealistic inflation assumptions, especially in public sector pay, that are built in to the 1982–83 estimates, and because of the substantial increase in defence costs that is now almost certain.

My fourth charge is the unreasoning hostility that the Government show towards public expenditure. It is one matter for Governments to accept that the claims of public expenditure must be fitted in with other demands on total national resources; it is quite another for a Government to be so ideologically motivated that they consider it a positive virtue to reduce public expenditure, to reduce and traduce those employed in the public services and to plunder and disperse public property, whether it be our forests, houses, oil wells or national airlines.

I draw attention to the special combination of discriminatory measures that has emerged this year and to which there have already been indirect allusions in exchanges in the House. This year for the first time the public expenditure accounts have been presented in cash terms only. The old presentation, based on constant prices or volume, has been abandoned. The central point that the Government wish to make, which the Chief Secretary emphasised, through the change is that henceforth cash plans and limits will rule public expenditure. No attention will be paid—in theory, at any rate—to levels of service, to quanitity or to quality. To put it another way, in the fight against inflation, public expenditure is to be de-indexed. That is the point. Yet this is the very year which has seen, in other parts of the Budget and in the Finance Bill, the largest extension of indexing—that is to say, the indexing of private wealth against price inflation.

Index-linked Government stocks are now to be available, not just to pension funds but to private investors. Capital gains tax thresholds and chargeable gains are to be indexed, and there is now to be indexing of the bands of the capital transfer tax, too. In short, in the public sector there is to be nil protection against inflation, whereas in the private sector there is to be a massive extension of protection through the indexing of capital. It is, of course, the mass of our people who will suffer from the de-indexing of public expenditure, since it is through public expenditure that the major community services are provided. It is only a small minority of our people—the richest—who will gain from the private indexing of capital.

Mr. Brittan

That observation carries much less weight than would appear because the right hon. Gentleman ignores the fact that within each year's programme there is a provision for inflation. The right hon. Gentleman may not agree as to its extent, and he may not agree to any changes that are made to programmes in the light of subsequent developments, but simply to say that there is absolutely no provision for future inflation is quite different from the facts.

Mr. Shore

I am quite prepared to modify what I said, and simply say that the right hon. and learned Gentleman's whole explanation and justification of what he has put forward—the changed presentation—is that cash limits were not enough and that one needed to strengthen the control over public expenditure against the pressures of inflation by having simply cash planning and not having what he and others have alluded to—the funny money approach of the past. It is an attempt to make far more rigid and far less accommodating the use of cash limits in future to control and reduce public expenditure. It is a strong contrast with the automatic indexing of private capital. It is in marked contrast to the treatment being meted out elsewhere to people and institutions in the private sector.

My last objection to the White Paper is to the way in which the new presentation of public expenditure in cash terms has been put to us. I readily concede the inadequacies in the old methods of presenting expenditure plans in constant prices, but at least they were intelligible to anyone seeking to measure the trends of public expenditure as a whole or in particular sectors in which they were interested. However, the new system envelops the whole of public expenditure in an arithmetical fog. We can make no meaningful comparisons of one year with another unless we have not only the inflation rate of the past but the inflation assumptions of the present and the future.

Mr. Brittan

They have been published.

Mr. Shore

The Chief Secretary says that those figures have been published, but they were published in the most obscure way that he could possibly find. The energetic and skilled assistant who is employed by the Select Committee had to hunt his way through both volumes of the public expenditure White Paper and the Red Book before he found the inflation assumptions. That is not good enough. It is absurd not to state clearly the inflation assumptions or the GDP deflator. Unless that is done, and done clearly, there is no possible way in which the House can exercise its proper and traditional role of examining public expenditure. Indeed, we do not even know whether public expenditure will rise or fall.

It is not clear to me from the exchanges that took place between members of the Select Committee and Treasury officials whether Ministers themselves any longer have any clear way of measuring their own programmes in meaningful terms. This is a serious point because we have been told that, apart from the Department of Education and Science and the Ministry of Defence, figures on the old constant price basis are no longer available or being kept, either in the Departments themselves or in the Treasury at the centre.

Therefore, what information, other than cash figures, is available to Ministers and to cabinet when they are now considering public expenditure questions? I assume that they have to put their own figures on a constant price basis, or they must have fed to them a clear GDP deflator. Otherwise, they would not know what they are talking about or whether they have done well or ill as a result of their attendance of a particular Cabinet or sub-committee meeting.

I conclude simply by saying that this is an incompetent, obscure, muddled and ill-motivated White Paper. There is a clamant need for the use of the public expenditure weapon to engage the great problems of unemployment which is now afflicting all parts of the country and all age groups. That need will not begin to be met by this White Paper. It is for that reason, and for the other reasons that I have outlined, that we shall vote against the White Paper tonight.

5.36 pm

Mr. Terence Higgins (Worthing)

I hope to take up a number of the points raised by the right hon. Member for Stepney and Poplar (Mr. Shore). I should like to say something about the debate itself, something about the change in the basis of the figures in the White Paper, to which the Chief Secretary devoted a considerable amount of time, something about the allocation of resources revealed in the White Paper, and, finally, a word or two about the general state of the economy. I hope to do all that in not too long a time.

These debates do not have a long-standing tradition. I believe that the first took place on 21 January 1970, so it is not a long tradition. Indeed, the White Papers themselves have been in existence for only that length of time. However, it is true to say that none of the debates on the White Paper could reasonably be described as a great parliamentary occasion. It would be accurate to say that most of them have been somewhat unsatisfactory. We realise how insignificant they can be when we recall that the Labour Government lost the vote at the end of the debate on one of their White Papers, and that the net effect was absolutely nothing. So these are strange debates. Of course, they give hon. Members an opportunity to have a general discussion on the economic situation and to raise points about particular programmes in the public expenditure set-up, and so on, but they are not satisfactory occasions, and the reason is that the House does not take any meaningful decisions.

I hope that as a result of the proposals put forward by the Select Committee on Procedure (Supply), which sat in the last Session, we shall move to a system—at any rate on the detail of these matters—in which individual estimates can be debated and voted on. We should then need to consider carefully what role this particular debate on the annual White Paper—which, of course, is not just for the immediate year ahead but for a period of years ahead—should play in our proceedings.

There is also the question of the timing of these debates. This debate takes place after the Second Reading of the Finance Bill, whereas on some occasions it has been the other way about. Many hon. Members have taken the view that there was a case for bringing public expenditure and taxation together, so that we could strike a balance between the revenue raised and the revenue spent, and take a view on the difference between the two, which would normally represent itself in the form of public sector borrowing.

The Government have brought the two together by what might reasonably be called the device of delaying the publication of the White Paper that we are debating today from last autumn to the spring of this year. In many respects that is an unfortunate way of bringing the two together. The House could have received the information earlier than in the elaborately presented White Paper this year. In the light of the Armstrong committee's reports, which are being looked at by the Select Committee on Procedure (Supply) and the Treasury and Civil Service Committee, we should consider that matter. The two sides need to be brought together, but it is not satisfactory to bring them together in this way. The net effect has been that the debate has taken place later than would have been the case normally.

I shall take the opportunity of this debate to make some specific points. There is the important question of the way in which the figures have been presented and the radical change from funny money to a cash basis. The Select Committee and I do not see anything wrong with that change.

The practical effect of funny money was to compensate spending Departments not only for inflation but for all increases in the costs that those Departments faced. As a result, the control that the Treasury exercises over spending Departments was loosened. I am concerned about the level of public expenditure. Therefore, I think that it is good that the Treasury should have more effective control over spending Departments.

There has been a move to the system of cash planning in addition to cash limits, which is a different animal. It is clear from the evidence that the Select Committee received that officials feel that it is necessary to say that they will move to the cash planning system on its own, because otherwise they would have great difficulty in preventing spending Departments from reverting to the old system. That is naive argument. If the system is to be changed within the Government, it is extraordinary that the Treasury should think that it cannot effectively enforce the change. It is also clear from the evidence that we received that it appears not to have done so, at any rate in respect of some Departments.

Be that as it may, it is still crucial that the House of Commons should have some means of comparing public expenditure in one year with public expenditure in the current year, and future years. While we look at this beautifully presented set of tables—for example, table 1.9 or 1.1 in the Blue Book—the reality is that the pounds in one column, 1977–78, are not the same as in the 1978–79 column. During the Select Committee's examination I asked one of the senior officials at the Treasury whether he would have preferred to spend £1 million last year or this year. He said that he would have preferred to spend that amount of money last year. The reason is simple: it was worth more last year than this year.

My point is simple. The run of figures in the White Paper is meaningless. It is essential that we should have some means of making them reasonably comparable. For the past, that is no great problem. We know what the rate of inflation has been. We also hope that we can obtain estimates of the change in relative costs, that may be more difficult. For the past, those problems can be overcome.

For the future—looking forward from now—it is right that the inflation assumption should be made explicit. The Treasury and Civil Service Committee's advisers eventually managed to dig out some inflation assumptions. There is a strong case for moving forward to the time when a better system is devised, which still enables one to make a comparison from one year to another. In the light of the debate and other representations that he has received, I hope that my right hon. and learned Friend the Chief Secretary will ensure that the White Paper includes such a calculation in a sensible form and that the House has better information.

Reference has been made to an article by my right hon. and learned Friend's brother, Mr. Sam Brittan, a distinguished writer in theFinancial Times. He said: The Armstrong Committee recommended a switch to 'cost terms'. This is best regarded as the nearest equivalent to cash control in an inflationary world. If you like, it is indexation without 'funny money'. Mr. Brittan takes a hypothetical example of a battleship costing £100 million. On an assumption of inflation of 10 per cent., the cost would be £115 million in a year's time. Under the bad funny money, no increase in expenditure is registered. Under pure cash measurement, it is a 15 per cent. increase. In cost terms, however, perhaps it would be a 5 per cent. increase. That is what has happened to the cost of that item of expenditure over and above inflation.

The definition that Mr. Brittan sets out is convenient for the House to consider. I hope that my right hon. And learned Friend, when the White Paper is published next year, will make allowance for those crucial distinctions so that we can take into account what is happening and have a better basis for adjusting the changes that are taking place.

Mr. Brittan

Does my right hon. Friend agree that, while that is something that we shall want to consider, the article to which he referred did not commend cost terms but asked merely for a more prominent display of the cash factors?

Mr. Higgins

With respect to my right hon. and learned Friend, that is not what his brother was arguing. We all agree that the change to a cash basis is a good thing in terms of Treasury control over spending Departments. We also agree that it would be unfortunate if the old system of funny money undermined that control. None the less, we want to move forward to a better system of analysing the changes in costs and prices, which will enable the House to appraise what is happening.

It is true that the change in the inputs, however it is adjusted, is not a true measure of what one is getting for the money afterwards. That is a more fundamental problem, which is difficult for the statisticians to reduce to simple figures.

Mr. J. Enoch Powell

Is it not true to say that, while the cost method, to adopt the phraseology of the right hon. Gentleman, can be applied retrospectively, we can retrospectively know what that battleship of those specifications cost? It is impossible to apply that principle in future, because we cannot know what changes in the future in real terms there will be in building that battleship.

Mr. Higgins

The right hon. Gentleman is right. None the less, one can make assumptions about what is likely to happen. It is curious that, in a sense, it does not greatly matter how accurate the assumptions are, but it is important that we should get an idea of the direction in which those figures are changing.

Dr. Bray

Does the right hon. Gentleman agree that the right hon. Member for Down, South (Mr. Powell) is wrong about the battleship? We know what the battleship costs in real terms. It costs one battleship. That is what we mean by real terms. We do not know how much we shall have to pay for it.

Mr. Higgins

This argument is becoming a little philosophical, which is always a danger. None the less, one can assume what the change will be in cost terms and relate that to the present situation. I could illustrate that example more easily if I had a blackboard. It is a disadvantage that we do not have such an object in the Chamber. However, I am on dangerous ground.

With regard to the allocation of resources, attention has been focused on the relative proportions on capital as against current expenditure. In that context, it is important that the Government should seek to control overall expenditure. The balance between current and capital expenditure has been radically changed, partly as a result of the recession—I noted with interest what my right hon. and learned Friend the Chief Secretary said about adjustments for that—and partly as a result of public sector pay. We have made considerable progress, but I hope that in winding up the Minister will comment further.

The run of figures over recent years, particularly with regard to the balance between current and capital expenditure, has been biased unfavourably by the extent to which pay has increased. I hope that the change to the cash system will enable us to take a more precise view.

The tradition is that in this debate we review aspects of the general economic situation. I wish to make a bread point. In a sense, the debate and Second Reading of the Finance Bill come together. The Treasury and Civil Service Select Committee has issued two reports this year. One is on the White Paper. The other is on the Budget, which provided ammunition for Second Reading of the Finance Bill.

I am concerned about the lack of clarity in Government policy on monetary control. In the early part of the Government's period in office I repeatedly stressed that we could control the money supply in one of two ways. There could be a small gap between public expenditure and taxation and a low public sector borrowing requirement. The money supply could be controlled in that way at low rates of interest. Alternatively, there could be a large gap between public expenditure and taxation and a large PSBR, which, if financed in a non-inflationary way, would require high interest rates so that the Government could borrow from the so-called non-bank public. The objective should have been the first. In practice, it was the second. To a large extent that was due to the failure to cut public expenditure. That is clearly brought out by one of the tables published in the Select Committee's report on the public expenditure White Paper.

That having happened, we move to a different situation. It is generally agreed that one can control either the supply of money or interest rates, but not both simultaneously. We have been told consistently that the Government are involved with the control of the money supply. I have always been anxious that effective control should be exercised over the money supply.

A little over a year ago the Bank of England pumped in considerable amounts of money by a system of purchase and resale agreements in the gilt-edged market, which had the effect of keeping down interest rates rather than controlling the money supply. That fact was brought to the attention of the Government and others and was effectively reduced.

This year—this comes out in the evidence to the Select Committee, which will be printed on Friday; it has already been publised in roneo form—the Goverment overfunded the deficit substantially by about £3 billion. They could, had they wished, have controlled the money supply within the original limits. In the event, they went into the market and purchased large quantities of private bills, thereby offsetting the £3 billion overfunding.

Presumably on instructions from the Chancellor, the Bank of England has been reducing the level of interest rates. Had the Government not re-lent the money by purchase of the bills but had simply overfunded, they would have been within the money supply targets.

Perhaps the Minister will confirm whether my impression is right or wrong. I get the impression that when it came to the crunch—whether to control the money supply or interest rates—the decision was to keep interest rates down rather than to allow them to rise to levels which would have kept the money supply within the original targets.

It is a strange situation. It all relates to public expenditure and taxation, but, in a more complex way, to the exchange rate. We have had earlier debates about whether the Government have an exchange rate policy. Within broad limits, they now have one. We need a clearer exposition than we have had in the Budget debates or on Second Reading of the Finance Bill of precisely what the Government's policy is. Are they controlling interest rates in relation to the exchange rate or the money supply? To which have they given primacy? One cannot control interest rates and the money supply simultaneously. I raise that point because it is important, and by tradition we raise broader issues as well as the philosophical and pedantic ones to which I referred.

The move to cash limits is right, but we need to reassert Parliament's demands for information on what is happening to the spending programme in figures that are meaningfully comparable over a period of years.

5.55 pm

Mr. J. Grimond (Orkney and Shetland)

I do not intend to follow the right hon. Member for Worthing (Mr. Higgins) in stirring up once again the endemic trouble and strife between the Chief Secretary and his brother.

However, the right hon. Gentleman raised an important point about the unit of account in the papers that we are considering. The Government point out again and again that, not only in regard to inflation and price rises but to the level of unemployment that they expect, it is not a forecast or prediction. If it is not, what on earth is it? On what basis are we to proceed? I am not averse to having the figures set out in terms of cash, but we must have some way of making a forecast in real terms. How is the transition effected?

The right hon. Member for Stepney and Poplar (Mr. Shore) started his speech by pointing out that the expedition to the Southern Atlantic would cost money and would no doubt affect public expenditure. I agree, but I do not intend to go into matters that arise from that, except to say that the Government might again look at their determination to expend enormous sums of money on an independent nuclear deterrent which many of us believe is now unnecessary.

Secondly, my faith in the Government's judgment will be even more shaken than it is now if they proceed to build an enormous new Navy to carry out such expeditions. It would be padlocking the door after the horse has escaped on a large scale. No doubt some adjustments will be necessary, but I trust that we shall not have a huge naval programme on the principle that such situations are likely to arise all over the world. I am glad to see that at least I have the agreement of the Chief Secretary.

To say the least, the production of our national accounts has always been eccentric. Any company that confused income and capital in the way those accounts do and considered the raising of money separately from expenditure would soon be bankrupt, if not at the Old Bailey.

The right hon. Member for Worthing, who has great experience in these matters, made an important point. It is a good thing that we should consider these White Papers now in the spring instead of in the autumn, but we should do so before the Budget and the Finance Bill and we should do so on comparable figures. As they stand, they are not comparable. It is not a comparison of how we spend and how we raise the money.

The Treasury and Civil Service Committee has criticised the lack of information about the services on which the money is to be spent. It rightly states: Ministers, Members of Parliament and the public all need to know what levels of service are planned to be supplied in the various parts of the public sector. We are presented with sets of figures for various programmes. They appear to be derived not by considering what is desirable in each programme but by trying to equate likely demand with the amount of public expenditure that the Government consider that they can sustain. They are largely essays in accountancy.

The Chief Secretary shakes his head. They appear to me, as an amateur, to be essays in accountancy, and not a very convincing form of accountancy. I shall take part of the section on health as an example. Section 9 begins: Demands for health services are growing". Section 10 begins: Plans for future health spending must however be formulated with strict regard to the total public expenditure which the economy can sustain. There is no real attempt to discuss whether the growing needs in the Health Service are justified. The Chief Secretary has referred to the increase in the number of old people. I accept that this has resulted in a growing need that is justifiable. However, there has been no attempt to discuss the general position. Apparently there has been a huge increase in demand for health services and there has not been the money to meet them. On Monday the hon. Member for Horsham and Crawley (Mr. Hordern) said that the staff of the National Health Service had increased in two and a half years by 67,000 and yet there was a waiting list at hospitals of no less than 628,000. It seems that something is gravely wrong and the House has not discussed it in practical terms. It is something that goes far beyond the accountancy of the public expenditure White Paper.

Public expenditure White Papers are already fairly lengthy. The amount of paper that is poured out by Governments increases yearly and I am loth to demand any more, especially if that will result in extra time and effort for the Treasury. The White Paper before us is an elaborate production. However, I should like to feel more assured that in Ministries a rather different examination is taking place of the needs of the various services that we provide and that in due course the results of such an examination will be brought to Parliament.

We should be examining the essentials of Government activities, especially in welfare services, and new methods of meeting them. I do not know whether hon. Members have read a book that has been published by Mr. Le Grand. The book is the latest in a long series of publications which observe that in many of the social services the very people who are paying taxes to maintain the services are those who benefit from them, and that really there is a transfer of moneys from one pocket to another with a considerable cut being taken by the Civil Service on the way.

The statistics in Mr. Le Grand's book, which is entitled "The Strategy of Equality", show that it is the comparatively well-off who gain, for example, from the subsidies on housing, transport, and health care. Surely the time has come when we should consider abolishing this cat's cradle of taxation and subsidies with a view to introducing something in the nature of a reverse income tax scheme or, as I would put it, national minimum earnings.

A striking feature of the forecast before us is that public expenditure at market prices as a proportion of gross domestic product is now over 40 per cent. It has been rising even under the present Government. I can remember the days when Conservatives and many others said that if the proportion rose above 30 per cent. the economy would be unmanageable. Although the Chief Secretary has said that he expects the proportion to fall next year, it is a fact that it has been rising over the past two years.

I accept that our kind of public expenditure at market prices as a proportion of gross domestic product is not unique in Europe. There are other countries where the proportion is as high. I accept that it is caused in part by the heavy claims of unemployment. The right hon. Member for Stepney and Poplar said that a high number of unemployed will inevitably increase Government expenditure. However, the proportion of public expenditure to which I have referred is a matter that should concern us. It appears that we are becoming inured to a high proportion of Government expenditure against GDP that will be extremely difficult to sustain.

The Government wish to take credit—the Chief Secretary mentioned this today—for reducing the number of civil servants. Some of the reduction has possibly been achieved by sleight of hand. As I said following the Budget Statement, I believe that we should have new methods for paying for some of the services that are included in the White Paper that count as Government services.

