Autumn Statement

HC Deb 24 November 1983 vol 49 cc464-554

Mr. Speaker

Before I call the Chancellor of the Exchequer, I should say that it will not surprise the House to know that a large number of right hon. and hon. Members wish to take part in this important debate. Brief speeches will enable me to call many more hon. Members.

3.48 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

I beg to move, That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 17 November; welcomes the continuing prospect of low inflation and steady growth, and congratulates Her Majesty's Government on keeping the public expenditure planning total for 1984–85 unchanged at the level published in the 1983 Public Expenditure White Paper (Cmnd. 8789). I welcome the opportunity which the House has this afternoon to debate the statement that I made last week. As the House knows, I was able to report further evidence of economic recovery and further good prospects for inflation. The combination of steady growth and low inflation is something that the country has not seen since the 1960s. It is proof positive of the success of the Government's economic strategy.

It would be perverse to change that strategy, and we are not proposing to do so. The Government's aim w ill be to continue to achieve sustainable non-inflationary growth. The two essential elements of our policy remain unchanged. The first is a sound medium-term financial strategy that will keep inflation moving down. It aims progressively to reduce public sector borrowing as a proportion of total output and gradually to reduce monetary growth. Our ultimate objective is price stability. Monetary and fiscal policy will continue to go hand in hand.

Secondly, within the essential framework of financial discipline, we aim to increase incentives, to expose more of the economy to the forces of competition, and to remove obstacles to the operation of free markets. We have set out to abolish a whole range of damaging and unnecessary controls and to improve the legal framework in which business operates. We shall push ahead with the transfer of state-owned business to the free enterprise sector and promote greater efficiency within a reduced public sector.

We have already made significant progress on both parts of the strategy. Back in 1979, our first task, to borrow a phrase that will be familiar to residents of Huyton and is now no doubt equally familiar to the ghostly monks of Rievaulx, was to clear up the mess left by the previous Administration. We inherited grossly excessive borrowing and inflation on a high and rising trend and we have had to tackle them in a period of deepening world recession.

Since 1981 inflation has been falling steadily down to 5 per cent. from a peak of more than 20 per cent. Interest rates are now at their lowest for five and a half years. Output has been rising at about 2.5 per cent. per year since mid-1981 and is likely to rise by up to 3 per cent. this year and next year. We are now growing faster than any other EC country and the European Commission forecasts that that will remain the case next year.

Mr. Dennis Skinner (Bolsover)

The Chancellor says that inflation has come down to 5 per cent. In a report today some pundits suggest that it will rise again by the end of next year. Interest rates are now down to 9 per cent., the lowest for some time. That means that the gap between the two is 4 per cent., which suggests that the Chancellor's beloved market—the real monetarists of the world who make money out of interest rates—believes that inflation will gradually come back up to 9 per cent., which is why interest rates are not coming down. What does he intend to do to bring inflation down if those handling the money have no confidence in his policy?

Mr. Lawson

On the contrary, the market has considerable confidence in our policies, in sharp contrast with those of the Labour Government, who had to go cap in hand to the International Monetary Fund.

Unemployment remains too high, but all the signs are that it may now be levelling out. October's fall in the adult seasonally adjusted total was the second in three months and the total employed labour force is estimated to have risen by 18,000 in the second quarter of this year, the first rise for nearly four years. Vacancies are up, short-time working is at its lowest for four years and overtime is picking up strongly.

The roots of this recovery lie in increased confidence, lower interest rates and, above all, low inflation. Like most recoveries, it began with a rise in consumer spending and reduced de-stocking. It is now spreading more widely as investment increases in line with growing profitability and exports seem set to benefit from world recovery. There is no sign of any re-emerging inflationary pressure. Government borrowing is lower in relation to GDP than in most OECD countries. The change to a climate of realism and common sense has pervaded all levels of industry. Expectations have fundamentally changed and the response has been seen in lower pay settlements and higher productivity. All this is good news. That is why there is silence from the Opposition.

It is time that the Opposition recognised that recovery has been going on for two years and shows every sign of continuing. During the general election campaign they chose to deny that there was any recovery and offered an alternative prescription for a very different strategy, which the British people decisively rejected. I can see that that must have been galling for them, but they cannot continue wilfully to reject all the evidence that our strategy is succeeding. They must stop selling Britain short.

Mr. Donald Stewart (Western Isles)

How does the Chancellor square his own extremely optimistic forecast with today's report from the National Institute of Economic and Social Research, which forecasts lower growth, higher inflation and more unemployment?

Mr. Lawson

The institute, bless its heart, has a very poor track record in forecasting. It is always a purveyor of doom and gloom. Nevertheless, it has improved slightly. Its comparable forecast a year ago suggested that output would grow by only 1 per cent. this year. At least it has now revised its forecast upwards to 2.25 per cent. Perhaps it will get the right answer in the end.

I shall now deal with taxation and with a point in which I know my right hon. Friend the Member for Worthing (Mr. Higgins), among others, is especially interested. In his Budget statement in March my predecessor was able not only to propose tax reductions for the second consecutive year but to say that there was a prospect of a further small reduction in 1984–85. As the House knows —this has occasioned some comment—in my autumn statement last week I said that the up-to-date fiscal outlook suggested that, if anything, there might be a need for some small net increase in taxation next year. It may be helpful if I described the reasons for the changed prospect.

I shall begin with this year. When the Treasury forecasts were published at the time of the Budget the PSBR outturn for 1982–83 was expected to be about £7.5 billion, allowing for some shortfall between planned and actual public expenditure. As the House will recall, there was actually a surge in public spending at the very end of the year and the outcome was much closer to the overall planning figure. The PSBR for 1982–83 thus turned out to be 1.5 billion higher than the figure published in the Red Book at the time of the Budget.

Any estimate of the extent to which public Departments will underspend on their programmes must be highly uncertain even near the end of a financial year. In forming a judgment about the likely underspend in 1982–83 it seemed sensible at the time to give considerable weight to recent experience, especially that of the financial year 1981–82, in which there was a considerable shortfall. I believe that it is now only prudent to plan on this year's outturn, like last year's, coming much closer to the planning figure.

That is the main reason why, despite the measures that I announced on 7 July, we now expect this year's PSBR to be higher than was expected in March, probably by about £2 billion, as I told the House last week.

Many of the same considerations apply to 1984–85.

Mr. Skinner

Wake up at the back there.

Mr. Lawson

In the public expenditure survey just ended we have done as we said we would and held to the planning total of £126.4 billion for 1984–85, published in the February White Paper. I pay tribute to my right hon. and learned Friend the Chief Secretary for that achievement.

Mr. Skinner

The Chancellor's hon. Friends have all dropped off.

Mr. Lawson

If anyone is tempted to drop off I am sure that the hon. Member for Bolsover (Mr. Skinner) will keep him awake.

I have also thought it right to make no allowance for expenditure shortfall next year, in contrast with the £1.2 billion originally allowed this year, and to keep the contingency reserve at £3 billion as in the White Paper. That, of course, has disappointed some of our critics, who hoped to be able to accuse us of fudging the figures. Partly because of higher borrowing both last year and this, we also expect debt interest to be a little higher next year than was previously envisaged. Together, those two factors more than offset a small upward revision in forecast revenue. That is why, despite the improved growth prospect, the overall fiscal prospect has slightly deteriorated since the last Budget.

Mr. Tim Smith (Beaconsfield)

Will my right hon. Friend explain why he considers it necessary for the contingency reserve to be increased from £1.5 billion to £3 billion?

Mr. Lawson

I shall deal with the contingency reserve in a moment. The answer to my hon. Friend's question is that I consider this to be a prudent level, taking into account all contingencies and the experience of the past 12 months.

Hon. Members will be more interested in what the prospect will be at the time of the 1984 Budget. As I said last Thursday, the figures are subject to a wide margin of uncertainty at this stage and rest on a number of conventional assumptions. The autumn statement is not a time for decisions on appropriate levels of borrowing or taxation. By the time of the Budget I shall have much more, and much more up to date, information. Whatever decision I have to take next spring, I am confident that on present policies we shall be able to reduce the level of taxation during the lifetime of this Parliament. That is one of the Government's major objectives. Lower taxation increases the individual's freedom of choice and encourages enterprise.

As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) so perceptively pointed out last week, the tax burden is higher now than in 1979. Of course it is. Most of us remember that my predecessor rightly set out in his first two years as Chancellor to reduce the grossly excessive levels of borrowing that we inherited in 1979. We have very nearly halved Government borrowing as a percentage of national wealth. Any Chancellor could reduce taxation in the short term by restoring borrowing to the 1979 level. He could make a £7 billion cut at a stroke, but the price would be rampant inflation, higher interest rates and still higher unemployment. The Government are not taking that road.

I remind the House that, with financial discipline restored and borrowing again under control, my predecessor was able to reduce taxation in both his 1982 and 1983 Budgets. Public expenditure as a proportion of GDP has steadily declined since 1981 and taxation has come down too. The reductions already made, however, do not entitle us to rest on our oars. There can be no dispute about the fact that taxation at widely different levels of income is too high. We have to find a way to restore to the man in the street the freedom to spend or save more of his earnings. The more heavily wages and salaries are taxed, the less incentive there will be to earn more, the bigger will be the millstone around the necks of the enterprising, and the more destructive the brake upon industrial performance and ultimately, the worse will be prospects for growth and new jobs.

For the last two years, public expenditure as a share of GDP has fallen. It will fall further next year. We are breaking out of the vicious circle of ever-higher spending leading to ever-higher taxes and an ever more sluggish and less responsive economy.

In the public expenditure survey which has just ended we have produced plans which reflect our determination to continue that process. We plan to hold public spending broadly constant in real terms over the next three years. If we stick to that—and we must—there will be scope for further real reductions in the level of taxation. We fought the election on a pledge that we would stick to our published expenditure plans for the years immediately ahead.

On 23 May, during the election campaign, the Prime Minister pointed to our public expenditure White Paper and said: All of our public expenditure proposals for the coming years have already been published and are there … the whole of the Manifesto is contained in those public expenditure forecasts". We are sticking to that pledge. To do so we have had to rein back in some areas to make room for desirable or necessary increases in others. There are always more desirable ways of spending money than there are funds available. That is life. That is one reason why the figures can so easily be driven up and why hard choices have to be made.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. Friend tell the House whether the Government intend to publish a Green Paper or other document on the policy options that might enable public expenditure to be seriously cut?

Mr. Lawson

When my hon. Friend asked that question last week, I told him that I would give his suggestion very serious consideration. I believe that it would be desirable to maintain the momentum of the existing public debate by publishing a document of some kind on the prospects for public expenditure.

The Government have been prepared to make hard choices. We demonstrated on 7 July our resolve to maintain a firm grip on expenditure when it became clear that it was running ahead too fast. We shall ensure that tight control of public expenditure is maintained. My hon. Friend the Member for Beaconsfield (Mr. Smith) mentioned the contingency reserve. For next year it will have to cover both discretionary changes and all other contingencies, including estimating changes.

The public expenditure survey is a medium-terns exercise, concerned with the plans for next year and the two following years. In an uncertain world there is little to be gained from agreeing detailed figures for spending programmes to be carried out in five or six years' time. While recognising the inevitable limitations of long-term forecasts, a responsible Government need to look forward beyond the short and medium term. I therefore welcome the current debate about these issues.

The pattern of the past is clear. Expenditure has crept up inexorably year after year, survey after survey Parliament after Parliament. Twenty-five years ago, public expenditure represented one third of GDP. By the beginning of this decade it had reached 40 to 45 per cent. The Government are determined to bring to a halt the creeping encroachment of the public sector over an ever-wider area of the national economy.

We shall look for savings wherever they can be found—by rooting out waste and inefficiency, by identifying and securing the cost savings which new technology can bring, and by scrutinising every spending programme to see whether what is done has to be done, whether it has to be done in the public sector and, if so, whether it has to be financed wholly by the taxpayer. We intend to maintain in the longer term as in the medium term the firm grip on spending that is vital to our prosperity as a nation.

Mr. Robert N. Wareing (Liverpool, West Derby)

Since the Conservative party came to power in 1979, has not public expenditure as a percentage of gross domestic product increased from 41 to 45 per cent.? Can this not be attributed largely to the fact that we spend £17 billion a year in keeping over 3.5 million of our fellow citizens on the dole?

Mr. Lawson

The hon. Gentleman is wrong. Public expenditure rose to 44 per cent. in 1981, not 45 per cent., and since then it has been falling steadily year by year. The main reason why it increased was that the economy was affected by the world recession.

We in this country are not alone in that perception. The world recovery now under way is built not on some artificial expansion of demand but on a strategy of monetary and fiscal discipline endorsed at successive summits at Ottawa, Versailles and Williamsburg. There is a strategic consensus throughout the industrialised world on what has to be done, a consensus which even embraces Socialist Governments in Paris and Rome. It has helped to reduce inflation in the major countries to its lowest rate for more than a decade and has laid firm foundations for economic recovery. Only the British Labour party cannot accept the logic of the policies or commend their success. Evidently the world is out of step with the Labour party.

The need for firm monetary and fiscal policies applies equally to the developing countries, which have been especially hard hit in recent years by the combination of high interest rates, depressed commodity prices and more costly oil imports. Firm adjustment programmes supported by the International Monetary Fund are crucial. I particularly welcome the long-awaited decision of the United States Congress to support the increase in IMF quotas. I hope that the Administration will be no less successful in securing support from Congress for measures to reduce the Federal Budget deficit, because a fall in dollar interest rates would be the single most significant boost to recovery in the developing and industrial countries alike.

I have outlined our policy on the overall level of spending. Many of my right hon. and hon. Friends in particular are anxious about the balance between capital and current expenditure in the public sector. Gross fixed investment in the public sector, as it is defined in the national accounts, fell under Labour between 1974 and 1979 from 6.5 per cent. of total national output to 4.4 per cent. It fell further until mid-1981 to about 3.4 per cent., but has been broadly stable since then.

The amount of capital expenditure within the public expenditure White Paper planning total, which is the usual basis on which this argument is conducted, provides a poor guide to the impact of the public sector on this country's capital goods industry. For example, the White Paper figure for capital spending amounts to only a fraction of the total public sector capital spending. It does not, for example, include the capital spending of the nationalised industries, which is running at about £7 billion in the current year, which is broadly the same as the 1979–80 level in real terms.

Furthermore, all these capital spending figures are expressed net of asset sales. Sales of public sector housing amounting to over £2 billion last year have to be added back to the totals. The existing convention leads to the absurdity that the more successful the Government are in pushing forward their privatisation programme, the lower the public capital spending figures appear. The figures are also further distorted by the somewhat eccentric treatment of defence in the official statistics. By international convention, virtually all defence spending is classified as current; even expenditure on new barracks or a new service hospital. More importantly, a fleet support vessel in one berth for the Navy counts as current expenditure while its neighbour built for BP scores as capital expenditure.

With the defence equipment programme running at about £7 billion, much of which is capital spending, it makes a big difference to the figures and, because defence spending has been growing as a proportion of public expenditure, it makes a difference to the trend. If we consider these figures outside the straitjacket of the misleading White Paper definition of capital spending, we find that between 1978–79 and 1982–83 total public sector capital spending, including nationalised industries' investment, rose by 38 per cent. from just over £12 billion to £17 billion.

If we adjust the 1982–83 figures to take account of special sales of assets and council house sales, that figure rises to nearly £20 billion or twice the White Paper figure for the earlier year. The figure would be still higher if some credit were taken for defence capital spending. In other words, taking defence equipment as capital expenditure, total public sector capital expenditure in real terms has been broadly stable since 1978–79. As I told my right hon. Friend the Member for Guildford (Mr. Howell) last Thursday, I hope to improve the clarity with which these matters are presented in the next public expenditure White Paper.

Mr. Hal Miller (Bromsgrove)

On the subject of capital expenditure, will my right hon. Friend accept that, for example, local authority road programmes rarely meet planning targets and that local authority borrowing for capital expenditure since the introduction of the GRE penalties has dropped from £2.287 billion to £7 million? Widespread anxiety is felt that the necessary capital expenditure on infrastructure is not being undertaken.

Mr. Lawson

It is true that over the years local authorities have regrettably shown a tendency to overspend on their current account and underspend on capital account. The responsibility for that lies with the local authorities.

In any event, what matters most is investment as a whole—private as well as public sector. The autumn statement forecast is for fixed investment rising by 4 per cent. next year against a rate of growth of up to 3 per cent. in the economy as a whole.

Mr. Terence Higgins (Worthing)

My right hon. Friend is making an important distinction within the public sector between capital formation as regards defence expenditure and other public sector investment. Does he agree that, in terms of the country's productive capacity, it is only public sector investment outside the defence sphere that increases our capacity to produce? That is not true of capital formation in defence industries.

Mr. Lawson

I have the greatest respect for my right hon. Friend, but I am afraid there is absolutely no distinction between a hospital built by the private sector for the defence services and one built for civilian use. It is precisely the same. Conventional treatment in the public sector White Paper is totally different.

I come to another issue which has aroused a fair amount of comment—the Government's programme of asset sales. The privatisation programme is designed to improve efficiency and to bring about greater competition, to the benefit of the customer and the nation. It reduces the Government's need to borrow, but that is not the programme's principal aim although the beneficial effect on the gilts market is welcome.

The autumn statement assumes that about £1.9 billion will come from the special sales of assets in 1984–85. There are considerable uncertainties inevitably attached to that figure, which is dependent upon market conditions at the time of the sales. It is not our practice to give a breakdown of future sale targets. We have already made it clear that the sale of Enterprise Oil has slipped from 1983–84 to 1984–85 and that, subject to parliamentary approval, we plan to sell shares in British Telecom next autumn. Decisions are still being taken about the mechanics of future sales, including the timing of payments.

It is entirely consistent that sales should count as reducing public expenditure. The purchase of assets certainly increases public expenditure. The markets are well able to cope with the privatisation programme and with the current reduced levels of public borrowing without putting upward pressure on interest rates. The prospective level of asset sales remains one of the factors to be taken into account when deciding the appropriate level of PSBR for the years ahead.

Mr. Richard Wainwright (Colne Valley)

The Chancellor has spoken about accounting for the proceeds of privatisation. Does he agree that it would be much more accurate to show those proceeds as one of the ways of financing public expenditure, rather than as a straight deduction from public expenditure, which they are not?

Mr. Lawson

No, Sir, I do not. The special nature of these sales has to be taken into account when assessing the appropriate PSBR for the year ahead. The right hon. Member for Sparkbrook will recall that last Thursday, in my customary way, I warmly welcomed him to his new position as his party's chief economic spokesman. In the same spirit of bonhomie and generosity, I invite him to tell us about his and his party's policies. I have spelt out ours, but I must confess to some puzzlement about his. We all know, of course, the policies upon which he fought the last election. They were spelt out with remarkable clarity in his party's manifesto and we on this side of the House are eternally grateful for that, but since then the right hon. Gentleman has taken pains to distance himself from those policies.

The right hon. Gentleman wrote in The Times: Last June our economic policy was a net vote-loser. Our vague hopes of achieving growth through spending were barely understood and rarely believed. The idea of 'borrowing to expand, proved crucially unpopular. The British people realised that the whole strategy lacked two crucial ingredients: a coherent plan for investment and a scheme to combat inflation. It was honest and wise of the right hon. Gentleman to say that, but it does not take us much further forward, because on a more recent occasion he said: Whatever policy the Labour Party stands on at the next election, I will support it. I appreciate that, in the Labour party, the leader and deputy leader exert as much effective control as Captain Mainwaring and Sergeant Wilson over their "Dad's Army" platoon, but it would be reasonable for the right hon. Gentleman to let us know whether he has any idea of what his party's policy might be. For example, does he support the Labour party's manifesto pledge to increase public expenditure by about £10 billion a year? If not, will he tell us by how much he has revised that figure? [HON. MEMBERS: "Answer."] I hope that he will, but he is shy. Does he agree with the manifesto's suggestion that the cost of such an increase would be met principally by borrowing? If so, how much would he borrow? Would it be an extra £5 billion, an extra £10 billion, or what?

Mr. Stuart Bell (Middlesbrough)

rose——

Mr. Lawson

I am prepared to give way to the right hon. Gentleman but he does not want to intervene. I shall listen with interest when he explains Labour's policy. The other day the right hon. Gentleman berated the Government for maintaining too high a level of taxation. However, it is still his party's policy, according to its manifesto, that once the economy gets much nearer to full employment, some taxes will have to be increased". Which taxes does he have in mind? I am paying the right hon. Gentleman a compliment, in that I am believing that his party has an economic policy. If he is able to spare a moment or two in his speech, perhaps he will illuminate the House on that issue. We are entitled to know.

My statement last Thursday was proof of the Government's frankness with the nation at the general election. On public spending we campaigned on the figures in the White Paper and we have kept our word. Despite all the talk of hidden manifestos, savage cuts being in prospect and the like, the autumn statement totals are precisely the same—no less, but no more either. The sight of the Government sticking to their policies and their word has caused consternation in some quarters. We believe that election pledges are not to be taken lightly and we shall continue to keep faith with the British people. Our policies are succeeding and I commend the motion to the House.

Mr. Speaker

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

4.22 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof, `believes that the Government's economic policy fails to plan or provide for reductions in the level of unemployment, accepts and accommodates a continuing decline in investment and stagnation in output and is based on the proven fallacy that a reduction in Government spending will, notwithstanding the hardship that such cuts cause, produce an automatic improvement in the economic prospects of this country.'. The Chancellor's speech was in turn complacent and self-satisfied. In short, it was exactly what we expected of him. In two particulars at least it astounded me. It was wholly extraordinary that, in what the Chancellor no doubt believed to be a tour d'horizon of the entire economic prospect, he could not bring himself to give us a word on the looming balance of payments crisis. I can only assume that that was because at 3.30 pm figures showing a further deterioration in our balance of payments were published. The Chancellor must have known about them for the past 24 hours. Presumably he hoped that he could escape those figures during the early part of the debate. I hope that the Chief Secretary to the Treasury will make up for that wilful omission.

The second astounding thing about the Chancellor's speech was that, bearing in mind his character and record, he was peculiarly defensive. II was not the speech of a man who is convinced of his own success, despite 'the braggadocio of the past few days. Nothing demonstrated that better than the pathetic sub-peroration that he made. I must point out that we are debating the Chancellor's economic statement, the Government's record and the prospects that the Government offer. I am sure that he will want to divert the House's attention from his record, performance and broken promises. When the Opposition debate Government policy we intend to ask questions about it.

Mr. Peter Lilley (St. Albans)

rose——

Mr. Hattersley

I shall not give way for a little while yet.

The Chancellor's attitude today confirmed a characteristic which he revealed during a broadcast last Friday. An interviewer asked him why The Daily Telegraph regarded his statement of the previous day as an "abject and humiliating failure". The Chancellor's answer concerned not economics but ego. He said that it was a little premature to judge". The Chancellor might believe that the world began when he moved into the Treasury a few weeks ago but hundreds realise that the humiliating and abject failure which the newspapers reported is not the failure of the Chancellor alone. It is the failure of the policies of the Government in which he serves. Moreover, it is not the failure of the few weeks that the right hon. Gentleman has been in the Treasury. It is the failure of the four and a half years of Conservative Government.

Sir William Clark (Croydon, South)

The right hon. Gentleman said that the Government had broken promises since the general election. Which promises have been broken?

Mr. Hattersley

I blame myself. I always underestimate the weak-mindness of Conservative Members. I shall do exactly what the hon. Gentleman asked. I hope that he will be highly satisfied with my questions, although he might not be quite so satisfied with the Chancellor's answers.

As these are early days, I begin by asking the Chancellor how long we must wait for the pledges of 1979 to be redeemed. Despite the braggadocio of his speech, I remind him of his achievements in meeting his own meaningless goals. I do not refer to the goals that the Opposition, who have a different view of society and the economy, would set but the goals which he and his predecessor set. Once, we were told that the new economic policy would produce a reduction in inflation without creating unacceptably low levels of output. That economic policy has resulted in manufacturing output falling by 15 per cent. in four years. That is a return to the level of the mid-1960s. No Administration since the second world war, other than that in which the Chancellor served, has ended a Parliament with total output lower than when it began.

I am at pains to answer the question which the hon. Gentleman asked, apparently in the belief that I could not answer it. Once, we were told that tax cuts were certain and essential. Today, the Chancellor seemed to resent my having reminded him a week ago that, under the Conservatives, taxes have increased by £18 billion.

Mr. Lawson

I shall gladly intervene to remind the right hon. Gentleman that manufacturing output has been declining for some time. Indeed, it declined under the Labour Government. I dealt with taxation in my speech.

Mr. Hattersley

If the Chancellor wants to answer my question, I shall gladly give way again.

Mr. John Prescott (Kingston upon Hull, East)

Get up.

Mr. Hattersley

My hon. Friend should treat the Chancellor with appropriate tenderness.

I shall offer the Chancellor another figure which he might care to deny. Under the Administration in which he served, the total taxation bill increased from 39.6 per cent. to 45.7 per cent. of national income. The Chancellor was not reticent about that. Indeed, he boasted about it in The Times this morning. This morning's article in that newspaper was robust in praise of how ready the Government in which he serves have been to increase taxes.

I shall give a third example of broken promises. Once, we were told of what the Chancellor described as recently as last Thursday as the necessity for firm monetary policies. What do they turn out to be, but a public sector borrowing requirement that is almost £2 billion more than the Government's target. As I do not want to make "a premature judgment" about the Chancellor's stewardship—I use his words—I ask him; when will manufacturing output return to its 1979 level? It rose by 1.3 per cent. between the third quarter of 1982 and the third quarter of 1983. If that rate of achievement persists, manufacturing output will not return to the level we enjoyed under the Labour Government until the mid-1990s. When will taxes be reduced to the level that the Government inherited? The Chancellor resented my reminding him by how much taxes have increased——

Mr. Lawson

Tell us about the Opposition's policy.

Mr. Hattersley

I can conceive of nothing more pathetic than a Chancellor who presents his autumn statement and cries from his seat on the Front Bench, "Tell us about the Opposition's policy."

I shall ask the Chancellor about Government policy. He revealed that his dearest hope was that by the end of this Parliament taxes would be lower than they are today. Will they be lower by the end of this Parliament than they were when the Government were elected, or will taxes remain higher than they were under the Labour Government even after eight or nine years of Conservatism? If he wishes to be serious and to be respected, he must answer those questions.

How seriously does the Chancellor judge the £2 billion excess on the PSBR? According to the theories by which he lives, an additional £2 billion expenditure is an absolute disaster. Is the £2 billion overspend a disaster, or is it of no consequence? If it is of no consequence, why did he need to cut back £500 million last July, and why does he need the extra £500 million which he threatens to recover in taxes next year?

Mr. John Townend (Bridlington)

Will the right hon. Gentleman tell the House what his estimate would be for the PSBR if he had the opportunity to put his policy into operation?

Mr. Hattersley

It is my firm intention to be Chancellor of the Exchequer one day and when that happens, I shall do my best to describe my Government's policy. I shall certainly not endure the humiliation of running away from answering questions and of trying to divert attention to a matter that is not in front of the House.

Does the Chancellor regard the £2 billion excess on the PSBR as a tragedy or as a matter of no consequence? He should know, as I am sure he does in his cooler moments, that failure to meet the PSBR demonstrates the absurdity of his position. In his terms, the £2 billion extra on that aggregate is a tragedy, yet that tragedy took place during 1983, which he describes as a year of success.

The Chancellor overstates the hope of a genuine and continuing recovery, as we knew he would. He should not talk about the National Institute of Economic and Social Research survey as though it were the only survey that confounds and contradicts him. He knows that every objective, independent survey, and every forecaster, say that his predictions are over-optimistic. On the radio this morning stockbrokers were queueing up to argue whether he was wrong by mistake or wrong by malice. Not one commentator believed that his figures were right. The Chancellor should realise that the fleeting improvement, which we acknowledge, is largely the result of the changes in the economy that he is pledged to oppose. He disagrees with the only things that have gone right during the past nine months.

I shall explain to the Chancellor how the success, as he describes it, was achieved. In addition to a brief period of industrial re-stocking, there was an upturn in consumer spending induced by hire purchase relaxation and financed by borrowing. There was also a crucial increase in public spending, including new housing capital. But the Chancellor is opposed to that; public expenditure in general, and housing spending in particular, will be cut once more. In his autumn statement the Chancellor repudiated the one moment of success enjoyed by the Government, and proclaimed the victory of theory over practice. In pursuit of his theory, he chose to increase prices and to reduce industry's ability to compete by introducing a fuel tax, which he could not bring himself to discuss this afternoon. The enforced increase in gas and electricity prices can be honestly described only as a fuel tax.

The Chancellor and, as I understand it, the Prime Minister attempted to justify the increase by claiming that the gas industry enjoys only a 2 per cent. return on capital. However, if we take operating profit as a percentage of real capital, the figure should be 5.7 per cent. This is an important part of the debate as well as of the Chancellor's conduct. The formula of operating profit as a percentage of net capital was how the British Gas Corporation's targets were measured. That was the criterion of the corporation's success, and by that criterion—initially laid down by the Government—the corporation exceeded its target by 60 per cent. However, since the gas corporation was doing so well, and even the most brazen Chancellor could not have imposed a price increase, the Chancellor—that ingenious inventor of the tax and price index—decided to change the measurement, so that the results of the industry were to be measured on retained profits as a percentage of net assets.

The Chancellor went further, and depreciated that figure in a way which the corporation's annual accounts described under the heading "Disposal of oilfield interests". The accounts said this about the disposal of oilfield interests: The corporation believes that the Secretary of State will by order arrange for the disposal without compensation. Accordingly provision has been made for an estimated loss … which is expected to amount to £285 million. The Chancellor has robbed the gas corporation of nearly £300 million by privatisation, and then used the robbery to justify forcing a gas price increase upon the corporation. Only someone who is both arrogant and short-sighted would believe that, in the long run, he could get away with that in the House of Commons. I shall give way to the right hon. Gentleman immediately if I am wrong——

Mr. Nicholas Soames (Crawley)

Will the right hon. Gentleman give way?

