Public Expenditure

HC Deb 06 March 1984 vol 55 cc742-826

Mr. Speaker

We now move to the public expenditure debate. I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition.

4.1 pm

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

I beg to move, That this House takes note of the White Paper on the Government's Expenditure Plans 1984–85 to 1986–87 (Cmnd 9143) Although this debate takes place in the shadow of my right hon. Friend the Chancellor of the Exchequer's Budget statement next week, this is, or should be, a most important debate even though it follows such a coruscating exchange between the hon. Member for Bolsover (Mr. Skinner) and the leader of the Liberal party. In a sense, this debate will complement our Budget debate. The House is fortunate to have the Select Committee's report. We also have the speeches of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), which I hope will deepen our understanding of the Labour party's approach to these matters. We also have the return today of the right hon. Member for Chesterfield (Mr. Benn), to whom I offer my personal congratulations. No doubt he will make notable speeches in our debates, perhaps even in today's debate.

As the Chief Secretary responsible for this year's public expenditure White Paper, which covers the three years 1984–85 to 1986–87, I would not claim that it is either a brief or a particularly simple document. It fills two volumes, covers 192 pages and is replete with tables. Many people have worked for many months over it and I pay public tribute to their industry and assiduity. There are some, and I know that they are to be found in the Select Committee, who would have liked the White Paper to have been published earlier. I recognise their anxiety on this score. I have to point out that the intervention of the last general election involved the loss of at least one month in the arduous work of preparation and that with so much material to be brought together and reconciled it was just not possible to produce the document sooner. I doubt whether we shall face the same problems at least in the next couple of years.

If I had to distil two themes from the mass of facts in the White Paper, they would be transparency and stability. I hope that the first will gain the support of the leader of the Liberal party. I am sorry that he has already left his place, but I know that the matter will be taken up by others of his hon. Friends. [HON. MEMBERS: "He is here."] I welcome him back.

The Government's plans for public expenditure are all there for the world to read and, although it might surprise some people, they are in essence the same plans as were published before the general election. There was no secret manifesto and there was no secret public expenditure White Paper. At the time of the election we undertook to maintain a firm control over public spending. We said that we had published our plans for the next three years and that we intended to stick to them. The White Paper shows that we are doing just that.

In 1984–85, the planning total is £126 billion—exactly the same as the provisional figure for that year published in last year's White Paper and confirmed in the autumn statement. For 1985–86 we have set a provisional total of £132 billion—again broadly the same as the figure in the last White Paper. For the new year of the survey period, 1986–87, we have planned for total expenditure in cash of £136 billion. That is consistent with our general intention that public expenditure in real terms should remain broadly stable throughout the period.

Some commentators on the White Paper have suggested that the Government's objectives for expenditure are uncertain. We can argue whether they will be achieved—that is a different matter and I will come to it during my speech—but we have made our approach crystal clear. Our intention is to hold to cash plans in the White Paper and with inflation continuing downwards this should mean holding the level of expenditure broadly constant in real terms during at least the next three years.

As the economy continues to grow, public expenditure will take a decreasing share of the nation's output. This will provide the scope over time to reduce the burden of taxation. That also is the theme of the Green Paper that we shall publish next week as our contribution to the debate on long-term public expenditure and the options facing the country. I know that many of my right hon. and hon. Friends, but perhaps not so many Opposition Members, show keen interest in this subject and I should like to give them that news. By limiting the Government's need to borrow, a lower level of spending will help to keep down interest rates. Lower taxes and lower interest rates are the basis for lasting industrial recovery, I hope that the right hon. Member for Sparkbrook, who clearly believes that we can support a higher level of public expenditure, will devote at least part of his speech to this matter. I see that he is nodding. We look forward with keen anticipation to what he will say. I hope that he will move from broad generalities to numbers. He might even care to pre-empt my right hon. Friend the Chancellor's Budget by letting us know what type of public sector borrowing requirement he thinks we could support.

I have emphasised the stability that is demonstrated by our plans in two senses. We have stayed within the levels of expenditure that were originally determined when cash planning was introduced in 1982. Our cash plans, with the reduction in inflation, which has been the successful outcome of the Government's economic policies, should mean that expenditure in real terms during the period covered by the White Paper will follow a flat path. That is in marked contrast to the record of the past 20 years in which public expenditure has risen steadily in real terms and as a proportion of national output. Since 1963–64—just 20 years ago—public spending in real terms has almost doubled. Expressed as a percentage of gross domestic product, it has increased by well over one quarter. The steady upward march was halted only after the crisis of 1976, which no doubt the right hon. Member for Sparkbrook remembers with painful clarity—but the halt was only temporary. If, however, the totals are to remain stable it does not, of course, follow that the individual programmes will remain stable. Each Government must set their own priorities.

The changes since 1978–79 reflect our priorities which have been put to the electorate in two successive general elections and strikingly endorsed. For example, expenditure on defence, law and order, health and pensions has increased while housing and other subsidies have been decreased. I understand that the Opposition amendment will criticise us for that. The Opposition are entitled to do that but they will be appealing against the verdict of the electorate. We have based our plans for the next three years on a close control of expenditure. However, we have also kept to our other election pledges such as those on health, pensions and defence.

On health, since coming into office in 1979 we have doubled health spending—an increase of 17 per cent. above the increase in retail prices. This will no doubt come as a surprise to Labour Members who affect to imagine that we have cut NHS spending. The new plans more than meet our election commitments. Spending will be £845 million more in 1984–85 than in 1983–84 and £877 million more in 1985–86 than in 1984–85.

On defence, the provision up to 1985–86 meets the Government's commitment to the NATO aim of 3 per cent. real growth a year with Falklands costs on top. The commitment has not been extended beyond 1985–86. The 1986–87 defence budget, including the Falklands cost, will be some £600 million higher than in the previous years. We make no apology for our commitment to defence.

For social security, the plans show an increase in the programme of £1.3 billion in 1984–85 and £1.6 billion in 1985–86, and we are firmly committed to our pledge to maintain the value of pensions and linked long-term benefits. The increase in child benefits by 11 per cent. in 1983 brought it to its highest level ever in real terms. These were achievements of some magnitude in a period of economic difficulty.

In 1984–85 we are planning to spend some £2.1 billion on special employment and training measures. These measures are currently reducing the unemployment total by about 470,000, but, to reduce the level of unemployment in the longer term, we must look to more fundamental improvements that we are now seeing in the structure of the economy. I notice that the right hon. Member for Sparkbrook touches on this in his great pronouncement to his electors. No lasting improvement can be achieved simply by boosting public expenditure and public borrowing. I hope that at some point in his speech the right hon. Member for Sparkbrook will explain how he would reduce interest rates and create lasting jobs by increasing public borrowing.

We have come to await the Select Committee's reports with a mixture of expectancy and apprehension. It would be a pleasant and unusual surprise if it overwhelmed us with praise. I was grateful, therefore, for the Committee's appreciation of some of the improvements that we made in the White Paper, particularly to volume II.

I am sorry that the Committee was not satisfied with the general economic background information underlying this public expenditure White Paper. I think that it is fair to say that no Government so far have attempted to provide more information for this and other public expenditure and economic debates. This Government have, after all, introduced the autumn statement and the medium-term financial strategy, and my right hon. Friend will be bringing this up to date in a week's time. This Government are to publish next week their contribution to the long-term public expenditure debate. More fundamentally, the Committee has concluded that the plans for this year's White Paper are over-optimistic and likely to be exceeded in practice. I do not think that this can be substantiated by reference to this Government's record. Table 1.1 of the White Paper shows clearly that by reference to the March 1982 White Paper, when cash planning was introduced, the Government were below their planning totals for 1981–82 and 1982–83 and are likely to be so for 1983–84 and 1984–85.

It could be also that the Select Committee has given too little weight to two new factors. The first is the change in the economic climate as we emerge from the recession and face the prospect of continuing growth. That is bound to reduce some of the pressures which have driven expenditure so remorselessly upwards. Secondly, we have a much larger reserve—£2.75 billion in 1984–85, £3.75 billion in 1985–86 and £4.75 billion in 1986–87, compared with £1.5 billion next year and an allowance of £1.2 billion for shortfall.

The Select Committee has also expressed doubts about the planned level of expenditure by local authorities. It is quite true that the plans imply a squeeze on local authority spending, but it is a squeeze from a base that has been inflated by local authorities' persistent overspending in the past. During our first term of office, local authority current spending grew by 9 per cent. in cost terms in England, by 15 per cent. in Scotland and by 2 per cent. in Wales. That was against the background of continued calls for restraint and measures designed to deter high spending.

The Committee doubted whether we can secure the planned improvements in the finances of the nationalised industries. It is quite true that we expect nationalised industries' requirements for external finance to fall progressively from £2.5 billion in the current financial year to under £100 million by 1986–87. It has been suggested — certainly by Labour Members — that this represents a tightening of the Government's screw on the industries concerned and will result in catastrophic price increases.

I am delighted to take this opportunity, not for the first time, to reject that apocalyptic suggestion. The expected fall in the industries' external finance requirements should be a cause for congratulation — not least for the industries themselves — rather than for sackcloth and ashes. The reduction in their net financing requirement, and so the reduction in the PSBR, heralds a marked strengthening of the industries' finances for 1986–87. I believe that this expectation is soundly based for a variety of reasons. First, we are talking not about Government Departments but about trading organisations with huge turnovers — that of the electricity industries, for instance, is over £12 billion per annum. As the economy continues to grow, their trading position and their financial results should inevitably improve. Secondly, we expect better cost control and greater efficiency, and I am sure that the management and those who work in the industries will produce just that. The figures are based on a detailed review by the nationalised industries with the co-operation of Government Departments and assume moderate price increases, but too little attention has been given to the sentence in part I of the White Paper, which I emphasise, which says: Overall, industries' tariffs are expected to rise at or slightly below the rate of increase of the retail prices index in 1984–85. Bearing in mind, therefore, the prospects for growth in the economy, our success in reducing inflation and the substantial reserves that we have allowed for each year, I see no reason to think that the plans as a whole are unrealistic or that the totals will be exceeded. People may show mild scepticism, but the onus is on them to fault the totals if they can.

Mr. Tim Smith (Beaconsfield)

On the credibility of the expenditure plans generally, the Select Committee said that since 1980, despite a succession of plans for either reduced or constant real expenditure, the actual outturn has invariably exceeded the planning targets by significant amounts, measured in billions of pounds. It is the past record that led the Select Committee to cast some doubts on the Government's forecast of expenditure. Why does my right hon. and learned Friend think that the next four years will be any different from the past four years?

Mr. Rees

I drew the House's attention to table 1.1, which shows that the Government's record is not as bad as my hon. Friend would have us believe. It is because recognise the anxieties that my hon. Friend has voiced that we have built in increased reserves, and I hope that he will take account of that when considering the realism of our plans.

Mr. Nicholas Budgen (Wolverhampton, South-West)

My right hon. and learned Friend has been speaking about the prospects for growth, and we are led to believe that the Green Paper will be based on the proposition that we can expect 2 per cent. real growth for many years to come. On what does my right hon. and learned Friend base such optimistic hopes?

Mr. Rees

I know my hon. Friend's keen interest in the Green. Paper, and I hope that he has been reassured by the information that I have given him. I think that my hon. Friend will be better advised to wait for the Green Paper, which will be published next week. When his keen mind has had a chance to play over the pages of the Green Paper, he will find the answer to his question. It is a very good question, but it is best answered when the Green Paper is published. For me to attempt to summarise the Green Paper now might well——

Mr. Budgen

On that point——

Mr. Rees

I think that my hon. Friend will find it much more helpful and practical to await the Green Paper. In another week, he will be able to read the Green Paper, and there will be ample opportunity for what I have no doubt will be pungent, constructive and destructive criticisms of it. I shall await my hon. Friend's conclusion keenly, as I have no doubt he awaits the Green Paper.

Mr. John Townend (Bridlington)

Does my right hon. and learned Friend not agree that, if we consider the span of the last Government and this Government, on the Government's own figures public expenditure has risen by no less than 1.5 per cent. per annum average in real terms?

Mr. Rees

I will certainly concede that expenditure has risen, and my' hon. Friend will, of course, know why. There have been some considerable increases in demand-led programmes, but there have also been certain priorities, which we as a party and as a Government set, which I have no doubt my hon. Friend endorsed. My hon. Friend cannot, as it were, pick and choose between the priorities. I have no doubt that he supported them as a whole. Therefore, we must live with the consequences. As I said, it was for that reason that I emphasised that we hope — indeed, we plan firmly — to stick to a flat public expenditure path over the next three years. I have no doubt that my hon. Friend will mobilise the full force of his oratory and commitment to support us in our objectives —[Interruption.] I have a rather long speech, and I am afraid that it may be a tedious speech for the House, but it might be for the advantage of the House if I press on with it.

I turn now to another feature of the plan on which the Select Committee and others have commented, the special sale of assets. There are those who persist in seeing the process as nothing more than the dissipation of valuable national assets to pay for current profligacy, although in the same breath many of them accuse the Government of meanness beyond the ordinary. I am sure that that includes the hon. Member for Thurrock (Dr. McDonald), who is so quick to intervene from a sedentary position. I do not propose to open up this debate, except to observe that exposure of the public sector to competition and market forces remains a major and continuing policy theme for this Parliament.

The White Paper more prosaically merely records these special sales of assets as negative public expenditure within the planning total. This is an entirely logical and consistent treatment and, indeed, one recommended by the IMF. As the Government buy assets, public expenditure rises. As they sell assets, public expenditure is reduced.

Mr. J. Enoch Powell (Down, South)

No.

Mr. Rees

The right hon. Gentleman says no, and I shall no doubt listen to a powerful contribution from him on this theme in due course. It is a point that has been picked up by the Select Committee. It would be totally asymmetrical—I know the ruthless and logical balance of the right hon. Gentleman's mind—to treat sales of assets in one way and acquisitions of assets in another way.