It is alarming that when cuts take place they fall largely on capital and not on consumption. This has been going on for several years. In page xiii of last year's report of the Select Committee on the Treasury and Civil Service it was stated: One cause of the past decline has been the relative ease with which, when spending cuts are required, capital spending can be reduced. Irrespective of what political view is taken about overall public spending as a proportion of GDP, the Committee believe that the decline in capital spending relative to current expenditure should be halted and reversed. That view is repeated this year and it is said that no improvement has been made. I do not believe that it is desirable to pour money into capital expenditure projects of any and every sort. The reason why investment has been so low is probably due to the sluggishness of the economy. I do not advocate that the Government should back every capital project that is brought before them. However, we should take not of what the Committee, which is represented by all parties, has said for two years. It is obviously easy, especially in the local authority sector, to cut capital expenditure. It is much easier to do that than to get rid of staff or to cut current expenditure. The Government should give more of their attention to this area of public expenditure.

In the local authority sector the Government have warned of the need to economise. The method of local authority finance does not encourage economy. The grant system produces a direct incentive to spend as much as possible so long as the Government will pay a high proportion of the expenditure. Local authorities should realise that all parties are carrying out a re-examination of possible methods of raising local government finance. Whatever changes are made to the rating system and irrespective of whether we have the introduction of local income tax, there will be a need for more money to be raised locally. I am not certain that the local authorities appreciate that. They seem still to be entering into commitments with Government approval that will have to be paid for over many years. They will not be able to look to the Treasury for the removal of these obligations.

Mr. Nigel Forman (Carshalton)

Prudent local authorities, such as Sutton, examine capital projects carefully, although they may appear desirable, because they have to consider the recurrent revenue implications of the projects.

Mr. Grimond

I am glad to hear the hon. Gentleman say that. I do not want to say that all capital expenditure by local authorities should be cut, particularly at this time. it has been said that high unemployment provides a way of creating employment. I am glad to hear that authorities appreciate that it it is unlikely that the new system, whatever it may be, or changes in the present system of local finance, will mean that they can look to the Exchequer for as much money as they get from it now.

Special indexation is important for local authorities as well as for Government. I suspect that it will soon be extremely difficult to raise money at fixed interest unless there is indexation. This is something that will spread throughout the market. If inflation continues at the rate that many think is certain, there will be a heavy burden on generations to come.

There is a need to examine how public expenditure is to be controlled, and so far we have not found the answer. As the right hon. Member for Worthing has said, we want more information on how the Government are managing the economy. I found the right hon. Gentleman 's concluding remarks extremely interesting. We need to know far more about what would happen if a rather looser hand were placed on the public sector borrowing requirement. Would that, as the Treasury model indicates, yield a considerable amount of employment without any great increase in inflation? These appear to be matters on which the House needs further information.

The time has now come for a radical reappraisal of the functions of Government. At the moment they are unable to discharge their obligations. The happy prophecies of Beveridge have come to the end of the road. There is simply not the money available from taxation. There is not the elasticity of tax resources to pay for the great increase in social services that we all consider necessary. Therefore, we must look at other resources. I should like to think that the Government will continue to try to raise more money for the nationalised industries from the equity market, and, whether they remain nationalised or are denationalised to some extent, to take that off the PSBR.

Mr. Straw

Does what the right hon. Gentleman said about the Beveridge promises having come to the end of the road mean that he does not take the view—which was a central part of the Beveridge report—that the Government should regard it as a duty to maintain full employment?

Mr. Grimond

It is absurd to say that the Government have a duty to maintain full employment. They are not maintaining it. It is like King Canute's courtiers. He might tell them to tell the tide to go back but the tide sticks true. Governments can say what they like. They can say that they can bring sunny weather this summer. It is a preposterous question and always was. Governments cannot maintain full employment in every case. There was not full employment under the last Labour Government and there will not be under this. It is part of a Government's duty to try to maintain as stable a level of employment as is reasonable, bearing in mind other claims that they have, such as stopping inflation. There is a great deal to be said for the proposition that was put forward by Professor Meade, that a more consistent Government policy on the gradual expansion of the money supply without explosive breakaways might increase employment. For a Government to say that they take responsibility for maintaining full employment always seems to be the sort of preposterous thing that only Governments dream of saying. The sooner they give it up the better. It is their business to reduce unemployment. At the moment, in order to undertake a certain amount of capital investment, they are reducing it. If I were the Government I would be chary of saying that I could maintain full employment for all time whatever that great Liberal Lord Beveridge said. I am not sure that he did say that.

Mr. John Major (Huntingdonshire)

Does the right hon. Gentleman recall that the Beveridge projections never anticipated that the cost of the National Health Service would exceed £200 million in 1945 terms?

Mr. Grimond

Of course, Beveridge defined full employment as having a quite large amount of unemployment, and so have all Governments. Certainly, Governments have a strong duty to act on the market so that maximum employment can be guaranteed. I do not think that they can undertake to maintain full employment in all conditions if that means an unemployment rate below 3 per cent. or even perhaps 5 per cent.

We should look at the way in which these various subsidies and services have grown up. Most services are essential and must be kept going. My complaint is that they are not being kept at a sufficiently high level. There is a great deal to be said for turning over some of the aid to direct help to incomes, either by reverse income tax or by minimum earnings. We should try to get away from the endless different forms of subsidy that are supposed to help different categories of people and which in many cases are expensive to administer, and often do not achieve their aims.

6.14 pm

Dr. Jeremy Bray (Motherwell and Wishaw)

There is a lively and active interest in public expenditure debates nowadays. That is partly because the public expenditure White Paper is subject to some examination by the Treasury and Civil Service Committee. The right hon. Member for Worthing (Mr. Higgins) ventilated some of the arguments that were brought out earlier.

There was a time when the Government could stand a defeat on the vote on the public expenditure White Paper and press on regardless with all the programmes contained therein. Previous Governments did that, but I do not think that it will be so easy today. The Chief Secretary tried to argue that while there have been palpable failures in the control of public expenditure, matters have looked up since he took control. That argument is not borne out by the figures. My right hon. Friend the Member for Stepney and Poplar (Mr. Shore) drew attention to the fact that the March 1980 White Paper was not included in the comparisons in the first table in the published White Paper. It is equally relevant that the Chief Secretary, when he said how splendidly he had been controlling the level of public expenditure—because the outturn in his first year of control, 1981–82, would be more or less spot-on on the target set in last year's White Paper—failed to take account of the fact that the decisions for which he has been responsible during the past year relate principally to public expenditure in 1982–83, not 1981–82. If we look at the outturn there, compared with the planned total for 1982–83 in last year's White Paper, there has been an increase of about £5 billion.

I do not, for one moment, argue that there should not have been that increase. However, for the Chief Secretary to say that there is a virtue in sticking to the planned figures and then, on the decisions for which he has been specifically responsible, to depart from them in this way, underlines the muddle that the Government have got into the operation of their public expenditure planning system. They have been unable to fulfil their programme. Their objectives in that programme had faults and the programme was wrong anyway.

What should the strategy be? If it is wrong to criticise the Government for departing from targets that they had mistakenly set themselves, by what arguments should the Government plan and control the course of public expenditure during this and future years?

It is a highly uncertain world and a whole lot of events can hit one. However, what needs to be made clear, is how one responds to those unexpected events. Past assumptions on which the Government have turned their back were that the real value of programmes should be maintained and accommodated in an increase in the current price of those programmes. However, the doctrine now is precisely the opposite—that the cash value of programmes is frozen and stuck to all costs. The Government are already acknowledging that that is inapplicable over wide fields of Government expenditure—certainly those which are not cash limited—and they will find that the number of areas which cannot be cash planned are even wider still.

Every time I try to argue about how to accommodate uncertainty and say that it is impossible to do it without reference to the full planning apparatus that the Treasury has at its disposal, in particular the use of the Treasury model, the Chancellor displays his crashing inferiority complex on these matters and launches into a personal attack on myself, as he did at Question Time the week before Easter. However, that does not deter me in the least from arguing that the declaration of objectives that the Chancellor adopted is extremely important. It is important to set objectives, not only on the final objectives of inflation and unemployment, but on intermediate objectives. The setting of those objectives should not be for specific figures such as the 8 to 12 per cent. on money supply, or the £10 billion on PSBR.

The objectives should be stated in terms of how much unemployment we are prepared to put up with to reduce inflation by 1 per cent. If trade-offs were systematically stated, we would know how to adjust to the unexpected. We would still retain a high degree of discretion and we should still exercise political judgment, but such a statement of objectives would greatly clarify the way in which Departments operate and in which markets respond to the present uncertainties of Government policy.

If we were to state the priorities, the Government would be unable to justify the present level of public expenditure. The present squeeze is quite unjustifiable. That is true whatever weight the Government may place on the reduction of inflation and whatever the time period. Indeed, that was clearly brought out in the Government's paper to the National Economic Development Council. The paper was withheld from publication, but is available in the the Library. If the Government were to follow the logic of the figures in that paper, public expenditure would be much higher than it is.

However, a price of some kind must be paid some time in the increased likelihood of inflation. A price will also have to be paid in the private sector and in the balance of resources used by the public and private sectors. The balances against inflation and between the public and private sectors are the very considerations that should be properly and robustly formulated. My right hon. Friend the Member for Stepney and Poplar outlined the result of such trade-offs in his pre-Budget speech. He argued that an increase in public expenditure should be matched by a very big reduction in employers' national insurance contributions. It is implicit that the number of unemployed knocked off the register could be greatly increased if there were some wage restraint.

The Chancellor of the Exchequer took up that point about wage restraint. In his NEDC paper he produced a simulation, showing the benefits of wage restraint and made a point that the Chief Secretary has apparently not grasped. He pointed out that under the Government's cash planning system, the advantages of wage restraint were even greater. The cash limit and the cash planned total mean that if the rate of inflation is lower than expected for any cash planned total, the level of public expenditure in real terms will be higher and the level of unemployment will be lower.

A framework within which the totals of public expenditure can be sensibly planned will not dictate the volume of public expenditure or the balance between different programmes. Why? The impact on the rest of the economy largely depends on the objects of public expenditure. Public money spent on transfer payments, the purchase of imported goods or on the construction industry will have an accordingly different impact on the balance of payments, the current account, the exchange rate and even on the money supply. Each item of expenditure has a different impact on the economy. Therefore, the way in which the public expenditure programme is put together necessarily plays upon the determination of the total.

Consequently, the Government's public expenditure strategy is incomplete without an industrial and social strategy. However, the Government have no industrial strategy. They take pride in the fact that they leave everything to the market. Perhaps they are beginning to repent of the attention that they are giving to nationalised industry investment. However, they totally ignore the industrial impact of their policies in macro terms on the private sector. The Government have a clear social strategy. The social impact of their economic policy is highly regressive. The balance of public expenditure damages those who are dependent on the Welfare State and the impact of their economic policy hammers, in particular, low paid and manual workers, whose earnings fluctuate far more with the level of economic activity than those of the white-collared, salaried, middle class.

The Government have followed an economic strategy that does not include an industrial strategy and that has a highly regressive social content. As a result, they have an extraordinarily contorted attitude. The most public evidence of that is the imbalance between capital and current spending. That is revealing not only in terms of their wisdom—or lack of wisdom—in provision for the future, but in terms of the extraordinary pressures placed on those in local authorities and elsewhere who have to decide between capital and current expenditure. There is no discretion. Any discretionary area has to go—whether it is housing modernisation, school books, or the modernisation of British Rail. The consequences for the future quality of life in Britain are appalling.

If we are to have a Government who base their public expenditure plans on a proper social and industrial strategy, the design and implementation of that strategy cannot primarily be a matter for the Treasury or for the central Government Departments but must primarily be a matter for those in the field. If we told those in local government, in the education system and in the National Health Service that resources were limited, but that we believed that they had a better idea than anyone else of how to run a tight ship, we would receive a constructive response. If we asked them to tell us the appropriate management system in, for example, the National Health Service to give good value for money, the pattern of spending would be quite different. There would he much more emphasis on preventive medicine and on delivered personal services and less on organisation and bureaucracy. However, because we have centrally planned and departmentally administered programmes, rather than managerially devolved programmes, our public expenditure system is out of control.

Mr. John Townend

Does not the hon. Gentleman agree that local authorities have such autonomy? They are not dictated to from the top about their management systems. Does not the hon. Gentleman agree that local authorities have exceeded their spending limits and have often been guilty of far more extravagance than the National Health Service?

Dr. Bray

That is not the story that is heard nowadays. I am talking not about Labour councillors, but about responsible officers for major local authorities. I invite the hon. Gentleman to talk to Mr. Robert Calderwood, chief executive of the Strathclyde region. That is the biggest local authority in the country. I invite the hon. Gentleman to ask him what the Government's measures have done for financial responsibility in local authorities. They have gravely undermined it. If we are to set up devolved management systems in the public sector, we must put much more emphasis—as the Chief Secretary rightly said—on output measurement. I refer to measures of output that are developed not centrally and not controlled centrally—because they cannot possibly be uniform—but developed down the line and by the people who are to operate them.

The Government and the Treasury need to know what is going on. In a fumbling way, they are trying to find out. The Treasury is conducting a survey on output measurement. The report of the Treasury and Civil Service Committee—"Efficiency and Effectiveness in the Civil Service"—published recently, shows that the Government and Treasury have covered less than half of public expenditure, and within that half only a tiny proportion has any output measurement supplied to it.

The position now is that output is not being measured and the prospect of it being measured sensibly in the lifetime of the Government is not on. We are stuck with an entirely financial approach to the control of public expenditure, which has no practical impact on the efficiency with which public expenditure is managed.

I hope that the Minister of State, Treasury, who has a particular responsibility in the Civil Service Department, will give a great deal of attention to the practical suggestions that are made in the report on efficiency and effectiveness. Even if the fruits are not reaped by the Government, they will certainly be down to the reputation of the Minister in ways which I am sure he would value.

If we developed a much more devolved approach to public expenditure management in local authorities, in the nationalised industries and in the National Health Service, the impact on public expenditure, on the public expenditure White Paper, and on this type of debate, would be substantial. We would be concerned not just with planning totals stretching five years ahead, but with management systems. We would not be debating the issue against a set of financial accounts in which the figures being debated bear no relationship to the decisions being made. We would be in a position to exert a practical influence on particular programmes.

When the permanent secretary and the financial officials at the Ministry of Defence were giving evidence to us recently, we asked them "If the House of Commons wished to have a vote on the Trident expenditure programme, and wished to have less Trident and more frigates, on which Vote would we exercise that judgment?" The answer we received was that there is no Vote where the House can exercise its judgment. There is only one Vote, which covers maintenance, investment and provision for ships in the Royal Navy. The management decisions that the Government take, and even the political decisions that the Cabinet takes, bear no relation either to the programmes as published in the White Paper or to the Votes as published in the Estimates.

The reform of our system of public expenditure control is a long-running campaign. It has run through every Parliament of which I have been a Member. Reform will not be achieved in this Parliament. I regret very much the backward steps that are taken from time to time. One of those backward steps is this year's public expenditure White Paper. By merely publishing the cash figures, and by its artificial inflation of output measurement when it had no basis on which to justify such statements in terms of actual practice in Government, the White Paper has done the responsible development of public expenditure control a great disservice. Mr. Peter Hennessy, a former correspondent of The Times, described the role of the Civil Service as "male nurses to delinquent Ministers". That type of unhappy result shows in the debate today. Only under a future Government, when we get a combination of a responsible management system with the right social and economic priorities, will the sad story that we are debating today in this White Paper look better.

6.34 pm

Mr. Nigel Forman (Carshalton)

I do not wish to follow the hon. Member for Motherwell and Wishaw (Dr. Bray) except to endorse strongly his plea for greater efficiency in various areas of public spending and to agree with him on the emphasis that he sought to put on the output of public spending and the attention that should be given to that aspect.

In what I hope will be a short speech, I wish to make three points. My first point relates to some aspects of trends in public expenditure which are of concern to me and to other hon. Members. My second point relates to the composition of public spending. My last point relates to public attitudes towards public spending and what I see as the role of public spending in the economy.

Many hon. Members on both sides of the House now agree that it is disturbing that total current spending more than doubled in cash terms from 1976–77 to 1981–82, and that within that doubling we saw a doubling of public sector pay. That in itself would not be a cause for great gloom were it not for the fact that over the same period total capital expenditure in the public sector increased by only one-fifth and gross domestic fixed capital formation actually fell. I agree with the Treasury and Civil Service Select Committee that this trend must be reversed.

It is equally disturbing, when examining trends, to see the figures for local authority spending over the same period. Again, we find that total current spending doubled in cash terms, whereas total capital spending on goods and services fell by nearly a third. That trend is not healthy in the longer term and needs to be reversed.

It is always difficult in a free and democratic society to have a consistent bias in favour of investment for a long period rather than to allow, which is always easier and sometimes electorally popular, indiscriminate present consumption. None the less, this is an aim to which we must direct our efforts constantly, because the price of inadequate investment, whether in new plant, equipment and machinery or in the education and training of people, will be too high in future and will have serious long-term consequences.

Therefore, although I agree with some of my hon. Friends who take the view that there are some forms of current spending which are eminently desirable both in themselves and in the interests of the wider community, such as doctors, nurses, home-helps and police, I believe that the whole House would be right to endorse the point made in the Treasury and Civil Service Select Committee's report about the disturbing discrepancy between the trend on capital spending and the trend on current spending.

My second point relates to the composition of public spending. All hon. Members know that the composition of public spending, as reflected in the public expenditure White Paper every year, tells us a great deal about any Government's political and social priorities. It is an X-ray of those priorities.

I am happy to see that, under this Government, defence spending should be up so significantly on a sustained basis and I approve of that. Equally, I approve very strongly of the fact that law and order is getting a generous share of the available public spending. These are clear priorities of the Government, as they have been of the Conservative Party for many years.

It is fair to say, as the right hon. Member for Stepney and Poplar (Mr. Shore) pointed out, that there are a number of demand driven forms of public spending, such as social security and nationalised industry borrowing, where we get higher spending than was otherwise planned. My right hon. and learned Friend the Chief Secretary referred to these matters as well.

The effects of factors such as demography and the economic recession are ineluctable. I suggest that in such cases it is right for sensible Governments to adjust to reality rather than to seek to adjust reality to their predispositions. However, it underlines the problem for any Government who are seeking to take a responsible attitude towards public expenditure, because only 40 per cent. of total public spending is directly cash limited. The rest is either demand determined or only under what might be called remote control—for example, via the rate support grant and the control which that has on local authorities.

At a time when public sector pay accounts for 30 per cent. of the total of public spending—at the fairly alarming figure of £34,000 million in 1981–82—this underlines one aspect of concern about the composition of spending, which is the rather ambitious nature of the Government's policy in assuming a negative relative price effect with their 4 per cent. cash limits for public sector pay in 1982–83. That assumption flies in the face of all the historical evidence. I allow that it is worth a try, because, as my hon. Friend the Member for Bath (Mr. Patten) is fond of saying, we have to bear down on public sector pay. But the fact remains that it is a fairly heroic assumption. I hope that the Government get somewhere near it. I hope, too, that all the public spending plans are not put out by the unreality of that target.

Mr. Race

Is the hon. Gentleman aware that the relative price effect was negative during the last 2 months and that one of the reasons for it was the decline in the real value of the take-home pay of public sector employees—those whom to some extent the hon. Gentleman has been criticising?

Mr. Forman

I am grateful to the hon. Gentleman for pointing that out, because to some extent it endorses my argument. It is unrealistic to expect that relationship to continue indefinitely in a free society, especially one in which elections have to be held every four or five years.

Finally, I touch on some of the possible ways forward on public spending. It is obvious from what my right hon. and learned Friend the Chief Secretary said and from what a number of other hon. Members have said that we must get better performance and better value for money out of the 60 per cent. of public spending which is either demand determined or under no more than the remote control to which I referred.

In that context, I was glad to see in the Treasury press release put out at the time of the Budget some positive examples of the ways in which the Government were seeking to get better output from public spending programmes and to ensure that output measurements were brought more to the fore in the assessment of public spending. I commend the Treasury for that. I hope that it will continue to give wider publicity to those achievements.