Mr. Hattersley

Not to the hon. Gentleman. I cannot remember the quotation about organ grinders, bur. I shall not give way to the hon. Gentleman. If the Chancellor wishes to tell me that I am wrong, I shall gladly give way; if the Chief Secretary to the Treasury, after mature consideration, wishes to tell me that I am wrong. I shall listen to him with great interest at 9.30 pm.

I hope that the Chancellor will also deal with a second example of what I must describe, in the most parliamentary sense, as sleight of hand. The best-known phrase from last Thursday's statement was the need for some net increases in taxes in next year's Budget."—[Official Report, 17 November 1983; Vol. 48, c. 995.] No one believes that to be an objective forecast. It is an attempt to frighten those of his right hon. and hon. Friends who might press for public expenditure increases, and to warn them that if they do, they will be responsible for putting up taxes.

Mr. John Townend

Quite right.

Mr. Hattersley

The hon. Member for Bridlington (Mr. Townend) said, "Quite right," and I hope that Hansard noticed it. I am not sure whether he is one of the frightened or one of the frighteners, but whichever it is, he acknowledges that the intention to frighten is there.

Secondly, it might have been a brave attempt to create a bogus victory for the Chancellor so that when next April comes along and there is no reduction in taxes or there is an infinitesimal decrease he can say—I can hear the words—"As recently as last November I feared that there would have to be a tax increase. However, I am now pleased to be able to tell the House …" I have no doubt either that his weak-minded Back Benchers will cheer him to the echo.

Most likely, the Chancellor has not the faintest idea in which direction the economy is moving. I am afraid that, because of the humiliation that the Chancellor faces, he will be driven to new levels of political expediency and economic irresponsibility. We have no illusions about the Chancellor in this aspect, for he is, after all, the man who sold Britoil and Amersham International with so little concern for the public interest.

Mr. Soames

Although both sides of the House will acknowledge that my right hon. Friend has never been lucky in the coincidence of his views and facts—[Laughter.]—is he attempting merely to reduce any form of confidence that may exist among people who are pleased to see the economy emerging strongly, and is his sole purpose this afternoon to try to destroy that confidence?

Mr. Hattersley

The hon. Gentleman might add that the Chancellor has not always been lucky in those who have chosen to defend him either. I can only ask the hon. Gentleman to try to face the facts rather than to read the Conservative handout. It is the duty of the House to face the facts of the national economy and repeat what every objective forecaster, including the parade of stockbrokers, among whom it is time that the hon. Member was numbered, has said in condemning the Chancellor for his over-statement of the prospects of the economy.

Sir William Clark

rose——

Mr. Hattersley

I have given way to the hon. Member for Croydon, South (Sir W. Clark) already and much as we enjoyed the intervention from the hon. Member for Crawley (Mr. Soames) I should continue, so that others may be able to speak.

We recall how Amersham International and Britoil were sold in a way that was not in the national interest, and we fear—I make no apology for the verb—that there is only one way in which the Chancellor can make substantial enough room in his budget for the tax cuts that he promised in the election manifesto, and that is to sell off, as proposed, the £4 billion of British Telecom assets next year.

There are two views about why that should be done. One is that it has some passing relationship with industrial efficiency and the other is that which was described during Question Time by the Chief Secretary as the "philosophical" obligation. Hansard will show that the "philosophical" obligation was the term used by the Rossminster Plato at Question Time this afternoon.

I put aside the philosophical obligation and ask the Chancellor, or the Chief Secretary on his behalf, to say that it is not the Government's intention to sell those British Telecom assets simply and solely with the intention of making room for tax cuts. It is not consistent with the Victorian values that I am told we should now share and observe to sell capital to finance consumption. That is not how that corner grocery shop in Grantham was able to grow and develop. I hope that the Chancellor or the Chief Secretary will be explicit about this matter.

We have no confidence in the Government's prudence and common sense in these matters. They have already squandered the years of benefit that they have received from North sea oil. Without the wholly gratuitous benefit of that boom, which no other Government have enjoyed, the economy would have collapsed under the weight of Conservative folly. North sea oil now contributes £14 billion, which is 5.5 per cent., to national income. It contributes £9 billion, that is 7 per cent., of total Government receipts. That unique benefit will not last for ever. It should have been used to finance the revival of manufacturing industry, yet, on the Government's own forecast, investment in manufacturing industry for 1984 will be lower than it was in 1979. It is no wonder that the CBI talks of the economy as being increasingly shabby and expensive to operate, and no wonder that even the CBI blames the Government for this state of affairs.

The Chancellor has talked this afternoon of a virtuous circle of falling inflation and increasing output, but even he must know that neither will be sufficient to put Britain back to work and finance decent public services as long as the policies that he advocates are applied. The fragility of the so-called recovery is demonstrated by the latest of the many of our incipient crises—a few months of increased consumption, matched against a crippled British industry and undermined by the bankruptcies for which the Government are responsible and a balance of payments that has deteriorated by £6 billion in two years. The figures that the Chancellor did not feel that it was right to reveal to the House confirm that that deterioration will continue.

There is not a virtuous circle, but an absurd merry-go-round—public expenditure followed by reduction in demand and a deepening recession, followed by a fall in the national income, followed by a fall in the total of unemployment benefit, followed by public expenditure as an increased percentage of national income so that the Government cut public expenditure again—round and round we go in ever decreasing circles until the Chancellor disappears up his own PSBR.

Last Sunday, the Chancellor promised something different. He promised a shift from public to private provision to solve all our problems. It is true that since then the Chancellor has been repudiated by the Secretary of State for Social Services.

Mr. Lawson

No.

Mr. Hattersley

That is not the answer that the Leader of the House, in lieu of the Prime Minister, gave earlier on, when the Chancellor had nipped out for a short while.

Last Sunday, the Chancellor said that he expected a shift from public to private provision in health, education and social security, a policy that he went on blandly to justify not as economic necessity but as the central, cardinal policy of the Conservative party. Nothing would cause a more bitter battle than what must be inherent in that promise. That promise, if it is anything other than 1922 Committee rhetoric, is not simply a threat of limited and specific public cuts but a proposal that the comprehensive public services on which a civilised country depends shall be dismantled and destroyed. That is the only possible interpretation that can be read into what the Chancellor said on Sunday when he talked of a comprehensive reappraisal of the four most important spending areas.

We are not surprised that that comes from the Chancellor, for his economic prescription is not concerned with the nation's practical welfare. He has an almost complete theoretical obsession with numbers—numbers concerning Government spending and borrowing, numbers that he seems to believe are mystically related to economic success.

Mr. Skinner

Not dole queue numbers.

Mr. Hattersley

Exactly.

Other criteria of economic success the right hon. Gentleman brushes aside. The length of the dole queue is simply the residual figure at the end of the equation when his other objectives are served. Whatever is produced by the pursuit of the monetary targets that the Chancellor regards as so important, that is the dole queue that he is prepared to have and will impose upon the British people and the economy. That is why he said virtually nothing about unemployment today. At the beginning of his speech, he had a passing reference to employment and new jobs, but not a word did we have out of him about the prospects for reducing the total of the unemployed.

I am not surprised at this, because the Chancellor will recall the record of his Government, under whom unemployment has risen by 2 million in four and a half years. It has risen by 218,000 in the past year, if the increase is measured honestly. Even on the right hon. Gentleman's own figures, there is no prospect of improvement. The Government Actuary's report—another set of figures that the right hon. Gentleman did not think it right to reveal to the House on the day that they were produced—even using the most favourable calculations that he and the Government have cobbled together, shows that there is to be no reduction in unemployment during next year.

If the Government believe that there will be a significant fall in unemployment, I hope that they will tell us so as the day wears on. But they will not tell us that, because they do not contemplate, anticipate or forecast, are not working towards, and do not care about, a reduction in unemployment.

Despite all that, the Chancellor has the effrontery to call his policy a success. With unemployment running at its present rate, that is not only a sign of the chancellor's insensitivity and the failure of his policies, but a sign of the difference in standards between the Government and the Opposition.

4.52 pm

Mr. Terence Higgins (Worthing)

It is not usual for the House to debate the autumn statement, but I welcome the opportunity to do so because the statement is likely to play an ever more important role in our future debates on economic policy.

As the report of the Select Committee on Procedure (Finance) points out, we have made considerable progress, which includes the twice-yearly Industry Act economic forecasts, the Medium-Term Financial Strategy bringing together projections of expenditure, tax and borrowing for four years ahead … the inclusion in the FSBR of a table showing income and expenditure side by side, and the publication of ready reckoners showing the revenue effects of major tax changes. Therefore, we are moving towards the concept of a "green" budget.

It is important that, in addition to the usual party political battle, the House should seek to debate such highly complex matters at an appropriate level. That being so, I share the regret expressed by my right hon. Friend the Member for Taunton (Mr. du Cann) earlier this afternoon that we do not have the benefit of the reports of the appropriate Select Committees on the Chancellor's autumn statement because they have not yet been set up. I hope that there will be a future opportunity for them to analyse these matters in greater depth.

The statement has received an undeservedly poor press. Substantial improvements in the underlying trend in economic growth and inflation are not news in the same way as more specific but comparatively small changes in tax and public expenditure. However, there is currently a substantial and interesting discussion in the press on the more technical questions.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said that the economic forecast could not be regarded as objective. The House has always understood those forecasts to be official forecasts, not forecasts produced by Ministers. Too much stress has been places on the question whether there may need to be a fiscal adjustment of £500 million in a few months' time. That is well within the margin of error of the forecast. We must appraise that when we reach the final form of the Chancellor's Budget next year.

However, my right hon. Friend was right to stress that forecasts have been fallible. Government Departments have tended to underspend, whereas last year—and probably this year—they will not underspend to anything like the same extent. Indeed, they may even overspend. We must live with that fact and take it into account when appraising the actual forecasts.

Cash limits are an effective means of controlling public expenditure when inflation is rising, but they are not an effective means of doing that when inflation has been falling rapidly. Indeed, it may be possible to have greater real resources in the public sector even though the cash limits have been reduced. My right hon. Friend the Chancellor has been right to concentrate on that point.

I want to concentrate especially on the balance between monetary and fiscal policy. My right hon. Friend said that they go hand in hand. I am far from convinced that that is necessarily so. I drew attention earlier to what I described as the Bermuda triangle between the public sector borrowing requirement, the money supply and the rate of interest. That triangle is located in the middle of the Atlantic, and we must not underestimate the great importance of the dollar-sterling exchange rate. it is slightly dangerous to say that we must reduce the public sector borrowing requirement so that we can fund it easily and bring down interest rates. We may find that we cannot bring down the rate of interest, because of the strain that might be placed upon the exchange rate, and create inflationary consequences since the effect on imports is likely to be rapid compared with any improvement in exports.

We must therefore consider to what extent and at what speed, in present international circumstances, we can usefully reduce the size of the public sector borrowing requirement. I view with rather less horror than usual the fact that the public sector borrowing requirement has overshot.

We face a difficult position because of the American Government deficit. In effect President Reagan has been presented with an American university multiple choice question: put up taxes; cut public expenditure; hope that the recovery in the American economy will produce sufficient funds to finance the deficit anyway; or none of the foregoing. We are all clear that, this side of the American presidential election, the answer is "none of the foregoing."

The implication must be that United States interest rates are likely to rise, which will create a serious problem for my right hon. Friend. He expressed the wish that the American deficit should be brought under control. Some of the suggestions about the extent to which American interest rates might rise—perhaps by two, three or four percentage points during the next year—are very worrying.

A question that I have asked on previous occasions is: what is the engine of recovery? An interesting point about my right hon. Friend's speech today, as opposed to his speech at the Mansion House a short time ago, was the dogs that did not bark in the night. We did not have a clear analysis of M3, M2 or M0" —popularly known as "Little Mo". That can be debated more easily in other parts of the House during the course of our analysis.

The crucial point, which my right hon. Friend has always made, is that the real money supply is what really matters, and that is the result of the relationship between the rate of inflation and the change in the nominal money supply. I am worried because we have seen some increase in the real money supply as the rate of inflation has fallen in relation to changes in the nominal money supply. This has given some boost to demand. However, if that process were reversed by any resurgence of inflation, we would find ourselves again bumping along the bottom of the recession. We must give further thought to how we ensure that that does not happen. Undoubtedly, further restraints on wage settlements and the achievement of non-inflationary wage settlements must be a substantial key to that.

I am a little concerned about the position set out on page 18 of the autumn statement, which is an elegantly produced document. In it we are told that investment is expected to rise by 4 per cent. and exports also by 4 per cent. between 1983 and 84. However, as my right hon. Friend pointed out in his statement the other day, the increase in domestic demand is expected to fall. We need to consider whether those estimates of investment and exports are justified. After all, such exports depend on a substantial upsurge in world trade. Clearly investment will depend on the real rate of return as against the real rate of interest. It is true, as my right hon. Friend said, that interest rates are lower than they have been for five and a half years—I think that was the time—but that is not true of the real rate of interest, bearing in mind the fall that has taken place in inflation. This may still create real problems for investment. Therefore, we should monitor carefully how the situation develops between now and the Budget next spring.

I shall not go into the question that my right hon. Friend raised of how one defines investment in the defence sector. It was an interesting new concept. If I understand it correctly, it is that all defence expenditure on armaments and so on is regarded as current expenditure. That may be somewhat pessimistic and perhaps confuses the actual relationship.

We must place greater stress on the importance of increasing investment, as against current expenditure, in the public sector. What is less readily accepted by the Opposition, but what we often assert, is that we shall increase public sector investment only if we pay less on public sector wages. The Opposition are reluctant to face that fact, but I profoundly believe, in many respects, that is the crucial factor if we are to increase investment.

Perhaps I should also mention an accounting point. It relates to whether we should have a breakdown of the extent to which public expenditure is investment, in the sense that it increases productive potential, and the extent to which public expenditure is current expenditure. I should not want to go back to the old system of above and below the line accounting. I recall my right hon. Friend the Prime Minister and I, then in opposition, trying to work out on that basis the true deficit of the then Labour Government. However, it would be useful to have some breakdown, perhaps by way of a supplementary statement, dividing public investment from current public expenditure.

We must do all we can to restore competitiveness. The extent to which our competitiveness has deteriorated since 1979, as a result of the massive wage explosion which took place following the Clegg pay settlements, has been a severe handicap. Productivity has been improving. As a result, we shall begin to restore competitiveness. However, the extent to which that will take place is clearly limited in the short term. The extent to which a fall in the exchange rate can affect competitiveness cannot possibly be on the scale that we have seen during the past couple of years. Again, therefore, we have to face the major problem of public sector pay.

Competitiveness can also be achieved by some fiscal measures. I do not share the pessimism that was perhaps implicit in the official forecast about next year's prospects, so I hope that my right hon. Friend, in preparing his Budget, will take into account the need to reduce the national insurance surcharge and to ensure that the tax burdens on British industry are reduced as far as possible.

Overall, I believe that we are right to stick to the policy and reinforce the trends that we now have. It is easy, in the face of criticism in the press and elsewhere, to say that we should perhaps make a little adjustment here and do a little trimming there. The right approach is a consistent one, and I have no doubt that the real answer lies in keeping down inflation. One cannot cure unemployment, which we all agree is appallingly bad, if we go back to the old reflationary policies of the past. We now have the foundation for future progress, but we must analyse carefully some of the highly technical problems, which in my opinion cut across party lines, rather than debate the matter at a superficial level.

5.5 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

I listened with interest to the speech of the right hon. Member for Worthing (Mr. Higgins). I agree with much of what he said about the Treasury and Civil Service Select Committee. It is a pity that we do not have the advantage of one of that Committee's splendid reports, because it would have helped the House to understand parts of the autumn statement. The work of the dedicated members of that Committee has been of great advantage to the House in the past.

Clearly, there has been some delay in setting up the Committee. Without wishing to attribute blame, or even any responsibility, I hope that those who serve on the new Treasury and Civil Service Select Committee will find that it is a valuable Committee and bear in mind the responsibility that they will have to equal the work done by the right hon. Member for Worthing, the right hon. Member for Taunton (Mr. du Cann), and other hon. Members on both sides. I hope they will come to realise that their work is to serve not the party, but the House of Commons.

Members of that Committee have the advantage of specialist advisers, which often means that they know as much as, and sometimes more than, the Chancellor of the Exchequer who comes to give evidence before them. The ability of individual hon. Members to be convinced by arguments and facts, irrespective of any judgments that they may have reached in advance, is one of the strengths of that Committee. I hope that those hon. Members who serve on it will bear in mind their heavy responsibility in carrying out the wishes of the House.

It would have been a great advantage if the Treasury and Civil Service Select Committee had examined the changes that are proposed in the speech that we heard today from the Chancellor of the Exchequer on capital and current expenditure. I find them a little puzzling. If a hospital is built I benefit from it, as do hon. Members and people in the community. It is an improvement in our standard of living, in that we are looked after there when we are sick. On the other hand, a military hospital is an expenditure under defence. It improves the defence services, and rightly so, but it is not the same as spending on a hospital in one of our constituencies. It is a pity that we did not have the advice of the Treasury and Civil Service Select Committee on that, and I hope that it will consider matters of that nature.

The hon. Member for Colne Valley (Mr. Wainwright) asked about the status of asset sales. Does that reduce the public expenditure, or does it finance it? The hon. Gentleman put a strong point. The Treasury and Civil Service Select Committee could profitably deal with this matter among the wider issues that concern it.

In preparing his autumn statement the Chancellor of the Exchequer seems to have had in mind two main principles. The first derives from Machiavelli's Prince. Broadly interpreted, that means, "Get the bad news over first, and thereafter everything that one does appears better by comaprison." All the expenditure cuts needed to come at the beginning of the right hon. Gentleman's chancellorship, all the tax increases—if any—at the commencement of his tenure, and the tax reductions and handouts were for subsequent distribution. Unfortunately for the Chancellor, he ran into difficulties with his colleagues. Although he was successful with the first bounce of the Cabinet in July, he failed, like all bad conjurors, when he tried to reproduce the trick a second time. He found himself with a higher level of public expenditure than he wished, and so he resorted to the next strategem, which was to dangle before the glazed eyes of his Cabinet colleagues the mirage of tax reduction.

Indeed, the right hon. Gentleman went further than that. He threatened the Cabinet, the House and the country with tax increases. That has proved to be his undoing. It has happened because simple people started to ask a simple question. If economic success is claimed, if things are really on the mend and if we are really coming out of the four-year tunnel, why is the Chancellor now talking about tax increases rather than tax reductions? As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, it is not as though we have not had tax increases before—according to the right hon. Gentleman's figures we have had an increase in taxation from 39 per cent. to 45 per cent. of the gross national product. That is what the Chancellor is asking us to accept in his autumn statement as a further instalment in the rising level of tax increases. It has thrown his entire strategy into doubt and confusion.

The Chancellor is in some difficulty. He cannot admit to his colleagues that he was only trying to frighten them into the public expenditure cuts that were part of his overall design. Having failed to win support from colleagues, he now tries to get the people on his side by inaugurating the national debate. I find it an interesting spectacle when a powerful Minister, failing to dominate his wayward colleagues, who can recognise a political wind when they feel it, calls for a national debate. One cannot help wondering whether such a debate would have been quite so desirable if the Chancellor had won in Cabinet.

The Chancellor said in answer to a question from the hon. Member for Wolverhampton, South-West (Mr Budgen) that he would publish a document on public expenditure. The right hon. Gentleman appeared to be in some doubt whether he had the power, the ability and the right to publish such a document. I am not sure who is stopping him, unless it is other members of the Cabinet who do not want to see a one-sided document appear. Perhaps the Chief Secretary to the Treasury will clarify this when he comes to reply, and perhaps the Financial Secretary to the Treasury will take a note to pass on to him.

What is the purpose of this national debate? It clearly has a simple objective. It is no more than to try to convince the people of this country that there should be less provision for the sick, the old and the disadvantaged, and that the jingle of money in our purses and our pockets is ample and desirable compensation. If that is what the great debate is all about we are on familiar ground, and all our political speeches of the past can be taken out of the files and once again put into active service.

It was the Chancellor of the Exchequer himself who, as Financial Secretary to the Treasury, said that public expenditure is at the heart of all our economic difficulties. That it is of great importance and difficult to control both by amount and distribution cannot be denied, but to go from there to the statement that all our troubles are due to public expenditure is to ignore the levels of expenditure in comparable industrial countries.

I do not think that the Chancellor will be any more successful with his national debate than he has been with his Cabinet colleagues. In fact, I expect him to be even less convincing with the nation at large than with Ministers fearful of displeasing a dominant Prime Minister to whom the Chancellor looks for support.

I should like now to deal with the quite brilliant performance of the previous Chancellor in engineering the pre-election spending spree. That has been the aim of almost all Chancellors since they first learnt how to exercise some control over the economy.

Mr. Tim Eggar (Enfield, North)

The right hon. Gentleman should know.

Mr. Sheldon

Tax handouts and deficit financing were the very tools of the trade. But the previous Chancellor did nothing as crude as that. Instead, hire-purchase restrictions were removed, the contingency reserve was increased, then raided, monetary targets were blurred and confused so that they could be ignored, and we had M0, M1, M2, M3, PSL1, PSL2 and so on. Few people, with the possible exception of the right hon. Member for Worthing are interested now, so confused are they about this matter. In this way the spending boom was launched and in the confusion commentators mistook spending for recovery. The result was that we had even greater imports of manufactured goods and the adverse balance in our balance of trade in manufactured goods is now about £2,500 million a year. This has been charged to that lifeline of our profligacy—North sea oil.

Paragraph 1.14 of the "Autumn Statement 1983" says that since 1976, while the domestic demand for manufactures has not changed greatly, there has been an increase of over a half in the volume of imports of manufactures and a fall in domestic supply of manufactures of nearly one quarter. That frightens us all, because manufactures are the foundation of our prosperity, or were the foundation of the prosperity that we once had. There are those who talk about the advantages of the service industries. I am happy to see profits being made to the advantage of the country from whatever industry they come, but so much of the service industries depends on manufacturing industry. If one is importing video recorders, they need insuring, transporting, financing and servicing, but the base is the manufactured product. It is not the base of all—I understand that—but it is the base of so much, and so it is always important to consider manufacturing industry.

One has only to consider what is being said in the regions of our country. The Manchester chamber of commerce and industry, the oldest chamber of commerce in the country, made its position quite clear when it said that this improvement in the economy had not hit the sectors with which it was primarily concerned. I beg the Chancellor of the Exchequer and Treasury Ministers to go to the regions to see what is happening. The trouble is that the City of London is near, while manufacturing industry is remote. Our manufacturing industry still suffers from an over-valued exchange rate, particularly as it applies to continental currencies, as my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said this afternoon in a supplementary question.

Even the CBI—and Sir Terence Beckett speaking on behalf of it—is showing dissatisfaction with the upturn about which the Government are so proudly boasting. Sir Terence talked about a bare-knuckle fight before he realised that the CBI was a semi-political institution and that there were limits to how far he would be able to speak purely for industry. He is trying to find a balance, and in so far as he finds a balance to help British industry I am happy to see it.

On Tameside, an area which I happen to represent, unemployment has risen from 5 to 16 per cent. over the past four years. A quarter of the firms in Tameside have closed. We have no regional assistance. Small firms—in my constituency all firms are small—have closed, to the disadvantage of everyone. The Chancellor of the Exchequer tells us about the millstone around the neck of enterprise and that the Government's taxation policies have removed a part of that millstone, but I see no consequence of that action in improved prosperity. Indeed, I see the reverse.

The main purpose of economic policy is prosperity for the nation. We have only to tour the country to see the lack of success. The Government have failed not only in the matter of redistribution but in bringing in any sign of prosperity. The present policies will not succeed and the Chancellor of the Exchequer should at last open his mind to those solutions which he has so far rejected.

5.20 pm

Mr. Richard Ryder (Mid-Norfolk)

In June I was privileged to be elected by the people of Mid-Norfolk, an extra constituency formed by the Boundary Commission to cater for Norfolk's expanding population. The constituency has three parents—my hon. Friends the Members for Norfolk, South-West (Sir P. Hawkins) and Norfolk, North (Mr. Howell), whose robust east Anglian dedication and independence are admired as much in the House as throughout Norfolk, and the former Member for Yarmouth, Sir Anthony Fell, whose spirit and single-mindedness are missed as much here as in Norfolk.

Whereas the old Norfolk, Central constituency, once ably represented by my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), was shaped like a polo mint around Norwich, Mid-Norfolk resembles a banana to the east, north and west of that city. The three historic market towns, Acle, Aylsham and Dereham form focal points in each direction.

My constituency proudly boasts some of the finest farmers and farm workers in Britain. Yet over the years more jobs have sprung from light industry, food processing and tourism on the unique Broads—compliments to the refreshing approaches of the Breckland and Broadland district councils, to small businesses, and to the labour force of Norfolk, which is one of the finest there is.

Thank goodness I am never allowed to overlook the fact that nearly one quarter of my electorate are old age pensioners. Many millions of pensioners have suffered over the years because the occupational pension system has been less than correct. The stayers have suffered in favour of the early leavers. That cannot be right, so I welcome the announcement yesterday by my right hon. Friend the Secretary of State for Social Services. I hope that he will be prepared to go further at some stage in this Parliament. We have plenty to learn from other countries—notably the United States. I trust that the Treasury is giving all possible support and encouragement to the Department of Health and Social Security in that direction.

However, today we are debating public spending—a subject of some interest to me in a previous incarnation. I shall allude to three points about the system rather than the substance of policy. I accept that the distinction is not always a sharp one.

First, there should be a popular debate on the options on public spending open to the Treasury and the sooner the better. Originally I questioned the desirability of Treasury involvement in that debate because so much financial information is already available to institutes and forecasters and because I doubted the wisdom of the Treasury engaging in those activities. However, without the Treasury's involvement during the summer and early autumn, a debate failed to materialise, so now its participation is essential.

If the Treasury produces a Green Paper, or something akin to one, every Cabinet Minister should be consulted in full and the parameters agreed, for in the end it serves Governments no better for Cabinet Ministers to be labelled purely as protectors of their Departments than it does for them to be categorised as prisoners. While I would not venture to prophesy the outcome of a public debate on this subject, at least the interest group auction, which is as damaging to the political fabric as the use of monopoly power, would be set in a clearer context. That can only be for the common good.

Secondly, I concede that cash limits, although not cash planning, have nearly reached their frontiers. Family practitioners and the Metropolitan police may yet, I hope, succumb. Because there is a distinction between control and forecasting, it is vital for the forecasters in the demand—determined sectors of the DHSS to improve the accuracy of their estimates. Hitherto, under the Government, they have been less than perfect, and from time to time the Ministry of Defence has been little better. The task is made no easier, I admit, when defence prices are rising faster than the rate of inflation.

Thirdly, I hope that developments in the scope of the contingency reserve will prove to be a useful additional means of controlling spending. Its extension to cover changes in estimated costs of existing commitments in the demand-led sector will be watched by many with the closest interest.

East Anglians are by nature cautious, sceptical and independent. If convinced, they can be direct. I hope that those characteristics, among others, will stand me in goodstead in the House.

5.26 pm

Mr. Richard Wainwright (Colne Valley)

It is a happy privilege to be the first to congratulate the hon. Member for Mid-Norfolk (Mr. Ryder) on a most accomplished, informative and persuasive maiden speech. I hope that we hear frequently from him in economic debates, not that I wish to suggest that his expertise is limited to them, but it is clear that he put to good use his several years as a political assistant to the Prime Minister. We shall be glad to hear more from him.

This is a particularly important debate because, as far as one can foresee, we are now entering the final period of a few years when we have the full advantage of the providential boon of North sea oil. We are coming into a period when, wisely and prudently, we should do well to look forward to Britian's means of subsistence when North sea oil is a dwindling quantity.

The auspices under which we are discussing the autumn statement are somewhat discouraging. The House will be aware that the balance of payment figures, published today, show a current account deficit of about £269 million for the month of October compared with an estimated surplus of £305 million in September. One cannot rely wholly on the figures for any one month, but those figures show, as hon. Members rightly warned, that a perilous position with regard to the balance of payments is not far off.

The launching of the medium-term financial strategy as a published document in 1979 was accompanied by great hopes, certainly in the Government, that the strategy would markedly influence expectations, especially among pay bargainers. Alas, that did not happen, partly because each succeeding objective on the money stock proved to be elusive and the chosen aggregates became more complicated and bewildering. The turn-out of the money supply figures seemed, as the months went by, to bear less relation to the actual performance of the inflation rate.

It is a sad comedown that what was intended originally to be a trumpet of the Treasury to the nation—the published strategy and the autumn review of its progress—has now dwindled to a method for the Chancellor to signal to his Cabinet colleagues and members of his party. That has emerged as the only practical use of this year's autumn review and survey—especially the threat of possible, even if modest, taxation increases next year.

The right hon. Member for Worthing (Mr. Higgins), to whom we always listen with attention, was inclined to treat a possible fiscal adjustment of £500 million as a modest item to include in such a survey. I remind him that Governments in the past have not been backward in including fiscal adjustments of only £500 million when they were favourable—when they carried the message that taxes would be coming down. For example, on the eve of the June election, the strategy was published containing, happily, a fiscal adjustment in favour of the taxpayer which was described in the budget review to take the form of lower personal taxes. Thus, when the figures are used in that way, when they are favourable, it seems only right that the bad news should be included when that is what the forecasting machine churns out.

The other danger—one of particular significance with the present Chancellor—is that all the preoccupation with unrolling the strategy from half-year to half-year can encourage the growth of obsessions. We on the Liberal Benches rank as an obsession the Chancellor's declared aim of total price stability. Neither at the Mansion House, when he first publicly used those words, nor this afternoon, did he have anything to say about the cost of such an objective. He did not qualify his objective in any way. There was no reference to the amount of suffering, deprivation or underuse of national resources that could be involved in reaching the obsessive goal of total price stability. There is plenty of price stability in the graveyard, and there is a great risk that the Chancellor's policy, if he is allowed by his colleagues to persist in it, will become a policy of the cemetery.

