The Economy

HC Deb 17 November 1983 vol 48 cc993-1007 3.50 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

With permission, Mr. Speaker, I should like to make a statement.

As my predecessor did last year, I am laying before the House today an autumn statement which brings together certain matters customarily announced at this time of year. The statement contains the Government's outline public expenditure plans for 1984–85, proposals: for national insurance contributions for next year, and the forecast of economic prospects for 1984 required by the Industry Act.

In response to firm monetary policies the past year has seen falling inflation, renewed growth and solid evidence of our continuing recovery from world recession. Progress both on inflation and on growth this year has been better than expected at the time of the Budget

Since the low point of the recession in early 1981, output has grown by about 5 per cent. inflation has fallen from double figures to around 5 per cent., and there have been significant gains in productivity, competitiveness and profitability. Employment appears now to be rising, and unemployment to be levelling off. Output this year is expected to be about 3 per cent. higher than in 1982, and the Industry Act forecast points to continuing growth next year. Recovery in the rest of the world, so far hesitant outside North America, is now widely expected to show some improvement. With higher exports offsetting some slowdown in the growth of domestic demand, overall United Kingdom output is forecast to rise by a further 3 per cent. in 1984. With inflationary pressures remaining weak, inflation is likely to edge down again next year to a rate of around 4.5 per cent. by the fourth quarter.

Downward pressure will continue to be exerted on public borrowing. Despite the measures I announced on 7 July it is clear that this year's public sector borrowing requirement is likely to be above the £8.2 billion expected at the time of the Budget. The outturn is, of course, still uncertain but is now forecast to be £10 billion, mainly as a result of public expenditure running higher than expected, as I indicated to the House on 7 July.

For next year, 1984–85, the forecast makes the conventional assumptions that the direct taxes and excise duties are both revalorised in line with prices, and that the PSBR is held next year to the £8 billion assumed at the time of the last Budget in accordance with the medium term financial strategy. On this basis the forecast implies the need for some net increase in taxes in next year's Budget. As the House will recognise, this is, of course, at this stage, subject to a wide margin of uncertainty, and will need to be reviewed, with other relevant factors, in the light of more up-to-date information, before I come to make my Budget judgment.

Following this year's public expenditure review, the public expenditure planning total for next year, 1984–85, will remain at £126.4 billion. The House will recall that that was the provisional figure for 1984–85 published in the public expenditure White Paper in February this year. It is also broadly the same in real terms as the likely outturn for this year, 1983–84. So, with the economy expanding, public expenditure should continue to fall as a percentage of gross domestic product next year.

Within the unchanged total for 1984–85 there have inevitably been changes in both directions in individual programmes. The details are contained in the autumn statement itself. In broad terms, it shows increases in spending for health and personal social services, education, law and order, agricultural support, arts and libraries, and a number of other programmes. Social security spending will also increase, although there will be reductions in the coverage of help with housing costs, particularly housing benefit. The social security programme provides for an uprating in November 1984 based on the rise in prices in the 12 months to May 1984.

These increases are offset by higher receipts from the sale of council houses and the like, and by a reduction in planned spending on home improvement grants, defence, employment, trade and industry, and several other programmes, including the aggregate external financing limits of the nationalised industries. Net receipts from special sales of assets are forecast to increase by some £400 million, reflecting, among other things, the fact that the privatisation of Enterprise Oil is now expected not this year but in 1984–85.

As the House will be aware, the February White Paoer provided for a provisional contingency reserve of £3 billion. That figure remains intact.

The 1983 review of expenditure plans has, of course, also covered 1985–86 and 1986–87. Details of the plans for both those years will be published in next year's public expenditure White Paper.

The Government have also reviewed their manpower requirements for the years up to 1988. My right hon. and learned Friend the Chief Secretary to the Treasury is today publishing details of our new plans for a continued steady reduction in the size of the Civil Service. Numbers will come down to 593,000 by 1988, a fall of 6 per cent. below the existing target of 630,000, which we expect to be achieved on or before 1 April 1984.

I come, lastly, to national insurance contributions. As the House knows, these are reviewed every autumn in the light of advice from the Government Actuary on the prospects for the national insurance fund in the coming financial year. As usual, the earnings limits will need to be increased. The lower earnings limit will rise to £34 a week, in line with the single rate retirement pension, and the upper earnings limit will rise to £250 a week, broadly in line with the increase in prices and earnings. The taxpayers' contribution to the fund — the so-called Treasury supplement — will be reduced from 13 per cent. to 11 per cent. Finally, in each of the past four years we have had to increase the class I national insurance contribution rate itself. I am glad to say that we shall not need to do so for 1984–85. So the full class I rate will remain unchanged at 9 per cent. for employees and 10.45 per cent. for employers. As is customary, my right hon. Friend the Secretary of State for Social Services will this afternoon announce details of the changes in the Social Security (Contributions, Re-rating) Order and will lay before Parliament the accompanying report by the Government Actuary.