Mr. J. Enoch Powell

May I try? For a given level of expenditure, the finance may be produced, simplified for our purpose, in two ways, one by taxation and one by the sale of assets and the cash realised by it. There is not necessarily a relation between the total of public expenditure and the sources from which it is financed. This is a source of finance, and not a source of expenditure.

Mr. Rees

If it is a source of finance, we must surely look also to the way that the Government's revenue is disbursed. If it is the acquisition or creation of capital assets, that will presumably strike the right hon. Gentleman in a slightly different light from expenditure on current requirements. I hope that the right hon. Gentleman will develop that theme in due course. It is a point that has been picked up by the Select Committee. We are awaiting the Committee's considered conclusion, which has not yet been vouchsafed to an astonished world.

In case the House should think that special sales of assets are fundamental to the success of the Government's public expenditure plan, let me draw attention to table 1.2, which shows figures of around £2 billion for each of the three years of the period as compared with public expenditure totals of around £130 billion.

It has been widely stated that public sector capital spending has been falling for some time. I should like to deal with that. The White Paper contains a wholly new table, table 1.13, which shows, in what I hope is an intelligible and commonsense way, how much is really being spent on capital goods and construction by the public sector as a whole. In particular, compared with the conventional presentation, it makes no deduction for receipts from council house sales, since they clearly do not in any way reduce the public sector's demand for capital goods and construction. It includes also the capital spending of the nationalised industries and defence capital spending on ships, vehicles, equipment, buildings and so on.

This table shows that in 1984–85 the total value of public sector capital expenditure is expected to be nearly £24 billion. This figure—contrary to widespread belief — has been broadly constant in real terms since 1978–79. Of course it will be objected that we should not include defence capital spending, but defence capital spending provides work for the capital goods and construction industries, so, if business activity and jobs are uppermost in hon. Members' minds, there is no case for excluding defence expenditure. There is no practical difference to the supplying industries between a civil and a military ship or aircraft or between civil and military buildings. It is, on any normal use of language, work of a capital nature. If we are to make refined distinctions between types of spending, can expenditure on prisons, town halls or even old people's homes be regarded as adding to the productive base and capacity of this country?

I have spent some time on the points raised by the Select Committee and its report. I am sure that the House will agree that I have been right to do so. I cannot say that I accept the Committee's conclusions without qualification, but they deserve and will receive careful consideration.

I turn with less respect to the case which, judging from their proposed amendment, the Opposition will be likely to raise against the White Paper. The amendment is heavy with rhetoric but, as I shall show, rather light on facts. It alleges that the Government's expenditure plans increase unemployment and further disadvantage industry—that is the amendment's words, and not mine. If the right hon. Gentleman and his hon. Friends spent only a moment glancing at table 2.4 in volume II, they would see that in 1978–79 the total Department of Employment budget was around £1 billion, while in 1984–85 it is planned to increase to over £3 billion. Most of that sum will be spent on job creation and training measures. The table also shows that spending on scientific and technological assistance to industry in 1978–79 amounted to just over £100 million, while in 1984–85 it is planned to rise to over £360 million.

Mr. Neil Kinnock (Islwyn)

No.

Mr. Rees

That is correct, calculated on precisely the same basis. The right hon. Gentleman should get out of his pram and have a look at the facts.

It is true that the total programme of the Department of Trade and Industry has fallen, and is planned to fall further. That reflects mainly the reduced losses of nationalised industries, British Leyland and Rolls-Royce. I would have thought it a cause for some satisfaction that BL, for example, can now survive without huge injections of public money.

More fundamentally, we believe that industry will flourish under a regime of low interest rates, low taxes and low levels of subsidy. By contrast the right hon. Gentleman and his hon. Friends presumably still believe in a regime of high interest rates, high taxes and a high level of subsidy. The right hon. Gentleman and his hon. Friends then accuse us of neglecting an acute housing shortage in many parts of the country. It is true, as set out in a table in volume I, that in 1978–79 the Government spent over £3.5 billion on housing while in 1984–85 we plan to spend just under £2.5 billion net, and I emphasise "net". I should point out, however, that the figure is reduced by sales of council houses of around £1.6 billion, so that the gross figure spent on housing is over £4 billion. But here, of course, there is a great philosophic divide between the two parts of the House. I believe it is right that provision should be switched from the public to the private sector in this field. So far, 650,000 council houses have been sold. The housing starts in the private sector in 1983 were the highest for 10 years, at 167,000.

The amendment next accuses us of preventing any improvement in public services". I know that the White Paper is a long and complex document, which has already defeated the right hon. Member for Islwyn (Mr. Kinnock). However, the Opposition as a whole cannot have spent any time on it. To help them, I refer them to table 2.9.9 of volume II. If they had looked at that table they would have seen that between 1979 and 1983 police numbers rose by 10 per cent. and are due to rise further. If they had looked at the same table, they would have also seen that the number of probation officers and ancillary staff rose from 5,400 in 1978–79 to almost 6,400 in 1983–84 and is due to rise to 6,600 next year.

Again, if the Opposition had looked at the health tables to see how the hospital and community health services had improved, they would have seen in table 2.11.8 of volume II that, by reference to any test, the performance of the hospital services and community health services has increased steadily year by year since 1978. Before claiming histrionically that the Government have destroyed the finest creation of Lord Beveridge, Aneurin Bevan and Lord Attlee, the Opposition would do well to ponder the facts set out in those tables, uncomfortable though they may be for them.

Finally, the Opposition accuse us of making a further attack on the living standards of all through increased energy prices. Again, they show a cavalier disregard of the facts. Electricity and gas prices did not rise in 1983. Electricity prices are due to be increased by 2 per cent. from April this year. However, it is two years since the last increase, and the increase is far less than that in the retail price index over the same period. Gas prices have been increased by 4.3 per cent. from January. The Opposition, and in particular the right hon. Member for Sparkbrook, might also reflect that between 1974 and 1979 industrial gas prices went up by 291 per cent. and domestic gas prices by 73 per cent. In addition, industrial electricity prices went up by 134 per cent. and domestic electricity prices by 169 per cent. No wonder, as Lord Barnett records, the right hon. Member for Sparkbrook—who was once Secretary of State for Prices and Consumer Protection—was a little uneasy about those increases.

The Opposition might also recall that we are currently spending £350 million on aid for heating costs within the social security budget. That helps 2 million gas and 1 million electricity consumers—half of whom are old-age pensioners. Our policy is neither to tax nor to subsidise consumers through prices, and these public expenditure plans have been constructed on that basis.

I also think it right to observe that the right hon. Member for Sparkbrook had the privilege—if that is the appropriate word — of serving in the Labour Administration between 1974 and 1979. Under that Administration, this country was exposed to the humiliation of a rescue operation by the IMF, because he and his colleagues could not reconcile their public expenditure plans with the resources available to meet them. The right hon. Gentleman will also recall that in 1976 the Administration of which he was a member introduced some sharp—very sharp—cuts. He did not resign then, so presumably he approved of them. Perhaps he would like to share with the House the conclusions that he drew from that melancholy chapter in our country's history. He might also care to admit that his party has a long way to go before it re-establishes credibility in this area, as in others. I assume that his party chose the right hon. Member for Islwyn because, although that right hon. Gentleman is not yet out of his political pram—as he did not have any governmental experience of or responsibility for the disasters of that Labour Administration—he is regarded as carrying rather less lead than the right hon. Member for Sparkbrook.

The real questions facing the House in such a debate are few but important. Are the totals in the public expenditure White Paper sustainable by the country? Without anticipating what my right hon. Friend the Chancellor of the Exchequer will say next Tuesday, I shall merely draw attention to the declining share of our gross domestic product that our projected public expenditure will take. Our next question is whether the priorities within these totals are right. That is, of course, a matter of political judgment. But our priorities were clearly put to the electorate in 1979 and 1983, and were strikingly endorsed by it.

The next question is whether the mechanisms for control are adequate. I would be complacent in the extreme if I were to suggest that I was completely satisfied with every aspect of public expenditure control. There is, of course, room for improvement — particularly in forecasting—but our record shows that with rigorous cash planning we have achieved in the past four years a striking measure of control during a period in which the country was hit first by inflation and then by the worst recession since the war. The final question must be whether the plans themselves are realistic. With the marked decline in inflation, the vigorous upturn in the economy and, above all, the firm political determination to contain expenditure within these plans, I suggest to the House that they are.

I therefore have no hesitation in commending this public expenditure White Paper to the House.

4.36 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move, at the end of the Question to add: but deplores the fact that it increases unemployment, further disadvantages industry, neglects an acute housing shortage in many parts of the country and prevents any improvement in public services; and through increased energy prices makes a further attack on the standard of living of all, but especially the unemployed, the sick and disabled, pensioners and families living in poverty.". Having enjoyed, as I am sure the House has, the Chief Secretary's normal bravura performance, I am happy to say that I can agree with at least one of the assertions on which he based his speech. I accept that the White Paper is an integral part of the Government's economic strategy. It is a continuation of the policy that they have pursued and executed for the past five years. The Chief Secretary said that it was the very same plan and policy that the Government had published before the last general election. He then said that it was wholly consistent with all that had been promised and done since the 1979 general election.

None of us would argue about the consistency of approach. Today we are again debating a policy which has produced 2 million extra unemployed and a level of national output which, five years after the Conservative party took office, is still less than it was when the Conservatives were elected to Government. The message from the Chief Secretary is "Do not worry, we're still on course. The Titanic is moving in its predestined direction."

To claim the glimmering of a recovery is to say that the Government do not regard as essential to it either the preservation of the quality of public services or a reduction in the levels of unemployment. I must tell the Chief Secretary now, as I propose to tell him and the Chancellor of the Exchequer many times, that a definition of recovery that does not include putting Britain back to work is not a definition acceptable in a civilised society. The right hon. and learned Gentleman will not be surprised to learn that the strategy inherent in the White Paper is unacceptable to us. It has been discovered from some of the questions that he signally failed to answer that it is not acceptable either to many of his own Back Benchers. Thus, as well as failing by our standards, the strategy has failed by the standard that the Government have set themselves.

The Government have not achieved their economic targets or fulfilled their election promises. The country was promised two things directly relevant to today's debate. It was promised a reduction in public expenditure and, consequent upon that, massive tax cuts. We shall debate the virtue of those promises next week, but it is beyond argument that neither of them has been fulfilled. Indeed, the Government have achieved what, until they came to power, would have generally been considered to be beyond the wit of man.

The Government's unique achievement has been to damage, and in some cases actually destroy, the public services at the same time as increasing the level of public expenditure. To do both at the same time is an extraordinary achievement on which I congratulate the Chancellor and his predecessor. Public expenditure is higher in real terms and as a percentage of gross domestic product than it was in 1979. While all that has happened, taxes have risen to over £17 billion more than they were when the Government came to power. The Government's public expenditure policy has failed completely by their own standards, as well as by the standards of those of us who want to preserve a high level of public service.

For instance, the right hon. and learned Gentleman tells us that we are wrong to complain about what has happened to the Health Service over the last five years and to conclude that it has declined and deteriorated. I know very well the figures that he quotes, but does he not know that throughout the United Kingdom the level of provision for the Health Service has declined tragically and disastrously? The Government claim constantly, by recourse to figures of the sort that the Chief Secretary quoted today, that a decline has not taken place, but the facts are that education provision, Health Service provision and housing provision have declined. The only reason why right hon. and hon. Members on the Government Benches shake their heads is that they do not take advantage of or exercise their rights to enjoy the public services; therefore, they do not realise what has happened to the services that ordinary people have to endure.

The Government's strategy has failed partly because the principle on which it is based is wrong. The Government's economic strategy intentionally depresses the economy and reduces national income. It doubles or trebles the number of recipients of unemployment, housing and supplementary benefits. Therefore, in itself it increases public expenditure when that amount of money could be used much more fruitfully and productively in another way.

Government policy is also a failure because, as the Chief Secretary demonstrated again today, it is based on an obsession with numbers rather than with an understanding of economic realism. Having achieved the figure of £126.4 billion at the bottom of one column in the table of public expenditure, the Government believe that that in itself is a sort of victory, even though in the real world the targets by which the Government have set such store are unlikely to be achieved.

Few outside observers believe that the White Paper targets can be maintained. Even the Government have doubts. Upstairs, the Secretary of State for the Environment blandly announces that amounts in Government White Papers have always had to be increased simply to recognise the realism of particular spending patterns.—[Official Report, Standing Committee G, 21 February 1984; c. 570.] I have no doubt that the Secretary of State for the Environment is right. The Financial Times, echoing the same theme, describes the White Paper as a triumph of hope over experience. Despite the cliché, the thought is right, because the White Paper is based on five implausible assumptions.

The first implausible assumption is the Treasury's inflation figure, which is at least 1 per cent. below the average of other forecasts. If the forecast of Liverpool university is excluded—and it is believed by nobody except the Treasury and Liverpool university — the Government's inflation target is nearly 2 per cent. lower than the average of all the independent forecasters. Secondly, the Government are relying on holding down rises in public sector pay to 3 per cent., producing even on their own inflation estimates three years of real wage cuts for public sector workers, some of whom are amongst the lowest paid men and women in the country. That is a wholly disgraceful objective which does not deserve to be realised, and will not be realised.

Nor, if the Secretary of State for the Environment is to be relied upon, will the third implausible assumption be realised. Local authorities are told that they must impose a 13 per cent. real cut in spending. That is after a reduction in annual receipts from central Government of something like £2.8 billion and after the rate support grant has dwindled from 61 per cent., when the Government came to power, to 52 per cent. That order of reduction in local authority spending is not possible. I do not believe that the Government even anticipate bringing it about. It is all part of the propaganda exercise which they hope will help to justify their rate-capping proposals and their assault on local government. That may stand them in good stead at the Conservative party conference, but it will not help to bring about the predictions of the White Paper.

There is a fourth implausibility. If the pattern of the last two months is to be repeated, the assumption of the Government that unemployment will remain at its present level will look optimistic as well as callous. The Government seem to believe that somehow they have climbed on to a plateau of virtue by holding unemployment in realistic, undoctored figures at 3.5 million to 4 million. If the pattern of the last two months is to continue, that figure will increase. If it increases, the White Paper figures are as nothing.