The Chancellor would do better, instead of spending so much of his time embellishing and shaping his strategy, to listen to the millions of people in Britain who produce our national wealth. For example, recently the CBI joined the British Institute of Management in canvassing a wide selection of managers of different age groups and at different levels of responsibility on what they wanted from the Government so that industry and commerce, business generally, should improve.

The five leading subjects that emerged from that thorough and independent canvass were, first, reducing the cost of capital; secondly, more capital spending; thirdly, cutting energy costs; fourthly, abolishing the national insurance surcharge; and, fifthly, keeping sterling from violent fluctuations. Those matters should have the attention of the House as it considers the Government's economic strategy.

As for capital expenditure, the Chancellor regaled us with the interesting thesis that if a more comprehensive accounting technique were used, lo and behold we would find that capital public spending was a great deal higher than was given credit for in the Government's appropriately coloured grey paper that we are debating. If the Chancellor is pressing for proper accountancy practice—which would be a great revolution in Government circles—and wants to bring every possible form of capital expenditure into the total, he must also use the elementary, and elsewhere basic, accounting technique of charging full depreciation and obsolescence, of which there is no trace in the document we have here before us. Indeed, outside nationalised industry, depreciation does not appear in public sector accounting.

Owing to the neglect of recent years, in the public sector many of our vital national assets, if properly depreciated in the books and statements, would stand at practically nothing. For example, our water supply, which leaks about as much water as reaches the nation's taps, would stand in the books, if written down for depreciation and obsolescence, at practically nothing. The same would be true of a great mileage of branch railway tracks, which can be used only at a snail's pace because they have been allowed to become so unserviceable. I could cite many other examples, as could all hon. Members. It is important that the nation should be made aware of the appalling degree to which some of our prime public assets have been allowed to become obsolete and shoddy.

Net public sector investment in assets other than dwellings was virtually nil in 1982 and was not much more than nil in 1983. As a result, there is an appalling degree of unused capacity in many of our capital goods industries. Hon. Members may have seen recently in the Financial Times the latest quarterly civil engineering work load survey by the Federation of Civil Engineering Contractors. That revealed that no less than 43 per cent. reported low order books, that 41 per cent. were employing fewer workers than a year ago, and that only one quarter of civil engineering contractors had more orders than a year ago. Only 6 per cent. of them expected an improving trend in new orders in the next 12 months..

Mr. Robert B. Jones (Hertfordshire, West)

I worked for that federation before coming here. Is the hon. Gentleman aware that it has all along been a strong supporter of the Government's economic policies and has wanted merely a transfer of current expenditure into capital expenditure, which I support and which, I should have thought, the hon. Gentleman would support.

Mr. Wainwright

I am aware of the views of the federation, which sometimes shares its wisdom with the Liberal party, as the hon. Gentleman may recollect. I am more interested in the reported state of the industry than in its economic foibles or persuasions, and I guess that among civil engineers there are as many political opinions as there are engineers. The federation is not a political body.

The diligent maintenance of capital assets in Britain has been and continues to be grossly neglected. For example, we learn from recently published figures—alas, there are no figures later than 1981—that total capital investment as a percentage of GDP in the United Kingdom in 1981 was 16 per cent., whereas in France it was 21 per cent.; in West Germany, 22 per cent.; and, as one might expect, 31 per cent. in Japan. We are not replenishing the seedcorn and we are not dealing fairly with the younger generation, who will not thank us for inheriting clapped-out vital national assets.

The British Institute of Management and CBI survey has proposed reduced energy costs. As hon. Members know, the electricity undertakings are now required—it is all in the grey book—to make a massively increased contribution to the Exchequer. Although the Government have not yet declared that that means an increase in electricity charges, it is difficult to imagine how that can be avoided.

Will the Minister, in reply, tell the House how far the Treasury investigated what would happen to electricity prices when it fixed on the precise increase in the contribution required from the electricity undertakings to the Exchequer? Has it discovered the implications of the figures for industry and domestic users, or has it plucked figures from the air and left the electricity undertakings to do the best they can. As is well known, some of our most vital and largest industries—chemicals, steel, man-made fibres, paper and so on—are intensive users of electricity. They claimed recently that on average they have to pay 20 per cent. more for electricity than their European competitors. That would be aggravated if the new Exchequer contribution has its almost inevitable effect.

A further requirement by the managers of industry was for a more stable exchange rate. I believe, as my constituency is a prime exporter of many manufactured goods as well as services, that exporting businesses have two requirements of the sterling exchange rate. First, the Government must take the exchange rate fully into account, as well as the monetary aggregates, when they frame their fiscal and monetary policies. I hope that before the debate concludes we shall have a clear indication from the Government that they will do just that, as the grey book makes no reference to it. I do not ask the Government publicly to set a target exchange rate, but I believe that industry, especially exporters, wants a clear indication that the exchange rate is one of the considerations that the Government have continually in mind when framing their monetary policy.

The second requirement is that there should be greater stability of the exchange rate. The Liberal party has long maintained that to help to achieve stability, Britain should join the exchange rate mechanism of the European monetary system. I had hoped that reference might have been made not to an immediate entry, but to an early consideration of entry in the Government's autumn review, especially in view of the pound's current value. It is interesting that only 10 days ago the other place had a debate on the report of Lord O'Brien's committee on the exchange rate mechanism of the EMS. The committee, comprising 10 of their Lordships, was unanimous in recommending early, if not immediate, entry into the exchange rate mechanism. Apart from the Minister who responded, only one speaker during their debate queried that unanimous recommendation.

Much has been said about interest rates, with which I thoroughly agree. We cannot expect industry to invest on the scale that will bring real recovery as long as it is at an interest rate disadvantage of about 40 per cent. compared with West Germany—on average, interest rates in West Germany are 40 per cent. less than ours—and at an even greater disadvantage compared with our Japanese competitors. Real interest rates in this country remain so high that only the boldest spirits would dream of chancing their arm with massive investment.

The British Institute of Management survey proposed the abolition of the national insurance surcharge. That fact has been so consistently urged by the Liberal party and other hon. Members that I shall not weary the House with that well-worn theme, except to repeat it as strongly as I can.

The autumn statement gives little overall encouragement to business. Certain unsupported statements have been made that, miraculously, there is to be great turn round in Britain's export performance—and a mighty turn round it will have to be if the figures just released for October 1983 are anything to go by. We heard nothing from the Chancellor in support of the claim that we will have an export-led boom next year.

Housing benefits are the principal proposed social service cuts. The Liberal party considers that for this cut to be imposed at the present time is perverse. Hon. Members appreciate that the cut means that a married couple, with two children of school age paying rent and rates of £21.45 a week and earning 73 per cent. of average earnings, will have their housing benefit reduced next year from the present figure of £4.68 a week to £1.48. That is not all. That group has suffered already. The figure of £4.68 a week, arrived at in April, meant a cut from the previous figure of £6.14 a week. To reduce support to people who earn only three quarters of average earnings, in the space of 12 months, from £6.14 a week to £1.48 a week, seems cruel and discriminatory. It also greatly aggravates the poverty trap which many Conservative Members sincerely say that they wish to mitigate.

The effect of the proposed housing benefit cuts will mean that about 2 million households will face an effective marginal rate of 79 per cent. in taxes incurred and benefits lost when they have a pay increase. The most horrific figure which is vouched for by the Child Poverty Action Group—that organisation has a good reputation in this sphere—is that such a family, if claiming family income supplement, could find itself, as a result of a pay increase, facing a marginal rate of tax and loss of benefits of no less than 109 per cent. To single out housing benefits for cuts is a vicious way to proceed, having regard to the fact that this benefit had already been cut a few months ago.

I refer hon. Members to the amendment on the Order Paper in the names of Liberal and Social Democratic Members. Although it is not to be put to the vote, I commend the spirit of it to the House.

5.49 pm

Sir Ian Gilmour (Chesham and Amersham)

I join the hon. Member for Colne Valley (Mr. Wainwright) in congratulating my hon. Friend the Member for Mid-Norfolk (Mr. Ryder) on his maiden speech, which was exceptionally stylish, thoughtful and competent. In my experience, the description that he gave of his constituency is accurate, and I think that his speech showed that he also has those virtues.

Like my right hon. Friend the Member for Worthing (Mr. Higgins), I think that my right hon. Friend the Chancellor of the Exchequer was very unfairly criticised by much of the press for his autumn statement. A savage attack on public expenditure was inconceivable and it would have been quite unconscionable to reduce unemployment benefit. Indeed, I congratulate the Chancellor and the Government on paying attention to those in the Conservative party in the House and outside who made it clear that they would not, or could not, support such a policy.

The absence of a positive and accepted strategy for substantially lowering unemployment is still the weakest point in the Government's economic policy. The Government have always maintained that no Government can affect real demand and employment by demand management. They believe that any attempt to do so would not, except in the very short term, be effective in reducing unemployment and would merely increase inflation. However, I have taken the view that there could not be a significant and sustained recovery until the Government's very tight fiscal stance was loosened. As the Chancellor of the Exchequer pointed out, during the past year there has been a most welcome, if still modest rise in output. It has not been enough to reduce unemployment, which has increased by more than 200,000 in the past year. Nevertheless, the rise is plainly there.

Consequently, I am forced to consider the basis of my position. If the economy were to grow—not just for one more year, but for several years—at 2.5 or 3 per cent., and if it were to do so without a fiscal stimulus and without a balance of payments constraint emerging, a good many people, including me, would be proved wrong. Such a growth rate would not reduce unemployment, and that should be our principal objective. However, even so, I would have to consider myself confuted.

Nevertheless, the events of the past year—relatively encouraging though they are—do not, I believe, constitute a refutation of what I have been saying. I shall give the reasons for that. The figures in the autumn statement show that the expansion consisted very largely of increases in personal and Government consumption. Personal consumption rose by 3.5 per cent.—a large increase by historic standards—contributing about 2.25 of the 2.75 per cent. growth in the economy. That rise in consumption, on the Treasury's own analysis, took place without much of a rise in real disposable income, which means that it has been crucially dependent on a decline in personal savings, which has, in turn, been mainly caused by a huge increase in net personal borrowing.

But it was not only personal consumption that rose. Rather more surprisingly, Government expenditure rose much more than forecast in the Budget and much more than normal. Between 1982 and 1983, it rose by 2.5 per cent., compared with 1.5 per cent. per annum on average over the past 20 years.

Indeed, close inspection of the tables of the autumn statement in conjunction with those in the financial statement and Budget report reveal that, for all the propaganda, there has, over the two years 1981–82 and 1983–84, been a significant fiscal expansion by the back door, if that metaphor can be permitted. Table 1.9 gives estimates of Government expenditure for the years 1982–83 and 1983–84. But of course those figures do not measure the contribution to real demand properly, because asset sales have been deducted from them. If asset sales are added back, it can be inferred that Government expenditure after all the cuts is estimated to rise by 4 per cent. in real terms over the two years 1981–82 to 1983–84. But even that, I understand, is an under-estimate because an administrative change occurred within that period. About £1 billion-worth of benefits relating to sickness and housing were transferred from being a positive item of expenditure to being a negative item on the receipt side of the account. That is a device to which the Treasury and Civil Service Committee drew attention in its February 1983 report.

That change of classification means that the only fair way to measure the Government's fiscal stance is first to add back all asset sales, and then to look at the expenditure figures simultaneously with the figures for taxes and other receipts. Once that is done, one sees that not only has there been a quite large increase in Government expenditure over the two years, but that taxes and other receipts have been falling, when expressed as a proportion of national income.

Therefore, before the Chancellor of the Exchequer's taunts of the 364 economists and other objects of derision get out of hand, he would do well to consider that, apart from the rather foolhardy decision to remove hire purchase controls last July, there has been a perceptible fiscal U-turn already. Thus, the growth of the past year or so has, to a significant extent, been caused by a change in fiscal policy as well as by the removal of hire purchase controls.

If my right hon. Friend the Chancellor and the Government prefer to do good by stealth and promote a fiscal expansion while talking about the dangers of so doing, that is very much better than the Chancellor practising what he preaches. It would be best to have good rhetoric and good actions. But if we cannot have both, I would willingly settle for the good actions and ignore the bad rhetoric.

So much for the past. What will happen in 1984 and beyond? The Treasury has given its forecasts, and we all hope that they are right, but as the forecasts are accompanied by little argument, it is difficult to know where so much growth is coming from. We are told that the economy is moving up, but the explanation of that is like saying that the cause of high winds is a hurricane in Jamaica. So all we can do is to make calculations based on the Treasury's forecasts, and raise a few brief queries.

Two things stand out like sore thumbs. Personal consumption is said to be going to rise again by a relatively large amount—enough to contribute 1.5 per cent. to the forecast overall growth of 2.75 per cent. in the economy. Yet the two factors that are said to have generated growth this year—a rise in net borrowing, and the reduced need for consumers to maintain the real value of their financial assets because of lower inflation—are obviously not likely to be repeated.

However, the sorer of the two thumbs is the forecast trade performance. Our current balance of payments will have declined, as has been pointed out, by nearly £5 billion between 1982 and 1983, or by £6 billion to £6.5 billion if oil is excluded, bringing us within sight of an overall balance of payments constraint even though we have a surplus on oil trade of about £6 billion. That deterioration is not a one-off freak, but the continuation of an established trend. I do not make too much of today's figures, because we all know that it is a mistake to pay too much attention to any one month's figures.

However, the Treasury forecast implies, and indeed is crucially dependent upon, a drastic change in that trend, or on a mighty turn round, as the hon. Member for Colne Valley put it. As it expects the oil supply to have reached its peak, there is an implied change of trend in non-oil trade of about £4 billion a year. If that does not occur, and if, for instance, the adverse trend continues at the same rate as this year, we shall not see the forecast growth and, secondly, we shall face a substantial and growing deficit in our current balance of payments, which will become a constraint on any further growth after 1984.

There is clearly more chance of avoiding a balance of payments constraint if an expansion of public investment—which in company with many other people, I have been advocating for some time—takes over from a consumer boom which is highly import-intensive.

We need to concentrate on the final objectives of economic policy—jobs, prices, growth and output—instead of the generally irrelevant intermediate objectives such as MO, M3 and the PSBR. The PSBR, uncorrected for inflation, unemployment and asset sales, is a meaningless figure. Only if we concentrate on the final objectives can we prepare for some unpleasant possibilities in 1985 and 1986. We must all hope that the Chancellor's optimism turns out to be justified, even if, for some of us, that hope is strongly tinged with trepidation.

My right hon. Friend the Chancellor of the Exchequer used to be sceptical about economic forecasts in general. It would be well if he were a little sceptical about his own or the Treasury's forecasts. If he is wrong, unemployment will not fall and our trade performance will become increasingly worrying. I hope that my right hon. Friend has some contingency plans up his sleeve. The pressing need is to help industry by reducing its costs and by improving the country's infrastructure. The other, no less pressing, need is to lower unemployment so that our human and material capital is preserved.

6.1 pm

Mr. Brynmor John (Pontypridd)

As a fellow born-again Back Bencher, I join the right hon. Member for Chesham and Amersham (Sir I. Gilmour), in congratulating the hon. Member for Mid-Norfolk (Mr. Ryder) on his maiden speech. A maiden speech should have three qualities. It should be fluent and confident, as the hon. Gentleman's speech certainly was, and it should contain at least one novel idea that catches the audience short and makes it gasp. His theory linking the occupational pensions scandal with the over-generous endowment of early leavers certainly did that. I look forward to hearing from him in the future if only to debate that matter at far greater length than we can today.

The Chancellor's speech was full of concepts and theories but, apart from, in passing, calling the unemployed a class in his theoretical way, it lacked a sense of being directed to those for whom the economy is designed—the people of this country. We had no measure of the likely effect that the autumn statement would have on them.

I shall concentrate on the social security aspects. Perhaps it would have been better if they had all been lumped together and debated on one day, because this matter would certainly deserve such attention. The Opposition motion that was debated last night was linked to retirement pensioners. They are certainly one class of people who are affected by this measure. The unemployed, the sick and the disabled—many millions of our fellow countrymen—who must also face a winter in which their benefit is uprated by 3.7 per cent. when inflation is increasing by 5 per cent., are also affected.

The second group of people affected by the autumn statement are those in work, because they are affected by the changes in the housing benefit and the national insurance contribution. All those groups have a right to have their cases laid before the House with as much pressure and firmness as those of retired people. I hope that in future debates of this kind all the social security aspects will be debated together.

The autumn social security package began with a boast by the Government that the national insurance contribution rate would remain at 9 per cent. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) was challenged to say in how many ways the Government had defaulted on their obligations. When the Government took office in 1979, the national insurance contribution rate was 6.5 per cent., so there has been a 40 per cent. increase since the Conservatives came to office. In the same period the Exchequer contribution to the national insurance fund has been reduced from 18 per cent. to 13 per cent., and the Government now propose to reduce it to 11 per cent.

The Government Actuary's report states that the net contribution of income to the national insurance fund will rise by £151 million next year, which will call for a further Treasury subvention of £20 million. If there is any truth in the Chancellor's statement to The Times this morning and his dark hints during the past few weeks that a greater strain is about to be imposed on our social security system by the demographic needs of future generations, it might be thought that a further subvention of £20 million would be financial prudence. It might be argued that the Chancellor would not like to give any more money. Page 6 of the Government Actuary's report shows that the Government are proposing to save not just the extra £20 million that would otherwise have been spent but £459 million. That is the purpose of the 2 per cent cut.

What is the reason for cutting £459 million from the Exchequer contribution? Is it to be put into the great maw of the Treasury to be laundered in pursuit of some useless theory which the Chancellor will hold for the next six months and abandon thereafter? On the same basis as a child puts money into a piggy bank and dreams of becoming a millionaire, is this money to be a minute contribution to the next tax-cutting exercise? If the sum which is taken back by cutting the Government contribution to the national insurance scheme were pledged to housing, there would be more than enough funds to stop any cut in housing benefits and thus to stop any greater harm occurring to more than 6 million homes.

If the Chancellor were serious about cutting tax now, as opposed to cutting tax in a future Budget at some more propitious time, the amount that he has taken back from the Treasury contribution would finance a reduction in the national insurance contribution rate of both employers and employees. National insurance is one of the most regressive taxation systems. If the Chancellor were serious he would use that money to finance such a cut in a practical way.

The second part of the national insurance contribution to which the Chancellor referred concerns the upper and lower income limits. The lower limit is tied to pensions, which are raised only in line with prices and have now been increased from £32.50 to £34. Anyone who earns less than that is exempt from national insurance contributions. A consequence of tying pensions to prices is that the lower income level increases at a lesser rate than average earnings. The Government Actuary's report assumes that wages will rise by 7 per cent. in the coming year. Tying the lower income limit to prices rather than earnings has a curious, sad and harmful effect. More poor people at lower income levels are brought into the national insurance contribution scheme than would have been the case if the lower income limit had been tied to earnings. In that way, poorer people must pay a tax on their income.

The Chancellor talked about disincentives and incentives, but he was talking about the very rich. What could be more of a disincentive to people working part time than knowing that if their earnings increase above £34 a week they will pay 9 per cent. in national insurance contributions, not just on the excess above £34 but on the whole of their income? If the Chancellor is serious about disincentives, he should consider the lower income limit.

With regard to the upper earnings limit, the Government Actuary's report shows that there is now a rising surplus in the national insurance fund, which currently stands at £4.5 billion. That proves that the national insurance scheme has been used in the past few years as a milch cow to gather revenue for the Treasury. The Government, however, are in a dilemma. When we ask them to improve social services or the quality of benefit, they say that they have no money with which to do that and constantly challenge us to tell them where the money is to come from.

I ask the Chief Secretary to consider the following proposition. A person earning more than £250 per week or £13,000 per year is totally exempt from national insurance contributions on every pound that he earns above £13,000 per year. The Government try to justify that on grounds relating to benefits, but benefits can be removed extremely quickly, as we saw with earnings-related benefit, so I do not accept that the £13,000 upper limit is sacrosanct. If the Chancellor wants extra revenue, instead of seeking mean economies from relatively poor people and their families, he should consider that potential source of revenue. Let it not be said that it would produce a piffling few million pounds. The Government have stated in a parliamentary answer that the abolition of the upper earnings limit would yield £1,140 million in 1983–84 and considerably more in a full year.

If the choice is between cutting housing benefits for people of relatively modest means or making people earning more than £13,000 pay national insurance contributions on their entire income, as most of us de, let us raise the revenue from those earning more than £13,000 per year and use it to maintain the standard of services for people on housing benefit and sickness benefit and to restore the 5 per cent. cut in invalidity benefit which was supposed to reflect a taxation benefit that is disappearing ever further over the horizon.

The Treasury has been clever in just one respect. It was clever to choose housing benefit as the sacrificial lamb because very few Members of Parliament understand the scheme. I hasten to add that I do not profess to be an expert on it myself. Almost no one outside understands it. Morever, if The Times of 23 November is to be believed, the Cabinet itself did not understand the consequences of the revenue changes involved in the housing benefit package. In the absence of the Prime Minister, the Cabinet members are showing a bravery and loquacity which will no doubt be quelled on her return.

People eligible for housing benefit were first bewildered by its complexity and then stunned by the bureaucratic shambles that accompanied its implementation. It came into operation in two parts. For those who had all their rent paid it came into force last November, but for those who had only part of their rent paid it came into force in April. The overwhelming majority of people entitled to have part of their rent paid lost benefit, compared with previous schemes, when this scheme was introduced. More than 2.5 million householders lost on the deal, more than 2 million of them as a result of the tapers—the rate of withdrawal of benefit as a person goes from eligibility to non-eligibility.

If those people thought that they were unlucky last April, they will see from the autumn statement that that was merely a warm-up bout for the Chancellor's next set of proposals. The selfsame 2.5 million people who were punished last April are to suffer further cuts from next April. In the rent element they will lose a further 10p for every pound that they earn above the needs allowance, In the rates element they will lose a further 2p in the pound. As a result of the Chancellor's statement last Thursday, dreary though it may have seemed to us and interesting though it may have been to the international exchanges, it is estimated that 500,000 households will lose their entitlement to have any part of their rent paid. The Chancellor did not see fit to elaborate on that today, but it is part of the real world in which we live and of the real hardship that he is inflicting on the people of this country.

The Chancellor has not stopped there. He has begun to penalise non-householders. In April, 16 and 17-year-olds were deprived of the £3.10 non-householder rent allowance so that they could no longer devote that money to helping their parents to keep and house them. That penalty is now being extended to the 18 to 20-year-olds. The Government spasmodically profess to be devoted to the concept of family life, but there can be nothing more redolent of tension in the family than a system under which working parents must pay more rent every week, only to find when they turn to non-dependent sons and daughters living at home—18 and 19-year-olds who are adults in their own right—that their children's allowance has been cut and they cannot afford to make their contribution. That is an undesirable extension of parental responsibility for people who regard themselves and should be encouraged to regard themselves as adults and it will cause great family tension.

We have heard a great deal about the 5 per cent. and 3 per cent. fuel price increases. The hon. Member for Colne Valley (Mr. Wainwright) asked about the effect on the electricity industry. I am more interested to know whether any study was made of the effect on pensioners—the sick, the disabled and the elderly. Those people have one thing in common. They are all less able than other households to manage with average heating and they all spend a greater proportion of their weekly income on heating. Was there a study of the effect on those people if the increases were passed on to them, and if so, what was the result?

The Government have created a fuel poverty trap. Cold but solvent or warm but broke will be the choice for many hundreds of thousands this winter, and the Government must give the House some answers today. The Chancellor's statement was bleak, inhuman and arid Today he settled into a different mode. He merely spoke like a robot. There is, however, no sacrifice that he will not encourage others to make. Whatever economic and social distress may result, he will keep on keeping on in pursuit of the hopeless dogmas with which he has saddled the country.

When the Chancellor talks about reviewing the social security system, he does not mean considering the suggestions of the Social Security Advisory Committee to improve the system and make good some of its shortcomings. What he means is the prelude to even more senseless sacrifice. He is appalled at having to face the revenue consequences of his own hopeless financial mismanagement. He is the Field-Marshal Haig of economics. Like a down-market Field-Marshal Haig, he is making a social and economic wasteland of this country and calling it a victory.

6.21 pm

Mr. Peter Lilley (St. Albans)

You may recall, Mr. Deputy Speaker, that this Parliament began its deliberations on an auspicious day for my constituency—St. Alban's day. I was tempted to use that as an excuse to catch Mr. Speaker's eye, but I felt that it would be presumptuous to do so at such an early stage unless I was incredibly brief. So I enquired what was the briefest maiden speech ever delivered.

It was not the brilliant and punchy speech delivered earlier today by my hon. Friend for Mid-Norfolk (Mr. Ryder). It was a speech delivered in the prohibition era of the 1920s when Lady Astor was trying to convince the House that we, too, should banish the demon drink. It was delivered by a Labour Member who represented a mining constituency. It is said that he was so incensed by that outrageous idea that he leapt to his feet, caught Mr. Speaker's eye, and, with commendable brevity, uttered the words, "No bloody beer, no bloody coal."

I could not match that succinctness and still do justice to my constituency and to my predecessor. But I assure the House that even if I shall not be the first and briefest maiden speaker, I shall not be the last and longest.

My constituency comprises the town of Harpenden and the villages of Colney Heath, Redbourn and Sandridge as well as the city of St. Albans. The Boundary Commission did not do us much damage, but neither did it, as I had hoped, extend the boundaries slightly to the north to include the village of Lilley where my tribe originated. It did, however, give me the village of Colney Heath, which was formerly represented by my right hon. Friend the Member for Hertsmere (Mr. Parkinson), the value of whose work there is warmly recognised by those whose interests I now serve.

The rest of the constituency was represented for 23 years by Sir Victor Goodhew. It will be no surprise to Sir Victor's many friends in this House, who remember the distinction with which he served here, to know that I meet countless people in the constituency who express their gratitude for his work on their behalf during that long period. His is a daunting record to follow, but it is a great privilege to represent this ancient seat.

St. Albans has an inspiring Christian heritage. It gave this country its first English martyr, its only English pope and its current Archbishop of Canterbury. St. Albans has been associated with many famous historical figures, including Matthew Paris—not my hon. Friend the Member for Derbyshire, West (Mr. Parris) but the medieval historian—Francis Bacon and some formidable women including Boadicea, who sacked the city, Nell Gwyn who gave us a duke, and Sarah Jennings, Duchess of Marlborough, who manipulated the country from St. Albans.

My constituents share my pride in the historic origins of the constituency. They are determined to uphold not only the historic character of the city but the beauty of its buildings and of the villages and countryside. The one thing that unites the inhabitants of the sometimes disparate settlements is their desire to remain separated from each other by a stretch of green belt. There will be a universal welcome in my constituency for the news that my right hon. Friend the Secretary of State for the Environment is to allay fears that the sanctity of the green belt might be threatened by his recent circular.

The Government were elected to subject all aspects of public expenditure to stringent scrutiny. I want to uphold the tradition that one does not make partisan or party political points in a maiden speech. So I wish to suggest that we should apply this rigorous scrutiny not only to those areas where we are said to be "hard-hearted"—for instance, the social services—but to those areas in which we are said to be a "soft touch"—agriculture, defence, and our gross contribution to the European budget.

I congratulate the Chancellor on restricting total public expenditure to the levels previously planned. I could not help noting, however, that the largest increase above the previous plans is in agriculture—a difference of £422 million in the intervention fund for agricultural support. We cannot blame that increase entirely on the European Community. We have some discretion over the amount spent on agriculture in this country through the way in which we influence the price settlement in the EC and manipulate the green pound. I hope that in future we will apply stringent criteria and prevent overruns.

My eye was also struck by the continuing 3 per cent. growth in defence expenditure. I welcome the fact that the commitment to 3 per cent. growth will end in 1985–86. The 3 per cent. figure was a purely arbitrary one designed primarily to encourage other states which were not pulling their weight although we were doing so. With the expansion in the defence budget that we have achieved there will be scope to fulfil our obligations and enable my constituents, many of whom work in the defence industries, to earn a satisfactory living and to contribute to the defence of the realm.

It is not easy to identify, in the autumn statement, our gross contribution to the European budget. I fear that some deal may be clone in Athens to augment our contribution to the budget and to increase the own resources of the European Community. When my hon. Friend the Member for Beaconsfield (Mr. Smith) referred to the contingency reserve, I feared that the size of the contingency reserve might be a recognition of the contingency that we might make such a settlement. I hope that it is not.

I am not opposed to our membership of the Community. I have always been a passionate supporter of membership. During the referendum campaign I supported our continued membership of Europe. Perhaps I ought to declare an interest. It was during that campaign that I met the young lady who is now my wife. She was the local secretary of the European movement. Together with the farmers and the bureaucrats in Brussels, I have "done rather well out of Europe".

If we are serious about controlling public expenditure, we must control it not only at home but in our contribution to the European Community. It would not be easy for me to tell the 4,000 health workers in my constituency that we have to blight their job prospects in order to preserve the jobs of inefficient farmers in France. I cannot go to the teachers in my constituency and say, "I am terribly sorry, but there are no extra resources to deal with falling rolls because we have to finance an olive oil lake in Greece." I cannot go to the defence workers and say, "I am sorry, I supported an end to the commitment for an ever-growing 3 per cent. expenditure on defence, but I am prepared to see an increase in the European budget which would have the effect of increasing expenditure by more than 3 per cent."

I am fairly convinced that the Government and my right hon. Friends, by imposing certain conditions, will prevent agreement to such as increase in the own resources of the European budget. However, I find the Government's conditions slightly puzzling. They say that we might agree to an increase in own resources if the EC gets its act together and controls the agricultural policy. I find that a little hard to justify, because the matter is simple. The EC wants extra money to spend on agriculture. If we give it the extra money, it will spend the bulk on agriculture. If we do not give it the money, it will not be able to spend it on agriculture and will be obliged to reform the common agricultural policy. If it does that we shall not need to give it any more money. Quod erat demonstrandum. I hope my right hon. Friends will take note that there is a deep feeling that this expenditure would be contrary to the broad thrust of our policy, so admirably achieved, and outlined in the autumn statement. I hope they recognise that they will have the wholehearted support of the House if they resist any increase in this area of public expenditure.