As my right hon. Friend the Leader of the House has already announced, the House will have an opportunity next week to debate the autumn statement, which is now available from the Vote Office.

For the first time for many years we are now enjoying low inflation combined with steady growth. This is a winning combination. Our task is to keep that winning combination by sticking to—and indeed reinforcing—the policies that have brought it about.

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The whole House will hope that the Government's forecasts of recovery and growth will be proved right this time. Can the Chancellor reinforce that hope by telling us why his forecasts about the economic prospects are markedly more optimistic than those of any of the independent forecasts — more optimistic, indeed, than those of the Confederation of British Industry, particularly in terms of investment prospects? I shall make the charitable assumption that the Government's predictions are accurate and objective. On that hypothesis, will the Chancellor confirm that, even on his own figures, living standards in this country, after four and a half years of Conservative Government, are still lower than they were under a Labour Government in 1979, and that the overall level of output is no higher than it was when the Labour Government left office?

If we take into account the contribution made to our economic condition by the wholly fortuitous oil output — the figures for which have mysteriously been removed from most of the Government's statistical abstracts—there has been, during four and a half years of Conservatism, a calamitous fall in output in this country. Will the Chancellor also confirm that manufacturing output will be lower at the end of the life of this Parliament than it was when the Government took office, and that at the present rate of growth there will not be a return to Labour levels of output until after 1993?

Furthermore, will the Chancellor admit that the signs of life about which he has been so jubilant are at least in part the result of the brief recovery in housing investment and the relaxation of public expenditure controls on monetary policy, which were introduced in preparation for the election last spring? Today's improvements stem from the temporary reversal, not from the long-term success, of Government policy. Instead of learning that lesson, the Government now propose to return to their obsession with public expenditure.

In the light of that, I ask the Chancellor a number of specific questions. Why could he not bring himself to tell the House about the adjustments to fuel prices that he is forcing? It would have done him and the Government more credit had he faced that today rather than punish his right hon. Friend the Secretary of State for Energy—who did not want the increases — by forcing him to make a subsequent announcement.

I shall ask the right hon. Gentleman about the fuel price increases, which we all know are coming, and about which the boards complain. Why did he not tell the House honestly — will he eventually tell the House—that the gas and electricity price increases on which he is insisting, and which are part of his economic prescription, are a badly disguised fuel tax; that the Gas Corporation could cut prices by 10 per cent. and still have an operating profit of £150 million; and that the electricity boards exceed Government profit targets by £500 million? Will he try to justify forcing those utilities into increasing their prices in a way that damages industry and causes immense hardship to domestic consumers?

Secondly, will the Chancellor tell us more about tax increases? The total tax bill under this Government has increased from 39.6 per cent. of national income to 45.7 per cent. Therefore, £18 billion more is taken in tax than was the case under the Labour Government. According to this statement, higher taxes are on the way. When does the Chancellor hope to be able to return to the level of taxation enjoyed by this country under the Labour Government?

Thirdly, when will the Chancellor come to grips with the reality rather than the mythology of economic management? Today he talked about the monetary and fiscal targets as if they were mystic numbers that have an independent virtue. He was particularly proud of holding public expenditure to £126.4 billion. I congratulate him on keeping faith with arithmetic, but to do so he has broken faith with the electorate.

Today the Chancellor has spoken of his forecasts requiring increased taxes. Is he softening up the 1922 Committee and the public for what he is proposing next March? If we are to have more taxes in the spring can we be assured that they will fall upon those people most able to bear them rather than concentrating on the lower income group, as has been his practice?

Finally, will the Chancellor confirm that unemployment has risen by 2 million in four and a half years under this Government, and on honest calculations by 218,000 over the past year? He now asks us to be grateful for the fact that it has fallen by a measly 7,000. That amounts to 0.35 per cent. of the unemployment that the Government have created. Is it not a fact that, even if the Chancellor's wildest predictions are true, that under present policies, there will be no significant fall in unemployment during this Parliament's lifetime? If I am wrong, will the Chancellor forecast unemployment over the next four years? If he will not, his policy and that of the Government stand utterly condemned.