The fifth contradiction in the White Paper's assumptions is that the only way the reduced external financing limit of public utilities can be met is by overcharging for gas and electricity. To make in 1986–87 the £2 billion from privatisation which the Government intend, they may have to sell off the capital assets from which the extra revenue is being milked.

For all those five reasons, the legitimate doubts about the validity and veracity of the White Paper are bound to increase. Scepticism is increased by the discovery that we are to have a new major public expenditure review, dressed up as a Green Paper, introduced next week. If public expenditure is under control, as the Chief Secretary says, what is the new exercise about? Perhaps more important than that, how far is the exercise to go? Are any programmes to be exempt? For instance, is it certain that the present level of pensions, even in their reduced form, will be safe? How much of the Health Service might yet be sold off? Could there be further cuts in housing benefit? Are all these things to be put in jeopardy again?

If the Chief Secretary lived in the real world of ordinary people, he would know that all these services that are vital to their happiness and day-to-day welfare have deteriorated over the last five years. I do not believe that the country, let alone the House, would tolerate for a moment further reductions in all the services that make Britain a civilised place.

Mr. John Townend (Bridlington)

The right hon. Gentleman has made great play of the reduction in the level of services. Does he not agree that the teacher-pupil ratio is greater than when the Conservatives came to power in 1979, and also that there has been a substantial increase in the number of doctors and nurses? If services have declined, is he saying that teachers, doctors and nurses are not as productive as they were?

Mr. Hattersley

No. I do not think the hon. Gentleman was here six years ago. When we made the same point we were always referred to the pupil-teacher ratio in connection with the size of the school population. If hon. Members consider the real figures for education and the analyses that have been done, they will see that the school sector is certain to be disadvantaged by the White Paper. I thought for a moment that the hon. Gentleman was agreeing with me. [Interruption.] I have just said to the hon. Gentleman, and I am delighted that the Chancellor and I agree, that when there is a change in the school population there is a change in these matters. If he believes that in many areas the provision of education is of the same quality as it was two, three, four or five years ago, he has forgotten the profession from which I believe he came.

I want to say why I think the Government continually get themselves into this dilemma. They are obsessed with the idea of pursuing the figures which they have conjured out of the air and then called the medium-term economic strategy. The Chief Secretary is obsessed with the pursuit of mystic numbers, which are the magical symbols of the monetary mumbo-jumbo. Year after year targets are set, targets are missed, targets are changed, and then targets are missed again.

That is the view of the Treasury Select Committee, which said, significantly, that since 1980 — it made no reference to the years before the Government were elected— the actual outturn has invariably exceeded the planning targets". The appendix to the Select Committee's White Paper says something even more significant. Paragraph 4, evidence submitted to the Select Committee, describes the public expenditure White Paper as a sophisticated example of presentational manipulation in order to gloss over unpleasant facts". That, I fear, is a fair description of a constant feature of Government economic policy.

I shall give another example, which involves the nationalised industries' external financing limits. Every time these have been mentioned by me, or dismissed in passing by the Chief Secretary, the Chancellor of the Exchequer has expressed his disapproval of the criticisms that have been levelled against him because of the way that he has behaved in this particular.

I know that the Chancellor of the Exchequer agrees that the contribution of the gas industry to the Treasury is to increase from £43 million to £100 million, and that the contribution of the electricity industry will increase from £590 million to £750 million. The alteration in the external finance targets of those fuel industries, and the price increases that accompany them, have nothing to do with either depletion policy and conservation or with prudent management. Those price increases are a tax — a disguised tax, a badly disguised tax, but a tax nevertheless.

Not all hon. Member will have heard the Chancellor cry "Rubbish". Those who missed it will, I hope, remember that the Chief Secretary described the attitude that this is a tax as a cavalier disregard of the facts. I am not sure about the propriety of a member of the Cabinet addressing himself to a Select Committee in such language. Perhaps he has not read—at least, he does not seem to have assimilated—what was said in the Energy Select Committee's first report. Paragraph 53 of that report said on the subject of the electricity price increase: It is not justified on the grounds of either the industry's Financial Targets or the Government's economic pricing policy. The only plausible reason for it is the Government's desire to raise extra revenue. By any normal standards, that makes it a tax. I wish that we had a Chancellor who possessed the grace to accept that, with everyone apart from him insisting on the economically obvious, he should capitulate and accept that that is why he has done it.

I shall give the Chancellor another reason why we know he acted in that way, going back to my period as a member of the previous Government. 'The Treasury changes little. It put a similar proposition to us. When I was Secretary of State for Prices and Consumer Protection, the Treasury produced a paper which said that one could always get disguised taxes by increasing fuel prices more than was necessary, and the Government whom I was privileged to serve had the good sense to turn down the proposal. The Chancellor of the Exchequer has not behaved with such common sense. It would do him and his office great credit if he were at last to admit that we have a fuel tax in this country, that it falls on some of the poorest of our people, and that it is a crucial disadvantage to industrial costs and our exports. The Opposition will return to the matter in later debates.

We shall also return to a related subject, also mentioned in the White Paper—the sale of national assets. The White Paper forecasts sales of £1.9 billion in 1984–85 and £2 billion in 1985–86 and 1986–87. May I ask the Chief Secretary, or whoever is to wind up the debate, whether the Government intend to continue selling national assets at knock-down prices? We hear that Inmos is valued at £200 million and is likely to be sold for about £45 million. Wytch Farm is valued at £350 million to £400 million and is likely to be sold at £160 million. Today, the share value of the companies which the Government have sold off is £400 million greater than the capital that the Government acquired by selling them at quite the wrong moment.

If the Wytch Farm and Inmos sales go ahead as suggested, they will make the Hamilton college affair—a scandal in itself—look like an extraordinary example of Government profiteering. How does the Chief Secretary justify selling national assets in this way? If the companies were part of the Chief Secretary's private fortune, he surely would not dream of selling them off in this way, so why are his private and public standards so different?

The Government's standards are clearly different from ours, and that can be instantly demonstrated by examining the detailed programme. Let us compare housing, which is down by 9.6 per cent., and defence, which is up by 8.4 per cent. It is clear that the Government, as epitomised by the Prime Minister, are much more interested in building airfields in the south Atlantic than in building houses in the north of England. Public housing starts are reduced by about 10 per cent. each year. Total housing spending has been virtually halved since the election. The attack on public sector housing is an attack on the people who most need, most want and are least able to acquire a house of their own. Now, assistance to local authority tenants at £2.5 billion is rather less than the help that is given to owner-occupiers through mortgage relief. They receive £2.8 billion. I look forward to investigative journalists on the Daily Express and the Daily Mail reporting on life in the stockbroker belt and asking whether families whose housing is so highly subsidised should own Jaguars and have holidays in the south of France.

By manipulating the programmes in the way that the Chief Secretary has done, and by exercising his bias against and hatred of the public housing sector, fewer and fewer houses are available to the people who most need a decent home. As a result, council waiting lists grow longer. They are longer today than they have ever been. As a result, council property is becoming daily more derelict. I fear that all that is part of the pattern of Government policy and Conservative philosophy. The one thing that characterises and has characterised the Government's conduct since the day they were elected is that they have constantly, consistently and intentionally made the rich richer and the poor poorer.

The worst aspect of that intention is reflected in the White Paper's paragraphs on social security. Item 123 lists unemployment benefit at £1,528 million, rising to £1,700 million in 1986–87. When the Government took office the total was £632 million—barely a third of what it is soon to become. In the lifetime of this Government, the total bill for unemployment benefit expenditure has increased to £4.8 billion. It is in that area, of course, that real savings could and should be made. That massive increase in expenditure does not represent a growth in the size of benefits; it represents a growth in the number of beneficiaries. That money could be used to create jobs. It could be used to stimulate national income. It could be used to encourage productive companies which could contribute to Government revenue.

Perversely, the Government continue to finance unemployment, rather than to finance jobs. The increasingly long-term unemployed could be put back to work in jobs that directly benefit the whole community. The local authority services, which are being destroyed, could be reinvigorated—including the meals-on-wheels and home help services, nursery classes and school meals, all of which are declining and should be expanding. The 400,000 construction workers who are unemployed should be set to work building the houses the country desperately needs.

We stagnate and decline, not for any rational reason but because the Government believe in redemption and recovery by an assault on public services and a continual depression of the economy. We can continue making cuts and damaging the welfare of half Britain, but the Government will not learn, despite the evidence of this and previous White Papers, that the formula cannot and does not work. The Government are beyond improvement and must be defeated.

5.1 pm

Mr. Terence Higgins (Worthing)

The Chief Secretary to the Treasury began by stressing that this was an important debate. As it covers expenditure this year of about £120 billion, excluding debt interest, no hon. Member would dissent from that view. This is not normally regarded as a great parliamentary occasion. It is curious that the Budget has always taken pride of place in our economic debates. We have always been concerned more with what we shall pay than with what we hope to receive. Sometimes this debate tends to concentrate on rather technical matters. We should constantly remind ourselves that the figures, which may seem rather complex, technical and dreary, reflect matters of the greatest importance for our constituents.

The timing of this debate in the financial year has varied from, I believe, early autumn to late spring. The House should consider that point. On this occasion, this debate anticipates the Budget debate. The character of the debate has radically changed because of the establishment of the departmentally related Select Committees; and, therefore, hon. Members are better informed than previously. The Committees, especially the Select Committee on the Treasury and Civil Service, have the task of monitoring the Treasury.

We have two reports from the Select Committee on the Treasury and Civil Service as an aid to the debate. That Committee has a dual role in respect of the Treasury. It has an external role in that it provides better information for the House by giving an analysis, which may be open to discussion, and revealing the evidence it takes. The Committee has an important role internal to the Treasury in ascertaining whether the Treasury's decisions are made on a sound basis.

The Select Committee made a unanimous report on the White Paper. The report on the Chancellor's autumn statement — the report was belated because of the process of setting up the Select Committee — is of considerable relevance to this debate also. The report on the White Paper deals with improving the quality of the analysis and the basis on which the calculations in the White Paper are made. In the light of the evidence we received from the Chancellor, officials and others, we have grave doubts about the present basis of calculation. There is no doubt that the position is much better than in previous years, and we should pay tribute to the Treasury for that, not least for the extent to which the Government have been frank about certain respects. The Financial Times headline of a short time ago "A whiter White Paper" was justified, especially when comparing last year's White Paper, as many of us had grave doubts about some of the calculations.

The economic forecasts for the first year with which the White Paper deals are out of date, because they were not updated at the time of the autumn statement. That ought to be done. In the period beyond the first year—the Americans refer to the out years—we have no technical economic forecasts on which to base our remarks but only assumptions which appear in the medium-term financial strategy. I hope that that position is improved. There is no reason why that should not be done. The Select Committee is especially worried about whether the Treasury makes reasonable forecasts for those out years on which the figures provided to the House are based. The Committee is worried about the lack of information to the House and has doubts about the analysis carried on inside the Treasury. I hope that our report will improve the position in both respects.

We have no inflation forecast for the out years and, therefore, it is difficult to establish the Government's view of the future in real as against cash terms. The Government are refusing to make the adjustments on, for example, debt interest, national insurance surcharge, changes in housing benefit and asset sales, which are necessary when comparing one year with another. That must be the basis on which hon. Members debate matters, if we are to have a proper perspective on what is happening to the economy.

Previous Government statements have always said that finance ought to justify expenditure. Our report refers to a specific quotation that that is Government policy. I hope that the Minister will state whether that is the case. If that is true, we are worried about the fact that there are no revenue projections for the later years on which the expenditure plans have been based. Despite that apparently being the declared policy, there is reason to doubt that that is the way the mechanism works in Whitehall.

The cash levels vary a great deal from the level of real resources. We are interested in both. I supported the innovation of cash limits introduced by the Labour Government. We must face the fact that that measure is a much better way of controlling public expenditure if inflation is rising rather than falling. A Department may obtain resources that the Government did not originally intend to allocate to it. That is merely a reflection of what happens to inflation and the amount of cash available. The Government, although preoccupied with cash figures, have not taken that point sufficiently into account.

It has often been said in the House—

Mr. Tim Eggar (Enfield, North)

Will my right hon. Friend develop that point? it seems that one of the thrusts behind the move in emphasis to a cash basis is that Departments should be able to decide how they want to allocate their resources within a definite budget. Surely, if inflation is falling, Departments should be allowed to make their decisions and take the benefit from that decrease.

Mr. Higgins

That may be argued, but the trouble is that there can be an arbitrary allocation of resources, depending on how prices have moved within the structure between different Departments. That point needs further analysis.

Mr. Budgen

Surely, the problem arises only if inflation is falling faster than anticipated.

Mr. Higgins

The White Paper does not reveal the Government's expectations with regard to other than the first year, and that is part of the problem. It is often said that priorities are the essence of politics, and I believe that is true. The Government's assessment of priorities should go further than the Chief Secretary did. He made it clear that the Government have clear priorities on, for example, defence, law and order and pensions. We all know that the internal process involves a series of bilateral meetings between the Chief Secretary and other Ministers. Battles ensue, and one side or another wins to a greater or lesser extent. If the battle is especially fierce, it escalates through the usual machinery, and finally the Cabinet decides the outcome. The press often reports widely what is occurring, although we do not know whether those reports are accurate.

If that is still the process—perhaps the Minister will confirm whether it is—I am concerned because at the end of it nobody sits back, looks at the whole picture and asks, "Is this a sensible allocation of resources?" Considering the outcome of all the deliberations which appear in the White Paper, I have some doubts on that score.

For example, in relation to agriculture, in the evidence which was taken before the Select Committee we were told that the figures were based on a "stylised assumption" of what would happen in the negotiations with the EEC. We queried what was meant by that. The answer that we received was somewhat puzzling, as one might have expected.

However, one cannot deny that what happens in the EEC negotiations may change radically the allocations of resources from the point of view of the White Paper. It is also clear that there are likely to be massive increases, for example in the allocation of resources towards agriculture, if we do not succeed in those negotiations.