I am grateful to the House for its forbearance.

6.31 pm

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

We have just heard a delightful maiden speech from the hon. Member for St. Albans (Mr. Utley), who represents a delightful part of the country. I know it well because until a few months ago I lived a few miles from St. Albans. Whether it was going to tea with the once-Bishop of St. Albans or simply having a walk around the hon. Gentleman's constituency, it was always a great pleasure. The then Bishop of St. Albans, as the hon. Gentleman said, has become Archbishop of Canterbury. If the hon. Gentleman rises as high in politics as Dr. Runcie has in the Church, we shall wish him well on his way. If he does not, we shall look forward to hearing him speak on future occasions.

We heard an extraordinary, brief but impressive speech from the right hon. Member for Chesham and Amersham (Sir Ian Gilmour). It was a powerful and eloquent indictment of Government policy. Even as he spoke, I recalled a speech made outside the House a few weeks ago by the right hon. Member for Chelmsford (Mr. St. JohnStevas). He spoke about the poisonous cloud of ideologues and theoreticians hovering around Downing street whose exaggerated and brutal ideas masquerade as radicalism rather than the mere reactionaries that they are. I hope that those two right hon. Gentlemen will join us in the Lobby tonight. Even if they do not, I sincerely hope that they all keep up their powerful arguments against Government policy and that the Chancellor, even if he will not listen to us, will begin to listen to them.

Such is this life—we all know in the House, that venom can be found in lovers' tiffs rather than in the arguments that exist between enemies—that I shall be much kinder to the Chancellor than the two right hon. Gentlemen whom I have mentioned.

We were all deeply moved and rather saddened to hear the Chancellor say recently that such was the age of penance and penury introduced by the Government that even he could no longer enjoy some of the creature comforts that he once did. Listening to him today, my mind was cast back to an earlier age of penance and penury which induced Cromwell to write to the General Assembly of the Church of Scotland. Dated 3 August 1650, his letter could equally well have been addressed to the Chancellor today, beginning as it did: I beseech you in the bowels of Christ, think it possible you may be mistaken. Every time the Chancellor speaks he seems determined to reiterate the superstitions of malevolent economists which surfaced first in this country in the 18th century and took hold of people's minds in the 19th century. There is so little of substance of his own in what the Chancellor said that one recalls the description by Keynes of Lloyd George when he referred to him as both vampire and medium in one. The Chancellor seeks to hide the coruscating effect of his policy and that creates a problem for the Opposition because, at any given time, we are never quite sure which of the ancient superstitions is being propagated by Conservative Members. In 1979 the superstition was that targets for sterling M3 could be achieved by reducing the PSBR, although there is no link between sterling M3 and the PSBR. M3 is beyond the control of Governments not prepared to manipulate interest rates which banks pay relative to market interest rates.

We were then told that salvation could be achieved by controlling the monetary aggregates through the exchange rates. We are now told by the right hon. Member for Worthing (Mr. Higgins) that the problem lies in the relationship between the monetary aggregates and the rate of inflation. If the Select Committee on the Treasury and Civil Service is ever set up, no doubt we can debate some of those points. However, that is not the real problem, which is the Government's adherence to voodoo and the Chancellor's incompetence. The monetarist experiment has failed.

I thought that it was summed up by the eloquent mathematics and precise words of Buiter and Millar who wrote an extraordinarily perceptive article in the Brookings Institute paper on economic activity. I see the Chancellor smile, and I dare say he will get his Chief Secretary to refer to it when he replies. It concluded: If monetarism was seen as a way to cure inflation at minimum cost, it has not succeeded. In developing those themes in the autumn statement, we have seen economics lacking in principle, heart and substance. The autumn statement is all of those things because it refuses to address itself to the long-term problems of efficiency, production and living standards. Even worse, what is wrong with the old economics made new, which is contained in the statement, is the way in which it characterises failure as success, and the way in which the old economics refuses to accept empirical evidence which contradicts and destroys the theoretical basis of the Chancellor's arguments.

I want to examine for a few moments the economics of success as defined by the Chancellor. Where better to start than with tax reductions, about which the Government made so many big promises. If we study Government revenue from taxation and national insurance contributions, we see that in 1978–79 it was 34.1 per cent. of GDP at market prices, in 1979–80, 35.4 per cent., in 1980–81, 36.4 per cent., in 1981–82, 39.3 per cent., and in 1982–83, 38.7 per cent. Even if we return to the forecast in the autumn statement for 1983–84 and 1984–85—page 16 of that document—at the end of 1985 the figure will still be 38.4 per cent. To describe that colossal increase in the burden of taxation as "success" is surely to carry lexical malevolence beyond the point of credulity.

Perhaps the Chancellor can claim success with manufacturing output and trade. It is true that he has just succeeded in having this country included in the "Guinness Book of Records". For the first time in recorded history our manufacturing account on finished goods is in deficit. Success cannot really be about that. Perhaps the Chancellor claims the index of manufacturing output as success. I have studied that index from various countries in the advanced industrial world for the second quarter of 1979 and compared it with the index for the latest three-month period. In Denmark the index rose by 8 per cent.; in the United States of America and Belgium it was down by 2 per cent.; in Italy, the Netherlands and West Germany it was down by 3 per cent.; in France it was down by 4 per cent.; and in Great Britain it was down by 15 per cent.

That means that the British performance is three, four and five times worse than that of our principal competitors. Only a political ruffian would dare come to the House and describe that as success. Is it any wonder that only last Sunday The Sunday Times, which is under instructions not to attack the Government, said in its editorial that it was time the Chancellor stopped prattling on about the monetary aggregates and the public sector borrowing requirement and looked at what was happening on the shop floor?

Is it any wonder that The Observer accused the Chancellor of indulging in the economics of the white rabbit? Is it any wonder that a Treasury and Civil Service Select Committee said that a great part of the recession had been induced by the Government? Is it any wonder that economists from London to Washington are complaining that the Chancellor's timeless communion with theory which is unrelated to action, consequence or achievement, is making him a laughing stock and Britain a country to be pitied as it bleeds from wounds that have been imposed upon it by its own Government?

The figures for manufacturing output show that Britain is not the innocent victim of an international recession. The unemployment figures show precisely the same thing. In August this year unemployment in Britain stood at 12.8 per cent. In Italy it was 10.3 per cent., in the United States 9.4 per cent., in France 8.1 per cent. and in Germany 7.7 per cent. Even an examination of the rate of change in unemployment since 1979 reveals that only one country—Germany—has suffered a more rapid increase in unemployment than Britain.

Comparison of unemployment figures for the three months ending in June 1979 and the three months ending in August 1983 reveals that unemployment in Italy inreased by 43 per cent. whereas in France it increased by 51 per cent., in Belgium by 77 per cent., in the United States by 81 per cent. and in the United Kingdom by 137 per cent. Only Germany suffered a bigger increase, at 167 per cent. Behind those figures lies a potential social explosion.

The same is true of the figures for long-term unemployment—those who have been out of work for 52 weeks or more. In October 1979, 357,000 people had been unemployed in Britain for more than 52 weeks. In October 1980 that had increased to 401,000. In October 1981 it had increased to 515,000 and in October 1982 it had increased again to 1,169,000. After that, comparisons became impossible because the Government began to fiddle the figures by changing the basis on which unemployment was calculated. However, on the new method of calculation, long-term unemployment reached 589,000 in October 1982 and 1,142,000 in October 1983. The figures for long-term unemployment have gone up and up. Next year they will go up again. the Chancellor, sitting back smugly and doing nothing about that, is the biggest disgrace of this debate. Only a Chancellor who is backward and deficient as a politician and as a human being would have the complacency that we witnessed at the Dispatch Box today.

Perhaps the successes are to be found in rises in real income. Britain has 9 million pensioners. We heard yesterday that their rise in real income has averaged less than 1 per cent. per annum since the Government took power. That should be compared with a rise of 4 per cent. per annum under the Labour Government. We have 3 million people out of work, 2 million of whom have become unemployed since the Government took power. For them, the difference between what they earned and what they get in unemployment benefit can be as much as 50 per cent. Even if we take the example of wage earners—this is the Chancellor's great claim to success—we find that modest and sensible fiscal policies such as those which the right hon. Member for Chesham and Amersham suggested so eloquently would have doubled take-home pay in the past four years.

Where is the success? It is to be found, perhaps, in the forecasts in the "Autumn Statement 1983". I cannot remember a year in my life when Chancellors were not saying that although we were suffering today we would have jam tomorrow. What can we say about the forecasts? I see no reason why the House shuld pay obeisance to nonsense simply because it is optimistic nonsense. It would be a sad day for the House if we were described as unpatriotic merely because we could see that the forecasts were not likely to come about and because we were prepared to tell the truth about impending long-term decline. The forecast for output is most unlikely to be achieved, because the savings ratio that has been assumed will not be achieved.

The forecast for exports is simply incredible. Exports rose by 0.5 per cent. last year, yet the document predicates a rise of 4 per cent. I heard what the Chancellor said today about the rise in world trade. I also heard the figures that he gave. I was only confirmed in my belief that the 4 per cent. is a random number which has been injected into the calculations to make implausible conclusions seem plausible.

The forecast for inflation will not be achieved either, for the simple reason that the document misunderstands the relationship between inflation and wages and the relationship between expectation and wages in this phase of the economic cycle. The entire document is predicated on two outstanding economic blunders. There might be others, but there are two which no Chancellor ought to permit. The first is that it must be the height of fiscal irresponsibility to predicate future current public expenditure plans on the basis of short-term and short-lived revenues from the sale of capital assets. It must also be the height of fiscal irresponsibility to go into the last decade of oil revenues saying that they will be used to sustain consumption. The combination of those two blunders is a guarantee that Britain faces appalling economic problems. It is guarantee of the type of economic problems on the balance of payments to which the right hon. Member for Chesham and Amersham referred.

Our only hope seems to lie with what was described as the Chancellor's arrogant pomposity, as events will prick the Chancellor's bubble and reveal the perversity of his views. All we are asking for at this stage is some fiscal relaxation. When we ask for that we come up against the Chancellor's superstitions and the Prime Minister's grocer shop mentality. We are told that we cannot borrow more and that we must behave responsibly like the other advanced industrial countries whose economic performance is so much better than ours. Why is it, therefore, that the general Government deficit in 1982 was 2 per cent. of nominal gross domestic product, whereas in France it was 2.9 per cent., in Japan, 3.3 per cent., in the United States, 3.7 per cent. and in Germany, 4.1 per cent.? Why can all those other countries do what the British Prime Minister told the electorate our Government cannot do? Why is it responsible for those Governments to do that and yet it is irresponsible for our Government to do the same?

Right hon. and hon. Members will remember that when the Earl of Chatham formed his last Administration under George III, everything went wrong. The Earl of Chatham rushed out of London and locked himself in his bedroom. He would not even talk to the servants. Members of Parliament went to his house and banged on his door saying, "Mr. Pitt, the business of Government has to go on. Will you come back?" I assure the Chancellor that if he runs away from the House tonight and goes home sulking, no one will go banging on his door. It is universally agreed that no Chancellor at all would be better than him. He has caused great damage to our country. The Government have caused great hurt and damage to our country. That is why it behoves us all to go into the Lobby tonight to oppose this squalid autumn statement

6.50 pm

Mr. Ralph Howell (Norfolk, North)

I congratulate my hon. Friend the Member for St. Albans (Mr. Lilley) on his maiden speech, and I am sure that the House will look forward to hearing from him on future occasions. I add my congratulations to those of other hon. Members on the maiden speech of my hon. Friend the Member for Mid-Norfolk (Mr. Ryder). I regret that I did not have the pleasure of hearing my Member of Parliament make his speech, but I understand that it was excellent and I thank him for the kind references he made to me as the former Member for part of the area that he represents.

I welcome the fact that a major public debate on state spending and taxation will follow the autumn statement. It is high time we had such a debate and I hope that we shall consider the widest possible options and leave out nothing in our deliberations. However, I am not wildly enthusiastic about the statement, because the Government have not contained public expenditure. To say that we will stop public expenditure rising is an improvement. but we must cast our minds back to 1979 when we said that public expenditure was too high, the public sector too large and taxation too high.

The House should also remember that in 1979 it was not the previous Government who had achieved the then economic position, but the International Monetary Fund which made the economy a little more balanced than it had been previously. We must find a way of cutting waste in the public sector. The only way to get the Government off the backs of the people is to cut as much waste in the public sector as we can to accommodate tax cuts. So far we have entertained hopes of cutting waste but have got nowhere. We are sandpapering the problem, attracting all the odium for cuts and achieving nothing.

There has been much publicity about waste in the National Health Service, including reports of an £8 million redundancy forecast which turned into a £45 million payment. It is not good enough, and it means that the Government cannot control expenditure. Most waste is caused by over-manning. In the NHS today there are 700,000 more people looking after 100,000 fewer patients than in 1960. In the same period, in education, manpower has doubled from 600,000 to 1,250,000, and in local government a further 400,000 people have been employed.

The problem is that restrictive practices are rife in the entire public sector and there are appalling losses because of theft, fraud and general waste, which does the public no good—[HON. MEMBERS: "Identify them."] I can identify them easily. The Government must look to those areas of waste, which achieve nothing, to find room for tax cuts.

For many years I have talked about the "why work" problem, which has become worse during the past 10 or 15 years. It is still getting worse, because we spend too much in the public sector. Drastic action must be taken on taxation. The Government tried to do a little about raising tax thresholds in the previous Budget, but tax thresholds must be raised even more. We must take millions of people out of tax altogether. It is a disgrace that we still tax pensioners and those who earn only half or two thirds of the national average wage.

The previous Treasury and Civil Service Select Committee, of which I had the honour to be a member, heard a great deal about a Mr. Hamilton Lowe. He was unemployed for two years before he was lucky enough to get a job with Norwich city council. Last year his gross pay was £76 a week, and after deductions and additions he took home £81.39. Now his salary has been increased by 20 per cent. to £91.57, and his net income is £78.76. That is extremely serious, and the Government and the Opposition should take note of it. The reason why the Opposition did so badly during the election was that they were constantly asking for more public expenditure, as do some of my right hon. and hon. Friends, but they did not realise the consequences. We still rely on taking billions of pounds in taxation from the low paid to sustain the present wastage in public expenditure.

If Mr. Hamilton Lowe threw in his job and registered for unemployment benefit, his total income would be £82.67, instead of his present income of £78.76; and if he and his wife both earned £4 a week, which they can without adjustment before benefits, they would have an income of £90.67. He would be nearly £12 a week better off if he did not work. That is a serious indictment, to which the Government should pay attention. The Government must cut waste in the public sector to make room for tax cuts.

I know that the Chancellor would like to do some of the things that I have suggested. In the great jungle of bureaucracy, waste and restrictive practices, my right hon. Friend must use something more than a pair of nail scissors—he needs a bulldozer to force his way through the jungle of waste and excess Government expenditure.

6.58 pm

Dr. John Marek (Wrexham)

The hon. Member for Norfolk, North (Mr. Howell) suggested that the Chancellor should do several things. I disagreed with many of his suggestions, but it appears that he has some feeling for those who are not well off and who must pay taxes, and he urged the Chancellor to do something about it. The Chancellor said nothing about that, and on that basis the hon. Member for Norfolk, North would make a better Chancellor than the one we have.

Hon. Members will recall that in 1979 the then Leader of the Opposition, now the Prime Minister, was worried about high unemployment, which stood at 1.3 million. She called it "shameful" and promised to do something about it. We know what happened. There are now about 3 million unemployed, if one uses the new method of calculation, but it would be 3.25 million if the figures were compiled as they were in 1979. If everybody who wanted a job was offered one, it would show real unemployment to be well in excess of 4 million. That is a depressing commentary on the Chancellor's autumn statement, which will do nothing to lower this unacceptable level of unemployment—this unacceptable social evil. Without special Government measures, even the Chancellor's prediction of 3 per cent. growth in 1984 will not be enough. It will only scratch the surface of the problem.

In the past four and a half years, most jobs have been lost in manufacturing industry. The statement, in page 6, paragraph 1.13, says: Over the past 10 years there has been no pronounced trend in value or volume terms in the share of United Kingdom's manufactured exports in world trade, despite substantial short-term fluctations. That simply is not so. There is a double graph showing the volume and value share of the United Kingdom's exports in world manufacturing. Looking at that graph, I have made a different interpretation from that of the Chancellor. There is a general decline in performance between 1970 and the end of 1973. There is a general slight improvement from there until autumn 1979, and then there is a catastrophic slump from 1979 to 1983. More interestingly, I looked at the Financial Statement and Budget Report produced earlier this year, and there, in the section on the economy, most of the graphs were the same, except for this particular one. The statement says: In manufacturing, the United Kingdom has lost share by volume in most years". That statement is completely different from the one in paragraph 1.13, which says that there is "no pronounced trend." The present graph is based on a three quarter average set of figures. Has the Chancellor got a new set of scribblers, or is he trying to re-write history?

The depressing reality has been quoted before, but I shall quote it again. Paragraph 1.14 says: since 1976, while the domestic demand for manufactures has not changed greatly, there has been an increase of over half in the volume of imports of manufactures and a fall in domestic supply of manufactures of nearly one quarter. That is the depressing reality spelt out in this statement. It has nothing good to say and nothing to promise us for our performance in manufacturing exports.

In a year's time, manufacturing output is estimated still to be well over 10 per cent. less than it was in 1979. For the first time we are importing more manufactured goods than we are exporting. Forecasts are that imports will continue to outstrip exports. The Chancellor expects exports to be 4 per cent., but imports are expected to be more than that at 5 per cent. Such growth as there has been has been caused primarily by consumer demand, which has been facilitated by the abolition of hire purchase controls. Imports have been sucked in, and there is nothing in this statement that promises anything different for the British people.

If the Chancellor thinks that low inflation combined with steady growth is "a winning combination," he is easily pleased. We expect more than that. We need to increase our manufacturing base and our manufacturing exports, as this is a prerequisite for bringing down unemployment. The Government could adopt the policies to do this. There would be a big dent in unemployment if they allowed local authorities to build houses, because the construction industry would be regenerated. The exchange rate is too high, and energy costs to industry are not as favourable as they are elsewhere. Although the Government think that public borrowing is too high, they are wrong. They are using what public borrowing there is for wrong purposes. They are paying huge sums in social security and unemployment benefit, when the aim should be to invest in British industry and get people back to work.

Public borrowing can be used for investment, to generate jobs and to provide the impetus for economic recovery. In effect, the Government are saying that the Japanese produce electrical and office equipment better and cheaper than we do, and that they should get on with it.

It looks as though the Government are saying that they are content with the United States being the sole producer of civil aircraft. They will not support the A320 project unless there is, in their terms, an overwhelming case for it. As a result, we shall not have any civil aviation projects and developments, and it will be left to Boeing and McDonnell Douglas in the United States. It does not need much thought to realise that Europe must remain in the technological forefront of the aircraft industry, and I should welcome a Government statement that they will support the A320 project.

The Government are saying that opencast mining can be done more cheaply elsewhere, where it can be more economic—whatever that may mean—so they plan to close our mines. They have decimated steel production because this Government, unlike others, will not provide cheap energy to support and protect the industry. If there is a real upturn in the economy the steel industry will not be able to supply the demand.

We have first-class railway engineering workshops. They are being closed, and orders that we could have got are being picked up by other countries in Europe. I do not need to draw comparisons between this country and France to see that we are not investing in our railway system, but when we see what the French have done for their transport infrastructure, my case is proved.

The Government are saying that shipbuilding and ship repairing can be undertaken by other countries. British Telecom has lost out with system X. It could have had orders worldwide, but it can do so no longer. The list is endless. Because of the openly proclaimed uninterest of the Conservative party, we stand no chance of recovery, even to the position of 1979.

In the Budget statement earlier this year, the Chancellor forecast a balance of payments on current account of about £1.5 billion in 1983, and higher in 1984. It is a sad reflection on the Government's policy that in the autumn statement, all that the new Chancellor can say is that there will be a rough balance. Although one cannot depend only on one set of figures, I have seen the set of figures published today, and it looks as though the Chancellor may have to revise that forecast again in the immediate future. All this is unnecessary. By adopting a different policy, with the general consent of the people, we could provide for a steadily growing economy with much lower unemployment.

Because of the Government's obsession with targets, the Government will not do anything for the industries that I have mentioned. The Chancellor is simply concerned with adding up sums and seeing whether they balance in his book. He is squandering the North sea oil money and other assets because of his obsession, and he is continually lowering our expectations. Because his figures do not add up, he tells us that taxation will have to be increased next year. That is in spite of increasing taxation as a percentage of GDP to an all-time high over the past four and a half years. That is contrary to what the Conservative party said in its election manifesto in 1979.

On top of that, the Chancellor has cleverly increased taxation already. As other hon. Members have said, it is disgraceful that housing benefit should be reduced so that, for each pound of extra income above the needs allowance, the Government will reduce the housing benefit by 31p instead of 21p for rent, and by 9p instead of 7p for rates. These cuts, which are inflicted on pensioners and the disabled, are disgraceful.

Although we had a debate on this subject yesterday, I make no apology for speaking about pensioners again because this needs to be said again. Last Friday, The Guardian said: Pensioners are also suffering from the first Conservative Government's decision to end the link between pension rises and earnings or prices, whichever is higher. The Child Poverty Action Group calculates that this could have given an 8.7 per cent. rise for the 9.2 million pensioners. But even if a figure of 6.5 per cent. is used, a married couple is more than £179 a year worse off with a new pension rate of £54.50 a week. The disabled suffer substantially more with a 5 per cent. cut introduced in 1980 in lieu of taxation still in force, and disabled pensioners also lose the link with earnings. Married couples have lost the equivalent of £5.80 a week. The unemployed and families living on supplementary benefit are also worse off, despite the restoration of the 5 per cent. cut today. For the unemployed man with a wife and two children, this increase has been lost in a steady reduction in extra child allowances and also by the switch in calculating benefits. Here the loss is £4.65 a week, more than £240 a year. For a similar person on supplementary benefit, the loss is about £1.35 a week. The Chancellor has already attacked the worse off in our society, and now he is turning on the next worse off—not those on supplementary benefit, but those just above it. The best way to attack them is to attack housing benefits—and that he has done.

I wish that the attack on ordinary people ended there, but it does not. Although the right hon. Gentleman did not announce it, gas and electricity prices are due to rise by 3 per cent. and 5 per cent., respectively. Yet those industries already make a profit. In 1982–83 the Electricity Council made a 3.2 per cent. net return on average net assets employed. For 1983–84 and 1984–85, the Electricity Council has a financial target for an average return on net assets of only 1.4 per cent. So why is there a need to increase electricity prices?

I am alarmed by the Prime Minister's statement that electricity prices provide only about 1.5 per cent. return on investment, and that a 5 per cent. return on investment is reasonable. Does that mean that the Government intend to increase electricity prices year in, year out, until they achieve a 5 per cent. return on investment?

I do not need to deal with gas prices as they have already been mentioned by other hon. Members, but if they do increase, they will be seen as a fuel tax, a regressive measure that will hit hardest those least able to absorb such an increase—those on supplementary benefit. It is no use Conservative Members saying that those people can get special heating allowances. would like to see just one Conservative Member exist on a pension with only an extra £2.05 a week towards heating. They could not do it.

Mr. David Winnick (Walsall, North)

Is it not a tragedy that so many people who are eligible for rebates, but not for supplementary benefit, do not receive a penny piece in help towards their fuel costs? During winter months they go through agony and misery trying to keep warm because they cannot afford present-day prices for gas and electricity.

Dr. Marek

My hon. Friend is right. The Government's policy is to hit the least well off, and then to pick off the next group of least well off in society.

I find the autumn statement dismal and depressing. It is concerned solely with adding up figures on a piece of paper—just like in a grocer's shop—to see whether they balance. They do not. The Government are squandering the nation's oil, selling off the nation's assets and dismantling the nation's industrial base to make the poor poorer so that the rich can preserve their privileges and standard of living. This statement continues along that road.

7.13 pm

Mr. David Howell (Guildford)

I join other hon. Members in congratulating my hon. Friends the Members for Mid-Norfolk (Mr. Ryder) and for St. Albans (Mr. Lilley) on their excellent maiden speeches this afternoon. They made them with great skill and aplomb, and they impressed us all.

I say with some hesitation that my hon. Friend the Member for Mid-Norfolk is right to back the idea of an open debate on the future of some of the major public expenditure programmes. I say that with hesitation because in the past great debates have been announced with a large fanfare, which have then tended to fall rather fiat. Therefore, we are naturally a little sceptical about orchestrated and organised great debates.

The debate about major public sector programmes—health, education, defence and social security—will go ahead anyway. It will be carried forward in a number of forums. There is a case for the Government contributing information to that debate to make it more organised and effective. I do not know whether such a debate should be conducted along the lines suggested by Sir Douglas Wass in one of his Reith lectures, by a revived Central Policy Review Staff, or some similar body standing rather further away from the Cabinet Office than the now defunct CPRS, or whether it should be conducted by an independent institute. Where should it be orchestrated, and how will information be brought before this House, which, we must never forget, is the centre of excellent and highly informed debate? I am not sure. It may be that some replacement of the CPRS, standing further away from the Cabinet Office, should be the institution to start the debate. I have no illusions about such a debate being needed.

It is important to bring home to those who conduct discussions on these affairs—very much between the two poles of either cutting or expanding—that underneath that argument there are common objectives. For example, on health matters the common objective—unless people are very perverse—is that the nation should have better health provision.

It is remarkable that we spend rather less per head than many of the other social market economies. We do that because over the years we have grown accustomed to the idea that all health provision must be channelled through the public sector. Resources must then be fought for along with all the other public demands from defence to social security and agriculture support, and so on. We should begin the debate from the base that everyone agrees that we need better health provision and that we must use our ingenuity and imagination to determine how we can harness the best of private provision in support of a high quality public service.

If we continue as we are and allow these services to grow unrestrained in the public sector, they will do immense damage to the whole shape of the Budget and create intolerable demands on the incomes of people on low wages and salaries. That is not a cause that any party would wish to support.

Although all Opposition parties are currently arguing for higher taxes in one form or another, as they understand these matters more clearly, and as they understand, for example, the consequences outlined by my hon. Friend the Member for Norfolk, North (Mr. Howell), they will recognise that we cannot continue in that way. The extra burdens imposed on low-income families by these programmes going along their present path must be changed.

I know that the autumn statement deals mainly with expenditure, but the taxation issue is at the centre of that and has been given additional impetus by my right hon. Friend's comment about the possible need for a small net addition to taxation. The comment columns of newspapers have given various reasons for the Chancellor's remarks. I prefer to believe his own account in The Times, which is that he wanted to bring home the importance that he attaches to containing public sector borrowing and the overriding importance of maintaining a posture of sound finance. He wanted to show that even tax increases would have to be considered, if the figures demand that, to safeguard and contain the public sector borrowing requirement, which he believes to be the main influence in containing new money creation and the best guide to the health of the public budget.

My right hon. Friend the Member for Worthing (Mr. Higgins) said that a number of experts and commentators are beginning to question whether the public sector borrowing requirement is such a good guide to those two aims—given the very large growth in private borrowing overshadowing the size of Government borrowing, and the confusion that inevitably arises when considering the place of assets arising from state asset disposals and privatisation. That has led some people to say that we should perhaps start again and think of other measures. However, for the moment the Chancellor seems to be sticking to the PSBR, and apparently that is what led him to talk about tax increases.

I hope that my right hon. Friend does not bring in tax increases, whatever his reason was for mentioning them. In my opinion it would be the wrong direction in which to take the economy. Psychologically it could be wrong for a number of reasons, and I suspect that my right hon. Friend would agree with me. As he himself confirmed, the PSBR or any other borrowing requirement measure that might replace it remains extraordinarily inaccurate. As he said, it is subject to a wide margin of uncertainty.

We read in the "Autumn Statement 1983", and it is not news, that the PSBR can wander and have a margin of error of up to £2 billion either way. In 1982–83, and apparently in the current year, there is a substantial overshoot. We are dealing not with science, but with an art. The control of the public sector borrowing requirement, or any other borrowing requirement, is an art, and it is subject to a wide margin of error. For that reason, to give any importance to a gap of £½ billion in the forecast, as the statement does, is to get things a little out of perspective. It is almost an attempt to fine tune the borrowing requirement and its influence on the monetary aggregates—a practice which was much criticised in connection with demand management in the past, and one which usually ends in tears.

So, for that somewhat technical reason, I hope that we shall hear no more discussion about tax increases of that volume in connection with the public sector borrowing requirement. The PSBR is the difference between two gigantic amounts—£147 billion, or whatever, on expenditure, and £136 billion, or whatever it will be, on receipts. That is the first reason why I hope my right hon. Friend will not consider tax increases, and why I was glad to hear the strong emphasis that he placed today on his ambition for us to continue to be a tax cutting and tax reforming Government.

There are other reasons, of which the most important—I am always surprised that the Opposition do not support it more strongly—is that higher taxation kills enterprise. It delays the creation and emergence of the myriad new firms and the tens of thousands of new employees in the coming year. It delays the emergence of new jobs and it has the effect on work incentives. We have had evidence of that in our debate today, and not a day passes without evidence—some of it, admittedly, anecdotal, but some of it in hard figures—that a high tax environment, such as we still have in this country, is a disincentive to people going to work, and promotes unemployment. Those are obvious reasons why anyone hearing suggestions that we might be embarking on a further move towards higher taxation must question whether it will help our objectives.

However, I have even deeper reasons for questioning tax increases. My right hon. Friend the Chancellor of the Exchequer and others argue that the purpose of having to grit one's teeth and consider tax increases is monetary prudence, because that would cut the deficit in the absence of any further successes on the public expenditure side. I wonder, with the tax levels that we have now reached and the shape of the public budget, whether that is true, and whether tax increases will do what the people who argue for them believe they will achieve. I question whether they will cut the deficit in all cases. I say that for a number of reasons. Taxes are a cost imposed by the Government on incomes, or indirectly on goods, and on economic activity. In that way they raise costs. That may not concern the Government if those costs are not reflected in prices. People simply lose their profits, go out of business, do not go into business, or lose their jobs. However, as we see in the "Autumn Statement 1983", there is an important part of the Budget that is uncontrollable. Indeed, it is open-ended. It is a feature of modern budgets in the Western world. It is a growing element in those budgets, and it arises from open-ended programmes.