Mr. Lawson

May I start by welcoming the right hon. Gentleman to his new shadow office. I am sure that he will improve with time. I shall reply briefly to his specific questions. During the previous Parliament we were able to reduce income tax at all levels. However, we were not able to reduce the overall burden of taxation. Given the continuation of existing policies, we shall be able to reduce the overall burden of taxation during this Parliament's lifetime. As for the next Budget, however, the right hon. Gentleman will have to wait and see.

On unemployment, the right hon. Gentleman should know that no Government—even those of whom he has been a member — ever make a long-term forecast of unemployment. Both sides of the House share his hope that unemployment will fall. It is not a matter that is entirely within the Government's control, as he should know.

The right hon. Gentleman asked me about fuel prices. Gas and electricity prices are in no sense a hidden tax. Perhaps I may explain the position to the right hon. Gentleman. the principle that prices should reflect costs of supply on a continuing basis while providing an adequate return on capital is now firmly established. Prices are important, above all, because they are all-pervasive, affecting the millions of individual decisions over which the Government can have no direct control.… Since the object is to guide investment and other decisions that will affect future events, the relevant cost is the cost incurred or saved in expanding or contracting supplies at present or in the future, rather than an average of past costs. Energy prices should at least cover the cost at which supplies can be provided on a continuing basis, while yielding an adequate return to investment. I am quoting from the Labour Government's Green Paper published in 1978, when the right hon. Gentleman was Secretary of State for Prices and Consumer Protection.

Mr. Hattersley

The House will have noticed that, to those questions that I was able to cobble together in my apprentice incompetence, there has been no answer, except for a quotation from my former right hon. and temporarily departed friend Mr. Benn, which referred to a time when we were not making substantial profits in gas and electricity but were moving towards those utilities breaking even. We shall pursue the Chancellor in the hope, though it may be in vain, that he will answer some of the questions in a week's time.

Today I simply return to one question. The Chancellor tells us that he cannot give us an unemployment forecast. I therefore put this to him. Why was he so ready to make predictions about unemployment during the general election campaign but fails to do so under the scrutiny of the House of Commons? As I have no more faith in him answering that question than any of the others, I shall tell him that the reason why he will not make any predictions about unemployment today is that the prospects of growth and recovery are as bogus as he is complacent.

Mr. Lawson

I am sorry that the right hon. Gentleman should react to good economic news in such a sour and grudging way. During the election campaign I said that there was a good chance that unemployment might start to fall during 1984. That is still the case, but it remains to be seen whether it does. Meanwhile the right hon. Gentleman will be aware that over the past three months adult unemployment, seasonally adjusted, has fallen by 7,000.

Mr. Edward du Cann (Taunton)

Many of us believe that, besides satisfying other social needs, a greater degree of employment in the construction industries needs to be created. During my right hon. Friend's term of office, which we all hope will be long and successful, will he ensure that a greater proportion of Government expenditure goes on capital projects, and that the bias in favour of administration and against capital projects is removed? Not least, will he take an initiative to ensure that capital projects, wherever possible, are privately funded? In that way it will be possible to transform the employment position in the construction industries to which I have referred.

Mr. Lawson

I respect my right hon. Friend's interest in that matter, which he has pursued for many years as Chairman of the Public Accounts Committee, Chairman of the Treasury Civil Service Committee and in other capacities. He will be pleased to note that in the forecast for 1984, which we publish today, consumer expenditure is expected to rise by 2.5 per cent. and fixed investment expenditure by 4 per cent.

Mr. Roy Jenkins (Glasgow, Hillhead)

Is the Chancellor aware that the great weakness in the balance of the economy is the low level of public investment? He cannot deny that it has fallen by 40 per cent. in real terms during 10 years and is now lower than at any time since 1914 as a proportion of GNP. In those circumstances, to continue to drive down the PSBR, ineffective though he may be in achieving that, is not sound finance but dogmatic nonsense.

Mr. Lawson

If the Government had not maintained a firm policy of controlling and bringing down the PSBR, interest rates today would not be at their lowest level for more than five years. That is more important to industry than are the many other suggestions that have been made, especially to the construction industry, about investment projects. It is important to invest overall and not simply in the public sector. One reason for the shift is that the Government believe that, on the whole housing is more effectively and efficiently left to the private sector than to the public sector. As I pointed out, total public sector investment has been increasing well, and next year we expect fixed investment to increase faster than consumer expenditure.

Mr. Anthony Nelson (Chichester)

Does my right hon. Friend agree that one reason why the Government are spending about 45p in every pound is the open-ended statutory commitment to the payment of social security benefits? Does he not agree that we are fast approaching a time when we must seriously consider whether we are serving the long-term interest of the least well-off and the unemployed by increasing benefits at the expense of investment in the capital base of the economy, which in the long run will provide them with real hope for reemployment and higher standards of living?