It is vital to retain more realistic attitudes to public sector pay as we begin to emerge from the worst of the recession and to do something more effective than we have achieved so far on what is called the administration of public spending.

I was concerned to see that in December 1981 my right hon. and learned Friend the Chancellor of the Exchequer said that the administrative costs of central Government were now not far short of 10 per cent. of total public expenditure. He pinpointed that as an area in which further progress needed to be made—progress which need not be made necessarily at the expense of those who rightly look to the public services for benefits and for the provision of services.

In this area the Government will need a combination of correct and responsible policies on public spending and the encouragement of realistic attitudes among the public. In these matters there are devices which can help in both respects. For example, I favour the wider use in the nationalised industries and elsewhere of the Monopolies and Mergers Commission. I should like to see a stronger competition policy introduced by the Government. so that it is not just a matter of political rhetoric but that we see more powers and greater effectiveness for bodies of that kind. I also favour some of the work which has been done in the so-called Rayner exercises and the new idea of an independent audit in local government. In my view, all these are steps in the right direction if we want to control and to raise the efficiency of public spending.

Behind all these matters we rest fundamentally on improved public understanding of the correct priorities in all forms of public spending, and I end by offering the House one or two brief comments on what I believe the main priorities should be.

It is indubitable at this stage that we have to put a higher priority on investment than on consumption. We have to do what we can to restore the respectability of the argument for wealth creation before redistribution, because we all know that when redistribution is done on a zero sum basis, it becomes increasingly difficult for any democratic Government to carry it through, whatever may be the argument for it.

Especially relevant to the Conservative Party is the need to put a more prominent and frequent emphasis on co-operation rather than conflict in all forms of industrial relations. We have seen the disastrous effects of bloody-mindedness in industrial relations in some recent examples involving British Rail and ASLEF and possibly in the near future the National Coal Board and the NUM. We do not want to see that behaviour extended. I hope that satisfactory examples will be set in the Civil Service, and perhaps some encouraging remarks will be made about that before the end of the debate.

There is a vital role for public spending of many kinds in any advanced society, especially on the essential services which only the Government and State agencies can provide. But, at the end of the day, we want to see the development of a more social market economy, to use the German term. By that, I mean an economy in which the Government take on those responsibilities which must be performed and which, if the Government and State agencies were not performing, no one else would provide satisfactorily, but in which the market sector of the economy is encouraged and expanded wherever possible as well. We must have such public spending as we can afford without undue inflation. At the same time, we must be prepared to meet the true price of our social responsibilities.

6.48 pm

Mrs. Shirley Williams (Crosby)

It is an astonishing fact about the control that Parliament has of public expenditure that, in a debate which is probably even more important than the Budget debate, very few right hon. and hon. Members are present. That is because of the difficulty the House has in getting to grips with what is involved in public expenditure statements by the Government. That is not just a criticism of the way that they have been presented this year, though I shall say a word about that in a moment. It is to do with the procedure of our control over individual headings of public expenditure.

It is appropriate and right for the House to congratulate the right hon. Member for Taunton (Mr. du Cann) and his Committee on producing an excellent report—one that the Chief Secretary, in a triumph of diplomacy over what might be described as literacy, said that he welcomed. If the right hon. and learned Gentleman had read it carefully, it would have been difficult for the Government to welcome it as a comment on the way that this set of public expenditure plans was presented.

The truth is that the Government's plans are deeply obscure. The Chief Secretary covered himself with his usual sophisticated glory in suggesting that somehow they clarified the situation. However, it is fair to say, as the Select Committee said, that virtually any decent private company would have felt that it had to set out some sort of volume indexes alongside the cash control indexes. That is what we have not got. If we believe, as I and my party passionately believe, in open government, we have to make these things a little clearer to our fellow citizens than they are in this group of documents.

Before I turn to the public expenditure plans, I must pursue the point raised by the right hon. Member for Stepney and Poplar (Mr. Shore) about the Falkland Islands invasion. I shall not pursue what he said about the Royal Navy task force and something that must be in all our minds—whether that task force could have been assembled in 1983–84 as it was in 1981–82. Some of us have our doubts about that.

However, I add one small but very important fact. I do not know whether the Government can give an assurance on this point. There are, in effect, two campaigns in the Falkland Islands—one military and the other diplomatic. Many of us recognise that one of the most significant weapons in the diplomatic campaign has been and is the world service of the BBC. It has done a great deal to gain opinion in the Third world for Britain. This item of expenditure comes up as part of the Government's expenditure plans. We have now seen a great deal of rushing around to restore the cuts so unwisely made last autumn. They were small but significant cuts of just over £1½ million, but I hope that the Government, in their wisdom, will see that such cuts will not happen again. It is significant that the cuts were in Latin American and European services, the very services that we now find we can least do without.

On the main headings, I have two criticisms of the broad strategy of the Government's approach. My first criticism is one that has been made from both sides of the House; it is quite simply and crudely that the Government's plans to reduce public expenditure as a share of gross domestic product have failed. That share is today higher than it was in 1979–80. There are two explanations for that, and I shall say a word about them on behalf of my party later.

It is significant that that should be so in the face of all the Government's efforts to try to reduce public expenditure's share of GDP. The simple truth is that the share of GDP now going to public expenditure is the highest that it has ever been, apart from when it reached the same level in the year before the International Monetary Fund took control of our finances in 1975–76. That is significant and we should explore why it should be so.

I shall pursue my second point without grinding too many political axes. The hon. Member for Carshalton (Mr. Forman) referred to the significance of public investment, and I am worried that some areas of saving mean that the country's economic infrastructure is being put at risk. In that respect I shall mention the areas. One is housing, where not only housing construction has been sharply reduced—incidentally, under both Governments—but, which is perhaps at least as disturbing, the level of house improvement and house maintenance is being drastically cut causing the housing stock to decline. The hon. Member for Enfield, North (Mr. Eggar) may shake his head, but I shall give him my arguments for saying that in a moment.

The other area of infrastructure that has suffered a devastating decline in public investment has been that not very glamorous one of water and sewerage. I am sure that the House is aware, and any examination of the subject will drive the point home, that this substantial public service system is close to the point of no return in many of our great cities. It would cost about £19,000 million to restore it throughout to levels that are now widely accepted as appropriate to a modern industrial economy.

Can the Minister say any more about the difference between the Financial Statement's estimates of the deflator in 1982–83 and 1983–84 and the figures now used in the Government's White Paper? Secondly, is he proposing in future to make the kind of retrospective changes that are being made in respect of the the 13 per cent. pay settlement for the police force? That has already led to a re-estimate of public expenditure figures for law and order. Are the Government proposing to re-estimate other parts of the White Paper in those respects?

Further, what is the Minister's view as to the likelihood of the nationalised industries spending the £7.6 billion estimated for them in the Treasury and Civil Service Select Committee report? The question arises since in 1981–82 the final returns showed a 16 per cent. fall on the estimated figure. The reason for that fall remains into this year. It is that the Government expect the nationalised industries to find £6 out of every £7 towards their public investment from their own internal resources and only £1 in every £7 from borrowing. That is a much tougher criterion than even the best of blue chip companies would be expected to have to match.

Do the Government seriously suppose that the nationalised industries will meet that target? If they do not, the proportion of GDP going to public investment will be even lower than the figures already criticised by the Committee. What estimate has been made of the effects of high interest rates on the national debt at a time when inflation reduces its true value? What is that figure estimated to be over the next two years? It is a significant figure that has become much more significant over the past two years, and it has a substantial effect on the House's estimate of what is happening in real terms to the growth of public expenditure.

Last year the local authorities exceeded their budgeted expenditure by 7.7 per cent.—some £700 million plus. In his introductory remarks the Chief Secretary somewhat enigmatically said that the Government were determined to claw the money back, but he also said that he would not try to do so in the current year or, as I understood him, next year either. Therefore, how do the Government propose to claw back this "overspending" as they see it? Are they proposing to do so by setting a new trend in local government spending, or are they proposing to do so in a much more brutal and short-term way by once again reducing the rate support grant, as they have done this year with devastating consequences for local government?

It is important that we recognise the extent to which the local authorities are inwilling to dip into their balances, as in circular after circular the Secretary of State for the Environment has constantly invited them to do. Local authorities are now so unsure of the future policies of the Government that they insist on maintaining a margin of safety in the shape of balances. The Government do not want that, and I think that the Opposition parties do not want it either. Most of us would like to see that money spent on housing and local environmental projects, but the money will not be so spent until there is a much more certain pattern to local authority policy than has been established over the past year.

I do not ask the Minister of State to take that from me. The last word on the subject was in The Economist on 17 April, when it said of the Secretary of State's approach to local authorities spending their balances: The problem is largely of his own making. For local authorities planning has simply become impossible.

I wish to refer briefly to public sector investment's share of overall expenditure. It was typical of the way we discuss things in this House when the Chief Secretary, in responding to the right hon. Member for Stepney and Poplar, immediately said "Yah boo, you started it first." It does not much matter who started the process of reducing the level of capital investment. The truth is that, whichever Government have been in power, all of us have allowed political expediency to come first. This means that it is harder to justify a cut in current expenditure than it is in capital expenditure—with devastating consequences. In 1972–73, the level of capital expenditure in general central Government expenditure was 17.8 per cent. By 1981–82, that figure had fallen to 8.7 per cent. Local government capital expenditure over the same period fell from 32 per cent. to 17.1 per cent. The process will continue further in 1982–83, in 1983–84 and in 1984–85 if the Government's plans are carried out. In housing, sewerage, water supplies, transport, roads and other areas, the basic economic infrastructure is at risk.

Mr. John Townend

All hon. Members will, I think, agree with the points that the right hon. Lady makes. However, does she agree that the principal cause of the reduction in capital expenditure and the rise in current expenditure is that, over the last five to 10 years, the rise in public sector wages has been generally ahead of the rise in private sector wages and amounts to far more than the country can afford?

Mrs. Williams

There was some increase in public sector wages until a couple of years ago. I accept that between 1970 and 1979–80, it is largely true that public sector wages moved ahead of private sector wages, although that has more recently been reversed.[Interruption.] All hon. Members can look at the statistics, but those are the statistics that I have seen. Even in periods when public sector wages were relatively controlled, as in the first two years of incomes policy from 1975 to 1977, one still sees a decline year by year in the levels of capital investment. Therefore, I do not think that we can fairly put the entire blame on public sector wages. Some of the blame rests with those who made the decisions.

Sir William Clark (Croydon, South)

The logic of the right hon. Lady's argument is that we should spend more on the infrastructure—housing, sewerage and the rest.. I think that all hon. Members will agree with that. Will the right hon. Lady address her mind to where the money is to come from, in view of the fact that she has criticised the Government accurately for having spent a greater percentage of the GDP than a few years ago?

Mrs. Williams

If the hon. Gentleman will bear with me, his intervention relates to the last part of what I want to say. I shall come to it. I should like to say a few words about housing and education.

On housing, I give a clear indication to justify what I say. In one year, between 1979 and 1980, it is estimated by the President of the Institute of Environmental Health Officers that the number of unfit houses increased by 42 per cent.—a dramatic figure. It is also estimated, if I take the inner city of Liverpool, that the cut in expenditure on improvements and renovations in what is almost the poorest inner city of them all was no less than 21 per cent. between 1979 and 1981. In my own district of Sefton, the cut was 41 per cent. between 1978–79 and 1981–82. What we are seeing is savings on sustaining the existing housing stock at a time when new house construction has been slashed. That cannot make sense to hon. Members, on which ever side of the House they sit. It means that we are simply storing up trouble for the future. As the writers Mr. Fleming and Mr. Nellis in the "Lloyds Bank Review" of this month remark, we are setting up a major housing problem for the middle 1980s at a very fast rate of speed.

Mr. Dan Jones (Burnley)

I wonder why the right hon. Lady, whom I know and respect, concentrates on the cities. Why does she not refer to the large towns? I give one brief illustration. There are houses in Burnley, the constituency I am proud to represent, that were built in lie last century and still exist. Although two Ministers have visited the constituency at my request, not a damn thing has been done. These areas surely deserve a mention.

Mrs. Williams

I would never doubt the hon. Gentleman's concern for his constituency. He make!. a point with which I fully agree. It was a very good speech. When we talk about housing renovation and improvement, we should not just remember statistics. In my constituency, and also in the constituencies of many other Members, this means saying to people that they will live in dampness, condensation, infestation and tumbling housing. It is difficult to convince people in these circumstances.

There are two other major crises coming down the track in housing. Both have been mentioned in the past week. One is the rapid deterioration of the semi-detached houses built in the great housing boom of the slump in the late 1920s and early 1930s and now reaching the end of their natural life. The other is the major crisis of the system-built housing of the 1960s. In many areas, those houses are no longer habitable, but people still have to live in them. I wish simply to underline the consequence of the cuts in public investment for that sphere.

I feel strongly about education. The problem is much more a matter of the way in which the cuts have been administered than perhaps anything else. The Government came to office on a manifesto that stated: We shall promote higher standards of achievement in basic skills". The truth, as Her Majesty's inspectors point out in their current report, is: Unless the level and pattern of staffing and the provision of other resources for primary schools can be maintained in such a way that they allow broad coverage of the curriculum and both expertise and time for teachers to deal with the range of learning needs identified, it is unlikely that existing standards, particularly in numeracy and literacy, will be maintained. The inspectors say of secondary schools: These characteristics"— they are talking of the cuts— add up to a serious threat to the maintenance of standards and to desirable improvements. The speed of the rundown in education, not least in higher education, makes no administrative sense. We are spending money by insisting on making cuts at a speed to which the system cannot adjust itself.

Mr. Race

If the right hon. Lady is so concerned about cuts in the higher education sector, why did she, as Secretary of State, initiate them? If she doubts that—she denied it in the Budget debate—I refer her to page 38 of volume 2 of the White Paper where her deplorable record on capital spending in universities is plainly set out.

Mrs. Williams

The hon. Gentleman will also know that, in the year when I left office, we restored a substantial part of the current cuts. We left behind an operating margin of 15,000 teachers and fresh provision for in-service training. All that has now gone. The hon. Gentleman should have the honesty to admit that there is more than one side to the point he has made.

The cutting of student numbers within a given figure of expenditure on higher education is absurd. There is no reason why the universities should be forced to be inefficient. They should be encouraged to be more efficient and to take on as many students as they can. On the question of where the money is to come from, I believe that the Government must consider the consequences of the ratchet effect of demand-driven public expenditure. This is why public expenditure has risen from 41½ per cent. in 1979–80 to 44½ per cent. at the present time.

It is the demand-determined expenditure on social service benefits, on Manpower Services Commission expenditure on youth and other forms of employment support, on family income supplement and on means-tested benefits for children and others where there has been an explosion of expenditure over the last three or four years. Year by year that increase has gone up and up. We are now spending £13,000 million on maintaining current levels of unemployment. There comes a point at which the Government try desperately to get down the public sector borrowing requirement by reducing expenditure in ways that create a fresh demand on the public sector borrowing requirement by passing through the process of making people unemployed. This is what has driven all the Government's estimates awry.

The Government have only two ways out. One they have partly pursued, which is to cut the benefit going to the unemployed. I am one Member of Parliament who is extremely frightened about the social consequences of that. This is the first year in which earnings-related supplement comes to an end and in which we have over 1 million who have been unemployed for so long that they will not receive earnings-related supplement and will run out of redundancy payments.

The second point, a very serious one, is that the Government's obsession with the public sector borrowing requirement is counter-productive. I should like to quote the words of the Clare group in the "Midland Bank Review" for winter 1981: It is the pre-set paths for the PSBR which are the most immediate obstacles to fiscal action intended to create more jobs It has always been a characteristic of a well-run economy that the public sector borrowing requirement is a form of buffer to economies as they rise and fall. It is normally accepted that they rise proportionately in a period of massive recession as they fall in a period of boom. The Government are chasing their own tail in terms of public expenditure by insisting upon this rigid approach to the PSBR. That is why I shall be advising my colleagues tonight not to take note of or to accept the Government's plans.

7.13 pm

Mr. John Major (Huntingdonshire)

The right hon. Member for Crosby (Mrs. Williams) spoke convincingly of the decline in public sector investment. We all recognise that as a problem which has continued and in some ways has accelerated year upon year, whichever party has been in power, for the last decade or so. The right hon. Lady made a brave but not completely convincing attempt to explain how the restoration of the programmes might be funded. The net result of her explanation must surely be in both the short and medium term either a substantial increase of taxation or a much larger public sector borrowing requirement.

The experience that we have had with a large public sector borrowing requirement in recent years leads me to believe that if we were to go back down that route we might pay a heavy price in inflation, interest rates and in the consequential knock-on effect on the sterling exchange rate. At the precise moment when—the Falkland Islands apart—it looks as though the economy is beginning to improve and interest rates and inflation are poised to come down dramatically, I doubt whether her policy is a credible posture or that it would have the effect which the right hon. Lady would wish.

I regret that the right hon. Member for Stepney and Poplar (Mr. Shore) is not in the Chamber. He made a convincing but contentious speech; he declined to give way, for understandable reasons of haste, to certain of my hon. Friends who wished to challenge some of his assumptions. Suffice it to say in his absence that I doubt that we would accept the premises upon which he based his case. His conclusions were far away from those that we would reach.

There is one aspect of the right hon. Gentleman's comments that I am not prepared to let rest—the crocodile tears normally shed by the right hon. Member for Manchester, Ardwick (Mr. Kaufman) but which we had today from the right hon. Member for Stepney and Poplar on the subject of housing expenditure. I should be a little more impressed with the Labour Party's concern about housing expenditure if it were not a fact that for each of the five years of its administration it reduced the level of public investment on housing.

Again, I should be more impressed if, for completely dogmatic reasons, the Labour Government did not seek to prevent the success of the shorthold experiment in the Housing Act 1980 that might provide much rented accommodation for people who needed it.

Mr. Race

One in London.

Mr. Major

That may well be so. I will tell the hon. Gentleman why there is one in London. It is because the principal Opposition party has threatened to kill a scheme and terrified landlords out of bringing on to the property market accommodation that people in bad housing could use. That is precisely the reason. I am glad the hon. Gentleman accepts the responsibility for the fact that many people will remain in those cold, damp houses about which the right hon. Member for Crosby talked. Let us have no more crocodile tears from the hon. Gentleman.

Mr. Sydney Chapman (Chipping Barnet)

Does my hon. Friend accept that in London of all places there will be an increase in demand for single person accommodation or one-parent family accommodation? It is in places such as London that we need shorthold tenure and the guarantee that it will he a permanent feature.

Mr. Major

I accept entirely the point my hon. Friend makes. Indeed, I would extend it a little further. There is also a vast number of young people who tend to be an itinerant and moving population who might also benefit from the provision of shorthold because they find themselves in poor housing accommodation. If the hon. Member for Wood Green (Mr. Race) can smirk at their being in poor housing accommodation, I hope his constituents know about it.

Mr. D. N. Campbell-Savours (Workington)

The hon. Gentleman has referred to the reductions in expenditure which, he said, took place under the Labour Government between 1975 and 1979. Does he not recall that the real resistance to housing development came from Conservative-controlled authorities which, despite relentless pressure from the Labour Government and resolutions from Labour groups in the authorities, still refused to press on with housing construction programmes?

Mr. Major

I am afraid that the hon. Gentleman will not get me to concede that point because I do not accept it. If he looks at the provision made in capital in successive White papers, quite apart from the physical starts made, he will discover that the provision for capital expenditure was not made by the Labour Government. However he may wriggle, that cannot be ignored.

Our debates on public expenditure White Papers in recent years have tended to turn, regrettably, to a touchstone on philosophy. They have become a litmus test of where one stands in the political landscape. The further to the Left one is, it is said, the more one wishes to spend. I regret that, because, for a variety of reasons, I do not accept that it is an accurate reflection of opinion in the House.

I join forces with my right hon. Friend the Member for Worthing (Mr. Higgins) and the right hon. Member for Crosby in the belief that this debate is far more important than the attendance in the Chamber at the moment might indicate. It may not have the glamour of the Budget. The public expenditure White Paper may not determine taxation and raise revenue; it does precisely the converse. It sets out and determines how the revenue will he spent. It governs the level of public services to a substantial part of the economy. It governs to a degree—here I join forces with some Labour Members—the development or decay of some parts of our national infrastructure. It determines the capacity of our education, social and other services to meet the demands that are made upon them. Moreover, the White Paper is critical to the nationalised industries and to local government.