In these open-ended programmes the cost increases caused by tax increases are reflected in more demands on public spending. Thus it is a circular process, whereby the tax increases which a Government may unwillingly impose to reduce the deficit produce consequent increases in public spending, and thereby enlarge rather than reduce the deficit. There is an excellent example in the statement—the £422 million of additional agriculture support. I am sure that my right hon. Friend did not plan that. I am sure that that was not foreseen or intended. However, it happened, and consequent adjustments have to be made in other parts of the Budget to accommodate that unwelcome, additional, open-ended, and unforeseen extra Government expenditure.

Inevitably, the pressure falls on those parts of the Budget which are most controllable and most easily cut. Over the years, we see where the cuts have occurred—in capital programmes, capital fixed investments, and infrastructure. Today my right hon. Friend pointed to trends that have reversed some of the more disastrous tendencies of past years in reducing the element of fixed capital investment in overall Government spending. However, I think it is generally recognised that the trend to reverse that tendency needs a sharp push, and there must be more powerful expenditure on infrastructure. If we can use ingenuity and mobilise more private funds, or make more intelligent progress in the grey area of projects which are neither purely public nor ones that can be commercially financed, but which seem to require a mixture of limited Government guarantee, that would be all to the good. Important progress could be made in that way.

So that is one reason why increased taxation may not be the way to cut deficits, even though the textbooks say that it is.

If higher taxation leads, as I believe it does, to fewer people going into jobs, and enterprises not being born or not surviving, more people are unemployed and there is a bigger burden on public spending through unemployment. Costs there, too, increase rather than reduce the deficit.

Finally there is the point, which has been argued—in perhaps too extreme a manner by the American supply siders—that not all tax increases produce the extra revenue that the textbooks say, and that the ready reckoner type of thinking, as at the back of the statement, does not always work. Some tax increases may fail to produce extra revenue, just as certain tax decreases in fact increase revenue. That is another reason why we should look very carefully at the school of thought which directly relates taxation to reducing deficits.

In short, I am saying that higher taxes are not necessarily a financial rock. They are a slippery slope. I believe that we as a Government and a party are right to adhere to our instincts to press on towards lower taxes in this country. That, along with lower inflation and lower interest rates, is the fundamental element in the job-creating machine. I am not arguing—I hope that I do not leave that impression with my right hon. Friend and others—that in the first year of the new Parliament we should expect major tax cuts of the type that would ease the problems of lower wage and salary earners. That is not within reach at the moment. But we should start with some job-creating tax cuts that are available.

There are examples, and I shall give a classic one. I declare an interest here because I advise an organisation that would benefit from it. If the Chancellor were able to unscramble the stamp duty, I bet that the effect in terms of lost revenue would not emerge. At the same time, if the stamp duty in shares remains at the present level and a large amount of business is siphoned off to New York., the consequent revenue would drop very quickly. That is a good example of how increasing a tax would produce less revenue and reducing it might well produce more revenue. That is an example of what I believe should be an unfolding strategy of tax reform and reduction. There is no opportunity and no room for manoeuvre to get big tax cuts in place early on, but we should allow the strategy to unfold.

I have concentrated unapologetically on tax cuts. I know that at the moment the subject of tax cuts is the most partisan of issues. The Labour party and the centre parties—the SDP and the Liberals—do not mention tax cuts in their amendments and, I think, still believe that high taxes are right and desirable. I hope that our debate today will help to bring home to them not only that higher taxes hurt those whose votes they failed to get at the election, but are the single most damaging factor that can prevent the emergence of the thousands of new businesses through the market economy that will produce the jobs of the future.

The centre parties—not the Labour party—are now beginning to write articles and speeches to that effect—there are no more speeches today because they are not here—and have discovered rather late in the day the market economy, free enterprise and the virtues of incentives. One reads this in newspapers and in learned magazines. So far they are still adhering to their view that people should pay more taxes but even on that they may in due course be converted. So the wisdom and views that have lain at the centre of Conservative policy, and which we must now implement, may even spread to our opponents as well.

7.32 pm

Mr. Willie W. Hamilton (Fife, Central)

The House will recall that the right hon. Member for Guildford (Mr. Howell) was at one time the Secretary of State for Transport. He faced demands from the Opposition Benches for increased capital investment in British Rail. The right hon. Gentleman will recall the corny answers that he gave when he was a Minister. He resolutely refused to consider the increased electrification of British Rail. I agree entirely with him and the CBI that unless we have a modernised infrastructure for our transport system, our telecommunications system and so on, we will not achieve the growth on which the welfare state and other public services depend. I hope that the right hon. Gentleman will be consistent and that, with the CBI and others, he will keep plugging the need for more capital investment in the infrastructure on which our economy depends.

Mr. David Howell

The House will recall that I was able to authorise a 17 per cent. increase over 1979 levels in motorway repair and construction. While it is true that railway investment—although I authorised a number of projects—was not as high as British Rail sought, it is not true that I did not consider the electrification projects. I merely asked that they should be robustly worked out so that in due course they could be authorised.

Mr. Hamilton

The right hon. Gentleman may be satisfied with his alibi, but the fact remains that he resisted all pressures from outside and inside the House to invest in the future of British Rail to the extent that the service requires.

The right hon. Gentleman spoke about the incentives of lower taxation. That sentiment has been expressed in the House as though it were an established proven fact. I remember the late Selwyn Lloyd making similar pronouncements in the House, to the effect that if only we were to remove the tax burden, particularly from the higher echelons of taxpayers, everything would be all right. It does not apply at the other end apparently, because all the facts show that the burden of taxation on lower income groups has increased to a far greater extent than it has on those at the top. There is not a shred of evidence to show that reduced taxation automatically increases incentives to work harder, to produce more and to work more efficiently. On the contrary, the argument might be put the other way. The more taxation that is imposed, the more desperately hard people work to keep in the same position. That is the Government's argument at the lower end of the income scale in this country.

There has never been an example of a major statement by a Chancellor meeting such universal condemnation—right across the board and right across the political spectrum. The CBI, the TUC and the media all agree that it is a hopeless statement. It is either complacent or ignorant, or a mixture of both. In any event, it will not fulfil the expectations on inflation or on anything else that was forecast in the statement.

We all know that the background to the statement was the fight, the quarrel, the struggle, in Cabinet about public expenditure cuts. The Chancellor did not get all that he wanted. That is why he said that if he did not get all that he wanted, which meant virtually dismantling the welfare state, there would have to be tax increases in his forthcoming Budget. The Chancellor wrote in a Sunday newspaper that, of the seven top industrialised nations, Britain was the most heavily taxed, except for France. That is simply not true. Either the Chancellor was deliberately misleading the British public, or he did not know the facts. According to the recent OECD figures, the United Kingdom tax take in 1981 was 43.4 per cent. of the gross national product, compared with France 46.1 per cent. and Germany 44.6 per cent. Our percentage has gone up since those figures were made available. Those economies are not doing any worse than ours, and in some ways have done much better over the past few years. Other smaller countries have greater tax burdens—for example, Austria, Belgium, Denmark, Holland, Norway and Sweden—yet in many ways their economic performance is superior to ours.

The total outlay of our Government in 1981 represented more than 40 per cent. of the national income, which is lower than West Germany, France, Italy, Austria, Belgium, Holland, Denmark, Norway, Sweden and Ireland. It is not true that we are suffering from an undue burden of taxation compared with large numbers of our competitors. In fact, public expenditure in this country is lower than anywhere else in the EC, except Greece, so let us have no more of the nonsense about the intolerable and disincentive nature of the burden of taxation.

If the Chancellor was wrong about that, so, too, was the Prime Minister in declaring at the Lord Mayor's banquet a few days ago that the number of people in work had begun to increase again. I looked up the figures. Today at Question Time the Chief Secretary said the same. He said that he agreed with the Prime Minister that the numbers in work were increasing. I put the same question to the Leader of the House, who was deputising for the Prime Minister at Question Time today, and he also agreed. Therefore, three Ministers at the top say that the number of people in work is increasing.

What are the facts? How did the Prime Minister come to make that assumption? I have a copy of the October issue of the Employment Gazette, which gives official Government figures. It states: Total United Kingdom employees in employment fell by 8,000 (seasonally adjusted) in the second quarter of the year. The figures on page S8 are as follows. In June 1980, the total number of people employed in Great Britain was 22,356,000. In June 1981 the figure was 21,232,000, in June 1982 it was 20,651,000. and in June 1983 it was 20,179,000. Therefore, between June 1980 and June 1983, the numbers in employment have gone down by about 2,200,000. That is a measure of the Government's success.

The article in the Employment Gazette states that in the year up to 6 June 1983 total employment in Great Britain fell by 1.5 per cent. (312,000 employees), with decreases in all regions except East Anglia. There was a 4 per cent. decrease in the northern region—42,000 employees—and a decrease of over 2.5 per cent. in the west midlands—52,000 employees.

There is no evidence that there are more people in work now as a direct consequence of the Government's policy, yet three Ministers—two of them today—in the face of evidence produced by their Departments, say that the contrary is true. Either they are deceiving the House or they are ignorant of the facts that the Departments are producing.

I shall give an example of misleading information from Government Departments. Recently I wrote to the Scottish Office asking for the number of small businesses that have closed down in Scotland in the past five years. The Scottish Office replied, saying that it was too expensive to get all those figures. I went immediately to the Library, and within 48 hours I got the figures. Who is deceiving whom? The figures for Scotland are as follows. In the six months from June to December 1979 there were 145 bankruptcies of small businesses. In December 1980 there were 379. In 1981 there were 438, in 1982 there were 503, and from January to June 1983 there were 305. The total in Great Britain from June 1979 to June 1983 was 36,984—about 570 per month. That means that each working day since the Government took office in May 1979 there have been 24 or 25 bankruptcies of large and small businesses. That is a measure of the success that the Government are claiming for their policies. The separate figures for Scotland are less than that, as one might expect with a smaller population. It works out at about two or three bankruptcies every working day since the Government came to office.

The Chancellor said that he wanted to have a debate on priorities in public expenditure. We know that the essence of the debate is how much we spend on health, defence and and education. As long as the total national product is not increasing, the more we spend on one thing, the less we can spend on another.

I shall quote from the Glasgow Herald editorial on 22 November. That newspaper, which is in no way sympathetic to the Labour party, said: Eighteen months after the hostilities it is becoming exceedingly hard to see how the present policy of fortress Falklands can be sustained indefinitely. The Chancellor has invited debate on the future of the country's public expenditure priorities, and it is difficult to see how a Government that is so set against borrowing and so explicitly committed to preserving at least the framework of the Welfare State can continue to insist on such costly and politically dubious projects as fortress Falklands and Trident. Some months ago a Select Committee went into the Falklands issue in depth. It assessed that the total additional cost of the Falklands campaign, including replacement of equipment and ships or aircraft destroyed, would amount to about £2,000 million. We should remember that the population of the Falklands is about 1,800 people. We are to spend £2,000 million of our wealth, which is supposed to be in short supply, on those people. We are telling health authorities all over Britain to cut the numbers of nurses and staff, to close hospitals and wards and to reduce the numbers of beds, yet we can disperse money on such a project, when everyone knows, or should know, that sooner or later the Falklands will fall under the control of Argentina. There is nothing more certain than that. We are in a cul de sac. The money is going down the drain. The Government said that the cost of maintaining the military garrison for 1,800 folks, not more, will be about £250 million a year. The Select Committee said that was a gross underestimate and that the figure was nearer £500 million a year.

That is why my hon. Friends and I get worked up. Every day of the week, week in, and week out, we receive complaints from poor people, those eking out an existence on supplementary benefit or living on low pensions or low wages. Many people are waiting, not knowing when they will get hospital beds. Meanwhile, hospital beds and wards are closing and nurses do not know whether they will get jobs when they have completed their training. We had an example of that the other day from Hartlepool

The Government are responsible for those uncivilised and indefensible priorities. The Chancellor says, "Everything is on course. We are going to be great. The success that we have created in the last four years will be repeated in the next four years." But we wonder when the people of the nation will get a taste of that success. There is no evidence in my constituency that the Government have been anything but an unmitigated disaster.

7.51 pm

Mr. Peter Hordern (Horsham)

As the hon. Member for Fife, Central (Mr. Hamilton) said, the Chancellor's autumn statement has had a mixed reception. However, the criticisms have been so varied and wide that I am inclined to believe that my right hon. Friend must have got it about right. In one respect certainly he has it right, and that is the achievement of himself and his predecessor, now the Foreign Secretary, in reducing the rate of inflation. That has been an invaluable achievement.

I also approve of the Government's efforts to restrain public expenditure. It should be noted, however, that all the talk so far in the debate has been about cutting public expenditure at every level. In fact, public expenditure is due to grow again next year at a rate somewhat higher than the rate of inflation.

Like many of my hon. Friends, I regret that capital expenditure within the whole of the public sector is as low as it is, and the Government must give more attention to that. But I applaud the fact that the Chancellor has not sought to fudge the figures. The contingency allowance is as high as it has ever been—that is realistic—and no credit is given for shortfall, which is the amount that Departments do not spend.

The Chancellor is not at his happiest when making economic forecasts. Indeed, he would probably rather not make any, and it is only because the Industry Act compels him to do so that he has done so now, as he has on previous occasions. With all his reluctance, if he must make an economic forecast, it is a characteristic of his to pick the best aspects of it, and I have certain points to raise which should keep these aspects in perspective.

My right hon. Friend's ambition is to have a period of stable prices. He has made no secret of the fact that by that he means a lower rate of inflation than now exists. Judging from the money supply figures, I do not think that that is likely to occur. Recently my right hon. Friend has brought into being a new form of monetary measurement known as MO. It is a very narrow form of measurement by which he has sought to show that there is some relationship between the movement of this narrow measure of money and the course of inflation two years afterwards.

Although that may have been true—in the relationship between that narrow measure of money and the rate of inflation—of the last few years, if my right hon. Friend carries his researches back further he will find that there is no such relationship. It is only common sense that in times of high interest rates, people tend not to hold their money in notes and coins—that is the definition of this narrow money supply—but in bank deposits, and the level of bank deposits, the level of lending, is now at a very advanced rate and inconsistent with a lower rate of inflation than now exists. I think that it is consistent—I hope it is—with the official forecasts. I do not attach as much importance to arithmetical precision as I used to on these matters, but I do not think that it is consistent with a nil or nearly nil rate of inflation, and I hope that the Government do not try to persuade people that it is.

Another important factor is that the broad measure of the money supply is being affected in other ways. It is not as high as it would otherwise be if it were not for the fact that the Government are borrowing much more money than they need. They are doing that so as to allow private firms to issue commercial bills, which do not show up in the money supply. The effect of that is that the money supply figures on the broad aggregate would be higher than they now are. It also means that interest rates are much higher than they otherwise would be if the Government were not borrowing much more than they need to borrow. The Government must bear that factor in mind because interest rates are still far too high and firms cannot borrow on long-term rates. The Government must bear that in mind, too.

It is essential in all this that the price level does not rise more than is absolutely necessary, and that brings me to the Chancellor's decision to increase gas and electricity prices. There is a vast difference between expecting greater efficiency from the gas and electricity industries and demanding a higher price. The distinction between doing that and insisting on higher price increases is extraordinary, and I cannot help but believe that it, too, must be self-defeating.

I can see that there is a case for putting up the price of gas or demanding greater efficiency as we come to use stocks from the new gasfields, compared with the old. But if that argument applies, then the contrary argument must apply to electricity, when there are substantial stocks of coal throughout the country and enormous reserves of coal as well. On that analogy, the price of electricity should be going down, not up.

Has my right hon. Friend thought about the effect of the increase in the price of electricity not just on industry prices—naturally, it will have an effect there—but on the extra cost of pensions and supplementary benefits? May we be told exactly what the public expenditure implications are of those increases? I hope that in future, when this policy comes to be reconsidered, no attempt will be made to insist on a price increase of a certain margin. By all means get a higher return from those nationalised industries and set them targets—that is what they expect—but the imposition of a flat price increase will do more harm than good.

The performance of the "Star Chamber" has had some unexpected consequences, so much so that I understand that the Secretary of State for Social Services was not even aware, if The Times is correct, of what the effect of the increased rents on council house tenants would be. This method of procedure—the gathering in the autumn of Ministers, telling them that they must impose certain cuts—cannot be beneficial. If anybody is to perform the task, my noble Friend Lord Whitelaw is better than anyone else to do it. He was, with respect to my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) about the best Chief Whip I have ever known, although I was not in the House when my right hon. Friend held that position.

If anyone can persuade people to do what they would not in their ordinary judgment do, it is my noble Friend Lord Whitelaw. Happily, he is unencumbered with economic theory, but I cannot help but wonder if this is the best way to proceed. Are we likely to control expenditure as opposed to cutting it in this way? Are the thousand cuts in public expenditure the best way to proceed annually?

As the House may know, I have long taken an interest in the National Health Service and its administration. If we examine over the past 30 years the headlong recruitment that has been made in the Health Service year after year, and especially in administration, I find it astonishing that not one health Minister ever sought to discover how many people were employed in the Health Service or what they did. That is a disgrace. I am afraid that it is endemic in the entire public sector.

I appreciate how difficult it must be to set clear objectives, but if we do not set clear objectives the Government are quite unable to excercise control either of numbers or resources. Without clear policy objectives nothing will be achieved except drift—and purposeless activity.

Hon. Members who have been in the House for a year or two appreciate the distinction between Ministers who direct and run their Departments as opposed to those who preside over them.

If I were asked to state the Government's objectives, I would say that they are, to bring down the rate of inflation, to privatise some public sector assets and to have a massive training programme for the young. Those are admirable objectives, but they are not in themselves sufficient.

We must ask other questions. How will we provide for the rapidly growing number of very elderly people in the next 20 years? How will we meet the cost of expensive medical equipment, and further scientific advance in medicine and drugs? How will we meet the cost of the extraordinarily expensive defence equipment year after year? How will we finance the state occupational pension scheme? How will we replace the loss of oil revenue? I wonder whether these important questions are being considered carefully or whether a strategy exists or is being formulated.

The public expenditure programme is too short in its time scale. I appreciate that three years is a long time when dealing with practical projections of programmes and resources. Since we are dealing with rolling programmes which follow on year after year, no thought is given to whether, in the prevailing circumstances, the work of a Department needs to be done differently or at all, or whether tax cuts can take the place of public expenditure. Still less is the work of a Department measured against the priorities and challenges of the next decade. I cannot but think that the shape of Departments and their work should reflect the challenge of the future rather than the programmes of the past.

It seems as though the Chancellor and the Chief Secretary to the Treasury are like men beleaguered by spending Ministers. Is it not time to create a new office, attached perhaps to the Cabinet Office, charged with formulating the demands for public expenditure for the next decade, examining the operations of the Departments in the light of those demands, recommending policies that seem to meet those demands, outlining the consequences if they are not met and presenting such policies and consequences for decision by the Cabinet? Once such policies had been discussed, and either accepted or rejected, the priorities would be agreed by the entire Cabinet and it would then be for Ministers to implement the decisions.

Moreover, the House and the country could be informed as soon as possible about these plans and the reasons for them. It would be clear to the country that the Government were acting in the interests of the whole nation. It should follow from that that the public service would have clear objectives which would improve morale and the public would feel engaged in a national effort. After all, is it not strange that a "Star Chamber" exists to carry through short-term cuts among all Departments, but that no comparable body exists to consider the future?

It seems to me that the creation of such an office, the fact that Government policy would be based on knowledge, the selection of priorities and consent to implement and publish them openly might create what would be seen as a national Government and deserve to be supported by the nation.

8.7 pm

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

The Chancellor of the Exchequer, in introducing his autumn statement last Thursday, ended with the words: we are now enjoying low inflation combined with steady growth. This is a winning combination."—[Official Report, 17 November 1983; Vol. 48, c. 996.] What amazing complacency. I must tell the Chancellor of the Exchequer that when talking last weekend to some of the 25,000 pottery workers in Stoke-on-Trent who had lost their jobs during the period of the Conservative Government, I found that outside of his private office and economic fantasies there was a low level of enjoyment. It would be fair to say that the Government's economic policy is viewed with despair and depression. It is proving to be a total disaster for the people of this country and for our manufacturing industry'. It is causing real suffering and real hardship to millions of people.

When the Chancellor is juggling with his figures and graphs and congratulating himself on his so-called achievements, he would do well to remember the real life of people and their chances of getting a job—not only the 3 million men and women who are out of work, 1 million of whom have been out of work for more than 52 weeks, and the despair that that brings to their lives, but, most particularly, the thousands of young people who have left school and know, because they are far too intelligent not to, that the economy as run by the Chancellor and the Government offers them no hope of getting a real job. Those people are not impressed by the Chancellor's protestations that his medium-term financial strategy is working.

Let us examine the "Autumn Statement 1983" bearing in mind the Chancellor's claims of low inflation and steady growth. We must first examine growth and output. The Chancellor said that the United Kingdom's output was forecast to rise by a further 3 per cent. in 1984. He failed to explain what factors would cause it to rise and on what assumptions that assertion was based. Furthermore, he did not make it clear to the House or the country that even if he achieved that growth it would merely maintain the present disastrous level of unemployment. That is the measure of the right hon. Gentleman's failure. That level is totally unacceptable to the Opposition.

Even the modest growth that the right hon. Gentleman expects will not be led by the consumer or by home demand. If the growth will not be led in that way, presumably the Chancellor sees it being led by the company sector. If so, we must presumably regard it as being led either by stocks or by investment. Stocks in many industries are already high and there is no real sign of investment growth. Indeed, investment as a proportion of gross national product is lower than at any time in the history of this island since 1918. That is an appalling record. If there is no growth in consumer demand, why on earth should companies expand output? There can be no reason whatever for doing so.

The truth is that real disposable income is hardly rising at all and consumption is virtually stagnant. That position is bound to affect next year's GDP, all of which supports the view of the National Institute of Economic and Social Research, despite the manner in which it was dismissed in such flippant terms by the Chancellor this afternoon. It supports the institute's view that a 2 per cent. growth figure is far more realistic in the light of the Government's present policies. That is far too little growth. We must get some activity into the economy.

In short, the Chancellor of the Exchequer is confused about output. He did not even attempt to provide any evidence in his autumn statement for the growth figure that he gives for output next year. It is the same story everywhere. The autumn statement refers to a world recovery. World output certainly rose in the first half of 1983. However, the Chancellor of the Exchequer did not explain that world recovery—small though it is—is having hardly any impact on the economy of this country or on that of other EC countries. Admittedly there are opportunities for some United Kingdom exporting companies in the rest of the world, but that is offset by the fact that, as the Government do not have any policy on imports, Britain acts as a magnet, and is fair game for foreign exporters to Britain.

That is why this year's short-lived and totally artificial little election boomlet scarcely benefited United Kingdom manufacturing industry. Recently, the Chief Secretary admitted on television that he was worried about a balance of payments crisis. He obviously knew about this month's figures. Conservative Members have rightly said that we should not read too much into a single month's figures. However, the figures for a whole year make very sober reading. The balance of trade deficit on total manufactured goods in the first quarter of this year amounted to £630 million. In the second quarter of this year there was a marginal improvement and the deficit was £592 million. Therefore, this year's deficit on manufactured goods—as I mentioned in a supplementary question earlier today—is likely to be £2.5 billion.

The non-oil total trade figures are even more horrific. They were in surplus throughout the 1970s, until 1979. Since then the non-oil total trade figures have been in deficit. In 1982 the deficit on non-oil total trade was £3,297 million. This year it will be more than twice that—£8,800 million. What a horrific set of figures! The Chancellor of the Exchequer's response to that—in that he ignored it—was totally inadequate. Those figures are devastating for the future of Britain's manufacturing industry.

The Chancellor of the Exchequer puts his faith in a growth in exports, but where does he get that idea from? Who has he been talking to? He cannot have been talking to manufacturing industry. The CBI could have told him that there will not be a growth in exports next year. Indeed, it has already told him just that. So presumably he is relying on an oil-led export recovery. However, the oil figures do not support that. Although our oil exports amount to £9.5 billion, we still have £3.5 billion of oil imports. Therefore, our total net balance on oil is a credit of only £6 billion. If that is offset against the non-oil total trade figures of nearly £9 billion, one sees the measure of the problem. The Chancellor of the Exchequer is juggling with the same oil that is sustaining an exchange rate which many people believe is as much as 20 per cent. artificially over-valued against non-dollar currencies. That is making the situation very difficult for exports, and in some cases it is virtually impossible to compete in foreign markets.

The truth about exports and the trading figures is that, to put it politely, the Chancellor is deeply confused. It is not just a disagreement about figures with lots of noughts on the end. We are talking about the real economy. Unless those manufacturing industries can sustain growth, we shall not have a real economy. As has been said several times today, the oil boom is peaking and declining. Let us look forward 15 years to a time when we are not a serious oil exporter. What sort of future is there on those figures—whoever is in control—for our non-oil manufacturing industries?

We are looking at a horrific situation, yet the Chancellor of the Exchequer is smug about it. He does not address himself to the problem that he is administering an economy that is witnessing the withering away and collapse of our manufacturing industry. When that has gone we shall have almost nothing and will become an offshore servicing island. That is the measure of the Government's failure. In his autumn statement the Chancellor failed to face that. Instead, he clings desperately to what he considers to be his one achievement—the Government's control of inflation. That is his one success, and even that has many question marks over it.

The first question mark is that the cost of achieving that success is astronomically high. Since 1979, every 1 per cent. drop in the long-term rate of inflation has resulted in the loss of an extra 250,000 jobs. What a disaster and wrecking of people's lives.

The second question mark is the Chancellor of the Exchequer's obsession with a further reduction in the rate of inflation. His pursuit of the fantasy of zero inflation is not only in our view unnecessary and harmful to the prospects of employment, but will hinder his management of the economy in his own terms. Ironically, a pursuit of zero inflation could make it more difficult for the right hon. Gentleman to facilitate the changes in relative wages and prices that are necessary in a market economy.

The Chancellor of the Exchequer, in his single-minded obsession, continues with his policies and his obsession about cutting public expenditure, so driving any hope of growth, investment, orders or jobs into the ground. Industry and the people of this country are crying out for increased capital investment. All hon. Members know that, because when they return to their constituencies they are told that week after week. They know that there are capital investment projects in their constituencies that would greatly benefit their communities. Hon. Members know that, but they do not relate what they learn between Friday and Monday to the Chancellor of the Exchequer's performance.

The Chancellor of the Exchequer is obsessed with trying to cut the public sector borrowing requirement. I say "trying to" because he has been unsuccessful and it is a vain attempt on his part. As the right hon. Gentleman admitted this afternoon, the previous Chancellor in 1982–83 forecast a PSBR of £7.5 billion. However, the outturn was a PSBR of £9 billion. That was just thrown away by the Chancellor. He was prepared to concede that. However, that is a 20 per cent. error in forecasting.

That would be extremely worrying but for the fact that although the right hon. Gentleman would not admit it, the PSBR is not a very good definition of real budget deficit as a measure of the effect of economic policy on home demand. That is vital to any form of growth. It is not a very good definition, because the PSBR includes—and I am not sure that the Chancellor appreciates this—Government asset sales.

In the PSBR figures those sales are seen to cut the PSBR, but in fact they have no real effect on demand at all. If the Chancellor understands that, including those sales is a real fiddle. However, if he does not understand it he is deluding himself in his obsession with the PSBR. The fact that the PSBR includes them, and that the right hon. Gentleman does not appear to appreciate it, was not a problem before, because previous Governments did not seek to sell off their valuable public assets, so it was not a factor in calculating the PSBR. With asset sales about to play a growing and major role in the Government's budgeting the PSBR will, inevitably, increasingly lose touch with the real world. The only people who appear to have been fooled are the Chancellor and his followers.

The Chancellor is desperately following a road which he claims will lead to price stability. To fulfil that aim he has seen fit in his autumn statement to prey on anything that moves in the public sector.

Hon. Members have talked a great deal about housing benefit. The autumn statement referred to reductions in the coverage of help with housing costs, particularly housing benefit."—[Official Report, 17 November 1983; Vol. 48, c. 996.] That shows an amazing mastery of language. What does a "coverage of help" mean? I do not understand words like that, but it is only too easy to understand what they mean to real people. During the next few days, when right hon. and hon. Members return to their constituencies and open their constituency mail, they will find out what it means. The Chancellor, by knocking £180 million in a full year off the rental element and £50 million off the rate element of housing benefit, will affect 2.5 million households. Half a million households will lose their housing benefit altogether.

The Chancellor and the Secretary of State for Health and Social Security have given a vague impression that only the better-off people—those who can afford it—will lose a little off the margins of their income. Is a definition of "better off' a family on 72 per cent. of average earnings? Such families may be lucky to be in work, but no one can say that 72 per cent. of average earnings means that they are better off. If the rent and rates of such families are 30 per cent. above the average, they will be £5.25 a week worse off. Are they the lucky ones? Such households will soon experience the reality of the Government's economic policies, and right hon. and hon. Members will find that out in their constituency mail, because they will be inundated with complaints, worries and pleas for help.

My hon. Friend the Member for Pontypridd (Mr. John), in a superb speech, said that people did not understand housing benefit. He was referring to the technical complexities of the benefit. Hon. Members should return to their constituencies and talk to the rating departments and town clerks who must administer this benefit and who have been forced again to change the system. It will be extremely expensive in overtime costs to adapt the computers to cope with new demands when they have only just learnt how to cope with the first system.

Officials in my constituency and, I believe, in others, are still having teething problems. People may not understand the technical complexities of housing benefit, but they will certainly understand them when their housing benefit is cut and they cannot find out why. They will attribute that to the Chancellor's policy. The measure will cause hardship this winter to people in every constituency.