Mr. Lawson

My hon. Friend rightly implied that those who are calling for increases in public sector capital investment should suggest where savings are to be made on current expenditure to make room for it. One of the biggest increases in public expenditure is on the social security programme.

Mr. Bryan Gould (Dagenham)

When will the Chancellor learn the lesson of his own and his predecessors' bitter experience, which is that each time he announces further cuts the counter-productive effect of those cuts makes it inevitable that in a few months he will have to announce yet further cuts? When will he find a way to escape that contractional logic before the real world economy disappears into a monetarist black hole?

Mr. Lawson

There is no question of a black hole, unless it is where the hon. Gentleman has been living. If he were to live in the real world where the sun shines, he would see that there is a recovery from the world recession and a recovery in the United Kingdom economy. As a result of the Government's policies the United Kingdom's economy is growing faster than that of any other country in the European Community.

Mr. Maurice Macmillan (Surrey, South-West)

I congratulate my right hon. Friend on keeping the additional cost to industry of the national insurance contribution below the level of inflation. Will he reconsider the question of energy costs and nationalised industry prices generally? In the present circumstances what does he consider to be an adequate return on capital, bearing in mind that the knowledge of what that capital is is imprecise? An ordinary commercial enterprise would regard the dividend as a guide to the future of the industry and its effect on customers.

Will my right hon. Friend assure the House that capital investment will be kept in line with the sale of assets? If not, I fear that we shall be selling the furniture to pay for the food, and we cannot continue to do that indefinitely.

Mr. Lawson

The sale of assets does not reduce the amount of capital but simply transfers some capital stock from the public to the private sector, where it can be more efficiently used and where a better return can be received for the benefit of Britain as a whole. My right hon. Friend also asked me about the rate of return on gas and electricity prices. The rate of return on capital to the electricity industry is a little under 2 per cent., and few private enterprises would be prepared to conduct business for such a rate of return. Although pricing policy is a matter for the industries, within the framework set by the Government, it is likely that during the coming year the price of gas and electricity will increase by less than the rate of inflation.

Mr. Donald Stewart (Western Isles)

Can the Chancellor explain why the share of public expenditure available to the Secretary of State for Scotland has been steadily reduced? Since the income from the Scottish oilfields is keeping the entire ramshackle British economy afloat, does he not believe that such a reduction would be unacceptable in Scotland, where his party was rejected by 70 per cent. of the electorate?

Mr. Lawson

The Conservative party, and the majority of the Opposition, have always maintained that it is British oil, not uniquely Scottish oil. The right hon. Gentleman's detailed questions are a matter for my right hon. Friend the Secretary of State for Scotland.

Mr. Nigel Forman (Carshalton and Wallington)

Although I welcome the good prospects for growth and the combating of inflation in the coming period, is not my right hon. Friend a little concerned that the recovery may be lopsided? What steps will he take to ensure that industrial profitability is further improved, and that we have more currency stability so that we can have better prospects of exporting our goods?

Mr. Lawson

I share my hon. Friend's desire for increased profitability, which is a critical ingredient in our long and short-term recovery. I am glad to say that profits are increasing by about 25 per cent. this year, following an increase of more than 20 per cent. last year. They started from a low level, but that is a marked and encouraging recovery. As to the alleged lopsidedness of the recovery, if my hon. Friend examines the table in the autumn statement, which is now available, he will see that consumer expenditure is expected to increase by 2.5 per cent., fixed investment is expected to rise by 4 per cent. next year, and exports will rise by 4 per cent. That is the shape of recovery that my hon. Friend wishes to see.

Mr. John Maxton (Glasgow, Cathcart)

Will the Chancellor give some details of the housing benefit changes in Scotland? How much will be cut from Scotland's overall housing budget? What is the Government's estimate of the number of tenants who will be evicted as a result of the changes, and how many houses will become uninhabitable during the next year? How many building companies will go bankrupt, and how many building workers will be declared redundant?

Mr. Lawson

Those matters, if they are matters for anyone in the Government — [Interruption.] Some of them are questions for local government. In so far as they are matters for central Government, they should be addressed to my right hon. Friend the Secretary of State for Scotland.

Mr. David Howell (Guildford)

What percentage of total Government spending next year will be in the form of fixed capital investment? Will my right hon. Friend undertake at least to consider, in setting out the Government's accounts in future, presenting a clear distinction between borrowing for capital needs and borrowing for current needs, as was the practice?

