Public Expenditure

HC Deb 27 July 1983 vol 46 cc1205-11 4.38 pm

The Chief Secretary to the Treasury (Mr. Peter Rees)

With permission, Mr. Speaker, I would like to make a statement on the measures to be taken to implement the decisions announced by my right hon. Friend the Chancellor of the Exchequer on 7 July to restrain public expenditure in the current year.

The gross reduction will be about £670 million. The net total will be somewhat less than this because the lower cash limits will lead to less underspending. But, as my right hon. Friend the Chancellor said on 7 July, it will be at least £500 million net. The detailed changes in cash limits and the external financing limits of the nationalised industries are being published in the Official Report.

Mr. Peter Shore (Bethnal Green and Stepney)

The House has listened to the Chief Secretary's belated, reluctant and dismal statement. Is he aware that a statement of such brevity on a subject of such importance, accompanied as it is by seven pages of tables and with no chance of a full debate, is an insult to the House? Has he not the capacity or the courage even to summarise the effects of the cuts on major Government Departments' expenditure? Will he say what will be the effect on employment of these measures which the seven pages of tables omit to tell us?

This is a catalogue of mindless cuts. It turns out that the cuts will amount to £670 million against the forecast £500 million. They are to be inflicted on community services and nationalised industries. Is this not just one more exercise in inept and brutal surgery of the sort that we have had all too much of in the past four years? Is the right hon. and learned Gentleman not aware of the disruption and dismay that will follow this decision, three months into the current financial year? Does he realise what it will cause to all those in health, education and other public services who have to plan their expenditure programmes?

Does the right hon. and learned Gentleman accept that the decision is bound to lead to further hasty cuts in public investment programmes, including programmes involving building and construction, as well as in the levels of current public services?

Does not the exercise give the lie to what the Government said, both before and during the election campaign, about planned public expenditure? Does it not add up to a gross deception of the electorate? Can he recall one occasion during the election campaign when the Prime Minister, with her repeated claim that the National Health Service was safe in her hands, mentioned the now announced forced reduction of 8,000 Health Service employees?

Does the right hon. and learned Gentleman recall his own words on 6 July, when he told us that panic measures would not characterise this Administration? Is it not plain that these are panic measures which are being railroaded through Cabinet by our inexperienced and doctrinaire Chancellor of the Exchequer, frightened by the money supply figures for June and the Government borrowing requirement figures for the second quarter? What does he say now that the second quarter's PSBR figures, published six days ago, show that the borrowing is within the Chancellor's target range? Has not the Chancellor, during the past seven weeks, established a record for incompetence and deception that makes the previous Chancellor appear to be an exemplar of clarity and foresightedness?

These cuts will harm the sick, the elderly, schoolchildren and those in need and will further damage and weaken public and private industry. The Government have no mandate for them.

Mr. Rees

Even allowing for the rather feverish point that we have reached in this Session, I am bound to say that the right hon. Gentleman's intervention was characterised by extraordinary hyperbole, but we recognise the pressures on him. I should have thought that the House would welcome the fact that the third statement this afternoon was brief. I hoped to be given some credit for that.

It is impossible or me to calculate the unemployment consequences, as the right hon. Gentleman knows.

Mr. Shore

Why?

Mr. Rees

The right hon. Gentleman said that these were inept and brutal cuts. I shall put the figures in perspective. We are talking about £500 million when overall public expenditure is about £120 billion. The right hon. Gentleman's criticisms cannot be justified against that background. He appears to be riding two horses. He said that there was gross deception during the general election but that the Chancellor's announcement on 7 July was panicky and unjustified. I am prepared to debate both points, but not at the same time. A modest readjustment was called for as a result of the information that became available to us in the days before 7 July. The right hon. Gentleman also prayed in aid the PSBR figures. They have turned out to be near the figures that we anticipated.

Mr. Richard Wainwright (Colne Valey)

Is the Chief Secretary aware of the deep disappointment felt because he has not announced the abandonment of such unnecessary and disruptive action now that it is clear that his right hon. Friend the Chancellor was wildly inaccurate in anticipating the PSBR figures? Will he tell the House the Government's assumptions on prices and costs and how heavily these cuts fall on capital expenditure so that we may assess the effects of the cuts?