The statement does not specifically mention gas and electricity prices, but it is widely believed that they will increase. It does not seem to matter that such increases contradict the policies and the commercial advice of the chairmen of those industries. It does not matter that the gas industry last year made £663 million profit. Nor does it matter that these increases contradict the Government's philosophy, which, in theory, is to allow nationalised industries to operate in response to consumer demands in the realities of the market place. There would be no price increase in the market place in industries that were creating such profits. This is a good case for a price cut.

The Chancellor has said that he needs the money to balance his books and that he will have a gas tax. This tax is not only regressive, because it hits the old, the disabled, the weak and those on low incomes far harder than it hurts any hon. Member, but is self-destructive because, inevitably, it will hit industry. It will certainly hit the pottery industry in my constituency, where most kilns are fired by gas. It will increase unit costs and make industry less competitive at a time when the Chancellor claims that he is seeking more money to make industry more competitive. This tax is not only vicious, but incredibly stupid.

My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) pointed out in his opening address that the proportion of national income paid in tax has risen from 39.6 per cent. in 1979 to 45.7 per cent. in 1982. It matters not that the Government's tax take keeps going up. They are determined to take that regressive and self-destructive tax from the gas users. That is a terrible shame and something about which Conservative Members ought to be extremely concerned.

It is on such arbitrary and ill-considered actions that the Chancellor has financed his recession. He is driving us further into recession by those actions and his amazing inability to distinguish between capital and revenue expenditure. He will use the capital receipts from the sale of publicly owned assets, such as British Telecom, to underpin the revenue implications of his policies. Last week, in a question on the autumn statement the right hon. Member for Surrey, South-West (Mr. Macmillan) in a telling phrase that should ring a bell at least with the Prime Minister because it is a domestic image, said: We shall be selling the furniture to pay for the food".—[Official Report, 17 November 1983, Vol. 48, c. 1000.] What greater stupidity could there be in people's personal lives and in the Chancellor's management of the economy.

It is interesting—nay, worrying—that in his autumn statement the Chancellor attributes only £1.9 billion to the sale of Government assets. The sale of BT this year is intended to raise £4 billion. I hope that the Chief Secretary will explain today whether that sale is to be further discounted by means as yet undecided because the Government are so anxious to sell the shares, so that instead of £4 billion the sale will raise only £1.9 billion, or whether only part of the 51 per cent. shareholding will be disposed of in the next financial year. The Chief Secretary must clarify the Government's intention now.

The autumn statement ignores the implications of the Chancellor's own policy. Cuts in public expenditure damage private industry as much as anything else. Private industry relies heavily on the public sector for subcontracts. Cuts in the PSBR strangle rather than strengthen the economy. Productivity and unit costs are not just crude reflections of a low-wage policy. They are far more complex matters which are significantly affected by design research, the price of raw materials, development costs and especially capital investment.

The Chancellor ignores all those inevitable implications of his policy. Most crucially, he fails to recognise the fatal flaw at the heart of his strategy, which is that cuts lead to reduced economic activity and thus to reduced Government expenditure and, as inevitably as night follows day, to further and further cuts. The Chancellor is determined to draw us even further into that declining cycle and it can cause only havoc and misery. That is the burden, in every sense of the word, of the Chancellor's autumn statement. His policies of economic stagnation will lead, as he says himself, to some net increase in taxes in next year's Budget—and thus to less consumer demand, less savings, less investment, less economic activity and less economic prosperity. They can never lead to real growth and recovery.

The Chancellor's autumn statement forecasts a winter of economic immobility because the Government are more interested in pursuing their own financial mirages than in coming out into the real world where companies are going bankrupt because of collapsing order books, although in many cases their products are well made and competitively priced. The real world is the one in which people are being made redundant when industry is crying out for their skills. It is the one in which old people this winter will sit beside unlit gas fires although they want and need heat because they cannot afford to turn the gas fire on. The real world is the one in which millions live in unmodernised and inadequate housing while 250,000 construction workers stand idle in the dole queue, paid by the Government not to build houses. That is the real world and those are the real problems to which the Chancellor's autumn statement fails to address itself.

Not once in his statement, in his introduction last week or in his speech today did the Chancellor mention the implications of his economic policy for real people. That is the measure of his failure and the Government's failure, and that is why the Opposition utterly oppose the autumn statement.

Several Hon. Members

rose——

Mr. Deputy Speaker (Mr. Paul Dean)

Order. Before calling the next hon. Member, I remind the House that many others wish to speak and have been in the Chamber for a long time. Long speeches mean that more hon. Members will be disappointed.

8.31 pm

Mr. John Maples (Lewisham, West)

The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) referred to the comment of my right hon. Friend the Chancellor in his autumn statement that the British economy was now characterised by a winning combination of rising growth and falling inflation. I am surprised that the hon. Gentleman did not find time in his wide-ranging diatribe to give at least a grudging welcome to those two characteristics. Indeed, I am not sure that I recognised the economy that he described. For all that is wrong with the British economy, it has started to grow and inflation is now at a level that no hon. Member would have predicted two or three years ago. That is indeed a winning combination. If it is maintained and inflation falls still further, we shall have succeeded in achieving the non-inflationary growth that has eluded us for so long.

Both elements—growth and inflation—are extremely fragile. The primary tactics of economic policy in the next few months must therefore be to foster the recovery in output while attempting to push inflation even lower. In this phase, the pursuit of a lower public sector borrowing requirement should, if necessary, take second place or we shall risk further recession and a setback on the road to economic recovery. The virtuous circle that we seek consists of low inflation, low interest rates, moderate wage claims and greater competitiveness because only greater competitiveness can lead to expanding markets, increased output and more jobs. I wish to consider one highly important factor in the context of both growth and inflation—industrial costs. In this area, the Government could do a great deal to foster their winning combination by helping growth to go on and inflation to come down.

It is clear to me that the way to lower inflation and sustained growth lies in productivity and competitiveness and not in a massive increase in demand. The autumn statement predicts a stable pound. If that turns out to be right, gains in competitiveness must come from lower unit costs. The Government have considerable influence over some of those costs—on wages through the way in which they conduct their own wage negotiations, on interest rates through a variety of actions that they can take, on direct taxation especially as it affects manufacturing industry, and on nationalised industry prices. Any reductions in those areas are direct reductions in industrial costs and direct positive influences on competitiveness, growth and inflation.

On inflation, the effect is both direct and indirect. My right hon. Friend the Chancellor rightly said that wages were the key element in this respect. Lower industrial costs have not only a direct effect on inflation through the impact on the retail price index of lower gas prices or telephone charges but an indirect effect through wage bargaining. If negotiators believe that inflation is decreasing, they make more moderate wage claims. If they see little or no rise in nationalised industry prices or decrease in direct taxes or interest rates, they will believe that inflation is indeed falling.

Interest rates, which have been the subject of much of our debate, are an element in both growth and inflation. Lower interest rates reduce costs and inflation, but the relationship is complicated because the prospects for inflation are a major influence on interest rates. One of the major elements in the current high level of interest rates is doubt about the future rate of inflation, and whether it will fall or rise. The prospects for inflation at present are a much more important factor in the level of interest rates than marginal differences in predictions of the public sector borrowing requirement. If we adopt too absolute an approach to particular levels of the public sector borrowing requirement, opportunities are lost to influence growth and inflation through costs which are under Government control.

There is no doubt in the public mind of the Government's commitment to sound public sector finance. What is in doubt at the moment is the ability to continue to deliver growth and lower inflation. We should do all we can to push industrial costs down, even though this will inevitably be at some initial expense to the PSBR. With the recovery balanced as it is, and in a fragile condition, that must be the proper emphasis. At £10 billion the PSBR this year is about 3.25 per cent. of GDP. Next year at £8 billion it will be 2.5 per cent. Those are very modest levels in a recession.

We must realise that over-concern with the level of PSBR cancels out other options but that over-concern with forecasts of the PSBR—which, according to the autumn statement, is subject at this stage of the year to an error of estimating of some £2 billion—does more than that. To base the fine tuning of the economy on such a prediction could be extremely dangerous. The way to close the PSBR gap—if that were thought a desirable objective—would be through growth. I calculate roughly that if public expenditure stood still for two years and the economy grew by 3 per cent. per annum, the PSBR would simply disappear through increased taxation. No amount of public spending cuts could achieve that result.

I hope that in coming months the Treasury will worry rather less about the PSBR forecasts, and will try to reduce industrial costs. The obvious areas for action seem to me to be the national insurance surcharge, particularly as it affects manufacturing industries, the employers' national insurance contributions—which also affect manufacturing industry—and prices in the nationalised industries.

It is relevant, in thinking about this and about the level of the PSBR, to note what is happening in the United States, where there is 5 per cent. growth, 4 per cent. inflation, falling unemployment and a $200 billion public sector deficit. The United States is a special case, because of the relative unimportance of international trade and the willingness of foreigners to hold dollars, and I would not wish a similar experiment to be repeated here on a similar scale. However, it demonstrates at least that noninflationary growth and a large public sector deficit are not mutually inconsistent. I hope that the tactics of economic management over the next few months will be to reinforce the virtuous circle of low inflation, moderate wage claims, greater competitiveness and sustained growth. The Government can help by fostering low industrial costs, particularly through the national insurance surcharge and nationalised industry prices. I hope that they will do so, even at the cost of some marginal initial damage to the level of the PSBR.

8.38 pm

Mr. Dave Nellist (Coventry, South-East)

On page 3 of the Chancellor's statement, we find what may seem to those outside the House to be a remarkable statement. It is about the growth in domestic demand, the continued rise in investment, the recovery of exports and of world demand, the increased profitability of home supply, and rising employment.

As my hon. Friends have already emphasised, the Chancellor is cruelly deceiving the 5 million unemployed by his talk of rising employment, which is not backed up in the statement by any real hope that it will come about. The economic statement should be an opportunity for giving real hope to working people.

Instead, there are now 1.2 million young people under the age of 25 on the dole, of whom 14,000 are in the city of Coventry. Of those youngsters, 320,000 have been unemployed for over a year, 5,000 of them in Coventry. When the Government first took office, there was an average of 617 vacancies for youngsters at the careers or jobcentre in Coventry. At the last count it was 53. For the 5,000 youngsters who look with hope to the jobcentre, the odds against finding a job are 100:1, and yet we hear that employment is due to rise. The average time a person spends on the dole in Coventry is 10 months compared with just under nine months for the country as a whole.

During the last but one general election campaign, and also in the speeches surrounding the emergence of this Government, the Conservative party's philosophy was that mass unemployment could disappear because the dynamism of market forces and the push of private enterprise would take the British economy to almost untold heights. Perhaps the Chancellor or other Conservative Members will explain how it is that during the past 12 months 1,000 a month of those bastions of our recovery—the small businesses—have gone into liquidation.

The statement failed to deal with the deep-seated problems of the British economy. They will not be solved by a 3 per cent. growth in output or a 4 per cent. growth in investment. Those are the figures given in the document and in speeches by right hon. and hon. Members.

I wonder sometimes whether Conservative Members appreciate the depth of the problem of lack of investment in manufacturing industry that there has been over the past quarter of a century. During that period the world has changed; Great Britain has changed, but the decline in the relative position of the British economy compared with that of West Germany, Japan or America has been masked by the general increase in world trade.

Within that changing world, Great Britain has gone from being the second country in Europe and the fifth in the world in per capita output, to being 19th out of the 24 OECD countries. From having 25 per cent. of world trade 25 years ago, Britain has about 6 per cent. or 7 per cent. now.

In the 1960s, the economists of the financial papers wrote to the effect that they were worried about Great Britain losing its share of its own world market. In the 1970s and 1980s they spent all their time writing about Great Britain losing its share of the domestic market.

The faltering engine which fuels and powers that change, is investment in manufacturing industry. There is no lack of money available for the investment in industry necessary to guarantee jobs. because only a fortnight ago it was revealed that when Aspinall's, a roulette casino in London, put up 15 per cent. of its stock for sale, £500 million appeared immediately. Money will probably readily appear in the next 12 or 18 months when the Chancellor has completed his arrangements for the sale of 51 per cent. of the share in British Telecom, and his other denationalisation proposals. The fact that money exists within the economy knocks on the head the argument that there is not enough money to guarantee jobs or decent living standards.

I ask Conservative Members to consider where the money to fuel the Chancellor's prediction of a 4 per cent. rise in investment will come from as this year about £5 billion will be put into manufacturing investment, although the Chancellor expects £5 billion from the sale of shares in British Telecom and his other denationalisation proposals. Money that would have been invested in manufacturing will be siphoned off in those share sales.

Despite looks of incredulity, I tried during Question Time today to paint a picture of what the depth of the investment crisis in Britain means in global terms. I said that, a few years ago, the National Westminster bank—hardly a Socialist insititution—published a paper demonstrating that there was a £100 billion gap in investment in manufacturing in Britain as compared with Japan and Germany. That was the difference in the mid-1970s. If we allow for inflation, that gap has now increased to £200 billion.

The Chancellor says that there is to be a 4 per cent. increase in investment in the coming year, based upon a £5 billion investment. How will that gap ever be narrowed? How will that 4 per cent. rise in investment prevent British workers from perennially being told that they are not working hard enough or fast enough and that they are not producing goods cheaply enough or as productively as their counterparts in other countries? The difference between the economies of Germany and Japan and backward Britain is rather like giving one worker a spade and another a tractor, asking them to dig a field, and berating the one with the spade for taking two days because the one with the tractor took two hours. The gap in investment in manufacturing has reached horrendous proportions.

The Government have estimated that, in 1978, for every £ 1 per worker that was invested in Britain, £2.13 was invested in America, £2.98 was invested in Germany and £3.09 was invested in Japan. Those figures have not altered materially under this Government's stewardship. The countries that I have mentioned have invested twice or three times as much per worker as Britain. How, then, is Britain to regain its predominance in world trade in manufactured goods of 30 years ago if those who have the money do not invest it in Britain?

Where does the investment go? At the moment, £32 million a day goes to Brazil, Argentina, South Africa and Korea. In those countries the dictatorships, military or otherwise, ensure that trade unions do not function, mainly because they declare them to be illegal. There is a parallel in the path that the British Government are treading. In those countries, wages are kept artificially low so that profits can be high. Is that how the Government intend to reverse the decline of the British economy? Are they intent on driving wages down to the level of those earned by workers in the far east and denying the trade unions the ability to organise, as has happened in Latin America?

The Chancellor's statement fails to face up to the crisis in the British economy. The British economy has suffered in the past 25 years, but it has suffered most from the monetarist policies of the past five. When it starts to crack at the seams, amazing contradictions emerge. If they were not so serious, we might be forgiven for thinking that they should appear in a West End farce.

If the winter is as bad as it was two years ago, 46,000 pensioners may die of hypothermia, a condition caused by too little food or fuel. In past weeks hon. Members have raised questions about the fact that at pitheads and power stations, 58 million tonnes of coal are stockpiled, 24 million tonnes of which are at the pitheads. It costs the Government, through the National Coal Board, and therefore recovered in taxation from working people, £100 million a year in interest charges to maintain that 24 million tonnes at the pitheads. Yet in the past five years the Government spoke of workers not producing enough coal and not working hard enough. When the miners produce more coal it is stockpiled, bank interest charges increase and pensioners run the risk of dying of hypothermia. That is a crazy way to run an economy.

The Minister in his reply must consider how the Government will explain to working people in the next few years the reason why they have run down so many industries. The spare capacity in most industries today is phenomenal. In the chemical and allied industries 35 per cent. of plant is not being used in metal manufacturing the figure is 28.6 per cent., in shipbuilding and marine engineering it is 25 per cent., in other metal industries it is 40.6 per cent., in textiles it is 39.3 per cent., in the brick, pottery, glass and cement industry it is 40.4 per cent., in timber and furniture it is 53.3 per cent. and in the construction industry it is 38.2 per cent.

As my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said, one third of a million building workers are on the dole, 5.5 million workers live in damp housing and 38 per cent. of plant capacity is not used. A sane society would bring together the building workers, the plant and working people's needs. The Chancellor's statement and speeches made by Conservative Members do not offer that hope. The Prime Minister's closest adviser does not offer hope in his autumn statement for this decade, nor for an upturn in the economy which would be sufficiently great to bring about prosperity, such as we had in the 1950s and 1960s, until the next decade.

The difference between capitalism in Britain and capitalism in Japan and Germany is £200 billion of investment. They, too, have problems of inflation and unemployment. What does the statement, which offers a 4 per cent. growth in investment and a 3 per cent. growth in output, offer to working people? It does not promise to reduce unemployment, to raise living standards, to improve housing or to fulfil the expectations of young people. As an opportunity to give working people a future, the Chancellor's statement is an abject failure. He presides over a candy floss economy that is slipping further and further into the backwaters of international trade. Until society is transformed and private profit is no longer the motivating force of the economy, we can expect from the Chancellor and his right hon. and hon. Friends month after month only more bad news for working people.

8.53 pm

Mr. John Townend (Bridlington)

My right hon. and learned Friend the Chief Secretary will excuse my not wasting time giving the Government the praise that they deserve.

I shall restrict my remarks to public expenditure. The hon. Member for Coventry, South-East (Mr. Nellist) compared Japan, the United States and West Germany with Great Britain. I am grateful for that, because it proves my point. Could the success of those countries be due to the fact they spend a smaller proportion of their gross domestic product on the public sector than we do? Japan spends 26.5 per cent., the United States spends 34.2 per cent., and we spend 44.6 per cent. according to the latest figures. Equally, could they have more investment because they are taxed at a lower level than we are? Taxation as a proportion of GDP in Britain is 37.35 per cent. compared to 26.6 per cent. in Japan. I suggest that they are significant reasons for the success of those countries.

The Conservative party has fought two elections on a policy of reducing taxes and public expenditure. I admit that, despite our success on inflation and in many other areas, we have failed to deliver on taxation. Opposition Members were delighted to give figures showing how the share of tax as a proportion of GDP has increased. Although it is now falling slightly, if the present trend continues, after two terms in office we shall be going to the electorate with taxation higher than when we came in.

We have failed to get a grip on spending. We have successfully reduced the public sector borrowing requirement, as we said we would, but we have done it at the expense of the taxpayer. I do not blame my right hon. Friend the Chancellor, or his predecessors. The blame lies with spending Ministers, spending Departments, health authorities and local authorities. I must say frankly—I speak as a blunt Yorkshireman—that it is depressing for our supporters in the country to see their leaders, who at election time are united in advocating a policy of reducing spending and taxation, forget about cutting expenditure as soon as they enter the spending Departments. At best, they fight to maintain their budgets; at worst, they fight to increase their resources. It is a depressing thought that in 1985–86, public expenditure is expected to increase by 4.7 per cent.—a figure which, if the Government continue to be successful in their anti-inflation policy, could be higher than the level of inflation.

What the Government are saying to us is that the public cannot look for real reductions in public expenditure until 1986–87. It could then be much more difficult politically, because we shall be in the second half of this Parliament. Surely there will never be a better time than the present to cut spending. After a great election victory, and with a large majority in a new Parliament, we can carry out policies that are unpopular in the short term but that will bring benefits in the long term.

Anyone who advocates the policies that I advocate—several of my right hon. and hon. Friends do—has a duty to spell out where he would make reductions. We must be honest, and radical. No Department can be exempt. For a start, the concept of automatic full indexation, whether of Civil Service pensions, benefits or tax allowances, should be challenged.

I have a long list of suggestions as to where we could make savings, but I shall not go through it entirely because only two minutes remain. I shall start with the Health Service. Far from reducing expenditure on the Health Service, we have continually increased it. Next year it will be £15 billion, and the year after it will be £16 billion. A retired consultant who visited me at the weekend was furious about the so-called cuts in the Health Service. He made it clear that vast savings could be made, and I could list them all. One of the most important suggestions is the privatisation of services. I welcome the Government's efforts to move the laundry, cleaning and catering services to the private sector. However, the Government are not taking a strong enough line, because many health authorities are dragging their feet. At least some, if not all, of the money saved should go back to the Treasury to be used to reduce the PSBR or taxation.

The public sector must cut costs and increase productivity, as the private sector has had to do. The Government have set a good example by reducing manning levels in the Civil Service. The same should happen in the Health Service and in local government. Time is running out. My right hon. Friend must act with haste. He no longer has the time to use the surgical knife. Now, if he wants to cut taxes, he must bring out the axe.

9 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

We have had two maiden speeches tonight—one from the hon. Member for Mid-Norfolk (Mr. Ryder) and one from the hon. Member for St. Albans (Mr. Lilley). Both hon. Members have already been here long enough to know that what I am about to say is meant to be more than the usual obligatory comments from the Front Bench. Both hon. Members made excellent speeches which were heard with interest and a fair measure of agreement on the Opposition side of the House as well as on theirs.

The hon. Member for Mid-Norfolk has the good fortune to be the first member for a new constituency, but one of his predecessors was Sir Anthony Fell. Although we often disagreed with him, he is sorely missed by the Opposition. The hon. Gentleman made a speech which was both brief and thoughtful. He called for a popular debate on the options for public expenditure. The Opposition would welcome such a debate. We agree with him because it would not only be good for the House; it would also be a good opportunity for our party.

The predecessor of the hon. Member for St. Albans was Sir Victor Goodhew, and the best compliment that I can pay the hon. Gentleman is to say that I am sure he will be a worthy successor to one of the nicest men who ever sat in the House. I hope that I shall not ruin the hon. Gentleman's career in the Conservative party by saying that he made an excellent speech, and that I agreed with most of it. He called for the Government to look hard at, and to cut, the increases in public expenditure on agriculture, defence and the contribution to the EC budget. I agree with all of that.

On the other hand, I cannot agree with the hon. Gentleman in his congratulations to the Chancellor on sticking to a total of £126.4 billion for public expenditure next year. The Chancellor's obsession with the figure of £126.4 billion was at the heart of his economic statement a week ago, and it is at the heart of our criticism of his policy. The Chancellor said today that the public expenditure White Paper published in February was the Conservative manifesto in the general election campaign in June, and that in voting Conservative in the election, people were voting for that. White Paper.

I am not sure whether the Chancellor was holding up volume 1 or volume 2 for the benefit of the House, but that does not matter because, although volume 2 has more detail, there is plenty of detail in volume 1. When the Chancellor says that people were voting for the public expenditure White Paper when they went to the polling stations, we are entitled to tell him that people voted for a pattern of public spending and not for a total of £126.4 billion. Almost the only figures that the Chancellor has left untouched are the total of £126.4 billion and his contingency fund of £3 billion.

Let us look at the details of public expenditure as announced by the Chancellor in his latest statement, because, as he pointed out, there are changes in both directions within the total. Contrary to what the right hon. Member for Worthing (Mr. Higgins) said, some of the changes are significant. In fact, there are four significant changes—one big increase., two big reductions and one increase that is really a decrease.

The one big increase, by far the biggest proportionate increase, is in the money provided for the Intervention Board for Agricultural Produce, an increase of £400 million. That is 50 per cent. more than we were told to expect in February—half as much again to pay farmers to produce food that no one wants to eat.

No doubt the Chief Secretary will tell us that next year's figure will be virtually the same as this year's actual figure, but the fact remains that it is £400 million more than was planned for next year, just as this year there is £300 million more than was originally planned. Of course, this expenditure is now inescapable. It is a result of decisions taken several months ago, and it represents a confession of a continuing failure by the Government in their attempts to reduce or even limit the increase in the amount that we spend in this way.

There is a reduction of £500 million in the provision for housing compared with February, but a reduction of £2 billion over five years in cash terms—a cut of nearly half in Government expenditure on housing. In real terms, the reduction is much greater than that. Indeed, at a time when the Government plan to increase public expenditure as a whole by two thirds compared with 1979, they intend to cut expenditure on housing by half. Yet the housing crisis in Britain stands next only to unemployment as a monument to the Government's indifference to human misery.

Then there is the increase which is really a decrease. At first sight, expenditure on social security is rising by £900 million next year compared with the figure announced in February—that is an increase of 2.5 per cent. But it is only £163 million after adjusting the previous figure for the Budget and other pre-survey changes since February—so the increase is less than 0.5 per cent.

During the first six months of this year, the overspending on supplementary benefit alone was 5 per cent.—£400 million. I assume that the figure has been taken into account in adjusting the February figures for Budget and pre-survey changes, yet the public expenditure statement assumes that there will be a 5.5 per cent. uprating next November. That increase next year will increase public expenditure by 2 per cent. in the next financial year compared with an increase in the public expenditure statement of only 0.5 per cent. Therefore, some of those who depend on social security benefits—perhaps all of them—will lose some way next year.

They will lose not only because of the change from November to May in the calculation of the increase—if the Chancellor's forecast for inflation is wrong—but they will lose more directly as a consequence of other Government decisions. Not only will there be no improvement in the standard of living for those who depend on supplementary benefit, pensions or housing benefit, but there is no share for them in the 6.5 per cent. increase in average earnings or even the 3 per cent. increase that the Government wish to impose on those who work in the National Health Service, the civil servants and others engaged in the public service. Indeed, there will be a reduction for some people who receive benefits.

We know that some of those who will be hit are those in receipt of housing benefit and rate rebates—and not only tenants, but owner occupiers. They will suffer as a result of what the Chancellor calls a "reduction in the coverage" of help with housing costs, and especially housing benefits. It was left to the Secretary of State for Social Services to spell it out—there will be a cut of £230 million in housing benefit. Therefore, the apparent increase in social security hides a large reduction in practice—and we do not yet know about all the reductions.

The largest reduction of all in this year's public expenditure statement is the cut in the external financing limits for nationalised industries of more than £700 million compared with the figures announced in February—the February figure that people thought they were voting for when they voted for the Conservative manifesto in June.

Hon. Members on both sides of the House have referred to the increases in gas and electricity prices. My right hon. Friend the Member for Birmingham, Sparbrook (Mr. Hattersley) exposed the way in which the Chancellor is forcing the gas industry to increase its prices on the pretext that it must improve its internal investment. Yet the Chancellor was himself responsible for a once-for-all accounting provision that reduced its return on investment—or, rather, its return on paper—from 5.7 per cent. to 1.6 per cent.

However, that is not all. Only four nationalised industries have escaped the Chancellor's technique for balancing his books—coal, steel, shipbuilding and civil aviation. What about the rest? We know about gas and electricity. What about the water industry, the Post Office, British Rail, and the National Bus Company? What will happen to all their charges in 1984–85? The Chancellor of the Exchequer has reduced all their external financing limits. What other price increases are in the pipeline that we have not yet been told about? What will happen to water rates next year? What will happen to the postal charges next year? What will happen to bus and rail fares next year? Or will those industries simply postpone their capital expenditure?

Whatever happens, it is bad news for the consumer and for industry, as the Chancellor of the Exchequer and the Chief Secretary have been told not only by Labour Members but by their own Members. Increases in gas and electricity prices, water rates, postal charges and rail and bus fares are not only inflationary, but exactly the same as increases in taxation, in that they reduce the purchasing power of the consumer. Incidentally, they are very bad taxes, because they impose disproportionate burdens on the poorest people in the community, but my main point is that, just as with reductions in housing benefit and rate rebates, they reduce the purchasing power of the consumers. In doing so, they bring bad news to British industry too because they reduce the domestic market for British industry.

I am not surprised that the Chancellor's announcement had such a poor reception from industry, because the rest of his statement did not contain much good news either. When we look at the detailed figures which support his claim that we have a winning combination of low inflation and steady growth, we find that everything depends on two key factors. It is already clear that the rate of growth is now falling. In fact, the graphs in his statement show that the growth in the average measure of GDP peaked in early 1983, and has now fallen. The Chancellor of the Exchequer admits that the growth in domestic demand will fall back next year. He is pinning all his hopes of maintaining a steady growth of 3 per cent. in the economy on increased investment and an increase in exports.

The Chancellor of the Exchequer is looking for an increase in investment of 4 per cent., compared with an increase of only 2.5 per cent. this year. However, there is little to justify that confidence. His statement tells us that manufacturing investment is showing signs of only levelling out, after falling by more than a third since 1979. We think it is good news that manufacturing investment is no longer going down. Certainly that is good news, but levelling out will not produce an increase of 4 per cent. next year in the amount being invested in manufacturing capacity, especially at a time when industry after industry is operating with excess capacity, as my hon. Friend the Member for Coventry, South-East (Mr. Nellist) said, and at a time when, for example, more than three quarters of the firms in the west midlands report that they have excess capacity.

So where will the Chancellor of the Exchequer get his increased investment? Will it all come from house building? That was cut in the public expenditure statement. Will it come from the nationalised industries? Their external financing limits were cut. So where will the investment come from? I hope that the Chief Secretary will tell us when he winds up.

Perhaps the Chief Secretary will also tell us where exports are to come from. If the forecast for fixed investment looks optimistic, the forecast for exports is nothing less than wishful thinking. This year our exports increased by 0.5 per cent. Next year, the Chancellor of the Exchequer expects them—no one else expects it—to increase by no less than 4 per cent. He has no justification whatever for that forecast. It will not come from North Sea oil. The right hon. Gentleman admits that exports of fuels will remain broadly unchanged. He expects an increase in exports of manufactured goods, non-manufactured goods, and services. He told us that all of them would increase. If the export of fuels is to be broadly unchanged, it follows that all those other exports will have to grow by more than 4 per cent. By how much does the Chancellor expect each group of exports to increase next year? I hope that the Chief Secretary will tell us, and while he is about it, I hope he will tell us why they will increase. There are no grounds for optimism on this scale anywhere in the Chancellor's statement.

What the Chancellor does tell us in his statement is that both the volume and value of our share of world trade in manufactured goods have fallen since 1979. He says that although the volume went up for a couple of years after 1981, the value continued to go down. Both volume and value have been going down this year. Why all this optimism about world trade? The Chancellor, the Chief Secretary and the Prime Minister—I am not sure about the rest of the Cabinet—think that British industry is now more competitive, but the only evidence the Chancellor gives us is a table on productivity, which shows that more than 1 million jobs have been lost in manufacturing industry since 1980 and that output is almost back, not to the 1979 level, but to the level at the end of 1980. On that evidence, on those figures, on that table and on that table alone, the Chancellor claims that productivity has improved and that we are more competitive in foreign markets.