Mr. Lawson

I cannot tell my right hon. Friend that now, but the breakdown will be provided in the normal way when the public expenditure White Paper is published. I hope that when it is published we can have a more sensible definition of capital expenditure, which at present leaves much to be desired.

Mr. Richard Wainwright (Colne Valley)

Does the Chancellor realise that in one and the same statement he has painted a false dawn and then obscured it with heavy clouds of higher taxation, including fuel taxes? Does he realise that his statement does less than nothing for business confidence, which could be the engine of a sustained and genuine recovery through overdue capital expenditure? Does he also realise that a recent survey by the CBI and the British Institute of Mangagement showed conclusively that the four things that industry most needs to provide more jobs, among other things are, more capital spending, lower energy costs, lower interest rates and a stable exchange rate? Why has he been stone deaf to each of those pleas? Why did he not take the advice of the other place, given unanimously on Monday of this week, and take the opportunity to announce that Britain will join the exchange rate mechanism of the European monetary system?

Mr. Lawson

That last point may be the unanimous opinion of the other place, but I do not detect that it has unanimous support in this House. As at the recent CBI conference there was a vote on the issue and the majority voted against it. The matter is still under review, but the hon. Gentleman should make the issue less of a King Charles' head.

As for doing nothing about interest rates, I agree that interest rates are vitally important to industry, and that is why we are determined to keep Government borrowing down. As a result of that determination, interest rates have come down a full point since the election, to the lowest level for over five years. The CBI reckons that one point off interest rates is worth £300 million.

Mr. John Townend (Bridlington)

I congratulate my right hon. Friend on having had some success in withstanding the avaricious demands of spending Ministries. Does he agree that the burden of taxation is far too high and that if he is to have any chance of fulfilling our pledge to reduce the level of taxation there will have to be continued pressure to control spending Departments —something that has not happened as well as it should this year—and to cut expenditure?

Mr. Lawson

I agree that we must maintain, throughout this Parliament, firm control on public expenditure. In that way the burden of taxation will be able to fall during the lifetime of this Government.

Mr. Dennis Skinner (Bolsover)

Is the Chancellor aware that, on the question of interest rates, notwithstanding the fact that they have come down by 1 per cent. since the general election, inflation is still running at 5 per cent., and the gap between the rate of inflation and interest rates is at a near historic high, which is one of the main problems? Does not the right hon. Gentleman accept that, after four and a half years, this experiment is not working? I do not know whether Tony Jacklin or the Rolling Stones have applied to come back to this tax haven, as this Government promised in the election of 1979, but that is truth enough in itself. Is not the fact of the matter that this magic cure of monetarism has failed, and so pathetic are this Government and so booming is our economy that tomorrow morning the Government will not be able to afford to give the disabled a fair crack of he whip and they will be bringing in their people to vote the measure down? What an economy! What a Chancellor!

Mr. Lawson

My right hon. Friend the Prime Minister has already outlined the Government's excellent record on support for the disabled, and this matter will be further debated tomorrow. As for interest rates, the point with which the hon. Gentleman began, it is perfectly true that under the Labour Government there was not this gap between interest rates and the rate of inflation, but that was because the Labour Government pushed inflation up. That was how they closed the gap. However, that is no good for British industry and the British economy, and it is not the route that this Government will follow.

Mr. Terence Higgins (Worthing)

In the past, my right hon. Friend has stressed the importance of changes in the nominal rate of money supply in relation to inflation as the two affect the real money supply. What assumption has been made in preparing the forecast published today about changes in the real money supply over the forecast period?

Mr. Lawson

To some extent, my right hon. Friend, who is on to a good point, can work it oat for himself. I have said what we expect the rate of inflation to be next year, and the assumed rate of growth of the money supply is 6 per cent. to 10 per cent., as is shown in the Financial Statement and Budget Report made by my right hon. and learned Friend the present Foreign Secretary ealier this year.

Mr. Dick Douglas (Dunfermline, West)

Would the Chancellor care to tell the House what reliance his statement is making on oil prices, because the degree of stability in this is likely to be fundamental to his economic strategy? What proportion of gross domestic capital formation will be related to manufacturing industry? What proportion of this increase in exports which he is boasting is oil-based?

Mr. Lawson

The assumption is of a broad stability in oil prices. Manufacturing investment is expected to increase and manufacturing exports are also expected to increase.