Mr. Rees

The hon. Gentleman knows the assumptions that were made at the time of the Budget by my right hon. and learned Friend the then Chancellor of the Exchequer, and I see no reason to vary them. On 7 July my right hon. Friend announced cuts of 1 per cent. on pay and general administrative expenses and 2 per cent. on other items of Government expenditure.

Sir Kenneth Lewis (Stamford and Spalding)

We appreciate the shortness of my right hon. and learned Friend's statement as we are about to go on our long holiday and hope that other Ministers will follow his example when we return from the recess.

How much of this expenditure has not yet been undertaken but is proposd in Ministries' budgets? If it has not yet begun, the figure is probably a good deal lower than the one my right hon. and learned Friend gave.

Mr. Rees

I am grateful for what my hon. Friend said about my statement's brevity. I shall endeavour to live up to that standard even at the risk of cheating the Opposition of a full statement into which they can sink their teeth.

My hon. Friend is correct in saying that, the earlier adjustments are made during the fiscal year, the easier they are to achieve and the less painful they are for the Departments involved. For those reasons, we thought it right to make the adjustments early in the financial year when it became clear that departmental budgets were likely to be underspent in certain areas.

Mr. J. Enoch Powell (Down, South)

When the tables are published, will the Chief Secretary ensure that the misprint is not included in class XVII, Northern Ireland Office? Can he say when the Secretaries of State for Northern Ireland, for Wales and for Scotland will be making corresponding statements on non-voted cash limits so that we can see what will be the impact of these alterations upon those parts of the country? In particular, what is the justification for £5 million out of £12 million of the adjustment in Northern Ireland falling upon law and order and protective services?

Mr. Rees

I am sure that my right hon. Friends responsible for Scotland, Wales and Northern Ireland will take careful note of what the right hon. Gentleman has said. The detailed allocation of the spending is a matter for them and not for the Treasury. We shall endeavour to correct any misprints in the tables.

Mr. Nigel Forman (Carshalton and Wallington)

What steps is my right hon. and learned Friend taking to ensure that the 2 per cent. cuts in the nationalised industries' cash limits are not passed on in increased prices beyond what would otherwise be commercially defensible?

Mr. Rees

We are aware of the impact of such price increases on the RPI and consumers generally. However, that is not to say that it is not right to look from time to time at the realities of nationalised industries' prices.

Mr. John Evans (St. Helens, North)

Will the Minister acknowledge that this is part of the manifesto that the Tory party would not allow to be discussed during the recent general election? Will he confirm that as a result of these disgraceful cuts regional and district health authorities throughout Great Britain are discussing the closure of hospital units and wards and, in some cases, entire cottage hospitals?

Mr. Rees

There was no secret manifesto. These cuts are no part of any alternative manifesto. I can reassure the House that expenditure on the National Health Service as a whole in England will remain at planned levels.

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

I wish to ask the Minister about EFLs for nationalised industries. He must have seen today that the British Gas Corporation made a profit of £630 million in spite of £600 million being taken back by the Government. With the EFLs announced today, one has a horrid feeling that we shall transfer part of Government expenditure—not calling it taxation — by way of further increased nationalised industry charges. From a quick look at the figures, it appears that electricity prices are due for a big rise because the EFL has been reduced by £418 million, for the British Gas Corporation by £43 million, for British Telecom by £117 million and for the Post Office by £51 million.

I hope that we are not going to introduce subtle taxation by way of an increase in nationalised industry charges which affect industry and people more grievously than direct taxes. If these figures mean that nationalised industries will increase their charges because of what we are doing, the House must know now so that it can decide whether it is a sound policy.

Mr. Rees

I see no reason why the measures announced by my right hon. Friend on 7 July should result in any increased nationalised industry charges.

Mr. Andrew F. Bennett (Denton and Reddish)

Why cannot the Minister tell the House the employment implications of the statement? Does he agree that it will have further implications for public expenditure? Surely he must know how many people will be put out of work because he should know how much more unemployment benefit will have to be paid and how much the Government will have to forgo in the tax which they would have received had these people remained in jobs.