I am worried lest we may be allocating, say, £450 million a year extra to the EEC on the one hand while, on the other, we are cutting back on the provision of National Health Service spectacles to groups other than those who are protected, to save less than £15 million, or on housing benefits to save £185 million, yet at the same time we are making massive allocations of expenditure in the other direction. I am not convinced that, once all the negotiations inside Government have taken place and are then reflected in the White Paper, anybody asks, "Is this a sensible overall allocation of resources, or are there some areas where the matter should be reopened?"

Another point that worries me greatly is the question whether, having made the allocation of resources, there are then, within a short time, radical changes in the amounts that are allocated. For example, I am happy to say that we shall, under the new procedure, be debating on Thursday an unexpected increase of about £290 million to the coal industry.

Again, one must weigh that against the cut in, say, housing benefit, and it is far from clear, despite what the Chief Secretary said about keeping public expenditure under control and how we could have confidence that that would be so, whether that £290 million was taken into account when the White Paper was prepared. I am not sure that it was. Sudden unexpected increases of substantial amounts should be taken into account by the House.

We analysed in some depth in our report on the autumn statement the question of asset sales, but there are certain aspects of the issue on which, as a Select Committee, we have not yet come to a firm conclusion. It seems clear from the point of view of debates in this House, in particular Budget debates, that, if the sequence of figures from year to year is not to be distorted in an arbitrary way, then—as I understood the right hon. Member for Down, South (Mr. Powell) to say—the proceeds of asset sales should be taken as a source of finance rather than be given the bizarre definition of "negative spending," because that gives a distorted view of the overall picture of Government involvement.

It is an all-party unanimous report, which is not surprising, because, although there may be radical differences of opinion between hon. Members on what the amount of public expenditure in total should be, I do not think that hon. Members on either side think it a good thing if, having decided what the planned total should be, distortions are found to be taking place as a result of the targets being exceeded.

I do not accept what the Chief Secretary said about the extent to which the Government have been successful in controlling public expenditure during the last five years, if one carries out the adjustments which I and my colleagues in the Select Committee believe should be made. In particular, we have expressed doubts about the nationalised industries—of which the coal overspend, to which I referred, is an example — or the question of local authorities in the light of the rate-capping proposals.

The Chief Secretary argued cogently — I go along with much of what he said—the case for reducing the public sector size, once one has adjusted to see whether that is happening, rather than some manipulation. The reason for that is understandable in terms of reducing the size of the public sector, encouraging enterprise and so on. But we—in particular Conservative hon. Members—must recognise that, if that happens and if the extent of privatisation goes ahead on the lines that the Government have proposed, we shall still have a problem regarding the regulation of monopolistic and oligoplistic practices.

The Chief Secretary justified the policy on the grounds of more competition, but we have yet to hear, in relation to privatising some sections of the nationalised industries, how that competition will be achieved. Clearly, that is the other side of the coin; it is no good simply transferring things from a public monopoly, which has some degree of control, to a private monopoly where adequate provisions are not made to ensure that the benefits of competition are achieved.

The point that the Chief Secretary made about the need to restrain public expenditure to achieve tax cuts or a reduction in borrowing and interest rates is important, though one must not be misled by the pure cash figures. One must also take into account what is happening with real resources. There, a constant theme of the Treasury Select Committe has been the need to increase the level of investment, and we welcome the new table 1.13 which has been produced in the White Paper which sets out the extent of Government capital expenditure.

We have doubts, in particular, on two points which we mention as examples. One is the question of defence expenditure and the other that of industrial investment grants. The Chief Secretary said that defence expenditure was obviously capital expenditure from the point of view of the creation of jobs. That may be argued, but one must also consider whether the figures in table 1.13 are right in relation to increasing the productive potential of the country, and in that context one should not necessarily treat it as investment. Similarly, investment grants. While there may be one figure for the total of investment grants, it does not necessarily follow that that is all changed into net capital formation of the same amount; some of it may be dissipated in other ways.

We also stress the need to look at the whole issue of depreciation in considering whether we are keeping up with the level of depreciation in the public sector. As for the allocation of resources, it is important that we manage to achieve that and increase the level of public investment, for the reasons I have given.

Overall, the White Paper is a significant improvement technically, although it has a number of deficiencies to which the Select Committee has drawn attention. I hope that the Government will take those into account. I hope that in future we shall be given a better economic background against which to appraise the Government's decisions and that the machinery for taking decisions within Government, and the debate on those decisions in this House, will be improved still further in the future.

5.19 pm

Mr. Tony Benn (Chesterfield)

Having served in 11 Parliaments, it would be difficult to describe this as a maiden speech. It would be like Elizabeth Taylor appearing at her next wedding in a white gown. Therefore, I do not ask for the indulgence of the House for what I have to say, but I assure hon. Members that I shall stick to my normal practice of being wholly non-controversial.

I should like at the beginning to record my thanks, first to my old constituency of Bristol, South-East, which I was prevented from representing by the actions of the Boundary Commission, and, secondly, to the electors of Chesterfield, who chose me from amongst 17 candidates, or 18 if we include Mr. Rupert Murdoch. I should also like to thank my comrades in the Chesterfield Labour party, the trade unions, the parliamentary Labour party, the Shadow Cabinet, and the Leader, under whom I am proud to serve, for coming to Chesterfield to assist there.

I must also record the thanks of the people of Chesterfield to Eric Varley, who served them in the House for 19 years. He held every office that the Labour movement could offer him: a seat in Parliament, a seat in the Cabinet, the treasuryship of the Labour party. He has now retired from politics but will long be remembered in Chesterfield for his work for the town.

It is appropriate, and in this case especially relevant, to say something about the constituency that I now have the honour to represent, having followed two former hon. Members, George Benson, with whom I sat in the House for 14 years, and Eric Varley, to whom I have referred.

A very ancient town, Chesterfield received its charter the year before the Model Parliament met. It is famous for its crooked spire, brought about by cuts in public expenditure to pay for the war with France. The crooked spire will be in many ways familiar to my hon. Friends because looked at one way it lurches to the left and looked at the other way it lurches to the right. Everybody has been predicting that it will fall down but, like the Labour party, it will last for 600 years.

I remind the right hon. Member for Worthing (Mr. Higgins), especially in the light of his managerial speech, to which I have listened over many years, that the thinking of a nation, certainly that of the people of Chesterfield, is not changed by statistical comparisons between one year and another. The thinking of the people of Chesterfield has been shaped by religion and trade unionism over many years. That religion was preached where people were judged not by whether they made a profit for anyone but according to their need and responsibility to their fellow men. Trade unionism was an attempt to reflect those principles in industrial organisations within society, and, of course, morality and democracy are the foundation of Socialism. If I do not follow the right hon. Gentleman into the finer points brought out by the Select Committee, showing that table 1.13 is not as good as he had hoped, it is because that is not what life is really about.

I turn, therefore, to the town of Chesterfield and how its thinking was shaped. Coal was found at Wingerworth in 1250. For 700 years coal has been the foundation of the prosperity of Chesterfield. After coal came the canals, the railways, steel, engineering and chemicals; but coal and industry have been the foundation—under more inspired Governments—of full employment, the funding of the National Health Service and other essential services needed by the people of Chesterfield.

I believe that the town is called the centre of industrial England and was once called the gateway to industrial England. What is seen by the people of Chesterfield is what others are beginning to see, too. The industrial base upon which our prosperity was built is being eroded by the effects of market forces, to which the Government adhere with an ideological passion that exceeds that of almost any other Government of the Western world, and which has been accelerated by deliberate cuts imposed by the Government and concealed in the White Paper.

My predecessor but one, George Benson, whose maiden speeh I looked up, spoke in November 1929, as the first Labour MP for Chesterfield, about the failure of the Lancashire textile industry to re-equip and provide itself with new plant and equipment. When Eric Varley made his maiden speech in 1964, which I believe I heard, and have just read again, he referred to the threat to steel and coal.

The industrial base of this country is being deliberately eroded by the Government. It is inconceivable for me, as a former Energy Minister, to appreciate that the Government should be spending every penny of the oil revenues on dole payments so that none of the North sea oil revenue is funding our development. Every other oil-producing country uses it to build an industrial base. It is being used here to destroy the industrial base. That charge cannot be rebutted by taking another bit of advice from the Stock Exchange or the Financial Times.

I travelled to many countries as Energy Minister and in each one I was told, "We know that the oil will not last for ever and therefore we intend to use it to build our industrial base." That was said in Iran, Saudi Arabia, Mexico, Venezuela and Algeria. Yet we are using the oil revenue by lifting exchange controls and by various other devices to export the country's wealth in order to import cheaper goods that destroy our industrial base. When the oil runs out, we shall be left with selling whisky, tweed and tourism. There will be mass emigration, as there was from Ireland in the 1840s. That is the charge that the Government Front Bench will face.

All that has brought about an erosion of living standards. The town that I am proud to represent has almost 12,000 unemployed, but there were fewer than 5,000 when the Government came to power. The crime of youth unemployment concerns many who have never voted Labour and whose instincts and interests might have led them to other loyalties. They are incensed that their young people are not able to work when fully qualified. I met a business man whose daughter had qualified as a nurse among 60 trainees, only six of whom had been employed. Fifty-four qualified nurses, including his daughter, were without work.

The youth training scheme is a fraud. It is a fraud to take young people off the register. It is not even cheap labour but, a free labour scheme that allows employers to get workers for nothing. it reduces youth wages and substitutes for adult workers, but there is no work for them afterwards.

It is no good talking about more money going into the Health Service in real terms if 8,000 qualified nurses are out of work. There is no point in saying, "The Health Service is safe with us," when 3,000 doctors will be out of work by the end of the year and it is uncertain whether the new Calow hospital can be manned at a level to provide the care needed in the area. During the election campaign a little caravan was towed to the Crown and Anchor in Sheffield road for Chest Care Ltd., and its representatives frightened women into paying £23 to have an X-ray to check whether they had breast cancer. That is no way to discharge Government responsibilities.

Major cuts have been made in the housing programme, and about £800,000 was taken off Derbyshire's education budget this year. The living standards of old-age pensioners have been reduced, and cuts in the housing benefit also strike at pensioners, who are also faced with the taxation of gas and electricity and the possibility that the television licence fee will increase. Pensioners say candidly—I have never heard this said before—"We shall have to give up the television if the licence increases and they go on squeezing us."

Money is poured into nuclear weapons. The Chief Secretary talked about discharging our obligations, hence the 3 per cent. increase that will be poured into luclear weapons and the south Atlantic base, tax cuts and the export of capital.

However convincing the Chancellor's arguments may be — I take it that the Conservative Benches loyally support the Government — the right hon. Gentleman cannot persuade the people that we are a poor country. We are not a poor country. We are an old industrial country and the only country outside Norway to be self-sufficient in energy. We have a thousand years of coal ahead, which will survive Mr. MacGregor and the directives given to him.

Chesterfield was producing engineering goods 200 years ago when the French were mainly farmers, when the Germans were brewing beer and the Americans were cowboys, as some of them still are. We are a very old industrial country.

What people want and what they are entitled to expect from any Government is a minimum meeting of requirements for jobs, where there is much to be done, and for homes. There are enough bricks on the ground to build a town the size of Derby without producing another brick. We need proper health care, education and dignity in retirement.

If what the Minister said today were read by people around the country, including those in my new constituency, they would know that it was false. They know what is happening. They know that this is a Government backed by capital, helping capital, to hammer labour. They know that it is a Government supported by the wealthy who tax the poor. That is exactly what it is about. They know what is happening in the assisted places scheme. Every pensioner in Chesterfield who buys 10 cigarettes is helping to finance public schools through the assisted places and other schemes, which cost a million pounds a day.

This is a Government representing the strong and attacking the weak. No Conservative Members should be surprised at that. If they stop a minute, they will realise that that is why they are supporting it. That is what they are about. That is why some people think that the Chancellor is doing a good job, because the Government represent capital, the strong and the wealthy as compared with the people that my right hon. Friends and I seek to represent. The policy is carried through deliberately by the use of fear. [Interruption.] Does the House honestly imagine that people at work are not terrified that the unemployed will be used to replace them if they seek to maintain their own living standards or working conditions? Time and again the employers, from Sir Michael Edwardes to Mr. MacGregor, use naked fear to hold people down. That is the policy.

Of course, there are some problems for the Conservative party. Although I have not been in the House, I have followed the reflections, some public, some private, some hinted at and some just leaked, about the way that the Cabinet is going. The oldest Conservative answer is that the presentation of the party's policy is not good enough. The Conservatives produced a man called Willie Whitelaw. I think that he has gone to another place. He was to look after presentation. But the Government's problem is that the better they present their policy, the less popular they are. If people understood what they were doing, the Government's support would fall. Therefore, one cannot solve the problem that way.

The Government said that they were rolling back the frontiers of the state. That is the sort of thing designed to appeal to old-fashioned Manchester school Liberals, of whom there are a few about. However, the Government are not rolling back, but advancing, the frontiers of the state. They are crushing local democracy and the trade union movement. Therefore, that is not a sound argument.

I am told that the Conservative party is worried about Right-wing infiltration, but the right hon. Lady is the Prime Minister and what is one to do if that is the problem of principal concern? The most difficult argument for the Government to try to get over to the public is that there is no alternative. One should ask anybody in the streets whether there is no alternative to spending the oil money on paying productive people to do nothing. Is this party of business men boasting that they are using this legacy from nature to pay people to do nothing? Is there no way that we can use the unemployed to meet our needs or in which we can divert our resources from other uses to do so? We need a fresh start. We need to plan resources to rebuild our industrial base and to extend the public sector and public services.

If the Conservative party depends on the arguments that we have just heard from the right hon. Member for Worthing and the Chief Secretary, it will not get far. No one is interested in a view of society or the economy that suggests that, if one has a good head for figures and a calculating machine, the way ahead becomes clear. No society in the world has ever proceeded by handing itself over to the abacus men who tell the people how they should proceed. Forecasts, cash limits and even public opinion polls—dare I mention them—are an attempt to extract from real life something that little minds can grasp, whereas real life is about meeting people's needs. It is about hope and not fear, about democracy and not autocracy. We have had struggles for many centuries on those great questions.