Sir William Clark (Croydon, South)

Does my right hon. Friend agree that the nationalised industries, including gas and electricity, should be run as commercial enterprises, and not as an extension of the welfare state? In view of the fact that the Government are borrowing money at 10 per cent. or 10.5 per cent., and the return on capital from the electricity industry is just under 2 per cent., and that for the gas industry is just under 4 per cent., is there not a subsidy, and is this not giving to rich and poor alike—something that should not be done? May I urge my right hon. Friend to resist the blandishments not to charge a proper price for energy, but instead, where there is need, to help through supplementary benefit?

Mr. Lawson

My right hon. Friend is right, and we do just this. We are spending about £350 million a year on help for the needy for their fuel costs through the social security system. That is a far more sensible way of helping these people than generalised subsidies on energy prices.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

Did I mishear the Chancellor saying that the November 1984 social security increaes will be based on the increase in prices from May 1983 until May 1984? Will the Chancellor confirm that the Government have not abandoned their pledge to make good the shortfall that occurred when they moved from the predictive to the historic method of calculation, and will he say precisely how this shortfall will be made up?

Mr. Lawson

There is no shortfall to be made up.

Mr. Foulkes

Yes, there is.

Mr. Lawson

The Government are fulfilling all their pledges. The hon. Gentleman did not mishear. I said that the uprating in November 1984 will be based on the increase in prices between May 1983 and May 1984.

Mr. Michael Morris (Northampton, South)

Is my right hon. Friend aware that the net receipts from denationalisation of £400 million are welcome, but there is some disappointment that Enterprise Oil has been delayed for a year? Will he give an assurance that he will vigorously support further denationalisation, particularly in energy?

Mr. Lawson

I vigorously support further denationalisation in energy, as in other aspects. When I was Secretary of State for Energy I supported such measures. I can reassure my hon. Friend that it is not a slippage of a year but of a few months that takes Enterprise Oil out of this financial year and into the next one.

Mr. Doug Hoyle (Warrington, North)

Will the Chancellor note, after his unconvincing and unsatisfactory performance this afternoon, that, judging by the reaction on the Benches behind him, hon. Members appear to prefer even a dead sheep to him? Can he tell us what will be the effect of the rise in fuel tax on the competitiveness of British industry, bearing in mind that its competitiveness now is far worse than it was in 1979, before his Government came into office?

Mr. Lawson

There is no fuel tax. Electricity prices for industry, as I said, are likely to go up this year by less than the rate of inflation, following a year when they did not go up at all. There has been a long freeze on industrial gas prices. Industry is fully appreciative of the energy policies that this Government have been pursuing. What disappoints the hon. Gentleman is that I have not been able to come to the House and please him with bad news.

Sir Geoffrey Johnson Smith (Wealden)

While I recognise, as the Chancellor said, that a low rate of inflation and steady growth is a winning combination, will my right hon. Friend reassure the House that in the next few years he will not regard a zero rate of inflation as a primary objective in itself?

Mr. Lawson

I said at the Mansion House, and I repeat today, that our ultimate objective is stable prices. There is no conflict between that and our other objective of sustained economic growth. Indeed, it is the fall in inflation which has been the prime cause of the economic recovery to date.

Mr. Norman Atkinson (Tottenham)

If the Chancellor is so committed to growth in employment, why is he pursuing a deflationary strategy? When he used in his statement the word "productivity", did he mean that output per worker in manufacturing had increased? If so, why is he so concerned about agreeing with the Confederation of British Industry that workers in manufacturing should not go for higher wage increases?

Mr. Lawson

The fact is that manufacturing industry — all credit to it — has improved its productivity unprecedentedly over the past two years. As for pay increases, for manufacturing or any other industry to pay higher wages than the companies concerned can afford is a sure way of losing jobs.

Mr. Peter Hordern (Horsham)

Since neither the electricity industry nor the gas industry thought in its commercial judgment that prices needed to be increased, can my right hon. Friend say by how much he expects the extra revenue from savings in borrowing will exceed the extra industrial cost to industry and the extra cost of old-age pensions and supplementary benefit?

Mr. Lawson

As I mentioned earlier, there is no question of an energy tax as a result of the price changes that are likely to occur for gas and electricity. This is a matter of economic pricing which is in the best interests of the economy as a whole.

Mr. Jack Ashley (Stoke-on-Trent, South)

In view of our economic difficulties, and the fact that kidney patients are dying because of lack of attention and the long-term unemployed are being forced into penury, why does the Chancellor support the Prime Minister's excessive squandering of £1,000 million in the south Atlantic when millions of our people are in misery?

Mr. Lawson

The right hon. Gentleman's figures are wrong by a wide margin. Nevertheless, there is substantial expenditure on the Falklands. I think it is the wish of the whole House that we should take the steps that are necessary to ensure that the Falkland Islanders may remain at liberty.