This is an exceedingly important debate. The policies that underlie the White Paper are important for all those reasons of expenditure as well as for determining the effect that that expenditure may have on inflation, interest rates and other items within the economy. Those policies, therefore, are an important arbiter of demand, of investment, of employment prospects and of inflation. The White Paper is far more than simply a paper for accountants to look at this afternoon. I hope that we shall continue the debate with that carefully in mind.

One comment that has been repeatedly made, and I suspect will be made again during the debate, concerns the relationship in the national accounts between capital and current expenditure. There has been a general conviction that there should be more capital expenditure, however financed, and perhaps lower current expenditure. I understand that as an admirable principle, but it is one that in many respects we should treat with a certain degree of caution, because in the context in which that argument is advanced current expenditure tends to be regarded as bad expenditure while capital expenditure tends to be regarded as virtuous. I draw a different distinction. I believe that categorisation is false.

The point about expenditure is not whether it is capital or current but whether it is necessary and desirable. For example, I should not regard at this moment capital spending on a new town hall as necessarily virtuous. However, I certainly should regard current expenditure on police forces or the increase of medical staff within the National Health Service as virtuous. We should do well to bear those distinctions in mind.

In the White Paper this year there is a projected current expenditure of £115 billion. Differing views have been expressed about whether that should be increased or should be slightly lower. I find it exceedingly difficult to see how that total could be significantly reduced—and I stress "significantly".

When we look at the breakdown of the figures and bear in mind the plurality of our society, we see clearly that there are four programmes, none of them easily capable of contraction, which take up nearly £73 billion of that expenditure. The social security programme is £32 billion, half of which is spent on the elderly. When we project that further, bearing in mind, first, that there will be more elderly people, and, secondly, that they will—we trust—live longer through better medical attention, we see that that demand on the national Exchequer will increase, not decline, in years to come.

Defence expenditure is over £14 billion, and the claims upon that at present and for the future are surely obvious. Health expenditure, in the wake of a health reorganisation which I entirely welcome, is £13½ billion, but still with the long waiting lists to which the right hon. Member for Orkney and Shetland (Mr. Grimond) referred. We see little realistic chance of that expenditure reducing. As the hon. Member for Motherwell and Wishaw (Dr. Bray) suggested, there may be savings to be made within that programme, but if they are made within the NHS they could well be used to meet other demands that already exist but are not met within that programme.

Education has a projected expenditure of £12½ billion in the current year. Education has already taken significant reductions. I bear in mind and understand the declining rolls, but the reduction in expenditure does not necessarily correlate in precise proportion to the decline in the number of pupils in our schools.

Therefore, I doubt very much whether there is a great deal of scope in a significant part of the White Paper for reductions now or in the future. As we project what will happen with our expenditure patterns in future years, we shall do well to accept that now, and build upon it as a premise, as we calculate what our future structure of accounts will look like.

Mr. Jim Craigen (Glasgow, Maryhill)

Does the hon. Gentleman see no scope to reduce the amount of public expenditure going towards sustaining unemployment? Does not he agree that the Government will have to do that in order to get more people into paid employment, in order to continue to fund our system of social security, which otherwise is in danger of collapsing in another 10 years?

Mr. Major

The hon. Gentleman anticipates me. Had he waited a moment he would have seen a distinction that I would draw within the half of the social security budget that does not relate to elderly people, to make precisely the point that he has made. We all wish to see a reduction in that element of social security expenditure, though I suspect that in the short term that might be reflected by a reduction in the social security budget but perhaps an increase in the employment budget, or an increase in capital expenditure. Therefore, I think that the basic expenditure upon which future accounts will be built is unlikely to be shrunk dramatically, for the reasons that the hon. Gentleman suggests.

Of course, there are some cuts to be made. What I am saying is that I do not think that they are any longer significant when set against the scale of the expenditure that seems surely to follow us year upon year. There is further scope in local authority staffing levels. A 3 per cent. cut in three years is a puny return. When we consider that of the 70,000 people who have left local government service 60,000 were in education alone, we suspect that there are other areas of local government where there may be significant savings to be made, especially in administrative and other staffs. There is of course scope for a continuing reduction in the Civil Service. I welcome the movements that have been made in that direction and trust that they will continue.

To counterbalance that in terms of revenue-raising, I entirely support the sale of assets that has taken place. I trust that that trend will continue, controversial though it may be among some Members of the House. It will raise an estimated £700 million this year, and far better use can be made in future of the money remaining within the public sector once that, too, is raised. That is entirely right.

Mr. Maxton

rose——

Mr. Major

I do not wish to give way, because if I do so I shall be inordinately long, and a number of other hon. Members are still waiting to speak.

I doubt that there are significant savings to be made within the present expenditure pattern. However, the converse question remains to be asked: what is not in the White Paper in terms of expenditure that perhaps should be? I do not think that we can realistically consider that until we consider the resources available to put it into the White Paper.

The background to an increase in expenditure at present does not seem to me to be very attractive. We certainly have some promising signs. The economy, patchily perhaps, appears to be emerging from the depths of the recession that has engulfed it over the past 18 months or so. There has been a significant fall in the oil price, which may be bad for revenue to the Exchequer but which I believe is undiluted good news for industry and for employment prospects. Above all—here my right hon. and learned Friend the Chancellor can take great personal credit, though it is rarely accorded to him—there has been a real and sustainable fall in inflation that looks as though it will continue in the months to come.

That is all excellent news. What is less excellent is the fact that we are operating from a very low base of industrial productivity and profitability, and consequently a very low tax yield from industry. It is also unfortunate that we have seen in recent years, as a counter-inflation measure, which I supported, substantial reductions in real incomes in many sectors of the community and the dangers that they will leave behind them of pent-up demand for wage inflation in the years to come. As has been pointed out, and as no one will deny, public spending remains at too high a proportion of the gross national product.

Against that background, whatever desirable schemes for expenditure may be suggested—we all have a whole kitbag of them—it would be difficult to justify that extra expenditure unless we were prepared to tax for it or to assume that the public sector borrowing requirement would not have disadvantageous effects on other parts of our economy. I do not make that assumption, and I do not believe that we can significantly increase taxation, so I fear that there is at present no scope for significantly increased expenditure.

There is one area in which expenditure may in net terms be substantially smaller than it seems in gross terms. I refer to some elements of construction expenditure and especially improvement and renewal. I welcome without qualification the extra £100 million provided at a late stage in the public accounts this year for improvement and renewal. I also welcome the expected 13 per cent. increase in capital expenditure on construction to £10¼ billion in the present year.

I hope that the money that has been set aside this year for construction will be spent on construction and that this time next year we shall not find that there has been a substantial underspend on housing.

I turn now to the change in the planning of the White Paper from volume to cash terms. I shall deal with the effect that it may have on some aspects of local government. I welcome the change to cash terms rather than constant prices at an historical date or volume, as we quaintly call it. Planning in volume terms invites an increase to compensate for inflation each year plus a real increase in the size of the programme. That is inflationary and the record has shown that on balance it was.

The question that remains and cannot be answered without experience is whether cash planning will be better. Beyond doubt, it will impose stricter discipline on spending programmes. It is important, however, that it should be seen to be fair. Given that local government now feels exceedingly embattled, it is important that planning should be seen to be fair to local government. In that context, I shall examine local authority expenditure in two regards.

Last year, local authorities overspent substantially—I understand by £1.3 billion. It is now intended in the accounts for 1983–84 and 1984–85 that there will be a substantial reduction—3 per cent. in the first year and 3½ per cent. in the second year—in real terms in local authority expenditure. Additionally, I understand that the Treasury is intending to claw back the predicted underspend of 6 per cent. in the current year by an across-the-board method of clawback.

I have no objection in principle to the general cutback in expenditure, but if cash planning is to be fair and is to be seen to be fair I simply do not believe that it is reasonable to proceed with an across-the-board clawback that will affect even those local authorities that have remained within the set planning targets. They already have to cope with two planning targets—an historical one and an assessed target, the grant-related expenditure assessment. As from the White Paper, they also have cash limits.

Many local authorities—I can vouch for Cambridgeshire—will make great efforts to meet that target. Others will not. In those circumstances, when one looks back at the outturn for the current year, it will seem grossly unfair to authorities that met their targets if there is an across-the-board clawback to compensate for those that have overspent deliberately or have made no realistic attempt to hold back their levels of expenditure. When that clawback is applied to county authorities, it must be borne in mind that the savings overwhelmingly must come from education and police service budgets. In county budgets, there is no realistic alternative to reducing those budgets if there is to be a significant clawback.

After the introduction of cash planning, we would be wise to re-examine the principle of across-the-board clawback. Perhaps we should substitute a more refined system under which the guilty are charged and the innocent are not involved. It is in the Government's interests to do that. I fear that if local government anticipates general clawback, that anticipation will invite general overspending and will be precisely the converse of what the Government seek.

Mrs. Shirley Williams

The hon. Gentleman seems to be quite clear that that is the Government's intention. I did not read that much clarity into the Chief Secretary's statement. Are his remarks based upon other sources?

Mr. Major

I shall be delighted to be corrected by the Minister when he replies. I can think of no hon. Member who would be happier to be corrected than I. I have stated my understanding of the likely position. It has been reached as a result of discussions with local authorities. If I am incorrect, I trust that I shall be put right before 10 o'clock tonight.

I turn now to pay negotiations that are determined for local government but at a national negotiating level. Many of them are critical to the pattern of local government expenditure. The teachers' award, which is currently going through arbitration, the police award, the firemen's award and the manual workers' award all have a tremendous effect on local government expenditure. The White Paper recognises 4 per cent. for pay. That is fed into the grant-related expenditure assessment targets. I am not absolutely clear about the last sentence of paragraph 26 of volume I of the White Paper. It refers to cash limits and states: The remaining 20% is local authority current expenditure: the rate support grant, the Government's main contribution to the financing of such expenditure, is subject to a cash limit, but not the expenditure itself. I shall pursue what precisely that may mean. Does it mean that rate support grant could be amended by increase orders to accommodate wage settlements that for good reasons exceed 4 per cent., or does it mean that in no circumstances will increase orders be introduced to compensate for such wage settlements? Whatever the answer, it is critically important that local authorities should be aware of that at the earliest stage. If they are aware of it, I confess to my ignorance because I am not.

If the answer be "No, increase orders will not be applied either in part of or in whole", will the GREA targets be amended to relieve individual local authorities from penalty because of a national award? If the GREA target levels are amended, local authorities may rate and raise their own funds, but if the targets are not amended local authorities may move into penalty for circumstances over which they have little or no control. That is of some concern.

I emphasise those points because in counties the only sources from which emergency savings can be made are the education budget and the police service budget. If necessary savings are to be required from those sources, the sooner that they are planned for the better as emergency savings from those two budgets cause special difficulties.

Notwithstanding the qualifications and questions that I have raised about the future of local authorities under the guidelines, cash limits and GREA targets, I shall have no difficulty in supporting the White Paper. It is right to reduce public sector manpower. It is right to increase cash expenditure modestly. I welcome the £5 billion increase that has been put into the accounts this year. It is right, in general, to claw back local authority expenditure, though not by universal clawback from those virtuous authorities that remain within the Government's targets. It is right on balance to retain the principal thrust of Government policy which was, is, and, I trust, will remain the lowering of inflation as rapidly as possible so that investment and growth can take place in a satisfactory economic climate.

The White Paper is an extension and a refinement of the Government's previous plans that are well worth supporting. I shall have no difficulty in supporting them.

7.40 pm

Mr. Reg Race (Wood Green)

The speech by the hon. Member for Huntingdonshire (Mr. Major) had an overwhelming failing. It addressed itself to some of the individual components of public expenditure, but not to the macro-economic effects of the Government's economic policy or, in particular, to the effects of their White Paper.

The White Paper and the Budget will further increase unemployment. They will lead to a modest level of economic growth—about 1½ per cent. this year. They will not reduce inflation dramatically and they will lead to further stagnation. That is the prescription for which Conservative Members are being asked to vote this evening.

Before I discuss the central features of the Government's White Paper, I wish to comment on the remarks that the hon. Member for Huntingdonshire made about education staffing. The hon. Gentleman referred to the 60,000 drop in education staff as a cut in administrative staff.

Mr. Major

I did not.

Mr. Race

Hansard will show who is right. The truth is that the cuts were made not in administrative staff, but in school meals staff. When the hon. Gentleman advocates cuts in the numbers employed in the education service, he is talking not about some faceless bureaucrat sitting at a desk in the town hall, but about people who serve meals to children.

Mr. Major

The hon. Gentleman seems to have the wrong point. Perhaps I was not as lucid as I hoped. Before the hon. Gentleman pursues his argument further, it would be prudent for him to readHansard to see what I really said.

Mr. Race

The hon. Gentleman used the words "administrative staff" when referring to the 60,000 drop. If he withdraws what he said, I should be grateful.

The main myths perpetuated by successive Governments about public expenditure are five. First, we are told by the Government that public spending in Britain is too high. My basic proposition, and that of the Labour party, is that it is not too high. Our public spending in many cases is lower than in other Western industrialised countries. That is true particularly if one takes out the nationalised industry sector from our public accounts. It is included in public spending as a proportion of GDP in Britain but it is not in many other Western industrialised countries. That argument for reduced public expenditure is shot out of the water.

The second myth perpetuated by the Government is that public sector wages are too high. They are not too high. In real terms they have been reduced since 1979. For example, the wages of a grade 1 ancillary worker in the National Health Service would have to be increased by £19 a week to restore them to the level that they were when the Clegg report was implemented in 1979. That is true of many other public servants, including nurses, teachers and other local authority staff.

When one compares the rates of pay of some public servants with those outside the public sector, one is driven to the conclusion that public servants are badly paid in relation to the social value of their work. That second myth is shot out of the water. Our public and civil servants are not overpaid, except in the imagination of Conservative Members who want to give wage increases only to judges, lawyers, policemen and Members of Parliament.

The third myth perpetuated by the Government is that our major international competitors spend less than we spend on the public services. They do not. Some spend more and some spend at the same level.

The fourth myth perpetuated by the Government is that there have been no cuts in public services. It is said that, because the Government have failed to control public expenditure in their own terms, there have been no real reductions in levels of services to the public. That is outrageously untrue. Hon. Members who represent urban constituencies know plainly the effects of the Government's policies on living standards, social security benefits, housing and a whole range of other issues.

The fifth myth perpetuated by the Government is that local authority spending is out of control and needs to be reduced sharply. The truth is that local authority spending has been cut in real terms by 21 per cent. since the financial year 1975–76. If that amounts to profligate overspending, then meaning is taken from the English language.

Given that the Government perpetuate such myths and given the interesting fact with which we were regaled by the right hon. Member for Orkney and Shetland (Mr. Grimond) that he is not necessarily in favour of a commitment to full employment, what is the Labour Party's task? The Labour Party's task is to re-erect a consensus in support of valid public expenditure. That is the mood in which we approach the debate.

We are interested in supporting valid public expenditure because we believe that without it we cannot achieve full employment and eliminate the public sector borrowing requirements. It is important to mention both issues, because it is plain that the whole of the public sector borrowing requirement is a direct consequence of the economic recession and the slump. If we pursue policies designed to create full employment the PSBR will be reduced or eliminated.

The plain truth that we in the Labour Party know is that in some areas of public spending the Government's policies have ravaged living standards. One of those areas, to which I shall devote most of my speech, is housing. Treasury Ministers and Ministers responsible for housing should sleep uneasily in their beds when they contemplate their records.

In Britain 1½ million dwellings are unfit for human habitation or lack basic amenities. An additional 1¾ million dwellings are in need of major repairs. According to Shelter, more houses are now becoming substandard than are being improved.

In addition to those unpalatable and disgraceful facts, 400,000 construction workers are unemployed and millions of bricks lie idle in Bedfordshire and Northamptonshire. What type of system is it that can tolerate mass unemployment in the construction industry—the highest in living memory—and at the same time condemn thousands of people to a permanent lack of basic housing facilities, particularly in the inner cities?

What have the Government done? They have said that they will allow another £100 million in the current financial year for additional spending on construction and improvements. What does that amount to? Nobody has told us how many homes that will produce. According to the industry, which should know, between 5,000 and 6,000 homes will be produced by that increased spending. Let us compare that with the fact that there are 1.5 million families on council house waiting lists. It is a disgrace that some hon. Members should put their names to an early-day motion that lauds the Government's policy on housing construction and welcomes the increased housing expenditure, when they know full well that the increased expenditure will have a minuscule effect on the waiting lists.

A second point about which the Government talk continuously when they discuss housing is the capital receipts from the sale of council houses. They say the local authorities are not spending those capital allocations on new housing. They say that council house sales mean that local authorities can replace a proportion of the houses sold by building new ones. The problem is that the Government have made that impossible because, through the Department of the Environment, they have changed the rules whereby local authorities can acquire land. It is now not the case, as it was under the Labour Government, that when a statutory undertaker—such as a water authority or British Rail—disposes of land surplus to its requirements it must offer that land to a local authority for housing purposes. A statutory undertaker can now dispose of the land on the open market and the local authority must compete in that market and pay the price. The local authority may be able to pay the price because it has money in its coffers, but it must then go back to the Department of the Environment to gain approval through the housing cost yardstick in order to build the houses.

One test used by the Department of the Environment to determine whether a local authority can do that is the amount that will be spent on each unit of accommodation. That amount includes not only the materials and labour, but the cost of the land. Therefore, when the Government tell local authorities to build more houses because they have more capital receipts, yet at the same time change the rules whereby land can be acquired and built on by a local authority. they are condemning the people on housing waiting lists to continuous waiting with no action from the Government or the local authorities.

That is all rather abstract for the average person on the council house waiting list. It is abstract for the 10,300 families who are on the waiting list in my borough of Haringey. What are the direct consequences of the Government's housing policy? It means that more people are waiting for accommodation in Haringey. Many thousands are waiting to obtain council house transfers from high-rise flats to houses with gardens because they have children. It also means that the borough must spend a much larger proportion of its housing resources on rehousing homeless families than hitherto.

During 1982–83, it is estimated that the housing emergency group in Haringey will deal with between 1,400 and 1,500 referrals of homeless families. Because of the enormous cuts in the house building programme, which have affected Haringey and other boroughs, the number of homeless families approved for rehousing but who must live in hostel accommodation pending a suitable offer of accommodation is growing rapidly. In June 1981, Haringey had only four homeless families approved for rehousing living in hostels waiting suitable accommodation to be made available. In February this year, there were 89 families with children living in hostels, all of whom were approved for rehousing. That shows what a progressive, intelligent authority—one of the worst affected by housing problems—must put up with because of the Government's policy.

When the hon. Member for Huntingdonshire talks about the Government's record on housing, he and other Conservative Members must remember that the Government are now building fewer council houses and flats than any Government since the 1920s—indeed, since Neville Chamberlain was Minister for Housing. That is the comparison that we shall ram down their throats. We must ensure that, at the next general election, that record is fully spelt out.

Of course, many other important social deprivations have been imposed by the Government. Earlier, it was said that the Government must spend substantially more money on the social security programme. As with the family practitioner programme in the National Health Service, the social security programme is demand-driven and not cash limited. Therefore, the Government must pay out benefits to those who require them.

The principle of the Government's policy was set out plainly in the parliamentary answer given to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) on 18 January by the then Under-Secretary of State for Health and Social Security. The hon. Lady said that the Government's policy meant that, during 1982–83, £1,520 million would be cut from social security benefits by the Government either as a consequence of administrative action or legislation. It was caused either by the abolition of the earnings-related supplement to unemployment and other benefits or by other action that had been taken.

We cannot refer in this debate to the number of people nationally who obtain supplementary benefit, because the DHSS has not yet answered questions put down for answer on Monday which asked for national figures. However, we can see how the Government have been increasing the numbers of people who depend on supplementary benefit in some localities. On Monday 19 April the Under-Secretary of State for Health and Social Security gave a written reply at c.44 ofHansard, to my question about the numbers claiming supplementary allowance in May 1979 and February 1982, the period during which this Government have been in office. I referred to three social security offices in Haringey. At the Archway office, 5,721 people claimed and received supplementary benefit in may 1979. By February of this year, the number had risen to 9,611. At the Wood Green office, the number in May 1979 was 1,432, but it as now risen to 3,726. At the Tottenham office, in May 1979, 4,101 people claimed supplementary allowance. That number rose to 8,121 in February 1982.