The Prime Minister said that we were going back to Victorian England, as if that settled the matter. I met one man in Chesterfield who went down the pit in 1899 at the age of 12, who remembers Victorian England. His is an interesting case. He is a Scot, who moved to Chesterfield. His son has work, and his grandson has a Ph.D in zoology, but he is unemployed, and they all live in a council house. People do not have to be told about Victorian England when they and their forebears struggled so hard to escape from it.

I warn Conservative Front-Bench Members that, whatever century they choose to fight us in, we have better men and women than they do. If Conservative Members want to go back to Victorian England and say that they have Adam Smith, we have Robert Owen, William Morris, Charles Kingsley, Karl Marx and Anna Wheeler — much better people than the Conservative Front Bench. If Conservative Members want to resuscitate Edmund Burke, my predecessor in Bristol, we have Tom Paine, who was a much better man than Edmund Burke. If they want to go back to the 17th century and the Prime Minister claims the divine right of Prime Ministers, we have John Lilburne and William Walwyn. If they go back to the peasants' revolt and the City of London is to be reorganised under Lord Mayor William Walworth, we have Wat Tyler and John Ball.

I remember vividly the 1931 election. I was six, but I remember it because my father was a member of the MacDonald Cabinet. I remember being told that Philip Snowden said—he was a former Labour Chancellor—that the then Labour party was "Bolshevism run mad". I canvassed in the 1935 election in the Abbey division of Westminster, in which the House of Commons stands, for a Mr. Kennedy, when Labour gained 100 seats. I canvassed again and worked in 1945 in the Abbey division of Westminster, too young to vote at 20 but old enough to fly an aircraft and drive a loudspeaker van for the Labour candidate. I remember Winston Churchill saying, "If you vote Labour you will get the Gestapo."

However, what happened in 1945 was significant. The British people turned their backs on the brutality and divisiveness of mass unemployment that had been implemented in the 1930s by a Government just like this one. They elected Clement Attlee, a leader who made a start in turning away from those policies. My experience over the past few weeks has convinced me that it will not be long before my right hon. Friend the Leader of the Opposition resumes the task that Clement Attlee began and the Conservative Government will be swept into the dustbin of history.

5.57 pm

Mr. Nigel Forman (Carshalton and Wallington)

I am sure that both sides of the House will be glad to welcome back the right hon. Member for Chesterfield (Mr. Benn), no doubt for different reasons. None the less, we are glad to see him back. There was nothing bashful or non-controversial about his speech. We would not have expected that from him, of all people. He laid claim to an extravagant range of historical antecedents for the Labour party. It is interesting to reflect on what the state of politics might be if political arguments were decided in that way and if people said, like the right hon. Gentleman, that they would swop Edmund Burke for Tom Paine.

The right hon. Gentleman's voice is one of the authentic voices of British politics that should be heard in the House. Whatever may happen to the right hon. Gentleman in future — I hope that he has a long and successful political career ahead of him—I believe that historians will say that he had more influence on his period in active politics than any other major figure who never became party leader or Prime Minister. One has only to think of his involvement in the Peerage Act or his direct involvement in the EEC referendum and the politics that led to that and, most of all, of the constitutional changes in the Labour party, to see that there is some force behind the forecast that I have made. Therefore, I hope that the right hon. Gentleman will speak frequently, and Members on both sides of the House look forward to hearing him again on many occasions.

The same complimentary tone would not be appropriate for the remarks made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). He called into question the assumptions which he thought lay behind the White Paper on public expenditure. First, he claimed that the Government's assumption on inflation was unrealistic and unlikely to be fulfilled, yet if one examines the record one sees that the Government's supreme achievement in economic policy has been in reducing the rate of inflation. If one looks at the evidence, there is good reason to suppose that we shall continue to reduce it, which I am convinced is what the majority of British people would like to see happen.

The second assumption that the right hon. Gentleman questioned was on public sector pay. He must know from observing the chain of events during the past few years that the Government have been, and remain, strongly committed to a firm policy of public sector pay control. That is absolutely right because of the considerable part which public sector pay represents in total public spending.

Thirdly, the right hon. Gentleman cast doubt on the assumption that we could achieve a 13 per cent. real cut in local authority spending. He cannot have taken sufficient account of the Government's determination to force local authorities—whatever institutional difficulties they face—to give the highest priority to maximum efficiency in the large sums of money they spend and to achieve the best possible value for money. I am convinced that there is still room for improvement, especially in the spendthrift authorities, which are at present controlled by the Labour party.

Fourthly, the right hon. Gentleman suggested that the unemployment figures that underlie these projections are unrealistic. However, if the recovery proceeds alt the present welcome pace—between 2½ per cent. and 3 per cent. compound — it is difficult to see a substantial increase in the overall total for unemployment. If one examines the evidence, one sees that it is not so much that employment is not increasing as that the sectors in which employment is increasing are different from those of the past. Employment is being displaced from one sector to another, rather than unemployment being created indefinitely. I hope that with the economic growth, to which the White Paper is designed to contribute, we shall see a recovery on a level and a scale which will enable us to make a serious dent in the unemployment figures.

Finally, the right hon. Gentleman questioned the validity of the assumption behind the Government's policy for the nationalised industries and the control of their spending. I echo what I said earlier: in spite of the institutional difficulties of controlling the spending of nationalised industries, if we can use the available mechanisms — the Monopolies and Mergers Commission, external financing limits, cash limits and limits on borrowing—to achieve the maximum possible value for money and to get this gospel instilled into the nationalised industries, we shall be successful at least in containing, if not in seeing a real reduction in, their spending as a proportion of the total.

An interesting and heartening point about the White Paper is that the Government appear to have overall public spending under control. One must immediately enter the caveat, however, that that is only in the sense that the outturn figures are more or less in line with the Treasury's plans. That is only by dint of the fact that the Government have had to cut back on programmes to make room for increases in demand-driven spending. Again, the future position is vulnerable for these reasons, which is why I welcome the generous size of the contingency reserve in each of the next three years.

For the period covered by the White Paper, it is clear that the Government are assuming a declining rate of inflation over the next three financial years—decreasing to about 3½ per cent. in about three years' time. Equally, the declining rate of increase in public sector pay is a major contribution to achieving that declining rate of inflation. It will be clear from what other right hon. and hon. Members say that the assumptions may be a trifle optimistic, especially when one considers the present and likely future growth of private sector earnings, which is running at between 6 and 10 per cent., depending on how they are measured. The danger is that the failure to reduce current spending because of the demand-driven phenomenon may curtail the funds available for much-needed capital expenditure. How often have we seen that in the past? Evidence of that has been especially visible in local government spending.

It is possible to slice up the total of public spending in many different ways and to consider it from many different angles—by programme, economic category, spending authority or function. The most interesting way to consider it is by function. If one is to do that reliably and get a clear picture, one must examine the national account figures for 1982, which show that Government overheads constitute 38 per cent. of the total, total transfer payments 36 per cent., public goods 20 per cent. and support for trading activities 3 per cent. Less than a quarter of total public spending goes to the public benefit, from which all can gain. The rest of public spending, in varying degrees and ways, is involved in the process known in the Organisation for Economic Co-operation and Development as "churning", or the costs of the public sector in general.

Those percentage figures illustrate one or two interesting points. The first is the great and continuing importance of controlling public borrowing and public sector pay precisely to contain that large slug of overheads that constitutes 38 per cent. of the total. Secondly, as the right hon. Gentleman said, public expenditure has an absolutely essential role as one half of the redistributive mechanism in society, designed to help the least well off. That has been a part of public expenditure since the days of Lloyd George and it continues to be so, whether for individuals, sectors or regions.

Thirdly, we have, unfortunately, a limited contribution of public spending to public goods. Public goods were the original justification for public spending in the 18th century. They included lighthouses, roads and bridges. In more recent times, the way in which capital spending has so often had to take second place to current spending is merely a reflection of this sad decline in the importance of public goods within the total.

Fourthly, limited support has been given by Governments recently to the trading and the wealth-creating activities of the economy through public spending. Some of my right hon. and hon. Friends labour under misconceptions about this point and underestimate the extent to which the public sector can be a revitalising force for the private sector in the economy. In that respect two figures are of interest. The health of the private sector is benefited by the public sector to the tune of £9 billion worth of purchases which the public sector made, according to the latest year for which figures are available. Equally, the public sector sells some £11 billion worth of goods and services to the private sector. Therefore, the inter-penetration and mutual dependence of the two sectors must be recognised.

In the longer term we should be considering how we intend to approach some of the more fundamental problems which underlie the questions highlighted in the public spending White Paper and, particularly, some of the problems which lie just over the horizon of the time scale used in the White Paper. It is a characteristic of all public expenditure White Papers — I have spoken in all the debates on this matter since I have been in the House—that many of the interesting questions are left for the time just beyond the period chosen by the Government.

One has to consider only defence spending, for example, when the 3 per cent. per annum real increase is not to be extended, as we understand, beyond 1985–86. One merely asks the rhetorical question: what implications is that likely to have for our defence commitments at home and further afield?

To take housing, which was mentioned by the right hon. Member for Sparkbrook, I believe that it is almost certain that our housing spending on the capital side will prove to be inadequate over a period for the new and varied needs of the late 1980s and early 1990s. I have some evidence from my constituency to support that in the way in which single persons' housing, sheltered housing and all sorts of special categories of housing are not receiving the capital support that they need.

With health spending, to take another example, all right hon. and hon. Members will be aware of the implications of an ageing population, the impact of new technology and the professional pressure from doctors and patients for the latest treatment. When studying social security, one recognises that there may be no immediate problem but that in perhaps 20 or 30 years, when I and others might hope to be drawing our pensions, there will be increasing difficulty caused by the proportion of the elderly in the population, the diminished number of contributors and the full implementation of a rather expensive state pension scheme deriving from the 1970s. Although demographic forecasts are the most unreliable of all economic or social forecasts, one must be cautious and prudent when considering some of these longer-term questions.

There are also the institutional problems of public spending which perhaps cause the greatest difficulties not just now but in the distant future. I have already mentioned the obvious difficulty, which other right hon. and hon. Members have mentioned, about the nationalised industries, where the support from the Exchequer, we have been told, is planned to be reduced from £2.5 billion this year to nearly zero in 1986–87. We are aware of the reservations that the Select Committee has already expressed on that matter.

There is no doubt that this kind of turn-around in the nationalised industries assumes great efficiency improvements and an unimpeded and sizeable privatisation programme which, in a strange way, could also undermine the contribution made from the residual public sector. It assumes, probably, administered price rises somewhat in excess of the rate of inflation, unless those efficiency improvements can be dramatic. That is a matter of great anxiety to my constituents.

When one considers the other institutional problem, which is the one posed by local government, one sees that, despite rate-capping and the tough rate support grant settlements introduced by the Government, there are bound to be pressures for increased spending to meet growing demand-driven needs. No one should be under any illusion that much of what local government has to cope with comes fairly and squarely into the category of demand-driven need, whether it is personal social services, public housing or education and so on. There is a tendency also for central Government, without thinking too carefully, to increase time and time again the statutory responsibilities placed upon local government without necessarily giving the guarantee that the money will be clearly and unambiguously forthcoming to meet those extra responsibilities.

The problem is compounded by the fact that in a pluralistic, diverse society such as ours there will always be times when local government, or significant parts of it, is under the political control of the opposition party of the day. There will always be an understandable temptation to see what one can do to foul up the Government's macroeconomic policy simply because one is in opposition. All these matters cause serious difficulties for controlling total public spending, but control it we must because of the importance of doing so.

I am tempted to observe that in both those areas of control—the nationalised industries and local government — the control of public spending is rather like trying to force a fat woman into a tight corset. However hard one tries to achieve an acceptable overall figure, she always manages to leak out in unexpected and unacceptable places.

For the longer term, I look forward to the document which has been mentioned by my right hon. and learned Friend the Chief Secretary and which I understand is to be published next week. I hope that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and others will enjoy discussing it in great detail. I am sure that it will be the subject of many full debates for a long time to come.

In the more immediate future, before we reach the questions involved in that document, it is important that in the interests of the sensible management of public spending we should abide by one or two useful guidelines. I suggest a few to my right hon. Friends on the Front Bench. The first is that cash limits, wherever and whenever possible, should not be altered during the course of the financial year. The second is that the contingency reserve should always be large enough to deal with all foreseeable contingencies. I welcome the fact that we have built in a generous contingency reserve for the next three years.

Thirdly, we should adhere to the policy introduced not so long ago by the Chancellor of flexibility in capital programmes at the end of the financial year. That must be right, so that effective and efficient spending authorities can carry forward some of the benefits of their efficiency into future years, as already happens, as my right hon. and learned Friend knows, with certain forms of National Health Service spending.

There needs to be flexibility. It is not just a matter of carrying forward savings which an authority has been able to make in a given year and ploughing them back for future services and public benefit in a subsequent year; there should also be flexibility in the other direction. I shall mention one particularly important and poignant small example—that of the BBC external services and world service. I wonder whether my right hon. and learned Friend knows, for example, that for the consideration of a mere £1 million it would be possible to bring forward work to be done on two vital relay stations, one in the Seychelles and one in Hong Kong. Such investment would enable that excellent aspect of the BBC's services to be fully audible in Japan, northern China and east Africa. That must be important for British influence overseas. It is a good example of the benefits which can flow from the introduction of flexibility.

I believe that the strategic position of public spending as a percentage of GDP is much more a function of economic growth, or the lack of it, than it is a function of public expenditure control, important though that control is. While only about 40 per cent. of total public spending is directly cash limited, and 60 per cent. is, effectively, outside those controls, for whatever reasons — institutional reasons, demand-driven reasons or whatever it might be—the Treasury will be largely at the mercy of social expenditure in any recession and rising expectations in any recovery. Those are perfectly understandable social phenomena. It is right and natural that the British public should look at things in that way.

I suggest to my right hon. friends on the Front Bench that it is vital that our other economic policies, macro and micro, should be as sound as possible in order to create the conditions for us to achieve the growth which will enable us to afford the levels of public spending that we all want. Provided that we can afford it, no one in the House could argue that it cannot be beneficial and desirable.