Mr. Rees

There is no precise causal link between the adjustments that we propose and the unemployent figures, as the hon. Gentleman will realise if he reflects upon the matter.

Mr. Nicholas Winterton (Macclesfield)

Will my right hon. and learned Friend assure the House that his announcement today and that made by the Chancellor of the Exchequer earlier this month will not result in discrimination against the more provident local authority which over a number of years has heeded Government warnings on expenditure? Will he also confirm that the cash limits for nationalised industries to which my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) referred will not lead to price rises in monopolies which will then be passed on as additional costs to British industry, which is just beginning to get off the ground and which will make it less competitive?

Mr. Rees

The proposed adjustments do not affect the local authorities. As I said to my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), there would be no justification for any price increases in the nationalised industries as a result of our proposals.

Dr. Jeremy Bray (Motherwell, South)

Does the Chief Secretary agree that the real shape of the hidden manifesto will emerge when we see the planning total rolled on for the financial year 1986–87 when next year's Government expenditure plans are published? Does he acknowledge that the distribution of the cuts this year will be taken as a sign of what he will try to achieve in his discussions with Cabinet colleagues on the next round of public expenditure cuts?

Mr. Rees

The House should not infer anything from the adjustments that my right hon. Friend and I have announced. It will have an ample opportunity to consider our policies when the public expenditure White Paper is published. No doubt there will be ample opportunity to debate it, its implications and history.

Mr. Richard Needham (Wiltshire, North)

Further to the point raised by my hon. Friend for Birmingham, Selly Oak (Mr. Beaumont-Dark), can my right hon. and learned Friend tell the House whether the figures published in the document show that the cash limits for the electricity industry have been reduced by £418 million? If that is so, can my right hon. and learned Friend explain how it will not be necessary to increase prices to offset such reductions?

Mr. Rees

My hon. Friend will not have had time to immerse himself in the tables. The tables of EFLs for nationalised industries show the absolute levels and not the changes. The total overall reductions for the nationalised industries referred to in the table amount to £58 million.

Mr. Ian Wrigglesworth (Stockton, South)

Is the Chief Secretary aware that his statement is a mark of the failure of the Government's economic policy and that many people regard as another failure the Government's policy of—as The Times described it— selling off the family heirlooms to pay the grocery bill"? Why does not the statement show that some of the proceeds of the capital sales on which the Government are embarking will be reinvested in further capital assets for the country rather than spent on current expenditure?

Mr. Rees

The modest readjustment measures that have been presented to the House today show nothing of the kind. They do not signify a failure of the Government's economic policy or of their control of public expenditure. They show modest readjustments at the end of the first quarter of the fiscal year. We thought that it was much better to take those modest measures now than risk a greater overspend later in the year. I am sure that, if the House thinks dispassionately about it, it will applaud our prudence and caution.

Mr. Max Madden (Bradford, West)

How does the Chief Secretary reconcile the Chancellor's statement on 7 July with previous considerable underspending on cash limits? Is it not a fact that on 7 July the Chancellor jumped the gun and that as a result of his measures, hospitals will be closed and thousands of doctors, nurses and ancillary staff in the National Health Service will be sacked unnecessarily?

Mr. Rees

There is no ground for what the hon. Gentleman has suggested. I have already said what the impact on the NHS in England is likely to be. He can draw his own conclusions, as can the rest of the House. These are modest measures which do not justify the absurd and extravagant forecasts made by the hon. Gentleman.

Mr. Roland Boyes (Houghton and Washington)

Is the Chief Secretary aware that the figures will lead to greater unemployment and continue the upward trend of unemployment, probably beyond the present job gap of 5 million? Is he aware that there is a relationship between unemployment and poverty and that the cuts on personal social services, which are criminally irresponsible, are a direct attack on the poorest people?

Mr. Rees

If the hon. Gentleman studied the measures he would see that the cuts applied to every Department. They are not concentrated on any one area or on any one section of our society. The hon. Gentleman might reflect on the fact that it is much more likely that unemployment will be generated if public expenditure is not kept firmly under control, as it has been by the Government, and if the PSBR is not kept to the modest level that we propose, which will allow plenty of scope for the private sector to increase and generate lasting sustainable jobs now.