Anyone who has ever worked in industry knows that the Chancellor's table is completely irrelevant when discussing the productivity and competitiveness of individual firms. It is the individual firm that sells and exports abroad. It is not the Chancellor or the Treasury with its charts and tables but the individual firm. What matters to the individual firm when trying to sell abroad is its own productivity, its own unit costs and its own prices. Recent experience tells us that at the level of the individual firm we are not more competitive. During 1983, imports of manufactured goods have risen not by 0.5 per cent., not by 4 per cent. or 5 per cent. but by 10 per cent. Half that increase is attributed by the Treasury to a loss by British manufacturers of their share of their own domestic market. In other words, British manufacturers are not more competitive—they are less competitive in their own market when faced with foreign firms. There is no reason to suppose that they will be more competitive in the countries of those foreign firms than they are in Britain.

What is the Chancellor doing to help British industry and to help the individual firm to improve productivity and reduce unit costs? He is doing nothing—worse than nothing. The Chancellor has given each exporter a slap in the face—not one but two slaps in the face. First, the Chancellor has acted deliberately, as he has been told by his hon. Friends, to increase the costs of industry by increasing the price of energy and, I suspect, the cost of water, transport and postage. That is a direct result of his juggling with the external financing limits of the nationalised industries. The second way that the Chancellor has acted to hamper productivity and to increase unit costs has been to stick rigidly and inflexibly to the figure of £126.4 billion of public expenditure. At a time when more than 40 per cent. of the firms in the west midlands are working at less than 60 per cent. of capacity, the Chancellor is deliberately squeezing domestic demand and cutting back on economic growth based on domestic demand.

If the Chancellor really wanted to help the individual firm to export, he would expand the domestic market and introduce import controls to ensure that the benefit went to British manufacturers. That, more than anything else, is what every exporter needs—a domestic market that is big enough to get his unit costs down and to act as a base from which he can attack the foreign markets. That is what people in Japan have and what peple in this country do not have. That is exactly what the Chancellor will not give the British exporter.

Mr. Eggar

I think that I detect the first bit of Opposition policy. Did we just have a reiteration of the Opposition's belief in import controls?

Mr. Davis

Yes. That is exactly what the Chancellor will not give the British exporter. It became clear during the famous discussion between the Chancellor and Mr. Walden last Sunday that if the Chancellor hates nationalised industries, he hates public expenditure more.

Mr. Budgen

Will the hon. Gentleman give way?

Mr. Davis

The hon. Gentleman has not been present for much of the debate, but I shall give way.

Mr. Budgen

Will the hon. Gentleman explain the extent to which he is advocating import controls and on what commodities he proposes they should be placed?

Mr. Davis

I shall be delighted to explain that to the hon. Genleman in a future debate on import controls, which I am sure we shall have. However, I hope that he will do the House the courtesy of attending that debate and not merely intervening in the wind-up speeches.

When the Chancellor and Mr. Walden were talking last Sunday, the Chancellor made it clear that it did not matter to him that an increase in public expenditure would help industry and create more jobs directly and indirectly. Equally, it does not matter to the Chancellor that public expenditure means public services, better schools, a better Health Service and higher pensions. What became clear during the interview with Mr. Walden was the difference between the Labour party and the new dogmatic Conservative party.

Until a few years ago, the argument between the two parties was not whether more money for schools, housing, the Health Service or pensions was desirable, but whether we could afford it. The difference was that Labour always wanted to spend more on those services and the Conservatives always argued that we must wait for the economy to improve. Their argument always used to be that we must first earn the money with which to pay for those improved services.

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

indicated assent——

Mr. Davis

I see the Chief Secretary nodding. Obviously, he did not watch television on Sunday morning. Therefore, I shall have to tell him what the Chancellor said.

The difference was that Labour always wanted jam today and the Tories always promised jam tomorrow, and tomorrow never seemed to come. However, that is not the difference now. In the famous interview on "Weekend World" last Sunday, the Chancellor made it clear that not only would he not provide more money next year for better schools, a better Health Service or higher pensions in real terms, but he did not hold out any prospect for more money for those services at any time in the future, whatever happens to the economy—not even in the 1990s if this Chancellor and this Government have their way.

The Chancellor specifically said that the areas where he would be looking to cut public expenditure in the 1990s would be social security, the Health Service and education. He referred Mr. Walden and the audience to what the Government had done for council housing. As the Chief Secretary did not see the programme, I shall have to tell him what the Chancellor said. It was: Housing is a basic need, and the need for housing will go up as the country gets wealthier—as people's aspirations get higher". There is no recognition of the present unmet need or of the thousands of families waiting for accommodation, but let us pass by, like the Chancellor.

The right hon. Gentleman went on to say that the cardinal policy of the Conservative party is that more and more should be provided by the private sector. He said: People like to own their own homes. There is no recognition of the fact that some people do not have the money to buy their own homes.

The kernel of the Chancellor's argument was: what we need to do is to apply that sort of philosophy to these other areas—what is the scope for greater private provision in all these areas? Let us not forget that the Chancellor was talking about social security, the Health Service and education. For the Chancellor, it is not a question of giving people a choice but of forcing them to pay for treatment in hospitals and for the education of their children.

The Chancellor has already made a start on that. Quietly, without announcing it, the right hon. Gentleman has begun to privatise social security. As my hon. Friend the Member for Pontypridd (Mr. John) pointed out, the Government Actuary's report shows that the Government will reduce their contribution to the national insurance fund by £459 million next year. That measure of privatisation is buried away on page 6 of the report. It is a means of ensuring that there is greater private provision and smaller public provision towards the cost of protecting people against all the misfortunes that are covered by the national insurance fund. It is making people who are still employed pay more of the cost of supporting those who are unemployed, sick, widowed or retired, including the cost of the Christmas bonus about which Conservative Members keep talking. The Government are reducing their contribution towards the cost of all these benefits. That is one way in which the Chancellor is shifting the cost of social security from public to private provision—and he is not waiting until the 1990s to start the process; he is making a quiet start next year.

The Chancellor is not alone in that desire in the Government. I have referred to the Chief Secretary and the Prime Minister, but we must not forget the Secretary of State for the Environment, who last Thursday held a press conference. That was not in the Chancellor's economic statement; and the Secretary of State for the Environment preferred to talk to journalists than to hon. Members.

At that press conference the right hon. Gentleman is reported as having said—he has not denied it subsequently—that local authorities no longer needed to build homes for what he described as "ordinary families". He said that local councils should concentrate their activity on special needs housing for the elderly or handicapped.

Let us be clear what the right hon. Gentleman was saying, because it goes much further than selling council houses to sitting tenants. The Secretary of State for the Environment was saying, on behalf of the Government, that in the longer term, councils should not provide accommodation for anyone except the elderly or handicapped. I am not sure what the right hon. Gentleman thinks the rest of the population should do. In the view of the Government, councils should not provide any accommodation for anyone who is working, however low the wages, who is unemployed and has no hope of buying his own home, for single people—say, young people who have left home for the first time—for single parent families, widows, battered wives or divorced people, all the ordinary people who are standing in the queue for council accommodation. Then there are all the people like them who have council accommodation now. I am not sure where they should look for accommodation in future. Perhaps the Chief Secretary will tell us, as we do not have the Secretary of State for the Environment with us tonight.

Not only do the Conservatives see public expenditure as a burden to be borne by the economy, instead of a motor that drives it; not only do they see it as something to be reduced and avoided; not only do they see it as something that detracts from, instead of improving, the quality of life. In the Chancellor's warped version of political economy, public spending is a sin. Gone are the days of the Tory squires with their paternalistic ideas. We in the Labour party always looked on their motives with suspicion, but at least they had some idea that people should have a responsibility to people other than themselves.

As I say, the squires have gone or are on their way out—for example, the right hon. Member for Cambridgeshire, South-East (Mr. Pym); the present Secretary of State for Energy; the present Leader of the House; and the right hon. Member for Chesham and Amersham (Sir I. Gilmour). They have had their day. They will soon be sent to another place. We are left with a new Tory party, inflexible and dogmatic, as impervious to reason as the Chancellor, and I ask all Opposition Members to join me in the Lobby against them.

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

rose——

Mr. George Robertson (Hamilton)

On a point of order, Mr. Speaker. I wish to remind you, Mr. Speaker, of what you said on 7 November: May I add that I hope those who are called will always observe the etiquette of the House by remaining in the Chamber to hear some of the subsequent contributions—at the very least the next speaker—and certainly that they will be in their places for the winding-up speeches.[Official Report, 7 November 1983; Vol. 48, c. 23.] As I came through the carriage gates at 9 o'clock the Chancellor of the Exchequer was departing in his car, and he has turned up at 27 minutes past 9. Can we assume that his reason for leaving was either because of a national or personal emergency or because he was indulging in a simple and blatant breach of etiquette and decencies of the House in not remaining for the winding-up speeches?

Mr. Speaker

Order. I have no knowledge of either official or private engagements of any right hon. and hon. Members. I stand by the statement that I made on that occasion.

Mr. Rees

rose——

Mr. Willie W. Hamilton

Will you, Mr. Speaker, make it very clear that the first priority of any Minister, whatever his outside engagements, is to the House?

Mr. Speaker

I have nothing to add. A convention which all hon. Members should adopt in the House is that if they have been taking part in a debate they should be present for the winding-up speeches.

9.32 pm

Mr. Rees

We have had an interesting and wide-ranging debate. I cannot say that the Opposition Benches have been very full, which is no doubt why they are raising these spurious points of order.

My first and pleasant duty, which I hope the House will allow me to perform, is to congratulate my hon. Friends the Members for Mid-Norfolk (Mr. Ryder) and for St. Albans (Mr. Lilley) for their eloquent and perceptive contributions to the debate. I think that we appreciated the graceful references to their constituencies. As Chief Secretary to the Treasury, I appreciated their pointed comments about public expenditure. I am sure that the whole House, and I personally, will look forward to their further contributions, not only to economic and public expenditure debates but to wider subjects.

Next, it would not be inappropriate for me to congratulate the hon. Member for Birmingham, Hodge Hill (Mr. Davis). I think that this is the first time that he has spoken in his new role. I appreciate that I need not tell the hon. Gentleman that it is a difficult role, especially in opposition. Without the constraints imposed by the real world or those imposed by the International Monetary Fund, he will, I predict, find it difficult to guide the Labour party on the paths of realism. None the less, I wish him well and look forward to further friendly encounters in the Chamber.

I hope that I may be permitted to try to set the debate in its true context and begin by correcting two misunderstandings. Some hon. Gentlemen and one or two outside commentators have voiced their suspicions that the fiscal prospect described by my right hon. Friend last Thursday was a pretence designed to shock and frighten. Although the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), has obviously, but unusually, been frightened and intimidated, I shall try to bolster him up with a message of good cheer, but perhaps he can contain himself for a moment. The Treasury, under the guidance of my right hon. Friend the Chancellor of the Exchequer, attempts to lead by reasoned argument and not by tactics of that kind. However, others have seen the statement of the fiscal prospect as a rehearsal for the Budget that my right hon. Friend the Chancellor of the Exchequer will present next year. I do not believe that either of those groups is right. Last week's announcements were not a mini-budget; still less were they a statement of what will be in next year's Budget.

On Thursday, my right hon. Friend announced the outline public spending plans for the coming year. Departments, local authorities and the public corporations now have adequate time to prepare their own more detailed plans.

At the same time, my right hon. Friend the Chancellor of the Exchequer published the forecast required under the Industry Act. This year, as last—following the report on budgetary reform prepared by the Treasury and Civil Service Committee under the chairmanship of my right hon. Friend the Member for Taunton (Mr. du Cann)—the forecast gave estimates of public borrowing As the point was raised, in particular, by my hon. Friend the Member for Worthing (Mr. Higgins), may I say how sorry we are that there could not have been a contribution to our debates from the Treasury and Civil Service Committee under his wise guidance. I understand that there are certain difficulties, as the Committee has not been fully constituted. However, we look forward to some perceptive and informed comments from the Committee in due course.

The forecast proceeds on the assumption that the PSBR for next year will be held to 2.5 per cent. of the gross domestic product, or £8 billion, as indicated at the time of the Budget and that the main taxes will be indexed. On that basis, it suggested that a small net increase in taxation of about £0.5 billion might be needed to achieve that. That is the figure that appears in table 1.9 of the autumn statement, and I believe that it would have been absurd for my right hon. Friend the Chancellor to gloss over it.

As my right hon. Friend the Member for Worthing remarked, the sums involved are small and may be within the margin of error. Equally, we bear in mind, as I am sure that my right hon. Friend will, the injunctions of my right hon. Friend the Member for Guildford (Mr. Howell). We took great account of what he had to say. I naturally very much hope that a net tax increase will not prove to be necessary. However, I can assure the House that the appropriate decisions will be taken if taxes need to be increased in order to hold down public borrowing. Our determination on that point, as on others, was shown during the previous Parliament.

The results of our determination are clearly to be seen—at least by all but blinkered Opposition Members. I shall repeat them, because the right hon. Member for Sparkbrook does not give much credence to what has happened. I refer to the lowest inflation rate since the 1960s and to a recovery that began early in 1981. Indeed, that point appears to have escaped the attention of the right hon. Gentleman, who seems to think that it was a mini-election boom. It is expected to continue next year without a resurgence of inflation.

Mr. Stuart Bell (Middlesbrough)

The Chief Secretary needs an umbrella.

Mr. Rees

I do not need an umbrella, because I am protected by the results that we have achieved so far.

Some hon. Members have expressed concern about the extent to which the recovery has depended upon the growth of consumer expenditure and questioned whether it can continue. I noted that my hon. Friend the Member for Lewisham, West (Mr. Maples) was concerned that the recovery might be fragile. There is—or there should be—no surprise about the growth of consumer spending in the early stages of the recovery. That has been the pattern in many past recoveries. In this case it has been stimulated particularly by the fall of the savings ratio, as people have felt less need to put money aside simply to cope with the effects of inflation.

We now have the prospect of the recovery becoming more broadly based. Exports and investments are expected to grow more rapidly, helping to sustain growth in what will be the fourth year of the recovery.

Mr. Austin Mitchell (Great Grimsby)

Why? What will make them?

Mr. Rees

I hope that the hon. Gentleman will contain himself. I have already mentioned some of the pointers to that successful outcome. The hon. Gentleman might care to ponder on a predicted 5 per cent. growth in manufacturing investment next year—[Interruption.] I am delighted to hear the authentic voice of the Militant Tendency. It is good to hear those unvarnished views, which are too often suppressed, we understand, in the constituencies. However, the hon. Gentleman may reflect on the fact that manufacturing investment will increase. I hope that that will give him hope and that he will realise that there are merits in the policies that he has doubted for so long.

Mr. Nellist

First, does the Chief Secretary accept that, since the Government first came to office in 1979, the proportion of total investment in manufactures has fallen from 48 per cent. to one third of that total? The real increase in total investment has come in service industries, not in manufactures.

Secondly, does the Chief Secretary accept also that any increases during the next 12 months are more likely to be in stocks than in manufacturing investment which would enable goods to be made more cheaply and productively?

Mr. Rees

I am always surprised that Opposition Members are so dismissive of the service sector. They might ponder the fact that about 11.5 million of our fellow countrymen are employed in the service sector and, therefore, it is not a bad thing that investment in that sector should increase. The hon. Gentleman may be unaware that restocking has probably very largely been completed, so we do not look to it as a substantial element in the increase in GDP next year.

The subject of energy prices was raised by several Opposition Members, especially the right hon. Member for Sparkbrook who was sufficiently ill-judged to assert that my right hon. Friend, who has been a most distinguished Secretary of State for Energy, was too timid to deal with this subject. I notice that the Liberal and SDP amendment refers cautiously to this question. [HON. MEMBERS: "Where are they?"] I do not want to intrude on the domestic griefs of the Labour party, but I believe that they have a point. I notice also that the official Opposition amendment prudently does not refer to this question. I say "prudently", because the principle to which the Government subscribe was well set out in the Green Paper issued in 1978 by Mr. Wedgwood Benn.

Mr. Hattersley

Who is he?

Mr. Rees

I hope that the right hon. Member for Sparkbrook is not taking advantage of the absence from the House of Mr. Wedgwood Benn. I am sure that we all wish him good luck in the selection process at Chesterfield as he makes a notable contribution to our debates.[Interruption.] The hon. Member for Bolsover (Mr. Skinner) clearly appreciates him, but I do not want to come between the hon. Member for Bolsover and his friends on the Front Bench. They can debate that matter on some other occasion.

I remind the right hon. Member for Sparkbrook—he was the Minister responsible for prices at the time—that, according to the 1978 Green Paper, the principle that prices should reflect the costs of supply on a continuing basis while providing for an adequate return on capital is now firmly established. Will the right hon. Member for Sparkbrook tell us whether that is still the principle to which the Labour party adheres? He nods, but he is a little quiet.

Mr. Hattersley

I have been waiting all afternoon for the right hon. and learned Gentleman to get to this. The hon. Member for Horsham (Mr. Hordern) also made the point. The argument is not about whether there should be an appropriate return on capital but about whether the Government changed the figures to make it appear that there was not an appropriate return on capital. I ask the Chief Secretary a direct question. I have before me the annual accounts of the British Gas Corporation.

Mr. Rees

So have I.

Mr. Hattersley

Perhaps the Chief Secretary will look at the bottom of page 92, which shows how capital and profit are calculated in determining the targets. I shall give the right hon. and learned Gentleman a chance to answer if he likes. Why has the established criterion—the target criterion—for determining profitability been abandoned during the past fortnight to justify the price increases?

Mr. Rees

It has not. The answer is quite simple.

Mr. Skinner

Come on, Paul Daniels.

Mr. Hattersley

The right hon. and learned Gentleman turns away a little too quickly.

Mr. Rees

I am coming to the point. Let me come to it in my own time. There is a perfectly simple answer which the right hon. Gentleman seems not to have grasped because he is focusing on the wrong year and the wrong set of accounts. First, the right hon. Gentleman was probably looking at the 1982 profits.

Mr. Hattersley

rose——

Mr. Rees

No, I will not give way. [HON. MEMBERS: "Very wise."] The profits for 1983 were £332 million.

Mr. Hattersley

That is electricity.

Mr. Rees

So it is. I am sorry. The British Gas Corporation's profits were £663 million—and that takes no account of the sale of "enterprise oil," which is what the right hon. Gentleman was picking on. As a return on assets, that is 5.7 per cent.

Mr. Hattersley

Yes.

Mr. Rees

That is not the point that the right hon. Gentleman was making earlier. He may be convulsed with laughter because he has either been looking at the wrong accounts or making the wrong calculation on the capital assets. The capital assets are about £12 billion, so, although the British Gas Corporation has been making a profit, it has not been a substantial one.

The right hon. Member for Sparkbrook should be more concerned about what happened between 1974 and 1979 under the Labour Government. I will remind the House of what happened.

Mr. Hattersley

rose——

Mr. Rees

Oh, no! The right hon. Gentleman can just sit still and listen to what I have to tell him and the House. Under the Labour Government, the price of industrial gas rose by 291 per cent. I have taken the trouble—no doubt the whole House has—to read Lord Barnett's book. Of course, we know that the right hon. Member for Sparkbrook supported those price increases without conviction. He is the apostle of convictionless politics.

Under the Labour Government, the price of domestic gas rose by 73 per cent., the price of industrial electricity by 134 per cent. and the price of domestic electricity by 169 per cent. Does the right hon. Gentleman claim that those figures are inaccurate? In every case but that of domestic gas, with which I shall deal in a moment, those increases were way above those for which the Conservatives were responsible between 1979 and 1983. In that period, the comparable increases were 85 per cent. for industrial gas, 112 per cent. for domestic gas, 67 per cent. for industrial electricity and 83 per cent. for domestic electricity.

I remind the House of the disastrous consequences of the distortion of prices under the Labour Government in favour of domestic gas users but not, surprisingly, electricity users. A massive domestic demand for gas developed which the British Gas Corporation could not meet. More particularly, industries seeking new supplies faced much higher prices and the corporation was obliged to ration supplies. We do not wish to repeat that situation.

Let us now consider the present position. The right hon. Gentleman's case depends entirely on some rather spurious figures that he has concocted about the return on assets. Has he read the 1983 report of Deloitte Haskins? That report clearly states: In 1982–83 sales of gas in all markets, apart from the interruptible market, were taking place at prices which are insufficient to meet marginal costs and then the costs of maintaining supply. The right hon. Gentleman will get no support from that set of accounts. He might ponder on that point.

Mr. Hattersley

I ask the Chief Secretary again, as calmly as I can, the question that I asked the Chancellor. I refer to the footnote at the bottom of page 92 of the 1983 accounts. Why have the Government changed the criterion upon which profitability in these industries has traditionally been measured?

Mr. Rees

My accounts for 1982–83 do not run up to page 91.[Laughter.] I must not be directed too much by these entertaining exchanges.

Mr. Hattersley

Take a look at them.

Mr. Rees

Take a look at that.

As regards profits, it is true that in 1982–83 the electricity industries reported profits of £332 million and the British Gas Corporation profits of £663 million. Those are large sums, but they must be viewed against the turnover of the industries and the assets invested in them.

The turnover for the electricity industries in 1982–83 was just over £9 billion. The turnover for the British Gas Corporation in that year was just short of £6 billion. The assets invested in the electricity industries were around £32 billion, and the assets invested in the British Gas Corporation were around £12 billion. The return on those assets is just under 2.5 per cent. for 1983–84 in the electricity industries and about 4 per cent for 1983–84 for the British Gas Corporation. Tested in that way, the profits of those industries cannot be regarded as high and certainly not as excessive.

As regards industrial users, gas and electricity prices are in general in line with our continental competitors. Some large-scale industrial users of electricity may be at a disadvantage, but more than 95 per cent. of industrial and commercial consumers are not. The price increases being considered at the moment will not change that position.

Mr. Nellist

What about coal stocks?

Mr. Rees

That is a different question. The hon. Gentleman may like to consider that there will be a positive external financing limit of over £900 million for the NCB.

My right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) thinks through his speeches rather more carefully than the right hon. Member for Sparkbrook. He suggested that there had been a relaxation of the Government's fiscal position. I refer him to the autumn statement. Tax receipts have remained roughly constant in real terms between 1982–83, and 1983–84. Public borrowing has remained constant as a proportion of GDP; the PSBR is likely to be about 3.25 per cent. of GDP—the same proportion as last year. I refer my right hon. Friend to table 1.7, which substantiates some of those points. I remind my right hon. Friend, as I reminded the right hon. Member for Sparkbrook, that in any event the recovery started in 1981 so that the figures to which he has drawn attention would not be conclusive.

My right hon. Friend said that he did not like our rhetoric but that he might approve of our actions. I fear that he may continue to find our rhetoric somewhat distasteful, but I hope that he will accept that our actions are worthy of consideration—at least by our standards. I know that my right hon. Friend is very open-minded on this question. I hope that when he has studied the figures again he will draw a different conclusion.

The hon. Member for Pontypridd (Mr. John), the hon. Member for Wrexham (Dr. Marek) and the right hon. Member for Sparkbrook, mentioned the question of housing benefits. All that has happened is a 5 per cent. reduction in the total cost of a programme running at about £4 billion. The target will have been narrowed from about 7 million households to about 6.25 million households—that is all—and no one on supplementary benefit need be affected.

I fear that the entertaining exchange that I have had with the right hon. Member for Sparkbrook may have prevented me from referring to all the interesting speeches that have been made. One point made by the hon. Member for Hodge Hill was rightly picked up by my hon. Friend the Member for Enfield, North (Mr. Eggar). I understand that it is now settled Labour party policy that we should have a system of import controls, notwithstanding the fact that this country probably exports a higher proportion of its GDP than any other developed country, and notwithstanding our obligations to GATT and the European Community.

I will leave the hon. Member for Hodge Hill to explain on another occasion how those points can be reconciled. I imagine that the reintroduction of exchange controls is part of Labour party policy, in which case it could make some difficulty for the National Graphical Association which I understand has recently been exporting some of its assets, and for the National Coal Board pension fund which has been investing in real estate overseas.

Mr. Skinner

It will be the Daily Mirror next.

Mr. Rees

If the hon. Gentleman is suggesting that those of his colleagues who work for the coal industry would prefer to see their pension fund investing in the Daily Mirror I will leave that to him to explain.

Alas, time draws on. I must pass over charitably the contributions of the alliance, because they have not been very substantial. No doubt they are debating among themselves whether they believe in a statutory prices and incomes policy. It is, however, remarkable that the right hon. Member for Sparkbrook never rose to the challenge posed by my right hon. Friend the Chancellor as to exactly what Labour party policy is on this subject.

It is all very well for the right hon. Gentleman to shift uneasily in his seat. Well he might. I should like to remind him exactly of what his noble Friend Lord Barnett, who served the Labour party so well, said in his seminal work which I read and re-read and which I commend to the hon. Member for Hodge Hill: Given what has gone before we"— that is the Labour party— might be tempted to promise or at least imply that if elected we will: A. Reduce unemployment quickly; B. Increase public expenditure in many areas; C. Improve general living standards, especially for the low paid … It is therefore vital that Michael Foot"— the dramatis personae have changed but the temptation and scenario are still the same— the new leader of the Labour party should make no rash promises. Of course, the right hon. Member has made no promises at all. We are still left in enormous doubt as to what the policies of the Labour party are. He said at Brighton, if he is correctly reported, that he would support any policies that the Labour party cared to sketch out. He has moved into a new position. He is plainly going to encourage the Labour party to have no policies on this subject.

I want to contrast the extraordinary position of the right hon. Member for Sparkbrook with that of my right hon. Friend the Chancellor and the Government. I want to remind the House of the Government's achievements and the objectives which are embodied in my right hon. Friend's autumn statement. We have contained and we will continue to contain public expenditure. I hope that that reassures those of my hon. Friends who have made powerful contributions on that point. We published our figures for 1984–85 before the election, and we are sticking to them. There is no secret manifesto there. We have created a climate of confidence and stability.

Mr. Austin Mitchell (Great Grimsby)

There are 4 million people unemployed.

Mr. Rees

We have reduced inflation to 5 per cent. this year and the figure is expected to be 4.5 per cent. by the end of next year. We have reduced the PSBR as a proportion of GDP. That is no mean feat in a period of recession, and we shall continue the pressures to reduce it further. We have, as a result, created conditions where our base rates are lower than the United States prime rate.

We have created a climate in which investment will increase. I have already mentioned the CBI forecast of a 5 per cent. increase in manufacturing investment next year. We have created the conditions under which sustained growth is probable. It is expected to be 3 per cent. this year and 3 per cent. next year. The way to create sustainable jobs is by bringing about an increase and

We were the first western country into the recession and we are emerging ahead of our European Community partners.

For the future, we set as our objectives a continuing of pressure to reduce inflation and the reduction of the tax burdens, so that people can invest and create jobs. That is what we stood for during the last Parliament. It is what we put to the electorate in June and it is what the electorate overwhelmingly endorsed. That is the theme of the autumn statement, and I therefore invite the House to approve the statement and reject the Opposition amendment.

Question put, That the amendment be made:—

The House divided: Ayes 187, Noes 351.