5.58 pm

Mr. Richard Wainwright (Colne Valley)

I join the hon. Member for Carshalton and Wallington (Mr. Forman) in warmly congratulating the right hon. Member for Chesterfield (Mr. Benn), who is in his familiar place above the Gangway and is also resuming his invigorating contributions to our debates. How right he was to emphasise with great eloquence that both the official White Paper and the rather better version that the Select Committee has offered underline the miserable fact that the riches of North Sea oil have been, are being and, alas, will continue for a year or two to be frittered away with nothing permanent to show for them. I go along with that criticism entirely.

My one concern at the right hon. Gentleman's eloquence is lest he has diverted, or will divert, attention from the rather important constitutional fact that, as always, this public expenditure debate is only a take-note debate. As the right hon. Member for Worthing (Mr. Higgins) said at the beginning of his speech, this is never a great parliamentary occasion. The Government, however, say the opposite. Through the mouth of the Secretary of State for the Environment, the Government have, since last October, been telling local councils up and down the country that this very debate, and any Divisions which may or may not take place at the end of it, is prime evidence that Britain is a unitary state and has always, says the Secretary of State, settled local government spending and asserted parliamentary authority over the way in which local councils spend their money.

That is a caricature of the constitutional position because we have always had merely take-note debates. Furthermore, it is not very long since the Government to which the right hon. Member for Chesterfield belonged were defeated on the pubic expenditure take-note debate and quite rightly carried on next day as though nothing had happened. That is a constitutional fact, and it is a great pity that the Government have been distorting the facts to unsuspecting local authorities for the past six months in a lame attempt to prop up their interference with local government.

Throughout, I shall refer to the preferred and alternative version of the White Paper that the Select Committee has offered because it presents the facts in much more comparable and relevant terms. The White Paper's main message is that severe deflation is a very expensive policy and will continue to be so. The mounting costs of social security, especially unemployment benefit, of national debt interest and of bailing out nationalised industries depressed by deliberate and continued recession greatly outweigh all the sad cuts in public and social services. What is more, this enforced expenditure on keeping so many people unemployed crowds out vital public capital investment, as the Select Committee report so clearly shows.

That is undeniably true of the recent past and the Select Committee is right in foreseeing that it is likely to be true over the next three years as well, because it could find nothing in the White Paper to convince it that these optimistic assessments or projections of Government expenditure will be achieved. Public spending has risen by 12½ per cent., that is, one eighth, since 1979 with very little of permanence to show for that increase. Furthermore, the White Paper this year finally destroys the Government's proud statement of two years ago—and I quote from the evidence to the Select Committee in January 1982 — when the Treasury said with a great flourish: Finance must determine expenditure and not expenditure finance. How can they possibly sustain that proud and rather boastful claim when they produce a White Paper which, beyond the first year, contains no reference to any forecast of the economic prospects for those two years, let alone any forecast of likely revenue for those two years? The Government, therefore, in spite of priding themselves on good housekeeping and all those rather irrelevant domestic virtues about which we continually hear, lay before the House stupendous figures of public expenditure for two years up to 1987 with nothing to show how they are to be financed. The strictures of the Select Committee on the Government putting before the House such terrific expenditure with no suggestion that means of financing it have been worked out are well deserved.

The costs of recession and unemployment, including, for instance, the enormous cost of the Manpower Services Commission's employment programme, and the other costs to which I referred earlier have overwhelmed the Government's financial strategies. In the early days they appeared to believe, or, at any rate, deceived the country in thinking, that all this deflation would be just a quick spasm and that market forces would then adjust, real wages would come down, inflation would remain very low and all the adjustments would be made.

It is now quite clear that that was a wholly false prospectus and that this agony goes on year after year. All aspects of the Chesterfield by-election result indicate that the public are beginning to rumble this and are quite properly asking, How long, 0 Lord, how long? They are given a very poor answer by the public expenditure White Paper.

As a result of the prodigal cost of deliberate unemployment, the following miserable reductions are going to take place, in terms of cost, in some of the most important programmes for which the Government are responsible. Taking the projections for 1986–87 and comparing them with the year that is now coming to an end, 1983–84, the White Paper shows a decline in education spending of at least 8 per cent., a decline in environmental services expenditure of 15 per cent., in public transport expenditure, already quite inadequate, a decline of 8 per cent., a decline in expenditure on all these public items in Scotland of 5 per cent., with a similar amount in Wales, coming to what I regard as the most depressing reduction of all, the fact that next year capital spending, even on the Government's own rather shaky definitions, is to drop by 2.7 per cent.

Evidence from Treasury officials made it quite clear to us that it is likely that all this projected capital expenditure will do little more—if it actually does as much—than keep pace with the annual depreciation, wear and tear and obsolescence of our public assets. Incidentally, the Select Committee has asked that in future the vital question of how much capital has been consumed in the year be recorded in the White Paper. The fact that all this capital expenditure—all that is left after we have paid for the unemployed—is, at best, only keeping pace with the deterioration in our national assets is an appalling reflection, especially when compared with the positive capital development in countries which are our competitors.

There are so many aspects where the deterioration of vital public assets is no longer just a matter of mental calculation but one of physical collapse. Some of the most important and best known bridges are literally dropping to pieces. There are said to be about 100,000 older bridges throughout the country that are likely to be out of service in two or three years' time at the present meagre rate of repair expenditure.

One other example is topical, the state of no less than 1.5 million dwellings, mostly in the public sector, that were system-built with concrete when the technology of building in concrete was very imperfectly understood. There are 1.5 million dwellings where the concrete is absorbing moisture and where it is only a matter of time before this moisture reaches the metal reinforcements, rust occurs, expansion takes place and the concrete disintegrates and falls off. It is a sad fact that that technological immaturity of the past affects 1.5 million dwellings.

I am sure that many housing managers are painfully aware of, and would like the resources to tackle, the need to arrest the moisture before it reaches the metal reinforcement in the concrete. But such is the snail's pace of housing improvement allocations that at the present rate it will be between 25 and 30 years before the backlog is cleared. During that time a great deal of the metal reinforcement will have rusted and the problem will be four or five times more expensive to correct. I understand that the dwellings, in their present state, need about £7 billion spent on them to correct the problem.

Although our amendment was not selected, it encapsulates what I have been attempting to say. We believe that the huge cost of the Government's persistent policy of deliberate and acute deflation is proving far more expensive than the economy can bear—in both human and cash terms. The tragedy is that the nation has nothing to show for it. I am afraid, too, that we are nowhere near the end of it.

6.11 pm

Mr. David Howell (Guildford)

When the Procedure Committee was considering the handling of the debates on financial affairs at the end of the 1960s, its advice was that the debates on the public expenditure White Paper should take two days, be as early as possible in the new year and be of equal importance to the debate on the other side of the Budget, the taxation proposals. Matters have not worked out in that way. The public expenditure debate has been rather overshadowed by the more glamorous media event of the Budget—which, this year, is next week. However, our debate today had had its media rating a little improved by the return of a colourful character to the House, the right hon. Member for Chesterfield (Mr. Benn). I welcome him.

As this is the beginning of the season of finance debates, I want to say how much we are deprived of another colourful character, the late Sir Hugh Fraser, who represented Stafford. We was a friend of many hon. Members and a wise and courageous man. We shall all miss him.

The Government have again clearly set out their strategy today. It is to reduce public expenditure as a proportion of gross domestic product, thereby making room for tax cuts. We especially look for tax cuts for those on lower incomes—which we regard as repellently high. Listening to the right hon. Member for Chesterfield and other Opposition Members, I gather that that view is not shared by them. On the contrary, we have heard today an appeal for higher public spending, meaning higher taxes and heavier burdens on people on low incomes. That is the Labour party's position. Conservative Members are more interested in expanding the earning and property-owning democracy through tax cuts.

However, success clearly depends upon the Government making their plans stick. The plans broadly involve stabilising expenditure during the next three years, although that must be supplemented by asset sales. Some of my hon. Friends say that the Government should go further and that it is time for additional real cuts in the major public expenditure programmes. My hon. Friends may want that to happen, and may call for it, but it will not happen. Although it is fashionable to deride the word "realism", in the real world the unfolding pattern will show that it will be a major effort simply to hold major public spending programmes, let alone cut them.

Let us consider the component parts of the great eaters-up of public funds—defence, social security, education and health. There will be enormous pressures on the demand for these services — whether tax financed or privately financed. It will he a herculean task to hold such programmes in real terms and to keep them under control.

The Government will have to fight four major enemies to control their public expenditure plans so that they do not slide away, as my hon. Friends serving on the Select Committee fear. The first enemy is inflation. Every 1 per cent. of inflation automatically adds about £400 million to social security benefit through indexation and potentially adds a similar sum to public sector pay unless strong efforts are made to counter that. Therefore, the upward pressure of a one percentage point movement in the retail price index has a devastating effect on public expenditure plans.

Is that as serious a threat today as it was three or four years ago? I do not think so. Inflation is now much smaller. throughout the Western economic system, primarily because the period of oil price shocks has, for the time being, passed. Of course, if it returned there would be vast inflationary and recessionary pressures. For the moment, it appears that oil prices will remain soft, whatever the upheaval in the Arabian Gulf. That will take the Western countries into a period of relatively mild international inflation. It will still be possible for countries to pursue profligate policies and go against that trend but, overall, the really fearsome inflationary forces are no longer with us.

It must be recognised that the difficulties of managing public expenditure with inflation at 21.9 and 22 per cent.—as it was in May 1980—are different, in degree, from the problems of managing public expenditure when inflation is moving down to 5 per cent., 4 per cent. or even lower levels.

The second enemy is unemployment — every additional 100,000 people above the figure projected by the Government as a working assumption costs £200 million. We have heard considerably higher estimates. If the pattern of unemployment continues to develop unfavourably, and if there is difficulty in generating new jobs and new businesses, that will pose a severe threat to keeping the public expenditure strategy on line.

I think that the Government and many people outside the House — although not the Labour party — are beginning to understand the different component causes of unemployment and, therefore, to understand the need for different remedies for the different parts of the unemployment problem. That variety of policies, brought together, will help to ameliorate the problem. It will be a slow process—yet if the pace is too slow that will also gravely damage public expenditure projections.

The third enemy of success could be pay excesses. If pay settlements go far above the 3 per cent. pay factor which the Government have put in for this coming year, that will undermine the entire strategy, with grave consequences for higher tax on the wages of people who can ill afford to have them. I do not know whether the 3 per cent. public sector pay factor is a reasonable one. Some say it will never be held. However, we have only to look around the world to see that in West Germany, for instance, the aim for this coming year is a zero increase in public sector pay, and other economies whose position is not all that different from ours are aiming for very rigorous control indeed on the pay side with the aim of creating room for tax cuts and stimulating economic expansion.

The fourth enemy in this area is the old one of inefficiency and waste, which can still seize hold of public sector programmes and blow them up out of all proportion and any connection with value for money. I believe chat the Government deserve more credit than they have had for the progress now beginning to be made in getting value for money, defining the objectives of public sector programmes and seeing how they can be achieved more efficiently. It has taken a very long time. It was in the beginning of the 1970s that some of us were engaged in persuading Whitehall to adopt systems of programme analysis and review—which is a fancy way of saying that people in government, after years of spending money because the political climate indicated that it was a good thing to do, should stop and ask what objectives they are trying to achieve, whether they could be achieved more cheaply in different ways, or whether they could be delegated to separate organisations or pushed out into the private sector and maybe achieved considerably more effectively.

That was the beginning of the doctrine of privatisation, which was first developed in the late 1960s and was introduced in the early 1970s. These things take a very long time to grow, and political winds change — sometimes favourably, sometimes unfavourably. But it can be said now, 13 years later, that there has at last taken root in Whitehall a concern to ask constantly what the purpose of expenditure is and whether that purpose can be achieved more efficiently — possibly outside the Government altogether. The same spirit is beginning to spread into local government as well, although in a very patchy way, but at least it is an advance on the past.

Those are the threats, and they are very serious indeed. I believe that they can be warned off, but any one of them could undermine the success of this whole strategy, which is part of the main strategic development of the Government's entire economic policy.

There is one area in which I believe that the approach to public expenditure could be modified somewhat, and that is in capital spending. The Government have brought forward these capital spending new tables. The right hon. Member for Chesterfield said that we should not be too concerned with tables on capital spending, but if he and others were to pause and consider for a moment they would realise that behind these dry figures lie very important issues. This is specially true as regards those living in the old industrial towns in northern and central England, Scotland, Wales and Northern Ireland, where there is no question but that we need a vast new infusion of capital expenditure financed in one way or another. I suspect that we have major advances to make in organising the methods of finance, both public and private, for this purpose.

In the White Paper the amount of fixed capital spending by the Government for the coming year which could go into construction is, I calculate, down by about 1 per cent. in cash. That disguises some modest increases in a number of areas, which are set against a substantial decrease in the housing area, because it is Government policy—and I think it is the right policy, although it certainly needs more exposition — to move the provision and supply of housing out of the public sector into the private sector. This is partly because people want to be home owners and to move out of the era in which they were tenants of a sometimes quite tyrannical local authority. So that is a right move in social terms, and it is hidden in these capital expenditure tables. I am glad to see also from those tables that the roads programme is still on the expansion path which was initiated a little while back.

All the same, an overall fall of 1 per cent. in cash, even making allowances for the trade-off between housing and other programmes, is not very encouraging. We ought to be doing substantially better. The danger is that with the cash planning that was introduced three years ago there is always a tendency to underspend on capital projects. It is endemic in the system. It was that, of course, that led to the somewhat forlorn exhortations to local authorities by Ministers in the previous Government, of which I was a member, two autumns ago to spend their capital allocations, which they were failing to do. Local authorities were and remain very reluctant to do this because of the revenue implications of capital spending programmes.