Those three offices are dealing with more than double the numbers of people at the official level of poverty who are forced to rely on supplementary benefit by dint of the Government's action. Many of those will be long-term unemployed who have exhausted their entitlement to unemployment benefit and are going on to receive the short-term—not even the long-term—rate of supplementary benefit.

The Government are not only cutting the housing programme and attacking the education service and local authority provision, but they are driving thousands more people to rely on the basic level of State provision in social security because they have cut their benefits since they took office. That is a prescription for absolute disaster. If Conservative Members believe that that is the right public expenditure policy, they have a strange concept of social priorities.

They are prepared to spend vast amounts of public money on the Trident nuclear weapon system, they are prepared to spend a great deal of public money on adventures in the South Atlantic, they are prepared to spend huge sums of money on other prestige projects, but they are not prepared to get Britain out of the slump, to reflate the economy, and to get back to full employment.

We in the Labour Party should put forward our Socialist alternative strategy and say that we intend to recreate full employment, to use public expenditure as the main tool to do that, to create more jobs in the public sector at higher wages, to get that policy across and to make it work. That is what the Labour Party should be saying plainly tonight.

The Deputy Speaker (Mr. Bernard Weatherill)

It may be for the convenience of those who are waiting to speak if I say that six right hon. and hon. Gentlemen have indicated their wish to take part in this debate, and that the wind-up speeches will start at 9 o'clock.

8 pm

Mr. John Townend (Bridlington)

I am sure that the hon. Member for Wood Green (Mr. Race) will not be surprised if I say that I agree with very little of what he has said. Indeed, the prescription that he has offered the House is probably less acceptable to his own Front Bench than the views that I am about to express. The hon. Gentleman seems to believe that the tragic problem of unemployment could be solved merely by spending a lot of money. Typically, he does not say where the money is to come from. Moreover, he did not explain why the Labour Government could not eliminate the figure of 1½ million unemployed that existed when we were elected by spending that sort of money. The Labour Government did not believe that that was an effective way to deal with the problem, and nor do we. He said, too, that there were fewer council houses. In my view, the telling factor in the next election will be the increase in the number of owner-occupiers.

In considering the public expenditure plans, I suggest that right hon. and hon. Members should remember that the Government were elected on a policy of honest money, reducing public borrowing, and reducing the overall burden of taxation, particularly direct taxation. To achieve that, it is clearly absolutely vital to cut public expenditure. There is no doubt that the Government started with every intention of honouring those pledges. They appointed Sir Derek Rayner to look into the Civil Service, to find economies and cheaper ways of doing things. They produced the medium-term financial strategy, in which it was planned that public expenditure should take a smaller share of our gross domestic product.

Mr. Maxton

It is a bigger share.

Mr. Townend

I am coming to that.

The Government set about reducing the size of the Civil Service. The Prime Minister, by her strength of will, managed to renegotiate our contribution to the EEC budget so that the contribution has gone down from £856 million in 1978 to only £45 million in the past year.

Despite all those efforts, to date the Government have not achieved what they set out to do. The share of Government spending as a proportion of gross domestic product has risen from 41 per cent. to 45 per cent. I understand from the White Paper that the revised figure is 44½ per cent. The Chief Secretary said today that if the Government managed to keep to their plans it is likely that by the end of this Parliament it will have come down to 41 per cent. again. [HON. MEMBERS: "Oh!"] Hon. Members have a right to be sceptical, in view of what has happened.

We have not been very successful in the policies that we proposed at the last election. I accept that there are a number of factors which are outside the Government's control. The world recession has caused a drop in GDP, and it has caused an increase in the cost of financing unemployment. Local authority expenditure has not kept within the levels set for it by the Government.

However, two significant factors have not been mentioned. One is the explosion of public sector pay in 1980–81, which as hon. Members will know, was due to the Clegg commission and the Pay Research Unit, both of which we inherited and were committed to. The result was that public sector pay in that year went up from £24.8 billion to £30.7 billion, an increase of almost 24 per cent. That is one of the most significant reasons why the Government did not achieve their original target. That expenditure swallowed up all the savings that were being made in reducing the size of the Civil Service and reducing our contribution to the EEC budget.

As public expenditure continued to rise, it became clear, particularly in 1980–81, that cash limits were not adequate by themselves. They were continuously revised upwards to take account of volume spending, which was based on funny money, and particularly to accommodate the large wage increases. I therefore welcome the Government's decision that in future our spending programmes are to be based on cash rather than on constant prices. That should help to bring to the public sector the disciplines that the private sector has always had. Spending should be contained, regardless of inflation, within the resources available. I have had considerable experience in local government, and I believe that one of the reasons for the explosion of local authority spending over the past 10 to 15 years was the practice of dealing with expenditure by volume.

The Government failed to control spending as originally envisaged in the medium-term strategy. I therefore welcome this White Paper, because it shows that the Government are making some effort to get back on course. In the next year, spending is expected to increase by 8.5 per cent. in cash terms, which is likely to be about, or slightly below, the rate of inflation. I trust that in the coming year the Government will do everything possible to keep to those plans.

The Government are making strenuous efforts to control wage increases in that part of the public sector where they are the direct employer. However, we should remember, bearing in mind the current negotiations, the effect of the cost of increments. I hope that the Government succeed, but I am a little doubtful about whether they will manage to keep to the 4 per cent.

Furthermore, as yet, the Government have failed to grasp the nettle of inflation-proofed pensions, the cost of which has doubled since we came to power.

My hon. Friend the Member for Huntingdonshire (Mr. Major) felt that there was no scope for reducing Government spending in the next few years. I want to deal with one or two items in the public expenditure White Paper. In particular, I want to draw attention to the cost of the nationalised industries. I agree with what some hon. Members have said today about the difficulty of following the figures. Page 3 on nationalised industries shows the total external finance, and page 78 gives the details of the grants to the nationalised industries, but it is difficult to tie up the figures with the grants under industry, energy, trade and employment on page 12. However, we see that the total EFL in the year that has just finished was no less than £3.3 billion. That, of course, did not include many of the grants under the industry heading, particularly £620 million for British Leyland. In all, that is costing us about £4 billion a year.

It is important in the current year that the effort that the Government are making in trying to reduce the level of public sector pay in the areas that they control should also apply in the nationalised industries. It is disturbing that on too many occasions the taxpayer has had to pay the cost of excessive redundancies and of keeping open uneconomic operations such as the coal mines, where in the current year there was an operating loss of £773 million. If the miners, through the use of the muscle, insist on keeping open uneconomic pits, is it right that the whole of that cost should be borne out of Government expenditure and ultimately by the taxpayer? Should it not be considered that that should be taken into account when fixing the miners' wages for the coming year?

Mr. Maxton

Will the hon. Gentleman say something about workers in the gas industry, the telecommunications industry and the electricity industry, all of which are making profits? The Government came to power on the understanding that there would be no incomes policy and that incomes would he based on companies' profitability. Surely the profitability of nationalised industries should mean that the workers receive higher wages.

Mr. Townend

What the hon. Gentleman has not taken into account, particularly in the telecommunications industry, is the need for high profits to finance capital expenditure. Any company that pays out all its profits regardless of other factors will not be in business for long.

The taxpayer has been asked to finance the overmanning of British Rail, which will cost £1,000 million next year. He has been asked to finance pay increases which could not be justified by the performance of the industries concerned and which have been much higher than increases in the private sector.

I welcome the fact that in 1982–83 the EFL will be reduced to £2,739 million, a reduction of £600 million. There is to be another reduction in the following year. The record of the nationalised industries is referred to on pages 74 and 75 of the expenditure plans. The forecast for 1980–81 has been exceeded by approximately £700 million. The forecast for 1981–82 has been exceeded by £600 million. If that happens again, as I fear it may, the Government's spending plans will be knocked around once more.

It is perturbing that in the current year, 1982–83, grants will increase by a further £500 million to £1.8 billion.

When the Government are making every effort to try to bring in control, particularly over wages, their policy will be undermined if loss-making nationalised industries award wage increases of 8, 9 or 10 per cent.

It is significant that the gross debt interest is now £15½ billion. The net debt interest is £6.5 billion. During the Government's period of office, the national debt is likely to have almost doubled. The net debt interest will certainly have doubled. With the introduction of inflation-proofed bonds over the next few years, there will be a reduction in interest charges. I am perturbed by the fact that we are having no sinking fund for the loss caused by inflation. In the national accounts we will charge about 2½ or 3 per cent. a year as opposed to the previous rate of the non-inflation-proofed bonds.

We are making no provision for a sinking fund. Therefore, in the year after the bonds mature, there will be a dramatic jump in interest charges and a large jump in the public sector borrowing requirement. If private business changed its method of financing in that way, there would be serious questions about the probity of that in the financial press. We are seeing what so often happens in politics—planning for a relatively short period rather than taking into account what will happen over the long term. I should like the Government to reconsider a sinking fund.

One of the most significant sections of the Budget is the horrendous cost of the Welfare State, which is £43 billion. The right hon. Member for Orkney and Shetland (Mr. Grimond) was right when he said that we must consider exactly what we are doing. Much of the Budget concerns taking money away from people and giving it back, with the State taking a big cut in the middle.

We must also consider—it will be difficult for anyone to do this—the whole question of indexation. In Parliament we are committed to indexed pensions. So far we have indexed most other benefits and the 2 per cent. shortfall on short-term benefits has been restored. With the demographic changes, with people living longer and with possible earlier retirement, that is a matter that all Governments will have to consider seriously in future.

Mr. Race

Is the hon. Gentleman therefore saying that a future Government or the present Government should consider giving increases to retirement pensioners and those on supplementary benefit that are less than the current rate of inflation?

Mr. Townend

As the numbers of people who do not work increase and the numbers of people at work decrease because of demographic factors, unless we are able to increase substantially the wealth of the nation that will be a problem that we cannot ignore.

Through the health authorities, the Government do not have the control on spending in the National Health Service that they should, which is a problem. My hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and Norfolk, North (Mr. Howell) have done a considerable amount of work on that. Over the past two decades the number employed in the NHS has doubled. I am not sure that we are getting as much value for money out of the NHS as we should. During the last two or three years, we have increased spending in real terms. As a nation we shall probably not be able to continue those increases.

The overseas aid budget is due to increase in 1983–84 and 1984–85. I have always had reservations about the size of that budget and its effectiveness. However, I note that in the expenditure plans the contribution to the EEC budget is rising from £45 million to £500 million. We must wish the Prime Minister and her colleagues who are renegotiating with the EEC the same success as in the past. It would be useful to the Minister to have a £3 million or £4 million saving.

Local authority spending varies from area to area, but there is vast scope for reductions. In my area this year the county council has increased rates by no less than 61 per cent.; it has taken on 300 or 400 more staff. I come to the point made by the hon. Member for Wood Green. There is ample scope for staff savings in catering and cleaning, where in many cases manning has been too high. We should seriously consider savings through privatisation in local authorities and the Health Service.

Basically we have a problem of controlling expenditure. I have sympathy with the Government. All Conservative Members were elected on a policy of reducing manning and increasing efficiency.

Mr. James Hamilton (Bothwell)

And reducing taxation.

Mr. Townend

And reducing taxation. That is why we must continuously pay attention to expenditure.

From day one, apart from the Prime Minister and Treasury Ministers, when Ministers go to their offices, the permanent secretaries start working on them. They are told that their job is to fight for the Department in the Cabinet—to fight for more resources or at the very least to ensure that the budget is not cut. Furthermore, Ministers are so involved with legislation that they do not have sufficient time to master the bureaucracies and make significant savings in their costs. There are odd exceptions. The Secretary of State for the Environment has made significant savings. But "Yes, Minister" is not far from the truth.

I was leader of a county council. I was elected for a party determined to stabilise or reduce rates and expenditure. I had a united party. Within three months chairmen told me that, although they were still 100 per cent. behind the policy, in education, for instance, the future of our children was at stake, and on behalf of the police force I was reminded that the Conservatives were in favour of law and order. That went on until in our group meetings only the leader, the deputy leader and the chairman of finance were trying to make savings.

What is the answer? We have an ex-Civil Service Minister at the Treasury. I should like his comments. We should consider having a Minister in every Department whose main responsibility is not to develop services but to look for savings, increased productivity and reduced staff. The Prime Minister should tell those Ministers that their promotion depends on their success. Each Minister should be assisted by a senior civil servant whose promotion also depends on that achievement. As final icing on the cake, the permanent secretary should be told that his knighthood depends on his success in cutting public expenditure.

The Opposition are right in saying that because of our failure to reduce public spending we have not yet been able to reduce the overall burden of taxation. If we take into account national insurance increases, a large section of the population is now paying higher direct taxes than in 1979. The hon. Member for Wood Green is smiling. He wants to see people pay more direct taxes.

I congratulate the Chancellor of the Exchequer on his success in bringing down the rate of inflation. Interest rates are also tending to come down. Had it not been for the unfortunate problem of the Falkland Islands, they would probably already be coming down. He must now vigorously tackle public spending. We must face one fact. Had it not been for North Sea oil, which is bringing in £5.8 billion a year, we could not have afforded the present level of spending. Unfortunately, so much of the revenue has gone to current spending and high wages and not to capital investment.

The Chancellor and the Treasury team do not have an easy task. We have seen the problems with local authorities. We have hardly made an impact on savings in the Health Service. The problems of the nationalised industries are proving intractable. I see no long-term solution other than pressing on with privatisation.

My verdict on the public expenditure White Paper is that the Government are making good progress but that there is still a lot of room for improvement. The Chancellor will need the support of all his colleagues in the Government and on the Back Benches, particularly in the autumn when we come to the current year's expenditure review. He needs our united support so that in two years we can go to the electorate having fulfilled our pledge to cut the level of public spending as a proportion of GDP and to cut direct taxation.

Mr. Deputy Speaker

I remind the House that Front Bench speeches are due to begin at 9 o'clock. I ask hon. Members to be brief.

8.25 pm

Mr. David Ennals (Norwich, North)

I do not wish to take up the remarks of the hon. Member for Bridlington (Mr. Townend), although he tempts me to do so, because he makes outrageous statements with which I disagree.

My hon. Friend the Member for Wood Green (Mr. Race) concentrated on housing. I wish to concentrate on the significance of Government spending programmes on the National Health Service, on medical education in medical schools and on the personal social services of local authorities. I believe it to be sensible to concentrate on those three questions.

The hon. Member for Bridlington reminded the House of the Conservative Party's election pledge that it would protect the National Health Service from cuts in public expenditure. We have seen assaults on the pockets of the sick and the poor caused by massive increases in prescription charges and charges for spectacles and dental treatment. The Government now plan—I am sure that the hon. Gentleman will be pleased with what I am about to tell him—major cuts in the National Health Service.

We are greatly indebted to the Treasury and Civil Service Select Committee, which is chaired by the right hon. Member for Taunton (Mr. du Cann), for turning the Government's Blue Book into a much more comprehensible explanation of what public expenditure means in volume terms. I believe that the cash presentation creates great confusion, and the Committee shares that view.

I wish to examine what has happened in the National Health Service. The outturn from 1978–79 to 1980–81 was an increase of 5.2 per cent. By the time we arrived at 1981–82, the figure had gone down to a 1.2 per cent. increase. In the following year there is to be a decrease of 1.1 per cent. and a decrease of 0.9 per cent. in the year after that. Consequently I am sure that the hon. Member for Bridlington will be delighted that there will be actual cuts. However, the situation is far worse than even those figures present.

The figures for this year are based on assumptions about cost inflation and a level of wage inflation that I believe will be proved wrong. They assume that this year inflation will be reduced to 9 per cent. Many of our discussions in the House lead me to believe that we shall not see a 9 per cent. increase as an average over the course of a year, still less with pay awards at 4 per cent. The Secretary of State has agreed that nurses should receive an increase of 6.4 per cent. They, quite rightly, find that figure grossly unsatisfactory. If inflation remains at 11 per cent. this year, the average health district will have to find an extra £200,000 in cuts from its planned programme. If pay awards average 5½ per cent.—I am not optimistic about that, knowing the strength of feeling among nurses and others who work in the NHS—there will be a further £220,000 to be found. That will happen despite the growth in the number of elderly people, which will add about £300,000 to the bill that an average health district has to find. We are talking about serious cuts in the NHS.

In regions with a low growth rate, on what we have called the RAWP formula, the average health district will face not an increase but a 1.7 per cent. cut in real terms in the NHS. The National Association of Health Authorities has said that many new health districts that are coming into existence this month may find themselves starting life with cuts in essential services. These cuts will have an effect on patient care and on staff of all types. The cuts will result in increased waiting lists. Whatever the Government may say, waiting lists are now longer than at any time between 1974 and 1978. There will be cuts also in community services.

National Health Service treasurers, the people who know the situation best, are extremely concerned about the prospects as they see them in the White Paper. Mr. Don Wild, the secretary of the Associations of Health Service Treasurers, said: When you hear politicians talking about growth for the health service, it sounds fine, but when that's followed by pay awards over the cash limit, a squeeze on prices and modest increases in petrol, we are in for a hard time. He added that he was bitterly disappointed that the 1 per cent. in employers' national insurance surcharge would only apply to private industry. He reckoned it would have saved the NHS £50 million enabling it to take on more staff.

Mr. John Townend

The right hon. Gentleman has referred to waiting lists. To the best of my knowledge, waiting lists have been reduced considerably under the Government. If the right hon. Gentleman disagrees, will he give the figures?

Mr. Ennals

They came down from a high level at the time of the industrial dispute in the early part of 1979. Until then the figures had been very much lower than they are now. It has taken the Government three years to bring down waiting lists to about 30,000 more than they were at the end of 1978. The Government can take no credit for the length of waiting lists.

We must give a warning to the country, because Ministers seem not to have enough guts to do so, despite all their fine words. The Government are planning a major cut in the NHS over the next few years. Those who will suffer most will be those whose needs are greatest. They will be the elderly, the mentally and physically handicapped and the mentally ill. The cinderella services will be hit the hardest. With the present boost in private medicine, the two-tier Health Service about which we have warned over the years is rapidly approaching.

I have already said that we shall see major cuts in the NHS that will hit services throughout the country. There is another aspect that the NHS is facing and which in some areas it is already experiencing. There will be further blows as a result of the cuts in the grant to the University Grants Committee. That comes under the education charge, but with swingeing cuts in support for the universities there is no protection for medical schools. This issue is being urgently considered by the Select Committee on Social Services, which will be publishing its report fairly soon.

My impression is that there was virtually no consultation between the Department of Education and Science and the Department of Health and Social Security about the effect that this would have on the National Health Service. We have already seen that about 200 clinical academic posts have been frozen. In two years, that figure will probably be as high as 400. This is serious.

For the first time, the medical schools have received no protection. For the first time, the University Grants Committee has been faced with administering major cuts as a result of decisions of the Government and the Secretary of State for Education and Science. This will affect services. I emphasise the number of clinical academic posts that will be reduced because those are all filled by people who are looking after patients. This is happening in almost every medical school in the country.

Richard Smith set out the problem succinctly in theBritish Medical Journal on 30 January 1982. In an article headed The starving of the Medical Schools", he pointed out that most university departments have a commitment to teaching and research. He went on to say: The UGC may have forgotten the clinical medical departments have an additional commitment to treating patients. He said that the effect of the cuts was likely to be most severe in the provision of certain highly specialised services, which are largely provided by universities, and there was a danger of small departments concerned with shortage specialties, such as anaesthetics and geriatrics, being cut.

Mr. Dan Jones

On a point of order, Mr. Deputy Speaker. I should like to ask succeeding speakers to be brief and a little less effusive in their speeches so that those who have been in the House, perhaps all evening, can make a five-minute contribution.

Mr. Ennals

I assure you, Mr. Deputy Speaker, that I shall be much briefer than the hon. Member for Bridlington. I am anxious that others should have a chance to speak in the debate. Time is not on our side. Interventions, even from my hon. Friend, do not help. We are talking about a part of the Welfare State with which he is concerned.

University cuts are affecting not only service but, in many cases, research departments, which I fear will be lost. We have already had several examples which I shall not go into now.

In the personal social services there is a similar picture of downturn when needs are steadily growing. The prophecies that we receive in information from the Department of Health and Social Security show that a reduction of 2.9 per cent. is envisaged for 1982–83, with no growth in 1983–84 and only a 0.6 per cent. growth in 1984–85. Therefore, it is planning major cuts there.