Mr. Nicholas Budgen (Wolverhampton, South-West)

If my right hon. Friend is serious in wanting a great debate about reductions in public expenditure, will he forthwith publish a Green Paper setting out the policy options, explaining the advantages and disadvantages of the various courses set out and explaining also what the Government's preferences are?

Mr. Lawson

I shall certainly consider my hon. Friend's suggestion.

Mr. Austin Mitchell (Great Grimsby)

Instead of trying to disguise the mess with pompous pietism and mirage mongering, why does not the Chancellor give the figures? What will be the losses to a housing benefit system which is already inadequate? What will be the increase in gas prices which are already used as a form of backdoor taxation? What will be the increase in electricity prices which are already so high that they are making British industry uncompetitive? Why does he not bring down interest rates which are keeping the pound up and strangling British industry? How much more of the people's property will he have to flog off to disguise the consequences of his failure?

Mr. Lawson

As I intimated before, the likely increases in gas and electricity prices, which are not fixed by the Government, will be below the going rate of inflation. I should have thought that the hon. Member would welome that. As for housing benefit, that is a matter for my right hon. Friend the Secretary of State for Social Services. Housing benefit applies to about 7 million households, or one in three, including those well above average income. The savings are chiefly to be made in that area.

Mr. Tim Eggar (Enfield, North )

Is it not good news that inflation is lower and output higher than was predicted in the last Budget and during the election campaign by my right hon. and learned Friend? Does not this good news give the lie to the doom mongers on the Opposition Benches who have been saying consistently that recovery would not be sustained? The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said it again today. Why do the Opposition go on denigrating the country?

Mr. Lawson

That is a very good question, but it is not one for me to answer. Perhaps the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) would care to answer it if he catches your eye again, Mr. Speaker.

Mr. Derek Foster (Bishop Auckland)

Has the Chancellor seen the comment of the Institute of Directors that he has failed to cut taxation and public expenditure and seeks to hide that by asset sales and increasing gas prices?

Mr. Lawson

I am surprised but delighted to hear the hon. Member's support for the Institute of Directors. I hope that he will maintain that support throughout this Parliament.

Mr. Edward Leigh (Gainsborough and Horncastle)

Bearing in mind that right hon. and hon. Members in the Opposition seem to have forgotten the second highest spending Department, Defence, can my right hon. Friend confirm the good news that he is abiding fully by the commitment of Her Majesty's Government to increasing defence spending by 3 per cent. in real terms?

Mr. Lawson

Defence spending for 1984–85 will grow by 3 per cent. in real terms, plus a substantial addition for the Falklands expenditure.

Several Hon. Members

rose——

Mr. Speaker

Order. As the House knows, there is to be another important statement. I shall call those hon. Gentlemen who are now standing.

Mr. Richard Tracey (Surbiton)

May I reassure my right hon. Friend, if he should need it, by reminding him that there are people living in Socialist France who wish that they could have heard a statement such as his today? May I urge him, when he gets the chance, to spell out to the British people that if the Labour party had won the election on 9 June we would have been heading for the same plight?

Mr. Lawson

I shall do my best to make that point. It is a powerful one.

Mr. Harry Ewing (Falkirk, East)

Is the Chancellor aware that in paragraph 2.10 of his statement he says that there will be increased provision for redundant steelworkers and shipbuilding workers—in other words, more unemployed — and that that increased provision will be more than offset by a reduction in regional development grants and aid to individual companies? By how much will regional development grants and aid to individual companies be reduced, and how many more jobs will that cost?

Mr. Lawson

Regional development grants are a matter for my right hon. Friend the Secretary of State for Trade and Industry.

Mr. Michael Howard (Folkestone and Hythe)

My right hon. Friend referred to the fact that output is currently rising at a higher rate than it is in any other member country of the European Community. Can he confirm that this is the second consecutive year in which that is true? Can he tell the House when this country last achieved that feat?

Mr. Lawson

That is correct. This year and, indeed, next year the European Commission expects us to have the highest rate of growth in the European Community—for two successive years, something which has never occurred before.

Mr. Bruce Milan (Glasgow, Govan)

On regional development grants, why did the Chancellor not answer the question that was put to him? A reduction is proposed. That must mean that many areas which are scheduled will be descheduled. Why cannot the Chancellor come clean on that?

Mr. Lawson

The Government will in due course be publishing a paper on the future of regional policy. It will be a discussion document and we will welcome views from all quarters, including those of the right hon. Gentleman.