I do not know whether the Government have applied their minds to ways of overcoming this dilemma. Obviously they wish to place maximum restraints on the current spending profligacy of local authorities, but at the same time it seems wrong not to enable local authorities to spend up to levels which have been budgeted for. I ask the Government whether they have considered making interest on debt incurred for some of these capital projects exempt from grant penalties. If they are concerned about the pattern of capital spending, that may be the kind of measure they should now introduce.

I believe that there is room for flexibility on the capital spending side at the present stage in our affairs, for a number of reasons. We could see a bigger Government capital spending budget without any risk at all to overall strategy and without any threat of any kind concerning inflation, the sterling exchange rate or anything else. This is possible because we have reached a juncture at which the dollar is weakening rapidly. It is possible because, although I wholly support the broad aim of a low borrowing requirement, since that way lies the chance of lower interest rates and the lower taxation which we all want, there is no direct economic link between public sector borrowing and interest rates in an economy such as ours, although in a continental economy there might be. There is a danger of overdoing the argument—that the precise size of the PSBR as forecast will have automatic consequences for interest rates. That is not and has not been so. The PSBR is an important tool, but it is not a very precise one. There is an enormous margin or error in PSBR calculation and in the gap between forecast and outturn, as we have seen in recent years.

I therefore believe that the Government should not be too concerned about the precise PSBR forecast figures in any one year. It is not a reliable concept. I believe that it is perfectly safe for the Government to consider new methods of accelerating and bringing forward investment that is always going to remain in the public sector, because it never will be commercial or have a major social element, or combining with private enterprise to develop other kinds of capital projects.

Of course, talk of this kind can be easily shot down with cries of "Concorde" and "steel mills". It has to be recognised that in the past there was substantial incompetence in the Government's cavalier approach to public sector investment. While that argument is right and persuasive, it should not lead people to dismiss all public expenditure investment, saying that either something is commercial and should be done commercially or that it is in the public sector and should not be done at all. We need a balanced assessment of how to boost public spending without in any way endangering the overall strategic requirements of Government. I believe it can be done.

My final point is this. If we are to go for public spending controls and to overcome the four enemies that I have mentioned, that control must not be an end in itself. It must not rule out reform. There is substantial room for reform in the pattern of the major programmes. For instance, the National Health Service is full of dedicated people who are working extremely hard, but the statement that the National Health Service is safe with us does not encourage or impress me at all. In the next few years we must be prepared for a substantial increase in health provision — for increased demand and for supply of health services of all kinds. There will be vastly increased expenditure, and we must rapidly work out ways of harnessing public and private finance to meet that increase.

I should like to see far more autonomy for local health teams and a much greater variety in forms of finance for health provision above a basic level. We must not allow our thinking to stagnate at the point of merely having controlled overall expenditure. We must not, at that point, sink back and say that nothing more can be done. We have to reform the pattern of finance for the growing health provision that a modern society will require.

The Government are fundamentally right, over the two or three-year prospective, and should stick to their guns. In the 1970s people were in revolt against excessive state spending, trade union power, inflation and high taxation — against all the things that the right hon. Member for Chesterfield has come back from the past, as it were, to remind us of today. A great new constituency of people rose up against such talk and against the oppression and the grandee trade union bossdom that it involved. However, that was years ago. The right hon. Gentleman's speech has been a peep into the past.

In the mid-1980s there is a new generation, and there are wholly new industrial and commercial conditions, aeons away from the employment and industrial structure of seven or eight years ago. Those living in the new situation have new needs. Their voices must be heard. They will have different views both about public spending and about tax priorities from those of a few years back, when the monster of inflation threatened to devour us all. The White Paper reflects some of these changes—as far as it goes—but more hard analysis and hard reflection on new policies will be needed. It is my hope that in the Green Paper that we expect to see in a week's time there will be definite signs that this new thinking is under way.

6.35 pm

Mr. Sean Hughes (Knowsley, South)

One of the problems in debates such as this—indeed, in all general debates on finance — is that speeches and newspaper comment can become so bogged down with the minutiae of economic management that they will give people the impression that we are light years removed from their experiences.

The right hon. Member for Guildford (Mr. Howell) said that much lies behind the complicated tables, and I take his point, but it is important that we should speak in simple language that people can understand. Many of the statistics that have been referred to will have little meaning to people. The concept of £126.4 billion has no immediate relevance to an unemployed school leaver on £16.50 a week or to a single parent on £34.10. However, few debates could demonstrate more clearly the political divide between the two sides of the House. Beneath all the statistics and economic jargon, the debate makes plain the political philosophy of the Conservative party.

Reference has already been made by hon. Members on both sides to Edmund Burke. He said that Government is a contrivance of human wisdom to provide for human wants. It would appear that that is no longer the case. I have never been one for hyperbole. I have always held that exaggerated political slogans devalue the language of political debate. However, in parts of the country now — in constituencies such as mine — people have the impression that, at best, the Government do not know of their conditions or, at worst, they do not care. The Government seem to have drawn a veil around areas such as Knowsley — or, indeed, Merseyside as a whole—because they do not want to see what is happening. The right hon. Member for Guildford said that people were in revolt some years ago. Many of us fear that more people will be in revolt in the corning years.

In an article in The Guardian on 14 February, Victor Keegan said: One of the problems is that the Government has yet to convince its critics that it is not using economic arguments as a decoy for what is essentially a political decision — the reordering of expenditure priorities. That is the nub of the argument. The Government are making financial leeway for abolishing stamp duty on security transactions but they cannot find the leeway to increase housing benefits.

Three areas of expenditure are social security, education and housing. I make no apologies for referring to my constituency; I want to highlight the problems as they have manifested themselves in Knowsley. Nationally, social security expenditure is forecast to rise by 5.5, 4.5, and 4 per cent. over the next three years. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, that is money for keeping people unemployed. I wonder whether the Government have any comprehension of what that means to people — not people in the Cabinet Office or the Treasury building but people on the large housing estates and in homes in areas such as mine.

Unemployment in my borough averages 27 per cent. Within the borough there are black spots where the percentage is horrifically higher. My right hon. Friend the Member for Chesterfield (Mr. Benn) referred to the fraud of the youth training scheme. Combining the young unemployed with those on one-year Government schemes, we arrive, in areas such as mine, at a figure of 85 per cent. As a percentage of all economically active males and females between the ages of 16 and 64, unemployment is higher in Knowsley than in any other metropolitan district.

If the White Paper were compulsory reading on the breakfast tables in my borough, and if its contents were more easily digestible, there would be acute disappointment and, indeed, despair. The Government's expenditure plans for 1984–85 and beyond do not envisage any change in direction. There is no acknowledgment of present misery. There is not even a genuflexion towards such an acknowledgment. There will be four more years—or three or two — of the same policy. Even medieval surgeons knew that there came a time when it was no use bleeding a patient any more. I am reminded that Matthew Prior said: Cured yesterday of my disease, I died last night of my physician. The figures for housing are just as depressing. The 1984–85 reduction of £490 million must be translated into its human cost. The 1977 report on housing need on Merseyside by the Centre for Environmental Studies showed that 39.9 per cent. of Knowsley residents lived in areas of acute social stress, at a time when the national average was 2.1 per cent. I believe that the latest figures will show further deterioration. Faced with the enormous housing problems, and with the physical deterioration of housing estates—itself evidence of a collapse of morale—the Government consider that it is a matter for self-congratulation that they are reducing public expenditure in that area.

Nationally, 54 per cent. of public housing investment resources comes from capital receipts from the sale of council houses. In Knowsley it is a massive 66 per cent. That means that Knowsley will face more problems and have less income to meet its costs. Most of the estates which comprise the area that I represent were built to rehouse young people and young families from Liverpool.

With time, the composition of that population will change, and soon an area such as mine will witness a significant increase in its elderly population, yet it will not have the resources to adapt the housing stock to their needs.

I should like now to consider expenditure on education. The White Paper tells us that expenditure on education will fall from £12.323 billion to £12.054 billion between 1984 and 1985. When the Secretary of State for Education and Science talks about "bold and ambitious" plans to raise school standards, I am left wondering whether he bothered to tell the Chancellor about that. One would have thought that expenditure plans would have reflected them. I note the planned increase in expenditure for 1985–86 to £12.410 billion, but that is only £97 million more than the present figure, which is about to be cut. The present sum will prove utterly inadequate in areas such as mine.

The consequence and the stark human fact is that children in Knowsley are not being given a fair chance. In the Department of Education and Science "Statistical Bulletin" for 1982, Knowsley was shown as the education authority with the highest proportion of disadvantaged children in socio-economic terms. According to an HMI report for 1983, that is reflected in the ability range of the school population, which is skewed downward. Average attainment on entry to secondary school is about one year below the national average". I have already argued several times in the House, and shall continue to argue, that there is no immutable law of nature that has decreed that children in my area are any less academically gifted, intelligent or talented than children in more prosperous regions.

We return to the fundamental political divide that becomes evident in debates such as this: that the physical conditions around children prevent them developing as they could. The Opposition believe that it is the Government's responsibility to alter those circumstances. The expenditure proposals show no awareness of the extent of the problem and, not surprisingly, no commitment to begin to tackle it.

6.43 pm

Mr. Roger Freeman (Kettering)

The right hon. Member for Chesterfield (Mr. Benn) referred to my right hon. Friend the Member for Worthing (Mr. Higgins), who is the Chairman of the Treasury and Civil Service Select Committee, as an abacus man. My right hon. Friend is well able to defend himself, but Conservative Members who support him in that Committee and others who take interest in financial affairs, in marked contrast to the Opposition with one or two notable exceptions, might interpret the remarks of the right hon. Member for Chesterfield with some pleasure. It is only by the application of sound and prudent government of national finance that the Government have reduced inflation with great success in the past six years.

I want to concentrate exclusively on capital expenditure. I declare an interest in that for the past 20 years as an accountant, a banker and a director of several companies I have been responsible for helping the flow of private capital expenditure and know how important it is. Like my right hon. Friend, the Member for Worthing, I welcome the new table 1.13 in the public expenditure White Paper which gives more information about gross public sector capital expenditure. As the House knows, although it goes out only one year, not three, it corrects the earlier table, which gave net public capital expenditure, by giving gross council house construction expenditure, by adding in defence expenditure and by giving gross investment by the nationalised industries. We are now looking at gross investment. That is a big advance on previous White Papers.

I hope that my hon. Friend the Economic Secretary to the Treasury will have had the chance to read the Select Committee's report. I assume that he has had a chance to look at table 6 in appendix 1 where one of the advisers to the Committee draws attention to the fact that, in real terms, in 1984–85 — the coming fiscal year — gross investment is scheduled to fall, in cost terms, by 6 per cent. Our advisers have made some adjustments to the Government's figures, notably by taking out a large amount of defence expenditure and industrial investment grants. The reasons are set out clearly in the report. Nevertheless, on that basis, adjusted for the privatisation of British Telecom, it shows a sharp fall in gross public sector investment in the next fiscal year.

My right hon. Friend the Member for Guildford (Mr. Howell) has referred to the fact that investment in public housing is scheduled to fall next year. He gave several reasons for that. I think that his remarks can be interpreted as meaning that he supported that reduction, but there is clear evidence in the White Paper that public expenditure in local transport, in buses and certain road programmes, for example, shows a sharp reduction next year, although it must be said that, for nationalised industries, gross expenditure is not scheduled to fall at the moment. Indeed, the reverse is modestly true especially for the British Steel Corporation and British Rail.

The House should be mindful of the fact that, with the 5 per cent. year-end flexibility scheme which I am sure right hon. and hon. Members on both sides of the House support, when we consider the outturn for 1984–85 we might well find that expenditure on capital items is higher than forecast in the White Paper because of the effect of carrying forward expenditure into the next fiscal year. That was not previously available. Nevertheless, we should look at the fundamental flow of capital expenditure. I am worried about the projected fall in the White Paper in capital investment in gross terms as adjusted by the adviser to the Select Committee. I strongly agree with keeping the lid on total public sector spending but am anxious that, inevitably, with a lid on total spending and the continuous upward pressure on current expenditure, the one category of expenditure that has suffered in the past will suffer again in the future. I refer, of course, to capital expenditure.

When Chancellor of the Exchequer, my right hon. and learned Friend the Foreign Secretary said on 16 March 1981: It is important to recognise that investment for capital purposes is more virtuous than expenditure for current purposes, but it must still be profitable and well directed."—[Official Report, 16 March 1981; Vol. 1, c. 100.] There might well be examples of profitable and well-directed capital expenditure in nationalised industries, and within the Government that will be crowded out during the fiscal year by a tight lid on total public expenditure and the inexorable pressures, some demand-led, on current expenditure.

I shall direct three suggestions to my hon. Friend the Economic Secretary, and I should appreciate it, if he has time at the conclusion of the debate, if he would comment on them. My first point concerns the financing of nationalised industries. The aggregate external financing limit for all the nationalised industries shows, under the Government's projections, a sharp fall over the next three years. The Select Committee was told that the fall would not be achieved at the expense of capital expenditure plans that could be justified by each individual nationalised industry. My fear is that the Treasury could force postponement or cancellation if there is slippage in the programme of achieving virtual balance in the aggregate EFL of all nationalised industries over the three-year period.

There is a case for greater freedom for borrowing by nationalised industries without Government guarantee. I am aware of the trap into which one could fall by advocating that nationalised industries should borrow without Government guarantees. In many cases, if it is subordinated borrowing for general purposes, the markets, when lending money to nationalised industries, regard the Government as the ultimate guarantor for practical purposes. I am talking about a much more limited experiment in project finance, in parts of which nationalised industries could have joint ventures with the private sector for capital. The results of borrowing—it might not be in the form of debt but might be quasi-equity — would not show as public expenditure or have any repercussions on the public sector borrowing requirement because it was truly private sector capital working with the public sector.

If that happens, for example, for the rail link or links from London to the Channel ports, or as help in schemes for the generation of heat and light in those nationalised industries, so be it, as long as the projects can be justified as profitable. If the Minister has not had a chance to read it, I commend to him the report "The Financing of State Owned Industries" by the Hundred Group of Chartered Accountants, which was published in December 1981 and which contained some excellent recommendations on the financing of nationalised industries.