Division No. 78]	[10.00 pm
AYES
Abse, Leo	Davies, Ronald (Caerphilly)
Adams, Allen (Paisley N)	Davis, Terry (B'ham, H'ge H'l)
Alton, David	Deakins, Eric
Anderson, Donald	Dewar, Donald
Archer, Rt Hon Peter	Dixon, Donald
Ashdown, Paddy	Dobson, Frank
Ashley, Rt Hon Jack	Dormand, Jack
Atkinson, N. (Tottenham)	Douglas, Dick
Bagier, Gordon A. T.	Dubs, Alfred
Banks, Tony (Newham NW)	Duffy, A. E. P.
Barnett, Guy	Eadie, Alex
Barron, Kevin	Eastham, Ken
Beckett, Mrs Margaret	Edwards, R. (W'hampt'n SE)
Beith, A. J.	Evans, loan (Cynon Valley)
Bell, Stuart	Evans, John (St. Helens N)
Bennett, A. (Dent'n & Red'sh)	Ewing, Harry
Bermingham, Gerald	Fatchett, Derek
Bidwell, Sydney	Faulds, Andrew
Blair, Anthony	Fields, T. (L'pool Broad Gn)
Boothroyd, Miss Betty	Fisher, Mark
Boyes, Roland	Forrester, John
Brown, Hugh D. (Provan)	Foster, Derek
Brown, N. (N'c'tle-u-Tyne E)	Foulkes, George
Brown, R. (N'c'tle-u-Tyne N)	Fraser, J. (Norwood)
Brown, Ron (E'burgh, Leith)	Freeson, Rt Hon Reginald
Bruce, Malcolm	Freud, Clement
Caborn, Richard	Garrett, W. E.
Callaghan, Rt Hon J.	Gilbert, Rt Hon Dr John
Callaghan, Jim (Heyw'd & M)	Godman, Dr Norman
Campbell, Ian	Golding, John
Canavan, Dennis	Gould, Bryan
Carlile, Alexander (Montg'y)	Hamilton, James (M'well N)
Carter-Jones, Lewis	Hamilton, W. W. (Central Fife)
Cartwright, John	Hardy, Peter
Clark, Dr David (S Shields)	Harman, Ms Harriet
Clay, Robert	Harrison, Rt Hon Walter
Cocks, Rt Hon M. (Bristol S.)	Hart, Rt Hon Dame Judith
Cohen, Harry	Hattersley, Rt Hon Roy
Coleman, Donald	Healey, Rt Hon Denis
Concannon, Rt Hon J. D.	Heffer, Eric S.
Conlan, Bernard	Hogg, N. (C'nauld & Kilsyth)
Cook, Frank (Stockton North)	Holland, Stuart (Vauxhall)
Cook, Robin F. (Livingston)	Home Robertson, John
Corbett, Robin	Hoyle, Douglas
Corbyn, Jeremy	Hughes, Mark (Durham)
Cowans, Harry	Hughes, Robert (Aberdeen N)
Craigen, J. M.	Hughes, Roy (Newport East)
Crowther, Stan	Hughes, Simon (Southwark)
Cunliffe, Lawrence	Janner, Hon Greville
Cunningham, Dr John	John, Brynmor
Davies, Rt Hon Denzil (L'lli)	Jones, Barry (Alyn & Deeside)

Kaufman, Rt Hon Gerald	Powell, Raymond (Ogmore)
Kilroy-Silk, Robert	Prescott, John
Kirkwood, Archibald	Radice, Giles
Lamond, James	Randall, Stuart
Lead bitter, Ted	Redmond, M.
Leighton, Ronald	Rees, Rt Hon M. (Leeds S)
Lewis, Ron (Carlisle)	Richardson, Ms Jo
Lewis, Terence (Worsley)	Roberts, Ernest (Hackney N)
Litherland, Robert	Robertson, George
Lloyd, Tony (Stretford)	Rooker, J. W.
Lofthouse, Geoffrey	Ross, Ernest (Dundee W)
Loyden, Edward	Ross, Stephen (Isle of Wight)
McCartney, Hugh	Rowlands, Ted
McDonald, Dr Oonagh	Ryman, John
McGuire, Michael	Sedgemore, Brian
McKelvey, William	Sheerman, Barry
Mackenzie, Rt Hon Gregor	Sheldon, Rt Hon R.
Maclennan, Robert	Shore, Rt Hon Peter
McTaggart, Robert	Silkin, Rt Hon J.
McWilliam, John	Skinner, Dennis
Madden, Max	Smith, C.(Isl'ton S & F'bury)
Marek, Dr John	Smith, Rt Hon J. (M'kl'ds E)
Marshall, David (Shettleston)	Snape, Peter
Martin, Michael	Spearing, Nigel
Mason, Rt Hon Roy	Steel, Rt Hon David
Maynard, Miss Joan	Stewart, Rt Hon D. (W Isles)
Meadowcroft, Michael	Stott, Roger
Michie, William	Straw, Jack
Millan, Rt Hon Bruce	Thompson, J. (Wansbeck)
Miller, Dr M. S. (E Kilbride)	Tinn, James
Mitchell, Austin (G't Grimsby)	Torney, Tom
Morris, Rt Hon A. (W'shawe)	Wainwright, R.
Morris, Rt Hon J. (Aberavon)	Wardell, Gareth (Gower)
Nellist, David	Wareing, Robert
Oakes, Rt Hon Gordon	White, James
O'Brien, William	Williams, Rt Hon A.
O'Neill, Martin	Winnick, David
Orme, Rt Hon Stanley	Woodall, Alec
Owen, Rt Hon Dr David	Wrigglesworth, Ian
Park, George	Young, David (Bolton SE)
Parry, Robert
Pavitt, Laurie	Tellers for the Ayes:
Pendry, Tom	Mr. Frank Haynes and Mr. Allen McKay.
Penhaligon, David
Pike, Peter

NOES
Aitken, Jonathan	Brooke, Hon Peter
Alexander, Richard	Brown, M. (Brigg & Cl'thpes)
Amery, Rt Hon Julian	Browne, John
Amess, David	Bruinvels, Peter
Ancram, Michael	Bryan, Sir Paul
Arnold, Tom	Buchanan-Smith, Rt Hon A.
Ashby, David	Buck, Sir Antony
Aspinwall, Jack	Budgen, Nick
Atkins, Rt Hon Sir H.	Bulmer, Esmond
Atkins, Robert (South Ribble)	Burt, Alistair
Atkinson, David (B'm'th E)	Butcher, John
Baker, Kenneth (Mole Valley)	Butler, Hon Adam
Baker, Nicholas (N Dorset)	Butterfill, John
Baldry, Anthony	Carlisle, John (N Luton)
Banks, Robert (Harrogate)	Carlisle, Kenneth (Lincoln)
Batiste, Spencer	Carttiss, Michael
Bendall, Vivian	Chalker, Mrs Lynda
Bennett, Sir Frederic (T'bay)	Chapman, Sydney
Berry, Sir Anthony	Chope, Christopher
Best, Keith	Churchill, W. S.
Bevan, David Gilroy	Clark, Hon A. (Plym'th S'n)
Biffen, Rt Hon John	Clark, Dr Michael (Rochford)
Biggs-Davison, Sir John	Clark, Sir W. (Croydon S)
Blaker, Rt Hon Sir Peter	Clarke Kenneth (Rushcliffe)
Bonsor, Sir Nicholas	Clegg, Sir Walter
Bottomley, Peter	Cockeram, Eric
Bowden, A. (Brighton K'to'n)	Colvin, Michael
Bowden, Gerald (Dulwich)	Conway, Derek
Boyson, Dr Rhodes	Coombs, Simon
Braine, Sir Bernard	Cope, John
Brandon-Bravo, Martin	Cormack, Patrick
Bright, Graham	Corrie, John
Brinton, Tim	Couchman, James

Crouch, David	Hordern, Peter
Currie, Mrs Edwina	Howard, Michael
Dickens, Geoffrey	Howarth, Alan (Stratf'd-on-A)
Dicks, T.	Howarth, Gerald (Cannock)
Dorrell, Stephen	Howell, Rt Hon D. (G'ldford)
Douglas-Hamilton, Lord J.	Howell, Ralph (N Norfolk)
du Cann, Rt Hon Edward	Hubbard-Miles, Peter
Dunn, Robert	Hunt, David (Wirral)
Durant, Tony	Hunt, John (Ravensbourne)
Edwards, Rt Hon N. (P'broke)	Hunter, Andrew
Eggar, Tim	Hurd, Rt Hon Douglas
Emery, Sir Peter	Irving, Charles
Evennett, David	Jackson, Robert
Eyre, Reginald	Jenkin, Rt Hon Patrick
Fairbairn, Nicholas	Jessel, Toby
Fallon, Michael	Johnson-Smith, Sir Geoffrey
Favell, Anthony	Jones, Gwilym (Cardiff N)
Fenner, Mrs Peggy	Jones, Robert (W Herts)
Finsberg, Geoffrey	Jopling, Rt Hon Michael
Fletcher, Alexander	Joseph, Rt Hon Sir Keith
Fookes, Miss Janet	Kershaw, Sir Anthony
Forman, Nigel	Key, Robert
Forsyth, Michael (Stirling)	King, Roger (B'ham N'field)
Forth, Eric	King, Rt Hon Tom
Fowler, Rt Hon Norman	Knight, Gregory (Derby N)
Fox, Marcus	Knight, Mrs Jill (Edgbaston)
Franks, Cecil	Knowles, Michael
Fraser, Peter (Angus East)	Knox, David
Freeman, Roger	Lamont, Norman
Fry, Peter	Lang, Ian
Gale, Roger	Latham, Michael
Galley, Roy	Lawler, Geoffrey
Gardiner, George (Reigate)	Lawrence, Ivan
Gardner, Sir Edward (Fylde)	Lawson, Rt Hon Nigel
Garel-Jones, Tristan	Lee, John (Pendle)
Gilmour, Rt Hon Sir Ian	Leigh, Edward (Gainsbor'gh)
Glyn, Dr Alan	Lennox-Boyd, Hon Mark
Goodhart, Sir Philip	Lester, Jim
Goodlad, Alastair	Lewis, Sir Kenneth (Stamf'd)
Gorst, John	Lightbown, David
Gow, Ian	Lilley, Peter
Gower, Sir Raymond	Lloyd, Ian (Havant)
Grant, Sir Anthony	Lloyd, Peter, (Fareham)
Greenway, Harry	Lord, Michael
Gregory, Conal	Luce, Richard
Griffiths, E. (B'y St Edm'ds)	Lyell, Nicholas
Griffiths, Peter (Portsm'th N)	McCrindle, Robert
Grist, Ian	McCurley, Mrs Anna
Ground, Patrick	Macfarlane, Neil
Grylls, Michael	MacGregor, John
Gummer, John Selwyn	MacKay, Andrew (Berkshire)
Hamilton, Hon A. (Epsom)	MacKay, John (Argyll & Bute)
Hamilton, Neil (Tatton)	Maclean, David John.
Hampson, Dr Keith	Macmillan, Rt Hon M.
Hanley, Jeremy	McNair-Wilson, M. (N'bury)
Hannam, John	McNair-Wilson, P. (New F'st)
Hargreaves, Kenneth	McQuarrie, Albert
Harris, David	Madel, David
Harvey, Robert	Major, John
Haselhurst, Alan	Malins, Humfrey
Havers, Rt Hon Sir Michael	Malone, Gerald
Hawkins, Sir Paul (SW N'folk)	Maples, John
Hawksley, Warren	Marland, Paul
Hayes, J.	Marlow, Antony
Hayhoe, Barney	Marshall, Michael (Arundel)
Hayward, Robert	Mates, Michael
Heath, Rt Hon Edward	Maude, Francis
Heathcoat-Amory, David	Maxwell-Hyslop, Robin
Heddle, John	Mayhew, Sir Patrick
Henderson, Barry	Mellor, David
Heseltine, Rt Hon Michael	Merchant, Piers
Hickmet, Richard	Meyer, Sir Anthony
Hicks, Robert	Miller, Hal (B'grove)
Higgins, Rt Hon Terence L.	Mills, Iain (Meriden)
Hind, Kenneth	Mills, Sir Peter (West Devon)
Hirst, Michael	Miscampbell, Norman
Hogg, Hon Douglas (Gr'th'm)	Moate, Roger
Holland, Sir Philip (Gedling)	Monro, Sir Hector
Holt, Richard	Montgomery, Fergus
Hooson, Tom	Moore, John

Morris, M. (N'hampton, S)	Smith, Tim (Beaconsfield)
Morrison, Hon P. (Chester)	Soames, Hon Nicholas
Moynihan, Hon C.	Speed, Keith
Mudd, David	Spence, John
Murphy, Christopher	Spencer, D.
Neale, Gerrard	Spicer, Jim (W Dorset)
Needham, Richard	Spicer, Michael (S Worcs)
Nelson, Anthony	Squire, Robin
Neubert, Michael	Stanbrook, Ivor
Newton, Tony	Steen, Anthony
Nicholls, Patrick	Stern, Michael
Norris, Steven	Stevens, Martin (Fulham)
Onslow, Cranley	Stewart, Allan (Eastwood)
Oppenheim, Philip	Stewart, Ian (N Hertf'dshire)
Osborn, Sir John	Stradling Thomas, J.
Ottaway, Richard	Sumberg, David
Page, John (Harrow W)	Tapsell, Peter
Page, Richard (Herts SW)	Taylor, John (Solihull)
Parris, Matthew	Taylor, Teddy (S'end E)
Patten, Christopher (Bath)	Tebbit, Rt Hon Norman
Patten, John (Oxford)	Temple-Morris, Peter
Pattie, Geoffrey	Terlezki, Stefan
Pawsey, James	Thomas, Rt Hon Peter
Peacock, Mrs Elizabeth	Thompson, Donald (Calder V)
Percival, Rt Hon Sir Ian	Thompson, Patrick (N'ich N)
Pink, R. Bonner	Thorne, Neil (Ilford S)
Pollock, Alexander	Thornton, Malcolm
Powell, Rt Hon J. E. (S Down)	Thurnham, Peter
Powell, William (Corby)	Townend, John (Bridlington)
Powley, John	Townsend, Cyril D. (B'heath)
Prentice, Rt Hon Reg	Tracey, Richard
Price, Sir David	Trippier, David
Proctor, K. Harvey	Trotter, Neville
Pym, Rt Hon Francis	Vaughan, Dr Gerard
Raffan, Keith	Viggers, Peter
Raison, Rt Hon Timothy	Waddington, David
Rathbone, Tim	Wakeham, Rt Hon John
Rees, Rt Hon Peter (Dover)	Waldegrave, Hon William
Renton, Tim	Walden, George
Rhodes James, Robert	Walker, Rt Hon P. (W'cester)
Rhys Williams, Sir Brandon	Wall, Sir Patrick
Ridley, Rt Hon Nicholas	Waller, Gary
Ridsdale, Sir Julian	Walters, Dennis
Rifkind, Malcolm	Ward, John
Rippon, Rt Hon Geoffrey	Wardle, C. (Bexhill)
Roberts, Wyn (Conwy)	Warren, Kenneth
Robinson, Mark (N'port W)	Watson, John
Roe, Mrs Marion	Watts, John
Rossi, Sir Hugh	Wells, Bowen (Hertford)
Rost, Peter	Wells, John (Maidstone)
Rowe, Andrew	Whitfield, John
Rumbold, Mrs Angela	Whitney, Raymond
Ryder, Richard	Wiggin, Jerry
Sackville, Hon Thomas	Winterton, Mrs Ann
Sainsbury, Hon Timothy	Wolfson, Mark
St. John-Stevas, Rt Hon N.	Wood, Timothy
Sayeed, Jonathan	Woodcock, Michael
Shaw, Giles (Pudsey)	Yeo, Tim
Shaw, Sir Michael (Scarb')	Young, Sir George (Acton)
Shelton, William (Streatham)	Younger, Rt Hon George
Shepherd, Colin (Hereford)
Silvester, Fred	Tellers for the Noes:
Sims, Roger	Mr. Carol Mather and Mr. Robert Boscawen.
Skeet, T. H. H.
Smith, Sir Dudley (Warwick)

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 346, Noes 186.

Division No. 79]	[10.13 pm
AYES
Aitken, Jonathan	Aspinwall, Jack
Alexander, Richard	Atkins, Rt Hon Sir H.
Amery, Rt Hon Julian	Atkins, Robert (South Ribble)
Amess, David	Atkinson, David (B'm'th E)
Ancram, Michael	Baker, Kenneth (Mole Valley)
Arnold, Tom	Baker, Nicholas (N Dorset)
Ashby, David	Baldry, Anthony

Banks, Robert (Harrogate)	Fry, Peter
Batiste, Spencer	Gale Roger
Bendall Vivian	Galley, Roy
Bennett, Sir Frederic (T'bay)	Gardiner, George (Reigate)
Berry, Sir Anthony	Gardner, Sir Edward (Fylde)
Best, Keith	Garel-Jones, Tristan
Bevan, David Gilroy	Gilmour, Rt Hon Sir Ian
Biffen, Rt Hon John	Glyn, Dr Alan
Biggs-Davison, Sir John	Goodhart, Sir Philip
Blaker, Rt Hon Sir Peter	Goodlad, Alastair
Bonsor, Sir Nicholas	Gorst, John
Bottomley, Peter	Gow, Ian
Bowden, A (Brighton K'to'n)	Gower, Sir Raymond
Bowden, Gerald (Dulwich)	Grant, Sir Anthony
Boyson, Dr Rhodes	Greenway Harry
Braine, Sir Bernard	Gregory, Conal
Brandon-Bravo, Martin	Griffiths, E (B'y St Edm'ds)
Bright, Graham	Griffiths, Peter (Portsm'th N)
Brinton, Tim	Grist, Ian
Brooke, Hon Peter	Ground, Patrick
Brown, M (Brigg & Cl'thpes)	Grylls, Michael
Browne, John	Gummer, John Selwyn
Bruinvels, Peter	Hamilton, Hon A (Epsom)
Bryan, Sir Paul	Hamilton, Neil (Tatton)
Buchanan-Smith, Rt Hon A	Hampson, Dr Keith
Buck, Sir Antony	Hanley, Jeremy
Budgen, Nick	Hannam, John
Bulmer, Esmond	Hargreaves, Kenneth
Burt, Alistair	Harris, David
Butcher, John	Harvey, Robert
Butler, Hon Adam	Haselhurst, Alan
Butterfill, John	Havers, Rt Hon Sir Michael
Carlisle, John (N Luton)	Hawkins, Sir Paul (SW N'folk)
Carlisle, Kenneth (Lincoln)	Hawksley, Warren
Carttiss, Michael	Hayes, J
Chalker Mrs Lynda	Hayhoe, Barney
Chapman, Sydney	Hayward, Robert
Chope, Christopher	Heath, Rt Hon Edward
Churchill, W S	Heathcoat-Amory, David
Clark, Dr Michael (Rochford)	Heddle, John
Clark, Sir W (Croydon S)	Henderson, Barry
Clarke Kenneth (Rushcliffe)	Heseltine, Rt Hon Michael
Clegg, Sir Walter	Hickmet, Richard
Cockeram, Eric	Hicks, Robert
Colvin, Michael	Higgins, Rt Hon Terence L.
Conway, Derek	Hind, Kenneth
Coombs, Simon	Hirst, Michael
Cope, John	Hogg, Hon Douglas (Gr'th'm)
Cormack, Patrick	Holland, Sir Philip (Gedling)
Corrie, John	Holt, Richard
Couchman, James	Hooson, Tom
Crouch, David	Hordern, Peter
Currie, Mrs Edwina	Howard, Michael
Dickens, Geoffrey	Howarth, Alan (Stratf'd-on-A)
Dicks, T	Howarth, Gerald (Cannock)
Dorrell, Stephen	Howell, Rt Hon D (G'ldford)
Douglas-Hamilton, Lord J	Howell, Ralph (N Norfolk)
du Cann, Rt Hon Edward	Hubbard-Miles, Peter
Dunn, Robert	Hunt, David (Wirral)
Durant Tony	Hunt, John (Ravensbourne)
Edwards Rt Hon N (P'broke)	Hunter, Andrew
Eggar, Tim	Hurd, Rt Hon Douglas
Emery, Sir Peter	Jackson, Robert
Evennett, David	Jenkin, Rt Hon Patrick
Eyre, Reginald	Jessel, Toby
Fairbairn, Nicholas	Jones, Gwilym (Cardiff N)
Fallon, Michael	Jones, Robert (W Herts)
Favell, Anthony	Jopling, Rt Hon Michael
Fenner, Mrs Peggy	Joseph, Rt Hon Sir Keith
Finsberg, Geoffrey	Kershaw, Sir Anthony
Fletcher, Alexander	Key, Robert
Fookes Miss Janet	King, Roger (B'ham N'field)
Forman, Nigel	King, Rt Hon Tom
Forsyth, Michael (Stirling)	Knight, Gregory (Derby N)
Forth, Eric	Knight, Mrs Jill (Edgbaston)
Fowler, Rt Hon Norman	Knowles, Michael
Fox Marcus	Knox, David
Franks, Cecil	Lamont, Norman
Fraser, Peter (Angus East)	Lang, Ian
Freeman, Roger	Latham, Michael

Lawler, Geoffrey	Proctor, K. Harvey
Lawrence, Ivan	Pym, Rt Hon Francis
Lawson, Rt Hon Nigel	Raffan, Keith
Lee, John (Pendle)	Raison, Rt Hon Timothy
Leigh, Edward (Gainsbor'gh)	Rathbone, Tim
Lennox-Boyd, Hon Mark	Rees, Rt Hon Peter (Dover)
Lester, Jim	Renton, Tim
Lewis, Sir Kenneth (Stamf'd)	Rhodes James, Robert
Lightbown, David	Rhys Williams, Sir Brandon
Lilley, Peter	Ridley, Rt Hon Nicholas
Lloyd, Ian (Havant)	Ridsdale, Sir Julian
Lloyd, Peter, (Fareham)	Rifkind, Malcolm
Lord, Michael	Rippon, Rt Hon Geoffrey
Luce, Richard	Roberts, Wyn (Conwy)
Lyell, Nicholas	Robinson, Mark (N'port W)
McCrindle, Robert	Roe, Mrs Marion
McCurley, Mrs Anna	Rossi, Sir Hugh
Macfarlane, Neil	Rost, Peter
MacGregor, John	Rowe, Andrew
MacKay, Andrew (Berkshire)	Rumbold, Mrs Angela
MacKay, John (Argyll & Bute)	Ryder, Richard
Maclean, David John.	Sackville, Hon Thomas
Macmillan, Rt Hon M.	Sainsbury, Hon Timothy
McNair-Wilson, M. (N'bury)	St. John-Stevas, Rt Hon N.
McNair-Wilson, P. (New F'st)	Sayeed, Jonathan
McQuarrie, Albert	Shaw, Giles (Pudsey)
Madel, David	Shaw, Sir Michael (Scarb')
Major, John	Shelton, William (Streatham)
Malins, Humfrey	Shepherd, Colin (Hereford)
Malone, Gerald	Silvester, Fred
Maples, John	Sims, Roger
Marland, Paul	Skeet, T. H. H.
Marlow, Antony	Smith, Sir Dudley (Warwick)
Marshall, Michael (Arundel)	Smith, Tim (Beaconsfield)
Mates, Michael	Soames, Hon Nicholas
Maude, Francis	Speed, Keith
Maxwell-Hyslop, Robin	Spence, John
Mayhew, Sir Patrick	Spencer, D.
Mellor, David	Spicer, Jim (W Dorset)
Merchant, Piers	Spicer, Michael (S Worcs)
Meyer, Sir Anthony	Squire, Robin
Miller, Hal (B'grove)	Stanbrook, Ivor
Mills, Iain (Meriden)	Steen, Anthony
Mills, Sir Peter (West Devon)	Stern, Michael
Miscampbell, Norman	Stevens, Martin (Fulham)
Moate, Roger	Stewart, Allan (Eastwood)
Monro, Sir Hector	Stewart, Ian (N Hertf'dshire)
Montgomery, Fergus	Stradling Thomas, J.
Moore, John	Sumberg, David
Morris, M, (N'hampton, S)	Tapsell, Peter
Morrison, Hon P. (Chester)	Taylor, John (Solihull)
Moynihan, Hon C.	Taylor, Teddy (S'end E)
Mudd, David	Tebbit, Rt Hon Norman
Murphy, Christopher	Temple-Morris, Peter
Neale, Gerrard	Terlezki, Stefan
Needham, Richard	Thomas, Rt Hon Peter
Nelson, Anthony	Thompson, Donald (Calder V)
Neubert, Michael	Thompson, Patrick (N'ich N)
Newton, Tony	Thorne, Neil (Ilford S)
Nicholls, Patrick	Thornton, Malcolm
Norris, Steven	Thurnham, Peter
Oppenheim, Philip	Townend, John (Bridlington)
Osborn, Sir John	Townsend, Cyril D. (B'heath)
Ottaway, Richard	Tracey, Richard
Page, John (Harrow W)	Trippier, David
Page, Richard (Herts SW)	Trotter, Neville
Parris, Matthew	Vaughan, Dr Gerard
Patten, Christopher (Bath)	Viggers, Peter
Patten, John (Oxford)	Waddington, David
Pattie, Geoffrey	Wakeham, Rt Hon John
Pawsey, James	Waldegrave, Hon William
Peacock, Mrs Elizabeth	Walker, Rt Hon P. (W'cester)
Percival, Rt Hon Sir Ian	Wall, Sir Patrick
Pink, R. Bonner	Waller, Gary
Pollock, Alexander	Walters, Dennis
Powell, Rt Hon J. E. (S Down)	Ward, John
Powell, William (Corby)	Wardle, C. (Bexhill)
Powley, John	Warren, Kenneth
Prentice, Rt Hon Reg	Watson, John
Price, Sir David	Watts, John

Wells, Bowen (Hertford)	Woodcock, Michael
Wells, John (Maidstone)	Yeo, Tim
Whitfield, John	Young, Sir George (Acton)
Whitney, Raymond	Younger, Rt Hon George
Wiggin, Jerry
Winterton, Mrs Ann	Tellers for the Ayes:
Wolfson, Mark	Mr. Carol Mather and Mr. Robert Boscawen.
Wood, Timothy

NOES
Abse, Leo	Foster, Derek
Adams, Allen (Paisley N)	Foulkes, George
Alton, David	Fraser, J. (Norwood)
Anderson, Donald	Freeson, Rt Hon Reginald
Archer, Rt Hon Peter	Freud, Clement
Ashdown, Paddy	Garrett, W. E.
Ashley, Rt Hon Jack	Gilbert, Rt Hon Dr John
Atkinson, N. (Tottenham)	Godman, Dr Norman
Bagier, Gordon A. T.	Golding, John
Banks, Tony (Newham NW)	Gould, Bryan
Barnett, Guy	Hamilton, James (M'well N)
Barron, Kevin	Hamilton, W. W. (Central Fife)
Beckett, Mrs Margaret	Hardy, Peter
Beith, A. J.	Harman, Ms Harriet
Bell, Stuart	Harrison, Rt Hon Walter
Bennett, A. (Dent'n & Red'sh)	Hart, Rt Hon Dame Judith
Bermingham, Gerald	Hattersley, Rt Hon Roy
Bidwell, Sydney	Heffer, Eric S.
Blair, Anthony	Hogg, N. (C'nauld & Kilsyth)
Boothroyd, Miss Betty	Holland, Stuart (Vauxhall)
Boyes, Roland	Home Robertson, John
Brown, Hugh D. (Provan)	Hoyle, Douglas
Brown, N. (N'c'tle-u-Tyne E)	Hughes, Mark (Durham)
Brown, R. (N'c'tle-u-Tyne N)	Hughes, Robert (Aberdeen N)
Brown, Ron (E'burgh, Leith)	Hughes, Roy (Newport East)
Bruce, Malcolm	Hughes, Simon (Southwark)
Caborn, Richard	Janner, Hon Greville
Callaghan, Rt Hon J.	John, Brynmor
Callaghan, Jim (Heyw'd & M)	Jones, Barry (Alyn & Deeside)
Campbell, Ian	Kaufman, Rt Hon Gerald
Canavan, Dennis	Kilroy-Silk, Robert
Carlile, Alexander (Montg'y)	Kirkwood, Archibald
Carter-Jones, Lewis	Lamond, James
Cartwright, John	Leadbitter, Ted
Clark, Dr David (S Shields)	Leighton, Ronald
Clay, Robert	Lewis, Ron (Carlisle)
Cocks, Rt Hon M. (Bristol S.)	Lewis, Terence (Worsley)
Cohen, Harry	Litherland, Robert
Coleman, Donald	Lloyd, Tony (Stretford)
Concannon, Rt Hon J. D.	Lofthouse, Geoffrey
Conlan, Bernard	Loyden, Edward
Cook, Frank (Stockton North)	McCartney, Hugh
Cook, Robin F. (Livingston)	McCrea, Rev William
Corbett, Robin	McDonald, Dr Oonagh
Corbyn, Jeremy	McGuire, Michael
Cowans, Harry	McKelvey, William
Craigen, J. M.	Mackenzie, Rt Hon Gregor
Crowther, Stan	Maclennan, Robert
Cunliffe, Lawrence	McTaggart, Robert
Cunningham, Dr John	McWilliam, John
Davies, Ronald (Caerphilly)	Madden, Max
Davis, Terry (B'ham, H'ge H'l)	Marek, Dr John
Deakins, Eric	Marshall, David (Shettleston)
Dewar, Donald	Martin, Michael
Dixon, Donald	Mason, Rt Hon Roy
Dobson, Frank	Maynard, Miss Joan
Dormand, Jack	Meadowcroft, Michael
Douglas, Dick	Michie, William
Dubs, Alfred	Millan, Rt Hon Bruce
Duffy, A. E. P.	Miller, Dr M. S. (E Kilbride)
Eadie, Alex	Mitchell, Austin (G't Grimsby)
Eastham, Ken	Morris, Rt Hon A. (W'shawe)
Evans, loan (Cynon Valley)	Morris, Rt Hon J. (Aberavon)
Evans, John (St. Helens N)	Nellist, David
Ewing, Harry	Oakes, Rt Hon Gordon
Fatchett, Derek	O'Brien, William
Faulds, Andrew	O'Neill, Martin
Fields, T. (L'pool Broad Gn)	Orme, Rt Hon Stanley
Fisher, Mark	Owen, Rt Hon Dr David
Forrester, John	Park, George

Parry, Robert	Skinner, Dennis
Pavitt, Laurie	Smith, C.(Isl'ton S & F'bury)
Pendry, Tom	Smith, Rt Hon J. (M'kl'ds E)
Penhaligon, David	Snape, Peter
Pike, Peter	Spearing, Nigel
Powell, Raymond (Ogmore)	Steel, Rt Hon David
Prescott, John	Stewart, Rt Hon D. (W Isles)
Radice, Giles	Stott, Roger
Randall, Stuart	Straw, Jack
Redmond, M.	Thompson, J. (Wansbeck)
Rees, Rt Hon M. (Leeds S)	Tinn, James
Richardson, Ms Jo	Torney, Tom
Roberts, Ernest (Hackney N)	Wainwright, R.
Robertson, George	Wardell, Gareth (Gower)
Rooker, J. W.	Wareing, Robert
Ross, Ernest (Dundee W)	White, James
Ross, Stephen (Isle of Wight)	Williams, Rt Hon A.
Rowlands, Ted	Winnick, David
Ryman, John	Woodall, Alec
Sedgemore, Brian	Wrigglesworth, Ian
Sheerman, Barry	Young, David (Bolton SE)
Sheldon, Rt Hon R.
Shore, Rt Hon Peter	Tellers for the Noes:
Short, Mrs R (W'hampt'n NE)	Mr Frank Haynes and Mr. Allen McKay.
Silkin, Rt Hon J.

Question accordingly agreed to.

Resolved, That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 17 November; welcomes the continuing prospect of low inflation and steady growth; and congratulates Her Majesty's Government on keeping the public expenditure planning total for 1984–85 unchanged at the level published in the 1983 Public Expenditure White Paper (Cmnd. 8789).

1. SELECT COMMITTEES
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1. AGRICULTURE 68 words
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2. DEFENCE 40 words
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3. EDUCATION, SCIENCE AND ARTS 39 words
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4. EMPLOYMENT 35 words
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5. ENERGY 43 words
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6. ENVIRONMENT 43 words
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7. FOREIGN AFFAIRS 44 words
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8. HOME AFFAIRS 41 words
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9. INDUSTRY AND TRADE 43 words
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10. SCOTTISH AFFAIRS 49 words
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11. SOCIAL SERVICES 36 words
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12. TRANSPORT 44 words
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13. TREASURY AND CIVIL SERVICE 45 words
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14. WELSH AFFAIRS 57 words