The county of Norfolk made cuts of 0.1 per cent. in 1980–81 and 1.4 per cent. in 1981–82. Therefore, it is seeing cuts in services. Those cuts will affect what can be done for the elderly and the disabled—adaptations, holidays for the disabled, home helps, meals on wheels, and so on. As a result of Government cuts, my area is seeing a major reduction in the number of people who are able to make use of the home help and the meals on wheels services. All requests made by my Labour colleagues on the Norfolk county council are turned down. We are seeing services worsen at a time when they should improve.

The public expenditure Blue Paper, as interpreted and clarified by the Select Committee, shows that the provision for health, medical education and personal social services is a disgrace to our country. It is staggering that any Government could take pride in decisions that have done so much to affect the lives of ordinary people. I refer not only to housing, but to the health and welfare of those whom we represent.

It is no wonder that the Government brought out a new version of their public expenditure review. It was largely designed to conceal the facts from the people. The situation is very disturbing. The Government cannot give any answer, because the facts are concealed in the Blue Paper.

8.40 pm

Mr. Sydney Chapman (Chipping Barnet)

I am glad to follow the right hon. Member for Norwich, North (Mr. Ennals), who speaks with great authority and experience on health and social security as a former Secretary of State. I shall take up some of his points.

I welcome the White Paper, Cmnd. 8494, and the statement of figures in cash terms. They show that total public expenditure has risen by 94 per cent. in the past five years. In the past three years, under this Government, total public expenditure has risen by 61 per cent. I accept that those figures will have to be slightly revised in the light of the remarks made by my right hon. and learned Friend the Chief Secretary. However, total public expenditure under this Government has increased, in round figures, by 60 per cent., while the retail price index has increased by about 50 per cent.

Therefore, there has been no overall cut in real terms and there has been a pretty massive increase in public expenditure in cash terms. Consequently, it is wrong to talk about slashing overall public expenditure. Indeed, to put things at their most charitable, the Government have had only mixed success in their attempts to cut the rate of increase in public expenditure. No doubt the Government wanted to control public expenditure more effectively than they have been able to. Indeed, I am sure that they would have done so had it not been for the severe world recession.

As we export more than a quarter of our total national output, we cannot insulate ourselves from the deep world recession that was basically caused by the doubling in price between the second quarter of 1979 and the end of 1980 of an OPEC barrel of oil. With the greatest deference to Opposition Members, I should point out that we could not have spent our way out of the recession. I call in aid previous experiences, particularly in the 1970s. Reflations have had an increasingly impotent effect on real output and have certainly caused more inflation or re-inflation and thus, a lack of competitiveness in world markets.

Whatever else may have happened in the past year, the Government have spent more than they have received in receipts. The difference between £119.5 billion and £109.2 billion is a gap of 9.4 per cent. Therefore, it is no exaggeration to say that despite the Government's attempts to cut public expenditure, the nation is still living almost 10 per cent. beyond its means. Indeed, Mr. Micawber's dictum of the old sixpence overspend on £20 pales into insignificance.

However, I disagree with the right hon. Member for Norwich, North because in real terms we have still increased public expenditure on health and personal social services. We have also increased in real terms public expenditure on the social security programme. We have also increased it in real terms in the defence and law and order sectors. Those were policy decisions of the Government, and I welcome them, but it has made it all the more difficult to cut overall expenditure—which we have not done—because those four Departments represent over 50 per cent. of total public expenditure.

Of course I regret the "reduced" expenditure in other Departments. I give education as an example. We have increased expenditure on education this year by only £1,000 million. The plan is that next year we shall increase expenditure on education by only £400 million.

Mr. Maxton

A cut in real terms.

Mr. Chapman

Obviously it is a cut in real terms, but those figures should be seen in the context of the dramatic fall in numbers of pupils in State primary and secondary schools. In England alone, the fall is 800,000 or approximately 10 per cent., but in real terms the cost per pupil has risen in the past five years. I am told that there will be a further reduction of 600,000 in the next three years.

To take another point, five years ago, local authority total expenditure was about 43 per cent. of the expenditure of central Government. Last year that figure had been reduced to 34 per cent. It can be argued—as it has been argued in the House and I concede the point straight away—that local government has been better at controlling its overall expenditure, but it ought to have been for two reasons.

First, the Government priorities of increased expenditure in certain Departments—health and personal social services, the social security programme, law and order and defence—are virtually exclusively in the central Government sector and not in the local authority sector. Secondly, education—one of the reductions—is the most significant item of local government expenditure. By my calculations, education had 52 per cent. of all current local authority expenditure in England last year. Therefore, I believe that the local authorities ought to be cutting back, and there was no excuse for some of them raising their rates to the extent that some of them have.

I wish to make one passing remark about the difference between current and capital expenditure. This subject was touched upon by my right hon. and learned Friend the Chief Secretary to the Treasury and by my hon. Friend the Member for Huntingdonshire (Mr. Major). We must examine this matter more closely. To me, if renewal of a sewer is capital expenditure, so the renewal of a motorway should be counted as capital expenditure. While a new hospital is counted as capital expenditure, the pay and number of nurses, an equally important investment in health, goes down on the current account. New schools are counted as capital expenditure but much-needed textbooks for those schools count as current expenditure. Therefore, I hope we can devise a means of understanding these matters better so that we can equate their importance.

Significant demographic trends are taking place in our society and will continue to take place. In the past three years, the number of retirement pensioners has risen by 360,000. The working population has fallen by 300,000 but, more importantly, the number of those in employed labour has fallen in the past three years by about 1¾ million.

I do not believe that in the short term we can expect a dramatic reduction in the number of jobless. It is irresponsible for anyone to pretend that it will happen. Therefore, given a reasonably static population of 56 million, whereas three years ago 55 per cent. of the population was dependent upon 45 per cent., today 59 per cent. is dependent upon 41 per cent. That is to state the position in very crude terms and round figures. This is quite apart from what I believe will be the quite significant impact of the new technologies. The microchip and the word processor may open up whole new industries, but I do not believe that they will be responsible for employing many more people. Listening to some of the recent remarks of the captains of business, it seems that they may replace many more people in the professional and business and clerical and secretarial sectors.

Given the pressure that will face Governments of whatever hue in the next decade; given the pressure of the increased number of people who are now retired; given the pressure for reducing the retirement age for which there are demands from both sides of the House; and given the pressure of reduced employment prospects, fewer people and a reduced proportion of the population will be asked to pay for more people requiring and expecting greater benefits.

In the face of these facts and trends, I wish the Government well in keeping to their planned increase of 8.5 per cent. in total public expenditure in the next financial year. On the basis of experience, I shall be pleasantly surprised if they do so. I shall be even more surprised if in the following two years the increases are only 5.1 per cent. and 6 per cent. respectively.

The implications are obvious. In the short term at least I cannot see taxation going down. Quite properly, the social security programme will represent an increasing proportion of public expenditure. Any Government will have to select their priorities for public expenditure and face the fact that in reality they will have to try to cut expenditure in certain sections. I do not believe, for example, that we can think in terms of pouring hundreds of millions of pounds of more subsidies into public transport. We have to live in the world of realism.

We have increased expenditure in real terms on health and the personal social services. The waiting list for hospital treatment has gone down by 120,000 compared with when we came to power, and there are 34,000 more nurses working in the National Health Service than there were three years ago. These are considerable achievements given the economic realities facing the Government.

I commend the Government's White Paper at least for its realism. It will not lead to false optimism and to hopes that so often in the past have been dashed by successive Governments thinking that they can create increased output when they are not able to do it.

8.54 pm

Mr. John Maxton (Glasgow, Cathcart)

I agree with the hon. Member for Chipping Barnet (Mr. Chapman) about the relationship between capital expenditure and current expenditure. I have in mind especially the example that we see in Scotland, where a brand new hospital has been established in the capital expenditure programme but has not been able to open simply because the health board has been unable to afford the current expenditure to employ the doctors, nurses and other staff to ensure that the hospital can work. That is due to the cuts in current expenditure in the National Health Service imposed by the present Government.

I must take issue with the hon. Member for Chipping Barnet about education and how it could be cut because of the reduction in numbers. That appears to be an easy argument on the basis of demography. However, the numbers have fallen dramatically at the bottom end of education where, essentially, it is quite cheap per capita to educate children. The big numbers in education are moving into the top of the secondary school and the post-school education system, where per capita expenditure is very heavy. Therefore, although it may appear that one can reduce education expenditure, it needs to be kept at about the same level to maintain the same standards, If expenditure is reduced there will be a decline in service.

What came through more than anything else in the speeches of the hon. Members for Chipping Barnet and Bridlington (Mr. Townend) is that they believe—and they have stated this pretty clearly although they will vote for the Government—that the Government White Paper shows that the Government have failed dismally in their own terms. They have failed, not in our terms but in their own terms, to carry out the policies that they set for themselves when they came into office.

The Government set themselves to reduce taxation but they have dismally failed to do that. For most people personal taxation is now higher than it was in 1979. They said that they would reduce inflation. They may have done so in their own terms but inflation is still running higher than it was in May 1979 when they came into office. Thirdly, the Government said that they would reduce public expenditure. That again, as a percentage of gross national product, has been shown by the White Paper not to be the case.

All that was to be done to release greater amounts of money into private investment. That again has dismally failed to happen. There has been a reduction in the investment levels in private industry yet the Government carry on with privatisation. The Conservative Party keep labouring the point that privatisation, the selling of a public assets, will somehow be of great benefit. Yet the result is against all the policies that the Government came in on.

Their idea was to reduce public expenditure to allow more money for private investment. However, if one sells public assets it means that people will sell their private capital to purchase existing capital and goods. Therefore, they will not invest it in new industries for new employment. No new employment comes from selling off public assets yet large amounts of private capital are being used in that exercise. That capital should have been used, according to the Government's ideas, to stimulate new industry and jobs in our economy.

The Government have failed, but at what expense? They have failed to reduce public spending but they have managed dramatically to reduce the services in the public sector that the people in my constituency rely upon. At the end of the day, that is what public expenditure is about. The Conservative Party seem to think that it is a matter of the Government taking money out of their pockets and spending it as liberally as possible and in the most spendthrift manner around the country.

Public expenditure is about providing services for people, services that most people, certainly in my constituency, cannot afford to provide for themselves. For example, they cannot afford to pay for the education of their children or for the operations that they require—and that being hospital and doctors' bills. They cannot afford to light the lamps outside their houses or pave the streets. The services provided by the public sector are those that people, especially in urban areas, cannot afford to pay for out of their pockets.

There is no better example than housing of what is wrong with the Government's policies. In Scotland we do not have to worry about the change from volume terms to cash terms in housing because in both senses, even in cash terms, the money that is being spent is being dramatically reduced. It will be reduced by 14 per cent. in the coming year in cash terms, leaving aside inflation.

In the city of Glasgow that means that there are fewer houses being built. Very few council houses are being built in Scotland as a whole and practically none in Glasgow. A few sheltered houses are being built for the elderly to meet the dramatic need that exists in Glasgow. There is practically no improvement taking place. The pre-1950s housing in my constituency is now in need of major refurbishment. Because of the cuts imposed by the Government on the local authority, this is not taking place.

The Government may say that they are increasing the capital allocation. If, however, the Glasgow local authority says that it will increase rents by only 30 per cent.—itself well above the rate of inflation—rather than the 79 per cent. that the Government would prefer, it does not receive the same size of capital allocation that it would otherwise have done. That is the law in Scotland. I believe that it is slightly different in England and Wales. If local authorities in Scotland do not increase their rents, the Government cut their capital allocation. That is happening in Glasgow.

My constituents find that repairs are not carried out. They find themselves on waiting lists for longer than should be the case. They find that the redevelopment of areas that was necessary has not happened. Many of my constituents who suffer these high rents and housing problems are former construction industry employees. They are precisely the people who should be refurbishing the houses, but they have no job. That is what the Government's expenditure plans really mean. The Government have failed to carry out what they promised. They have massively cut public services so that constituents of mine and those of most of my hon. Friends find that their standard of living has been grossly reduced by the Government. That is why I shall be voting against the expenditure White Paper.

9.1 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

My hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) was right in relating the White Paper to the particular problems, including the housing problems, in his constituency. If one multiplies those problems 635 times, one sees the disadvantages that this White Paper has brought not only to the housing sector but also to many other sectors, as I shall seek to demonstrate.

This is the first time that the expenditure debate has followed the Second Reading of the Finance Bill—the first occasion that we have discussed spending after taxing. The intention originally had been to hold the expenditure debate in November or December every year after finalising the expenditure plans. A number of notable slippages occurred in the arrangements. This means that a November consideration has become an April assessment. Since those days, we have had the Armstrong report to which the Chief Secretary to the Treasury referred. We look forward to the presentation of the Select Committee report, which will bring together the presentation of taxation and expenditure each December. The report, I gather, will not be long delayed.

Now we are to discuss expenditure in the light of the Government's firm proposals on taxation. Some might consider that this timing is not accidental. There are those who wish us to consider expenditure in the light of taxation and that before, rather than after, the meal should come the reckoning in order that the mind of the House will connect any extra expenditure with extra taxation. As a general rule, this connection is fairly sensible. But in the same way that anyone who sees his factory on short time can expect to be able to engage in prudent borrowing, so a nation on short time should also be able to increase its borrowing. We need to discuss not just taxation and expenditure but borrowing which, at a time of severe slump, needs to be a major element in our consideration.

This debate covers the third general examination of our financial affairs—a matter to which the right hon. Member for Worthing (Mr. Higgins) referred. The first, of course, was the Budget, which covers the general economic assessment and the measures taken to deal with it. The second debate was on the Second Reading of the Finance Bill, which deals with the revenue aspects of the Budget. This, the third debate, covers the expenditure side. It is the hardest element to operate and control.

The amounts of money with which Treasury Ministers have to deal are very large. We have a record number of Treasury Ministers. I offer my congratulations to the Minister of State, Treasury, the hon. Member for Brentford and Isleworth (Mr. Hayhoe) who, I understand, is to wind up. I welcome him to these debates. We have known each other for some time and I look forward, if not to harmonious relationships, at least to understanding relationships.

Any Treasury Minister knows that the figures he approves have to pass down through many grades of civil servants, as well as others, before reaching the point where things actually happen, where jobs are created, homes are built and there is investment in industry. The whole process is like having a long piece of string. When the Minister twitches it, it is not always easy to comprehend fully what will happen at the other end.

The programmes are many and the manner of deciding priorities is essentially primitive. It depends partly on the strength of the case, but much more on the strength of the Minister. As Edward Boyle pointed out many years ago—and he was not the first or the last to make the observation—the success of a departmental Minister depends on how much money he can get from the Treasury for his policies. A Minister with money can do things. A Minister without has only his speeches for consolation.

The hon. Member for Bridlington (Mr. Townend) referred to the strength of the Prime Minister and the way in which Ministers might wish to save money to please the Prime Minister. I do not see it in that way. When I look at the Cabinet arguments of last year and the year before, I find a great similarity between the arguments on public expenditure as Minister after Minister sought to defend his spending plans. This is what provides a Minister's reputation and he will always try to retain his plans.

Mr. John Townend

To clarify what I said, I made the point that the right hon. Gentleman is making. The problem is that departmental Ministers, urged on by their chief officials, feel that their first job is to fight to maintain their budget rather than to reduce spending, which was the policy on which the party was elected.

Mr. Sheldon

It will continue for a long time. Suggestions have been made to alter the way of determining how money is spent. The birth of the old Expenditure Committee was one suggestion. Another was that there should be a Cabinet Committee of wise and disinterested elders. Further ideas have been put forward from time to time and some have even been implemented. On all of this I remain a sceptic. So long as we are dealing with the reality of political power, so long will all these matters come to be dealt with in Cabinet, with the powerful exercising of political strength.

The first thing we notice in the White Paper, as Sam Brittan has mentioned in theFinancial Times, is that the Government have handed the House of Commons a meaningless document. By putting everything in cash terms they have told us how much will be spent but not what we will get for our money. Several hon. Members, including my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) and the right hon. Member for Orkney and Shetland (Mr. Grimond) have referred to this.

The pound notes are being provided for the week's shopping but with no shopping list and with the job being given to someone who does not like shopping anyway. We do not know what we shall get. As an example, we see in table 1.5 of the White Paper that Government expenditure in industry will increase by more than £200 million. What will we get for this money—more assistance or less? We do not know. Before we pay the bills we are entitled to have the answer. The House could hardly ask a more fundamental question. The taxpayer may not be able to call the tune with this Government, but he has the right to know what the tune is.

According to the Financial Statement and Budget Report, inflation is assumed to fall to around 7 per cent. in the next financial year, 1983–84, and to 6½ per cent. the year after. In the same two years public expenditure will be squeezed by public expenditure totals 2 to 3 per cent. below the rate of inflation.

What happens if the Government's forecasts for inflation are wrong and next year the rate of inflation is higher than 7 per cent? After all, the Government have not had conspicuous success with their forecasts so far. We have only to look at sterling M3, the lodestar of their economic religion, which has been upped by nearly 100 per cent. It was expected to rise by 29 per cent. in the period up to now and it has risen by 56 per cent.

In the Government's search for economic certainty sterling M3 was replaced by the public sector borrowing requirement, which has a target of £9½ billion for 1982–83. However, table 8 in the Red Book has an average error which provides for a range of between £5½ billion and £13½ billion. If the Government dropped sterling M3 as a target because it was not predictable enough, they have not done much better by signing up the PSBR. They have a peculiar talent for picking targets which, even if they have any sense in them, are exceptionally difficult to hit.

The Government's achievements in the art of forecasting are being brought into the new area of public expenditure. It is the reality, the pounds and pence of public expenditure, which must fit the guesses of inflation. Homes, jobs, roads and schools will be sacrificed to any mistake that the Government make in their hopes for the future. As my right hon. Friend the Member for Stepney and Poplar (Mr. Shore) pointed out earlier, it is strange that a Government so devoted to indexation, particularly of the assets of the wealthy, should deny the sense of indexing essential services and the planning of them.

I agree that the amount that any country can afford to spend on the non-productive parts of public expenditure must have some relation to the productive parts of the economy, whether or not the productive parts are in the public sector. There are many such parts. The ratio of public expenditure to gross domestic product has been rising steadily under the Government, from 41 per cent. to the figure produced this afternoon by the Chief Secretary to the Treasury of 44½ per cent. in the past year—not, unfortunately, because the Government are spending more on our essential services but because production is less as the Government's economic policies throttle the nation's output.

The Chief Secretary pointed out that there was bound to be a pause in his hopes for the reduction of public expenditure, which is being offset by the cost of recession. This afternoon we saw the first realisation by the Government that there are costs in the policy that they are pursuing and that the reduction in public expenditure is being offset by the cost of recession. I thought of the old saying that true wisdom begins when a man realises that he does not know what he thought he knew. We can at least find some consolation in the right hon. and leaned Gentleman's understanding that the world is a little more complicated than he thought when the Government set out on the road several years ago.

The Chief Secretary must say why the costs of the recession have increased in the way that he now accepts.

If we examine the total of £115 billion we see that about £15 billion represents the cost to the Exchequer of unemployment. That is not the cost to the economy, which is more. That is not the cost to the families of hardship, not the cost to the unemployed, whose livelihood has gone. All that is extra. We are merely examining the cost to the Exchequer, which is about £15 billion.

The interest that we pay for the money borrowed in deflationary circumstances now costs more than £15 billion—roughly the same figure. That latter £15 billion a year is the cost of high interest rates resulting from Government policy. Indeed, that figure understates the true position. The Government have introduced index-linked gilt edged stock. We must pay about 2 per cent. a year for that stock now. However, the true rate of interest, up to perhaps 15 per cent., will accrue to the next generation. They will pay for the failure of this Conservative Government.

Sir William Clark

I am most interested in indexation and I agree with what the right hon. Gentleman has said. Is he saying that if perchance his party were ever to get back into office they would stop issuing index-linked bonds?

Mr. Sheldon

I am merely pointing out that the Government index some things and not others. I note the early-day motion signed by the hon. Member for Croydon, South (Sir W. Clark) and 25 or more of his colleagues, demonstrating their dislike of indexation. However, the Government index capital transfer tax and capital gains tax, which provide relief for the well-to-do. They index areas which are advantageous to those on high incomes and with a high standard of living but do not index others. The Government do not even tell us the levels of public expenditure in real terms. They deny us any information on such matters.