Mr. Dave Nellist (Coventry, South-East)

The Chancellor has explained that he predicts a 4 per cent. increase in investment next year. The sale of 51 per cent. of British Telecom shares is supposed to raise £4 billion to £5 billion, which is roughly the same amount of money that is normally put into manufacturing industry. How by the sale of British Telecom and other measures of denationalisation does he expect to see that 4 per cent. increased investment achieved? If he wants to cut the amount spent on energy, he could do worse than get rid of the 58.5 million tonnes of coal that are stock-piled at the pitheads and the power stations by giving it free to pensioners, so preventing 46,000 people dying from hypothermia if this winter is as bad as that of 1981.

Mr. Lawson

I think that the hon. Gentleman is in a bit of a muddle. The privatisation of British Telecom will be a transfer of a very important part of British industry from the public sector to the private sector. When I was talking about an increase of 4 per cent. in fixed investment next year, that was total investment in the country as a whole, private and public sectors combined.

Mr. Tam Dalyell (Linlithgow)

If the Chancellor of the Exchequer is so cocksure that my right hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) gave the wrong figures for fortress Falklands, presumably he means that he has the right figures. May we have them?

Mr. Lawson

I shall gladly give the hon. Gentleman the figure for the Falklands in the coming year. It is £684 million.

Mr. Archy Kirkwood (Roxburgh and Berwickshire)

Does the Chancellor of the Exchequer accept that his announcement on housing benefits will cause great disappointment and despondency? Does he further accept that people in receipt of housing benefit are among the most disadvantaged of our society? Is he aware that the Government's proposals for the unified benefit have caused a great deal of chaos? Can he justify why he has selected that benefit for his cuts in the social security budget?

Mr. Lawson

I have no doubt that my right hon. Friend the Secretary of State for Social Services will deal with that matter in more detail in due course. It is ludicrous to suggest that a benefit that goes to about one household in three is solely for those who are worst off.

Mr. Ken Eastham (Manchester, Blackley)

In his statement the Chancellor of the Exchequer claimed that the economy was expanding and he made the pious remark that we can now all share in the growth. May I remind him that 250,000 young people are now on youth training schemes and receive only £25 a week, and that that amount has not been increased since 1978? Is it reasonable to suppose that they will share in that growth?

Mr. Lawson

The youth training scheme is the most imaginative scheme of its kind ever introduced. I should have thought that the hon. Gentleman would welcome it.

Mr. Max Madden (Bradford, West)

Will the Chancellor of the Exchequer give a clear assurance to all those in the real world who are dependent on social security benefits, including unemployment benefit that in the coming year those benefits will be increased by at least as much as the increase of the cost of living? What will be done for the long-term unemployed, whose poverty is even now an embarrassment for Government advisers?

Mr. Lawson

As I said, the benefit will be uprated in November 1984 by the increase in the retail price index between May 1983 and May 1984. However, the best thing that can be done for the unemployed is to maintain a sound and healthy economy that will create jobs. That is what our policies are designed to achieve, are already beginning to achieve and will continue to achieve.

Mr. Kevin Barron (Rother Valley)

Does the Chancellor of the Exchequer recognise that the energy costs of some sections of the engineering industry are as high as 20 per cent. and that the measures in his statement will make them go up again? Once more, manufacturing industry feels that it is being attacked by the Government. The effects on industry in the past four years have been shameful. Is the right hon. Gentleman aware that his measures are a further attack on the unemployed in that more unemployment will be created in industries that need to be protected? We should not be chasing after those industries and increasing their energy costs to raise money in other areas of the economy.

Mr. Lawson

The hon. Gentleman is right in intimating that we have an energy problem. It is the heavy cost of producing coal is a result of the large number of hopelessly uneconomic pits. I hope that the hon. Gentleman will support the National Coal Board in its efforts to reduce the costs of producing coal in that way.

Mr. Hattersley

The Chancellor of the Exchequer will recall that the Government Actuary's report, published today, will give the estimate of the number of unemployed that the Government expect over the next year or two. Will the Chancellor tell us the working total of unemployed that the Government Actuary has recommended the Treasury and other Departments to calculate on? Will he tell us what the figure is? Will he ask the Leader of the House to give the House a report tomorrow on why that document, with that figure in it, which should have been available in the Vote Office at 4 o'clock, was not there a few minutes ago?

Mr. Lawson

I am sorry that the document was not in the Vote Office when it should have been. I am sure that my right hon. Friend the Leader of the House will look into whether the right hon. Gentleman's assertion is true, and, if it is, he will consider what should be done. As for the figure, the assumption that has been given to the Government Actuary is 2.85 million.