Mr. Laurie Pavitt (Brent, South)

Is the right hon. and learned Gentleman aware that for the Treasury to make separate compartments for social services and community services on the one hand and health services on the other is to make complete nonsense of the Government's policy on the mentally handicapped and the mentally ill? Is he aware that in my area, where we have a hospital of 1,400 beds at Shenley for the mentally handicapped, last week my local authority suffered a cut of £500,000 and that the week before there was a cut of £7 million on the Brent borough council, which means that the idea of taking people from institutions into the community is sheer nonsense? If the Government impose cuts on both sides in their policy, we cannot do anything.

Mr. Rees

I am not informed in detail about the precise cuts to which the hon. Gentleman referred. I very much doubt that they could result from the measures that my right hon. Friend announced on 7 July. However, I have no doubt that my right hon. Friend the Secretary of State for Social Services will take careful note of the hon. Gentleman's detailed points.

Mr. Mark Fisher (Stoke-on-Trent, Central)

Will the right hon. and learned Gentleman explain his remark that it is "impossible for me to calculate the unemployment consequences"? Does that mean that he has not considered the implications for unemployment? With £110 million from the Department of Health and Social Security, and the Department of Education and Science providing £28 million and the Ministry of Defence providing £220 million, mainly from procurement, surely he can understand that it is impossible to make cuts without there being a dramatic effect on unemployment.

Mr. Rees

If the hon. Gentleman feels that adjustments of slightly over £500 million will have a dramatic effect, he is living in a feverish world. I have said clearly that it is impossible to make a precise calculation, and it is much better that I should say so than guess at the figures, which the hon. Gentleman seems disposed to do.

Mr. Tam Dalyell (Linlithgow)

Under class II, votes 3 and 4, do the British Broadcasting Corporation external services and the British Council agree that the £500,000 cut from each of them is simply a modest readjustment? Does the Secretary of State for Defence — the somnambulant Secretary of State—who has distanced himself somewhat from Treasury Ministers, agree that the cuts in class I, votes 1 and 2—the right hon. Gentleman has a great smirk on his face, so I suspect that he does not, because we all know that he was not consulted—were so modest that he need not be consulted? Was he agreeable to all that? He is smiling broadly, so let us hear the truth.

Mr. Rees

I am happy to say that the decisions that were announced by my right hon. Friend on 7 July were collective decisions by the Cabinet. I refer the hon. Gentleman to the votes to which he referred. The cash limits of 7 July for the Foreign and Commonwealth Office were about £77 million and for the British Council about £40 million.

Mr. Stuart Bell (Middlesbrough)

Will the Chief Secretary look at class IX on the reductions in cash limits for the Home Office? Will he give an assurance that the cut of about £7 million in the prison service will not add to the tension in our prison service and its difficulties in accommodating too many prisoners in our gaols? Will he also give an assurance that the cuts affecting the treatment of offenders will not affect young offenders, who require the greatest attention?

Mr. Rees

I am sure that my right hon. and learned Friend the Home Secretary has taken full account of those factors in arranging the allocation of the adjustments. It is a matter for the Department concerned and not for me.

Mr. Shore

I assure the Chief Secretary that brevity is one thing, but suppression of information is another. I should like to ask him two simple questions. As the DHSS announced only yesterday that 8,000 jobs will be lost as a result of the measures, why cannot the right hon. and learned Gentleman, in his capacity as Chief Secretary, supply information centrally rather than allow it to be dribbled out by Ministers over the next few weeks and months? Secondly, the cuts are supposed to be due to alleged overspending. How much of the alleged overspending is due to the revised EC budget contribution made by the United Kingdom as a result of the Prime Minister's failure at the Stuttgart summit?

Mr. Peter Rees

The detailed allocation of cuts within the cash limited programme is a matter for the respective departmental Ministers, and it is for them to answer questions on that.

The diminished refund from the EC is certainly an element in the overspend, but I cannot say exactly what proportion it represents as we are dealing with possible overspend for the entire year. We must consider how matters are likely to develop at the end of the year. On the best information available to the Government at and just before 7 July, it seemed advisable to make the modest readjustments which I am commending to the House.