Sir William Clark

rose——

Mr. Sheldon

No, I shall not give way again. We shall continue the argument in Standing Committee 10 for many weeks and months to come.

Mr. Austin Mitchell (Grimsby)

We shall see the hon. Member for Croydon, South (Sir W. Clark) then.

Mr. Sheldon

The problem to which the hon. Member for Croydon, South refers, is that the Government spend money not for the good of the people but to compensate for the damage that they are doing. That is no way to spend public money. There is no return to the community from that money. Just as important as the quantity of money spent is the quality of public expenditure. My hon. Friend the Member for Wood Green (Mr. Race) rightly referred to that. The Opposition are concerned, not simply with the amount of public expenditure, but about whether value for money is received. We must ask ourselves what is being provided—what we are getting for our £115 billion. We know that the policy of spending £15 billion on unemployment and the creation of a disillusioned generation is one with which the Opposition disagree. We note also that the reduction of investment in nationalised industries was referred to by the Treasury and Civil Service Committee. We are grateful for its report. The reports form an important part of our debates in economic matters. The way in which the Committee is able to produce those reports at such short notice is a notable service to the House and worthy of great commendation. In paragraph 15 it states: General government investment is estimated to be £671 million, more than 10 per cent., below the level planned, … the share of capital in total expenditure again fell significantly … this is a profoundly disturbing trend. Knowing the restrained language that the Committee normally uses, those words can only make us extremely depressed about what is being done in the White Paper.

A prominent part of the White Paper covers the Contingency Reserve. What is the Contingency Reserve for? It is a sum of money not set aside for any of the main Departments. It represents the unknown factors that may arise. However, with this Government it has increased enormously, from £300 million in 1981–82 to a projected £6 billion in 1984–85, as their control has obviously weakened. It is now a major project in its own right, exceeding the entire amount that we spend on law and order and what we spend on industry, together with trade, employment and energy. Parliament is being asked to approve expenditure about which it knows nothing. We are providing £6 billion which may be spent at the discretion of the Government. We shall not even be consulted about it. The only examination that we can make of this enormous expenditure is the post mortem on the dissecting table of the Public Accounts Committee. That is wholly wrong.

The right hon. Member for Crosby (Mrs. Williams) mentioned defence expenditure. The Chief Secretary has been informing us almost daily that even if the events in the South Atlantic are protracted there is no question of breaching the Government's economic strategy to pay for the operation. TheFinancial Times reported on 16 April that The Treasury yesterday disclosed that it has agreed to sign a blank cheque for the cost of the Falkland operation". The Chief Secretary to the Treasury does not know what a blank cheque is. It is an instrument to pay, the amount of which is filled in by someone else. Does he mean that such an action can have no effect upon his strategy and that there is therefore no cash or budgetary problem?

Many commentators believe those statements to be too optimistic. I find them quite unreal. Of course spending must increase if we are to obtain our objectives, but to assume that the same cash limits can continue is to believe the unbelievable. Defence is expensive and the cost of war can be extortionate. The Chief Secretary cannot do what he did in West Germany. He cannot restrict the rounds fired to save ammunition, nor can he limit training flights to save fuel. When war comes in at the door, cash limits go out of the window.

The Chief Secretary says that all the extra expenditure may be financed easily because the revenue may be more buoyant. However, the Budget is only one month old. Presumably it was prepared on the basis of some up-to-date information. Do the new factors that he outlined to the industries in the North-West and elsewhere make him more confident than the people to whom I and others have spoken? If so, we wish to hear why. The fact is that the Chief Secretary to the Treaasury is whistling in the dark and it is the same old tune. He says that revenue may be more buoyant but he knows that it may be less buoyant. He has no new information. All that is new is his rising optimism to compensate for the gloomy expectation that he, as Chief Secretary, must feel at such a time.

If the revenue cannot be guaranteed to be more buoyant, what is left to him, if his blessed financial strategy is to stay immaculate? We know the answer to that. It will be still more cuts in other areas of public expenditure. Is the Chief Secretary arranging for Cabinet discussions on such cuts? Is he arranging bilateral discussions with spending Ministers? Of course not. The Chief Secretary is rightly worried because the position threatens to get out of control.

The Chief Secretary is certain to have difficulties with defence expenditure. There have been difficulties in the past. It is not something new. We had a public accounts debate on Monday. We heard that during the past three years there has been overspending of cash limits. Year after year here has been overspending, despite the increases in expenditure allocated to defence.

My right hon. Friend the Member for Heywood and Royton (Mr. Barnett), on 19 April, said: The Comptroller and Auditor General tells us that there are more than 20 projects with costs in excess of £500 million, which highlights the startling size of projects within the Ministry of Defence. There are bound to be unforeseen difficulties and escalating costs, but the Ministry of Defence constantly and seriously underestimates them. Would many of the huge projects have been started had there been a more realistic cost estimate? He went on to say that it is not unusual in such large projects for the costs to escalate vastly."—[Official Report, 19 April 1982; Vol. 22, c. 31–32.] That was at a time of peace, when everything was under control, when the Ministry of Defence was being brought before the Chief Secretay to the Treasury as well as before the Public Accounts Committee. The kind of control that one can have at a time of peace is not likely to be more rigorously applied at a time of conflict. That is the problem that we have to face now.

The right hon. Member for Orkney and Shetland said that the happy prophecies of Beveridge had come to the end of the road. I heard that with great sadness, because the Beveridge report came to many of us as a beacon at a dark time during the war. When asked by my hon. Friend the Member for Wood Green whether he accepted that the Government had responsibility for full employment, the right hon. Gentleman said that that was a preposterous question. The Labour Party does not find that a preposterous question. It is clear now that, for the first time since before the war, the Labour Party is the only party which believes in the viability of full employment. It believes that the Government have the responsibility for providing full employment.

Mr. Grimond

If the right hon. Gentleman knows how Governments can guarantee full employment, why did he not tell the Labour Government how to do it when they were in office?

Mr. Sheldon

The right hon. Gentleman forgets that from 1945 to the mid-1970s full employment was the norm in the British economy. The few years when that was not the norm are the deviant years—not the years when full employment was achieved. If the right hon. Gentleman has any respect for his former mentor—I know that he has—he will read the arguments that he deployed. They are as valid now as they were when he set them on the record. I am sorry that the right hon. Gentleman is withdrawing from those commitments, because they formed the most honourable part of the Liberal Party for many years.

When we look at the ratio of public expenditure to gross domestic product, we should not be mesmerised by it. We must increase output so that we can afford a larger level of public expenditure, without the agonies, which other countries with better economies can afford. We used to concentrate and we need to concentrate on output. growth and industrial expansion.

The lesson that the Government have not learnt is that we cannot have industrial expansion by making industry fear for its markets, employees fear for their jobs, and companies fear the liquidator and the receiver. It may be that the great success of the post-war years was the expansionary belief held by millions of people throughout the world. To build, to expand, to grow and to invest require confidence. The greatest disservice that this Government have performed has been to demolish that confidence. In the darkest days of the war, a surprising element was the belief that changes, advances and progress would be the normal course of events. There was the Beveridge report and homes for all. That attitude endured into the 1950s, with the doubling of the standard of living claims, and into the 1960 with the "Get Britain moving" slogan, until the present time.

All these hopes have been withering in the face of unemployment, the arrival of the liquidator and the hammer of the auctioneer. All those hopes are dying as more of our industrial assets are sold to countries that are more ready to make use of our machinery and equipment for their own expanding economies. To the millions of people who are yearning to be proud of our country, that is a cause for shame. To reverse that will not be easy. New attitudes will need to be fostered. The people have been injured and their hopes and expectations have been destroyed. A resurgence of will and confidence is needed. Such resurgence that can never come from the Government, who are the architects of the misfortunes so graphically set out in the wretched White Paper against which we shall vote tonight.

9.31 pm

The Minister of State, Treasury (Mr. Barney Hayhoe)

This is the first time that I have been privileged to intervene in a Treasury debate. I am grateful to the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) for his courteous welcome to the distinguished group of people who participate regularly in these interesting debates. As he and my right hon. Friend the Member for Worthing (Mr. Higgins) said, this is the third go, because we have had the Budget, the debate on the Second Reading of the Finance Bill and now, out of turn this year, the debate upon the public expenditure White Paper. When I was young we used to have a hot roast for Sunday lunch, cold meat on Monday and Tuesday and on Wednesday and Thursday we had shepherd's pie. I can only assume that this is the shepherd's pie debate of this year.

This debate has been wide ranging, from the highly technical comments made by my right hon. Friend the Member for Worthing to savage criticisms of the Government's policy. I make no complaint about that because it is the essence of our parliamentary process that such complaints should be made. I shall seek to respond to them in the time available to me.

The right hon. Member for Stepney and Poplar (Mr. Shore) referred to the cost implications for the defence budget of the operation in the Falkland Islands. The right hon. Member for Ashton-under-Lyne became very excited at the prospects for defence spending. It is not possible at this stage to assess the total cost of the Falkland Islands operation. However, as the Government have made clear in the House and elsewhere, while there is no cash ceiling on the cost of the operation, it will be met in ways that are consistent with the Government's economic strategy. [HON. MEMBERS: "What strategy?"] The significance of that may escape those who have no strategy and no consistency, but my right hon. and hon. Friends will understand the significance.

Additional expenditure arises only when the cost of the operation proves to be more at the margin than the cost that would be assigned to the forces and individuals if they were engaged in other duties. At this stage, the extra cost represents a small proportion of the defence budget. As we have increased the defence budget from £7½ billion, which we inherited in 1978–79, to over £14 billion, even a 1 per cent. increment on that overall budget amounts to £140 million, which, on estimates that have been made, is well above the costs that have been incurred at this stage.

It has been suggested that our ability to respond to the Falkland crisis, or others like it, has been weakened by the Government's so-called cuts in defence spending. That is complete nonsense. The figures speak for themselves. This year we are spending £½ billion more in real terms on conventional naval forces than was spent in the year before we came to office. The conventional Navy still enjoys, and will continue to enjoy, as high a proportion of the defence budget—28 per cent.—as it did in that year. The current programme of modernisation and rebuilding will leave us with more ships and submarines operational in 1985 than today. Such good results flow from the Government's deliberate decision to give defence spending the priority it was previously denied.

The right hon. Member for Crosby (Mrs. Williams) referred to overseas broadcasts. They have been stepped up to the Falklands and to Latin America. Her more general comment is a matter for my right hon. Friend the Foreign Secretary.

The form of this year's White Paper has been widely welcomed. It uses a cash basis instead of funny money and that has found general support. Many right hon. and hon. Members are concerned about there being no effective way, as they see it, of making comparisons, particularly about the level of future spending. My right hon. and learned Friend the Chief Secretary has undertaken to examine all those matters in the light of the Select Committee's comments and of today's debate.

My right hon. Friend the Member for Worthing raised another important, highly technical matter about Bank of England funding operations and the purchase of commercial bills. I shall write to my right hon. Friend about that because it is a matter of considerable complexity.

The right hon. Member for Stepney and Poplar and others referred to housing. They pointed, as they were entitled to do, to the declining level of starts under this Government. They neglected to point to the more sharply declining level of starts that occurred under the Labour Administration. Perhaps that is understandable. They did not appreciate the substantial underspend by local authorities last year. With receipts from council house sales, the gross amount available for new housing investment in 1982–83 is about £3 billion. In cash terms, that is about 15 per cent. more than the amount available in the last year of the Labour Administration.

The right hon. Member for Crosby referred to housing improvements. She will recall, although she did not have the grace to refer to it, that the Chancellor, in his Budget, increased the amount available for housing improvements. I hope that the money will be fully taken up by individuals and local authorities.

Mrs. Shirley Williams

I apologise for not welcoming the Minister. I did not appreciate that he was speaking as a Treasury Minister for the first time. I understand that the improvement grants were announced by the Chancellor as if they cover all improvement grants when they cover only intermediate and repair grants, which has caused disappointment to many.

Mr. Hayhoe

The intention was to direct the grants to the most urgent cases and to ensure a quick take-up so that there was an effect this financial year. The details are the responsibility of my right hon. Friend the Secretary of State for the Environment.

Many right hon. and hon. Members have referred to the public services—their pay, numbers and efficiency. As I have within the Treasury particular responsibility for certain aspects of that matter, may I first say that they were right to lay stress on those areas of public expenditure? The Government are the direct employer of over 1 million people—nearly 700,000 civilians and more than 330,000 Service men and women. Indirectly, they are the paymaster in whole or in part of many other large employers—the National Health Service, local authorities through the rate support grant, and the nationalised industries which look to the Government for loan capital. In all, about 6 million employees are involved. The efficiency with which those manpower resources are used is of enormous importance, as was recognised by many of my hon. Friends in their speeches.

The savings from comparatively small improvements in efficiency can pay for considerable additons to programmes. Conversely, continuing inefficiency can prevent us from spending money on desirable objectives. A 1 per cent. improvement in Civil Service efficiency overall would yield about £50 million, whereas for the public services as a whole—the Civil Service, the National Health Service and local government—a similar 1 per cent. improvement would amount to about £300 million. Even by present-day standards, that is a formidable sum.

The converse is also true. An extra 1 per cent. on the public service pay bill takes £300 million away from what might otherwise be highly desirable capital expenditure. That point must be underlined in the context of the Select Committee's comments about the ratio of current and capital expenditure.

What are the Government doing about that? Let me deal first with the Civil Service, which is my particular responsibility. The Government have given a high priority to improving the efficiency and effectiveness of the Government machine. The general thrust of that work is set out in the White Paper on efficiency in the Civil Service published last July. But even before it was published the Treasury and Civil Service Select Committee had begun its own inquiry into efficiency and effectiveness in the Civil Service. It was a worthwhile inquiry by a subcommittee, with the hon. Member for Motherwell and Wishaw (Dr. Bray) as Chairman. The report was published recently. The report, the oral evidence that accompanied it and the written memorandum published with it contained a full account, in much more detail than the White Paper, of the work that is going on.

The Committee naturally did not take everything that the Government said at face value. It probed deeper. Nor did it always agree with what we were doing. It made its own recommendations for change, some of which were very far-reaching. There is no difference of principle between the Government and the Select Committee. We welcome its thorough and constructive report. Of course, the House would not expect me to answer it in detail this evening. We are giving it careful consideration and will publish our reply in due course. That reply may also be a convenient way to update our previous White Paper. Work and action on that front are continuing apace.

For the work to be effective and lasting, good management must harness the talents, experience and enthusiasm of those who do the job. Those qualities exist in plenty at all levels of the Civil Service. I wish that those facts were more widely recognised and acknowledged. The Civil Service gets far more than its fair share of ill-informed and plainly hostile criticism. Nevertheless, steady progress to improve efficiency and cost-effectiveness is being made. Attitudes are changing as a result of the pressures of the past few years. Although ministerial interest has been of crucial importance, it has generated a ready and helpful response throughout the service.

Mr. Foster

How is it possible for the Minister to argue that efficiency is significantly increasing when one thrust of the argument for producing the expenditure White Paper in its present form was that the measure of output was completely inadequate? He cannot have it both ways. If the measure of output is completely inadequate, how do we know that we are more efficient?

Mr. Hayhoe

The hon. Member for Bishop Auckland (Mr. Foster) has a fair point in referring to measurement of output in taking up the Select Committee's report.

The lasting reforms to which I have referred, to use Sir Derek Rayner's phrase for them, owe much to his own personal drive and inspiration. The old Civil Service Department and now the Management and Personnel Office have a crucial role in training and succession planning and in making sure that the right people with the right knowledge and experience are available to fill the key posts. The need for managerial skills in top jobs is more widely recognised and the Government are in no doubt about their responsibilities in securing effective financial management of the resources they control.

My right hon. and noble Friend the Lord Privy Seal and Leader of the House of Lords, with her special responsibilities for the MPO, will publish tomorrow an important action document setting out the early tasks, the objectives and priorities for the Management and Personnel Office over the next 12 months. The Treasury's detailed involvement in all this work has much increased since last year's public expenditure White Paper debate. The reorganisation of the central Departments announced by my right hon. Friend the Prime Minister last November has returned responsibility for Civil Service pay and numbers to the Treasury.

Firm control over the wages bill is obviously very important. This year's pay claim by the Council of Civil Service Unions and the Government's pay offer have been referred to the Civil Service arbitration tribunal. Hearings were held on Monday and Tuesday of this week and the tribunal's findings are expected shortly—I hope before the end of the week. The Government will consider implementation as soon as the tribunal's findings are known. As the House will be aware, the Government reserved the right, when they agreed to recourse to arbitration at the end of last year's pay dispute, to ask the House to approve the setting aside of the award if the Government judged that to be necessary in the national interest.

In the longer term we are awaiting the report of the Megaw inquiry into Civil Service pay arrangements.

Mr. Tim Eggar (Enfield, North)

rose——

Mr. Hayhoe

I am sure all concerned are grateful to Sir John Megaw and his colleagues for their efforts to achieve the tight timetable of reporting by the summer. The Government hope that the report will influence next year's pay negotiations and will help achieve an ordered and agreed pay system for the Civil Service which will be acceptable to civil servants, the Government and the public.

Mr. Eggar

In relation to the present inquiry on Civil Service pay, can the Minister give us an assurance that the cash limit will be paramount and that there will be no reason why the Government should exceed the amount of cash allocated for pay increases?

Mr. Hayhoe

I repeat the assurance which was given last year, and which has been repeated many times since, that for this year's Civil Service pay negotiations and settlements there will be no predetermined cash limit. As has been said, we must judge the award when it conies and there is always the possibility, as happened last year, of making savings by reductions in numbers and administrative savings. My hon. Friend will remember that we were able to get a 7.5 per cent. increase out of the cash limited expenditure of 6 per cent. In other words, 107.5 was got out of 106.

Mr. Straw

If the total cash bill for Civil Service pay is more than 4 per cent. up on last year, will the Government block the award?

Mr. Hayhoe

The Government will make their judgment when they know the award, and the) have already indicated in evidence to the Select Committee, which I thought the hon. Gentleman would have read in detail, that there is always the possibility of recourse to the Contingency Reserve if that is required. The Government will give careful and urgent consideration to the tribunal's award as soon as it is heard.

The Civil Service now employs about 670,000 people and is smaller than at any time for nearly 15 years. There has been a reduction of about 60,000 since we came to office. We are on course to achieve our target of 630,000 at the end of the next financial year. That will give us the smallest Civil Service that we have had since the end of the Second World War.

Reductions in numbers are only part of the story. We are tightening up on grading standards and examining critically what in the jargon is described as "grade drift". During the 1970s the proportion of senior to junior grades increased quite sharply. No doubt changing patterns of work provided some justification, but I suspect that grading standards were allowed to slip. In the light of the Wardale report, all Departments are now undertaking a rigorous assessment of the need for all their senior posts. The reviews are nearly complete and the Treasury is now examining departmental proposals. New guidance on grading has been issued by the Treasury to all Departments, and I expect this work to yield positive improvements in helping to create the tauter, leaner but certainly no less efficient structure that modern circumstances demand.

Sir William Clark

I am sure that the House is grateful to the Government for ensuring the more efficient running of the Civil Service. However, although the Government can control pay awards, for example, under the Scott report they have no control over the index linking of pensions. Will the House have an opportunity to discuss the Scott report?

Mr. Hayhoe

That matter has been raised on a number of occasions. My hon. Friend will be aware that the Scott committee reported about 15 months ago. The Government have been considering the matter, and I hope that very soon their conclusions will be made known to the House. My hon. Friend will understand that I am not the sole determinant of the timing of such a debate.

There is a supplementary factor to the entire business of reducing numbers. The Government are not concerned only with efficiency in the narrow sense of containing and reducing the cost of public services, vital though that is. They are concerned also with the effectiveness of such services. We share the Select Committee's wish to define objectives more precisely and to analyse separately the cost of attaining each objective, and wherever practicable to audit and measure output. The press notice that accompanied this year's White Paper gave some details, but I accept that much more needs to be done in that area.

The title of the Select Committee's report, "Efficiency and Effectiveness in the Civil Service", gets the balance about right. It is our policy to reduce the cost of the public sector wherever possible. That may mean abandoning some operations altogether or transferring them to the private sector. Where we recognise the need for a service to continue in the public sector, we are determined that it will be delivered effectively as well as efficiently.

The Civil Service is only part of the story. The Government are the paymaster for the health services and about half of the resources for local authority services. The right hon. Member for Orkney and Shetland (Mr. Grimond) referred to National Health Service costs and manpower. I do not want to retread the ground of Monday's debate on the Public Accounts Committee reports. I have noted, as have my right hon. and hon. Friends at the Department of Health and Social Security, the powerful arguments deployed by my hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and for Hove (Mr. Sainsbury). No one doubts the need for the efficient use of manpower in such a manpower-intensive service. Excluding the general practitioner service, the National Health Service pay bill amounts to about £7.5 billion a year. Increased services to patients have meant some increases in NHS numbers. However, productivity—if one may use such a word in this context—is improving. Efficiency is greater and pressure to continue to reduce management and administrative costs will be maintained. Targets have been set for significant reductions over the next few years—for example, a 10 per cent. reduction in management costs over the next three years.

Mr. Robert Sheldon

We have had a debate on the whole of the public expenditure White Paper. The hon. Gentleman has been interesting us with details about the Civil Service. However, the debate covered much more than the Civil Service. The hon. Gentleman has only five minutes left to speak. I should have thought that the least he could do was to spend that time on the other issues.

Mr. Hayhoe

I was about to come to local government. The right hon. Gentleman must appreciate that public service manpower amounts to 30 per cent. of total public expenditure. These matters have been raised by many right hon. and hon. Members in the debate. It is right that I should spend some time referring to them.

In local government we must also seek manpower reductions. These are manpower-intensive services, and the more that we can do to reduce costs by the more efficient use of manpower, and by giving better value for the money raised from both ratepayers and taxpayers, the better it will be. I hope that the results of local government elections will help to contribute towards that.

In opening the debate, the right hon. Member for Stepney and Poplar concentrated on unemployment, as did one or two of his hon. Friends. This annual debate on the public expenditure White Paper is an opportunity for technical points to be raised and for criticisms of Government policy. It also gives an opportunity for the Opposition to deploy their own proposals on public spending. In particular, I want to look at the right hon. Gentleman's much flaunted plans for reducing unemployment to under 1 million in five years or so.

Hon. Members will have noticed an article inThe Guardian yesterday by Christopher Huhne, which gives a most useful, and not all that unobjective, assessment of the Labour Party's strategy from a viewpoint which is surely a little more sympathetic to the right hon. Gentleman's proposals than that of many newspapers. Huhne's assessment is so important that all hon. Members should study it carefully. First, the article gives the lie to the right hon. Gentleman's proposition that the strategy has a seal of good housekeeping from the Treasury model. Huhne has run the right hon. Gentleman's proposals—or something very like them—through the model. It is clear that, whatever else, they are a recipe for plunging the economy into an almost impossible shambolic state.

Mr. Shore

rose——

Mr. Hayhoe

I shall not give way now.

How the right hon. Gentleman can promise that on his strategy there would be no horrors ahead is beyond comprehension. Huhne's conclusion promises a crisis that makes the 1976 disaster look like a women's institute tea party in comparison. For starters, without an effective incomes policy, the right hon. Gentleman's strategy would give what Huhne calls "electrifying" increases in the money supply of over 30 per cent. One does not have to be a rabid monetarist to be a bit worried about that. Interest rates would have to be held down to an unbelievable 8 per cent., while inflation accelerated and rose before long to 18 per cent. per annum and more. The exchange rate would have to be devalued or allowed to depreciate by staggering amounts—25 per cent. in the first year, and then 14 per cent., 17 per cent., 14 per cent. and 10 per cent. in later years, with the pound-dollar exchange rate falling by 1986 to close to 94 cents. compared to $1.76 now.

It is perfectly clear that the massive public spending proposals which the right hon. Gentleman would try to foist on the country, and the proposition that that would lead to a substantial reduction in unemployment——

Mr. James Hamilton (Bothwell)

rose in his place, and claimed to move, That the Question be now put.

Question, That the Question be now put,put and agreed to.

Question put accordingly:—

The House divided: Ayes 292, Noes 238.

Division No. 124]	[10 pm
AYES
Adley, Robert	Crouch, David
Aitken, Jonathan	Dean, Paul(North Somerset)
Alexander, Richard	Dickens, Geoffrey
Alison, Rt Hon Michael	Douglas-Hamilton, LordJ.
Amery, Rt Hon Julian	Dover, Denshore
Ancram, Michael	du Cann, Rt Hon Edward
Arnold, Tom	Dunn, Robert(Dartford)
Aspinwall, Jack	Durant, Tony
Atkins, Rt Hon H.(S'thorne)	Dykes, Hugh
Atkins, Robert(PrestonN)	Eden, Rt Hon Sir John
Baker, Kenneth(St.M'bone)	Edwards, Rt Hon N.(P'broke)
Baker, Nicholas(NDorset)	Eggar, Tim
Banks, Robert	Elliott,SirWilliam
Beaumont-Dark, Anthony	Eyre, Reginald
Bendall, Vivian	Fairbairn, Nicholas
Benyon, Thomas(A'don)	Fairgrieve, SirRussell
Benyon, W.(Buckingham)	Faith, Mrs Sheila
Best, Keith	Farr John
Bevan, DavidGilroy	Fenner, MrsPeggy
Biffen, Rt Hon John	Fisher, Sir Nigel
Blackburn, John	Fletcher, A.(Ed'nb'ghN)
Body, Richard	Fletcher-Cooke, SirCharles
Bonsor, SirNicholas	Fookes, Miss Janet
Boscawen, HonRobert	Forman, Nigel
Bottomley, Peter(W'wich W)	Fowler, Rt Hon Norman
Bowden, Andrew	Fox, Marcus
Boyson, Dr Rhodes	Fraser, Peter(South Angus)
Braine, SirBernard	Fry, Peter
Bright, Graham	Gardiner, GeorgeReigate)
Brinton, Tim	Gardner, Edward(S Fylde)
Brittan, Rt.Hon.Leon	Garel-Jones, Tristan
Brooke, Hon Peter	Gilmour, Rt Hon Sir Ian
Brotherton, Michael	Glyn, DrAlan
Brown, Michael(Brigg&Sc'n)	Goodhart, SirPhilip
Browne, John(Winchester)	Goodlad, Alastair
Bryan, SirPaul	Gow, Ian
Buck, Antony	Grant, Anthony(HarrowC)
Budgen, Nick	Gray, Hamish
Bulmer, Esmond	Greenway, Harry
Burden, SirFrederick	Grieve, Percy
Butcher, John	Griffiths, Peter Portsm'thN)
Cadbury,Jocelyn	Grist, Ian
Carlisle, John(Luton West)	Grylls, Michael
Carlisle, Kenneth(Lincoln)	Gummer,JohnSelwyn
Chalker, Mrs.Lynda	Hamilton, Hon A.
Channon, Rt.Hon.Paul	Hamilton, Michael(Salisbury)
Chapman, Sydney	Hampson, Dr Keith
Churchill, W.S.	Hannam,john
Clark, Hon A.(Plym'th, S'n)	Haselhurst, Alan
Clark, Sir W.(Croydon S)	Hastings, Stephen
Clarke, Kenneth(Rushcliffe)	Havers, Rt Hon Sir Michael
Cockeram, Eric	Hawksley, Warren
Colvin, Michael	Hayhoe, Barney
Cope, John	Heath, Rt Hon Edward
Cormack, Patrick	Heddle, John
Corrie, John	Henderson, Barry
Costain, SirAlbert	Heseltine, Rt Hon Michael
Cranborne, Viscount	Hicks, Robert
Critchley,Julian	Higgins, Rt Hon Terence L.

Hill, James	Page, Richard(SWHerts)
Hogg, Hon Douglas (Gr'th'm)	Parkinson, Rt Hon Cecil
Holland, Philip(Carlton)	Parris, Matthew
Hooson, Tom	Patten, Christopher(Bath)
Hordern, Peter	Patten, John(Oxford)
Howe, Rt Hon Sir Geoffrey	Pattie, Geoffrey
Howell, Rt HonD.(G'ldf'd)	Pawsey, James
Hunt, David(Wirral)	Percival, Sir Ian
Hunt, John(Ravensbourne)	Peyton, Rt Hon John
Hurd, Rt Hon Douglas	Pink, R.Bonner
Irving, Charles(Cheltenham)	Pollock, Alexander
Jenkin, Rt Hon Patrick	Porter, Barry
Jessel, Toby	Prentice, RtHonReg
JohnsonSmith, Geoffrey	Price, Sir David(Eastleigh)
Jopling, Rt Hon Michael	Prior, Rt Hon James
Joseph, Rt Hon Sir Keith	Proctor, K. Harvey
Kaberry, SirDonald	Raison, Rt Hon Timothy
Kershaw, Sir Anthony	Rees, Peter(Dover and Deal)
Kimball, Sir Marcus	Rees-Davies, W. R.
King, Rt Hon Tom	Renton, Tim
Kitson, SirTimothy	Rhodes James, Robert
Knight, MrsJill	Ridley, Hon Nicholas
Knox, David	Ridsdale, SirJulian
Lamont, Norman	Rifkind, Malcolm
Lang, Ian	Rippon, Rt Hon Geoffrey
Langford-Holt, SirJohn	Roberts, M.(CardiffNW)
Latham, Michael	Roberts, Wyn(Conway)
Lawrence, Ivan	Rossi, Hugh
Lawson, Rt Hon Nigel	Rost, Peter
LeMarchant, Spencer	Royle, Sir Anthony
Lennox-Boyd, HonMark	Sainsbury, HonTimothy
Lester, Jim(Beeston)	St. John-Stevas, Rt Hon N.
Lewis, Kenneth(Rutland)	Scott, Nicholas
Lloyd, Ian(Havant & W'loo)	Shaw, Giles(Pudsey)
Lloyd, Peter(Fareham)	Shaw, Michael(Scarborough)
Loveridge, John	Shelton, William(Streatham)
Luce, Richard	Shepherd, Colin(Hereford)
Lyell, Nicholas	Shepherd, Richard
Macfarlane, Neil	Shersby, Michael
MacGregor, John	Silvester, Fred
MacKay, John(Argyll)	Sims, Roger
Macmillan, Rt Hon M.	Skeet, T. H. H.
McNair-Wilson, M.(N'bury)	Smith, Dudley
McNair-Wilson, P.(NewF'st)	Speed, Keith
Madel, David	Spence, John
Major,John	Spicer, Michael(S Worcs)
Marland, Paul	Sproat,Iain
Marlow, Antony	Squire, Robin
Marten, Rt Hon Neil	Stainton, Keith
Mates, Michael	Stanbrook,Ivor
Maude, Rt Hon Sir Angus	Stanley, John
Mawby, Ray	Steen, Anthony
Mawhinney, DrBrian	Stevens, Martin
Maxwell-Hyslop, Robin	Stewart, A.(ERenfrewshire)
Mayhew, Patrick	Stewart, Ian(Hitchin)
Mellor, David	Stokes,John
Meyer, Sir Anthony	Stradling Thomas, J.
Miller, Hal(B'grove)	Tapsell, Peter
Mills, Iain(Meriden)	Taylor, Teddy(S'end E)
Mills, Peter(West Devon)	Tebbit, Rt Hon Norman
Miscampbell, Norman	Temple-Morris, Peter
Mitchell, David(Basingstoke)	Thatcher, Rt Hon Mrs M.
Moate, Roger	Thomas, Rt Hon Peter
Monro, SirHector	Thompson, Donald
Montgomery, Fergus	Thorne, Neil llfordSouth)
Moore,John	Thornton, Malcolm
Morris, M.(N'hamptonS)	Townend, John(Bridlington)
Morrison, Hon C.(Devizes)	Trippier, David
Morrison, Hon P.(Chester)	Trotter, Neville
Mudd, David	van Straubenzee, SirW.
Murphy, Christopher	Vaughan, Dr Gerard
Myles, David	Viggers, Peter
Neale, Gerrard	Wakeham,John
Needham, Richard	Waldegrave, HonWilliam
Nelson, Anthony	Walker, B.(Perth)
Neubert, Michael	Wall, Sir Patrick
Newton, Tony	Waller, Gary
Nott, Rt Hon John	Walters, Dennis
Oppenheim, Rt Hon Mrs S.	Ward,John
Osborn, John	Warren, Kenneth

Watson, John	Winterton, Nicholas
Wells, John(Maidstone)	Wolfson, Mark
Wheeler, John	Young, Sir George (Acton,)
Whitelaw, Rt Hon William	Younger, Rt Hon George
Whitney, Raymond
Wickenden, Keith	Tellers for the Ayes:
Wiggin, Jerry	Mr. Anthony Berry and
Wilkinson, John	Mr. Carol Mather
Williams, D.(Montgomery)

NOES
Adams, Allen	Eadie, Alex
Allaun, Frank	Eastham, Ken
Alton, David	Edwards, R.(W'hampt'n S E)
Anderson, Donald	Ellis, R.(NE D'bysh're)
Archer, Rt Hon Peter	Ellis, Tom(Wrexham)
Ashley, Rt Hon Jack	English, Michael
Atkinson, N.(H'gey,)	Ennals, Rt Hon David
Barnett, Guy (Greenwich)	Evans, Ioan(Aberdare)
Barnett, Rt Hon Joel(H'wd)	Evans, John(Newton)
Beith, A.J.	Faulds, Andrew
Bennett, Andrew(St'Kp'tn)	Field, Frank
Bidwell, Sydney	Fitch, Alan
Booth, Rt Hon Albert	Flannery, Martin
Boothroyd, Miss Betty	Fletcher, Ted(Darlington)
Bottomley, RtHonA.(M'b'ro)	Foot, Rt Hon Michael
Bray, Dr Jeremy	Ford, Ben
Brown, Hugh D.(Provan)	Forrester, John
Brown, R. C.(N'castle W)	Foster, Derek
Brown, Ronald W.(H'ckn'yS)	Fraser, J.(Lamb'th, N'w'd)
Brown, Ron(E'burgh, Leith)	Freeson, Rt Hon Reginald
Callaghan, Rt Hon J.	Garrett, John(Norwich S)
Callaghan, Jim(Midd't'n&P)	Garrett, W. E.(Wallsend)
Campbell, Ian	George, Bruce
Campbell-Savours, Dale	Gilbert, Rt Hon Dr John
Canavan, Dennis	Ginsburg, David
Cant, R. B.	Golding, John
Carmichael, Neil	Graham, Ted
Carter-Jones, Lewis	Grant, George(Morpeth)
Cartwright, John	Grimond, Rt Hon J.
Clark, Dr David(S Shields)	Hamilton, James(Bothwell)
Cocks, Rt Hon M.(B'stolS)	Hamilton, W. W.(C'tral Fife)
Coleman, Donald	Harrison, Rt Hon Walter
Concannon, Rt Hon J. D.	Hart, Rt Hon Dame Judith
Conlan, Bernard	Hattersley, Rt Hon Roy
Cook, Robin F.	Haynes, Frank
Cowans, Harry	Healey, Rt Hon Denis
Cox, T.(W'dsw'th, Toot'g)	Holland, S.(L'b'th, Vauxh'll)
Craigen, J. M. (G'gow, M'hill)	HomeRobertson, John
Crawshaw, Richard	Homewood, William
Crowther, Stan	Horam, John
Cryer, Bob	Howell, Rt Hon D.
Cunliffe, Lawrence	Hoyle, Douglas
Cunningham, DrJ.(W'h'n)	Huckfield, Les
Dalyell, Tam	Hughes, Mark(Durham)
Davidson, Arthur	Hughes, Robert(Aberdeen N)
Davies, Rt Hon Denzil(L'lli)	Hughes, Roy(Newport)
Davies, Ifor(Gower)	Janner, HonGreville
Davis, Clinton(HackneyC)	Jay, Rt Hon Douglas
Davis, Terry(B'ham, Stechf'd)	Johnson, Walter(DerbyS)
Dean, Joseph(Leeds West)	Jones, Rt Hon Alec(Rh'dda)
Dewar, Donald	Jones, Barry(East Flint)
Dixon, Donald	Jones, Dan(Burnley)
Dobson, Frank	Kaufman, Rt Hon Gerald
Dormand, Jack	Kilfedder, JamesA.
Douglas, Dick	Kilroy-Silk, Robert
Douglas-Mann, Bruce	Lambie, David
Dubs, Alfred	Lambom, Harry
Duffy, A. E. P.	Lamond,James
Dunn, JamesA.	Leadbitter,Ted
Dunnett, Jack	Leighton, Ronald
Dunwoody, Hon Mrs G.	Lestor, MissJoan

Lewis, Arthur(N'ham NW)	Rooker, J. W.
Lewis, Ron(Carlisle)	Roper, John
Litherland, Robert	Ross, Ernest(Dundee West)
Lofthouse, Geoffrey	Rowlands, Ted
Lyon, Alexander(York)	Ryman, John
Lyons, Edward(Bradf'dW)	Sandelson, Neville
Mabon, Rt Hon Dr J. Dickson	Sever, John
McCartney, Hugh	Sheerman, Barry
McDonald, DrOonagh	Sheldon, Rt Hon R.
McKelvey, William	Shore, Rt Hon Peter
MacKenzie, Rt Hon Gregor	Short, MrsRenée
Maclennan, Robert	Silkin, Rt Hon J.(Deptford)
McNally, Thomas	Silkin, Rt Hon S. C.(Dulwich)
McNamara, Kevin	Silverman, Julius
McTaggart, Robert	Skinner, Dennis
McWilliam, John	Smith, Rt Hon J.(N Lanark)
Magee, Bryan	Soley, Clive
Marshall, Dr Edmund(Goole)	Spearing, Nigel
Marshall, Jim(LeicesterS)	Spriggs, Leslie
Martin, M(G'gowS'burn)	Stallard, A.W.
Mason, Rt Hon Roy	Steel, Rt Hon David
Maxton, John	Stoddart, David
Maynard, MissJoan	Stott, Roger
Meacher, Michael	Strang, Gavin
Mellish, Rt Hon Robert	Straw,Jack
Mikardo, Ian	Summerskill, Hon Dr Shirley
Millan, Rt Hon Bruce	Taylor, Mrs Ann(Bolton W)
Miller,DrM.S. (E Kilbride)	Thomas, Dafydd(Merioneth)
Mitchell, Austin(Grimsby)	Thomas, Jeffrey(Abertillery)
Mitchell, R. C.(Soton Itchen)	Thomas, Mike(NewcastleE)
Morris, Rt Hon A.(W'shawe)	Thomas, DrR.(Carmarthen)
Morris, Rt Hon C.(O'shaw)	Thorne, Stan(Preston South)
Morris, Rt Hon J.(Aberavon)	Tilley, John
Morton, George	Torney, Tom
Moyle, Rt Hon Roland	Varley, Rt Hon Eric G.
Mulley, Rt Hon Frederick	Wainwright, E.(DearneV)
Newens, Stanley	Wainwright, R.(ColneV)
Oakes, Rt Hon Gordon	Walker, Rt HonH.(D'caster)
Ogden, Eric	Watkins, David
O'Halloran, Michael	Weetch, Ken
Orme, Rt Hon Stanley	Wellbeloved, James
Owen, Rt Hon Dr David	Welsh, Michael
Palmer, Arthur	White, FrankR.
Park, George	White, J. (G'gowPollok)
Parker, John	Whitehead, Phillip
Parry, Robert	Whitlock, William
Pavitt, Laurie	Willey, Rt Hon Frederick
Penhaligon, David	Williams, Rt Hon Mrs(Crosby)
Powell, Raymond(Ogmore)	Wilson, Gordon(Dundee E)
Race, Reg	Wilson, William(C'try SE)
Radice, Giles	Winnick, David
Rees, Rt Hon M(Leeds S)	Woodall, Alec
Richardson, Jo	Woolmer, Kenneth
Roberts, Albert(Normanton)	Wrigglesworth, Ian
Roberts, Allan(Bootle)	Wright, Sheila
Roberts, Ernest(HackneyN)
Roberts, Gwilym(Cannock)	Tellers for the Noes:
Robertson, George	Mr. James Tinn and
Robinson, G.(CoventryNW)	Mr. Allen McKay.
Rodgers, Rt Hon William

Question accordingly agreed to.

Resolved, That this House takes note of the White Paper on the Government's Expenditure Plans 1982–83 to 1984–85, Cmnd. 8494.