I agree with what the hon. Member for Colne Valley (Mr. Wainwright) said about capital consumption. There is no comment in the White Paper about estimated capital consumption, about how fast our public assets are depreciating or about gross public expenditure on those assets. There are suggestions in the blue books but not in the White Paper, and the Treasury Select Committee has asked next year that the Government make some comment abut capital consumption.

The Institute for Fiscal Studies in its series 8 report, "Public Finances in Perspective", on page 23, gives an interesting table on the estimated public capital net addition or reduction using asset life assumptions ranging from 40 years for public dwellings to 10 years for plant and machinery in the nationalised industries. We may quarrel with the assumptions about asset lives but it is an interesting table and it shows that over the past decade, under Labour and Conservative Governments, we were consuming our public assets, through depreciation or depletion, faster than we were restoring them or replacing them.

The acceleration was worse under the Labour Government between 1973 and 1978 than under the present Government. However, the fact that there was a constant rate of depreciation and a steady decline in our restoration and replacement of public assets gives no cause for comfort to Conservative Members, whether it happened under a Labour or Conservative Government.

My third suggestion to the Minister is that in the next White Paper there should be some commitment on capital expenditure, both as to the amount and proportion in total public expenditure and also as to its continuity. I shall deal 'first with the amount and proportion of public expenditure. I have already said that the Select Committee has recommended that some statement should be made in the next White Paper about whether we are depleting or adding to public assets. It is important that the Government should seek to protect the capital expenditure as a category of expenditure over the coming fiscal years by some form of political commitment, to resist the inevitable pressures on Government and the inevitable pressures on the Chancellor to cut or postpone capital expenditure projects due to the inexorable rise of certain categories of Government expenditure.

As to continuity, we have seen in the construction industry the paradox that over the past few years there have been savage cuts in expenditure on construction in both the private sector and the public sector in years of recession and the reverse in years of recovery when perhaps it should have been the other way round.

I hope that my hon. Friend will take this point on board and will affirm to all Conservative Members that the capital expenditure component should be taken far more seriously in future years.

6.55 pm

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

Over the past five years, the Government have made their policy of controlling and cutting public expenditure into an article of faith. As the Chief Secretary said, the Government campaigned and won the general election on this policy, so it is they who have made public expenditure into a test of their competence. On the evidence of the White Paper, they have failed the test miserably.

The first function of the White Paper must be to give some statement to the country of what political answers the Government have to its needs and to likely future problems. They are wholly inadequate in that. It appears from the White Paper that the Government's answers to these problems are, "No, we shall not spend public money to resolve public problems."

The second function of a White Paper is an explanation of how those answers are arrived at, and in that, too, the Government are deficient. Children learning maths are always taught, as I was, to "show their workings." In this White Paper, the Government do so at great length and in great detail, but not convincingly. If we were charitable, the Opposition would give the Government nine out of 10 for effort because they have shown such detail, but a great many of the tables simply repeat the same information in a different form. However, it would be generous to give them more than two or three out of 10 for content. The omissions and the false assumptions are legion. They make words such as "fudge" and "mudge" seem overprecise. I shall look at one or two of these omissions and assumptions.

Factors that hon. Members on both sides of the House might consider helpful in evaluating the White Paper are absent. One looks in vain for something simple such as the Government's interest rate policy, a pricing policy in the public sector, or pay projections on which the figures for public sector wages are based. No allowance is made in the capital figures for depreciation, although those figures exist and are published elsewhere by the Government. There is nothing on growth, and when the Chief Secretary was asked how he defended his 2 per cent. growth figure he said frankly that the White Paper does not attempt to do that and we shall have to wait for the Green Paper next week.

The White Paper undervalues and devalues the figures that we have been given. Most crucially, there is nothing beyond the first year that shows any working out by the Government of their future revenue. It was a slight impertinence of the Chief Secretary to chide my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) for not producing revenue figures when in their own White Paper, at a time when they control taxation as a policy for the future, the Government produce no figures for revenue after the first year. Most crucially, there is no indication beyond the first year of the Government's workings on inflation, and this is stated only implicitly in one or two specific areas. That makes an appalling catalogue of omissions in the White Paper.

Indeed, it has to be asked how useful to the House, to the Government, or to the public are figures shown in the White Paper on a cash plan basis only, unadjusted for inflation, for reduced national insurance surcharge payments, for huge asset sales or for net debt interest—in other words, figures that are unadjusted for the real world. I hope that the Minister of State, when replying to the debate, will explain some of these omissions. I hope, further, that he will say that the Government intend to rectify them in future years.

It is a question not just of the omissions but of the phoney assumptions on unemployment and on public sector pay awards, most notably on local government spending. Do any hon. Members on either side of the House actually believe that public local authority spending will fall by 7 per cent. in 1984–85 and, after that, by a steady 1.5 per cent. per year for the next two years? I cannot believe so.

The Chief Secretary termed this as a squeeze from an inflated base. If the Chief Secretary knew anything about local authorities, he would know that that is nonsense. He complained that local authority expenditure had risen, but he said nothing about the demand on services in local authorities.

Let us consider the assumptions written into the White Paper on external financing limits in the public industrial sector. Does any hon. Member believe that EFLs will actually fall from £2.5 billion in 1984–85 to £90 million in 1986–87? I suspect that only the hon. Members who believed in the 1980–81 White Paper, which forecast that EFLs would fall from £2.5 billion—rather conveniently the same figure — to £50 million in 1983–84, will believe it this time, but nobody else will.

Since the public industries and, therefore, external financing limits are the centre of the Government's privatisation plans, I shall look at this aspect in slightly more detail. The targets in the public expenditure White Paper are impossible of achievement if, as the Chief Secretary claims—and it is a claim that we welcome—public sector price rises on energy, for instance, are marginally below the rate of inflation throughout the period covered by the White Paper. They are impossible of achievement if the Government continue to milk the public sector by backdoor taxation, as the Select Committee on Energy showed clearly last week on cash and electricity prices. The only way that these EFLs can be achieved is if there are huge rises in profitability—that is, huge negative EFLs in future — which is unlikely, if there are substantial price increases in the public sector, or if the Government sell off all the unprofitable nationalised companies. However, the Government are doing the very opposite in attempting to sell all the profitable nationalised concerns.

The Minister of State, in replying to the debate, will have his work cut out to justify these EFL forecasts. If he cannot justify them, and I do not believe that he can, the figures for external financing limits are fantasies. They are as phoney as a £2 note and they are inconsistent.

The public expenditure White Paper expects us to believe that nationalised industries will meet all their investment by internally generated profits and funds. The irony is that that is exactly what British Telecom has been doing in the last two or three years, yet it is precisely that reason that the Government give for their decision to sell off BT. The Government say that they do not want it to be limited by having to find its capital expenditure for internally generated funds. They want to free it so that it can go and raise money in the market. Their policy is wholly inconsistent with their arguments for their privatisation programme.

Where in the White Paper is allowance made for the capital reconstruction that goes with the Government's privatisation plan and with those asset sales that are shown in table after table, sales which so disingenuously disguise the deficit in the PSBR? Each sale, such as that of British Telecom or of the royal ordnance factories, demands a capital settlement of the pension funds, running up to hundreds of millions of pounds each time. Each sale can be made only at a discount of the real value of the company's assets.

In the case of British Telecom, that discount—and we wait to discover it — could well run to over £1 billion. Each sale involves expensive advertising and commission, and in BT's case a huge and rather surprising 24 per cent. increase in the depreciation policy in the year prior to sale.

In table 1.9, and, indeed, in other tables, asset sales are shown as gross revenue. Nowhere does the public expenditure White Paper show recognition of the real net benefit of these sales to the Government. Of one thing hon. Members on both sides of the House may be certain: the gross revenue will not be the benefit to the Government, once the capital of these companies has been reconstructed prior to sale.

In short, these figures and the assumptions in the White Paper are inconsistent and, to say the least, unsafe, where they are not downright misleading and massaged. The Chancellor of the Exchequer must take responsibility for his own White Paper, and I must observe that it is a pretty woeful performance for his first attempt. However, it may be suggested that we should play his little games and let him adjust his figures, because nobody believes that the forecasts in the White Paper will be realised. All hon. Members know that public expenditure will rise. Not one Conservative Member believes in his heart of hearts the figures given for a fall in public expenditure. We all know that public expenditure will rise. The facts are there and have been for the past four years—40.1 per cent. Of GDP in 1978–79, and 44 per cent. in 1981–82, and the Government have scraped it down, at huge social cost, to a projected 42 per cent. in 1984–85. The City of London knows that inflation will not fall. If the City believed otherwise, there would be a rush to buy gilts and other fixed interest stocks, which is not the case. The world knows that inflation will almost certainly rise next year. The United States' rate of inflation will rise, and so, too, will ours.

The really important aspect of the public expenditure White Paper, however, is what it reveals of the Government's intentions—what the Prime Minister and Chancellor intend to be the effect of this economic policy on people in the real world. It is a depressing, crabbed and mean picture. A chill must go through anyone reading the public expenditure White Paper who next year wants to get a house, to be housed, to start a business or to expand a business, who might be so thoughtless as to be inconveniently ill next year, who is approaching old age or who is leaving school. The White Paper has no message of hope for any such people. Instead, the Government's message is, "We will not spend money on your needs."

Using the Government's own RPI projections, the Treasury and Civil Service Committee report at page xiv, table 2, shows that public expenditure will remain substantially unchanged in cost terms over the next three years. Even during the recession of 1978–79, up to the present day, there was an average real growth in public expenditure of 1.5 per cent. per year. The White Paper is saying, therefore, in relation to the years of so-called recession, that the Government are going to cut still further over the next three years. That is a horrific prospect for the elderly and the sick in society.

Reference has been made to the figures on housing, overseas aid and health. The Chief Secretary tried to claim that there had been an increase in health expenditure in real terms, but the figures show that it will be frozen in real terms. Anyone who knows anything about health knows that an increase of at least 1.5 per cent. per annum in real terms is necessary just to stand still, much less to bring about any development. The Chief Secretary made no reference to the demand of an ageing population for health care.

An examination of the increases shows that, in defence, since 1978–79 there has been a 27 per cent. increase in expenditure, the largest increase ever in peacetime. In 1984–85 it will be up by 8 per cent. Most tellingly, and inevitably, unemployment benefit on these figures is up 166 per cent. in real terms over the next three years.

The Chief Secretary surpassed himself in finding a new euphemism for unemployment when he described it as a "demand-led programme". What a sick expression that is for the 3 million-plus people who are part of that "demand-led programme". The Chief Secretary ought to face up to the fact and call it unemployment, and unemployment created largely by his Government.

However, the two most damning areas are not those to which I have referred but the plans in the White Paper for trade and industry and for capital investment in general. The Government's response to the manifest collapse of our manufacturing base is to cut investment in trade and industry. Table 2.4 shows that, in total, expenditure is down from more than £3 billion in 1981–82 to £1,300 million in 1986–87. That is an enormous cut at a time when we desperately need to rebuild our industrial base. Regional development grants are down from £659 million in 1982–83 to £385 million in 1984–85. Selective assistance to industries remains virtually static over that period.

How on earth can the Government do that? Are they incapable of seeing how far our industrial and manufacturing industries lag behind? When the Chief Secretary and the Chancellor of the Exchequer visit companies in their constituencies, do they not see the old and—to use their words–non-competitive machinery or the decaying plant? Equally stupidly, capital investment is, throughout the White Paper, savagely cut, while current expenditure staggers forward. It is a sane world gone mad. Whom do the Government think they are fooling? Are they really fooling themselves that they have made an intelligent and reasonable response to the industrial needs of the next few years?

In the middle of a manufacturing crisis it is sheer insanity to cut investment, sell assets and pretend that all is well. Even the CBI says that capital investment in infrastructure is far too low. The head of the British Institute of Management, Roy Close, said: How can industry cope with the recovery and hope to compete while working with clapped out roads, rail and other services? But in table 1.14 the Government say that transport spending will be radically reduced.

Their plans are quite inadequate to deal with the problems facing us. Someone trying to assess how the Government were coping with capital expenditure needs would expect to find something in the White Paper about obsolescence and depreciation. The Government publish depreciation figures, but there is no adjustment for, or appreciation of, depreciation in the White Paper, and in the absence of firm depreciation figures it is difficult to see the precise capital investment needs. However, it is obviously not the intention of the White Paper to face up to reality.

In its implications for the real world, the White Paper is nothing but a declaration of deflation. The Chief Secretary said that the White Paper was transparent, and it is. He said that it was stable, and it is. It is the stability of stagnation. The White Paper is a statement of stagnation that fails to rise to the challenges of the future in which there will be more elderly people and more demands for health care.

We need more industrial skills if we are to expand our industrial base. Allowances should be made to cope with young people leaving school who desperately need to contribute to society. However, not one of the challenges that awaits us in the next four years has been met in the White Paper. Every weekend hon. Members return to their constituencies and see the needs that exist in their hard-pressed hospitals and housing estates and in the state of their roads. If they visit the schools, they will see the potential. There is enormous potential in our young people and local industry, and they have the ability to work together to develop the country. However, to do that, the Government must give some financial and economic encouragement. We desperately need growth, but the White Paper offers no such prospect.

The Opposition do not accept what the Government consider to be the inevitably pessimistic message of this White Paper — that there will be no growth in the economy and that there is nothing to look forward to. We believe that the country can go forward and grow, but that that can be achieved only by public sector investment and public expenditure intelligently applied to develop the economy as it should be developed.

7.14 pm

Mr. David Evennett (Erith and Crayford)

I am pleased to be able to contribute to this important debate on the Government's public expenditure plans for 1984–85 to 1986–87. Great issues have been raised today by both sides of the House about the technicalities of public expenditure, and I welcome that. I also welcome the Select Committee's report and consider it an extremely valuable document.

However, for once in my life I agree with the right hon. Member for Chesterfield (Mr. Benn). I never thought that that would happen, but I agree with him in that it is the principles rather than the technicalities that are important to the public. The nation looks at the principles of public expenditure rather than at the technicalities.

I support the Government's White Paper and endorse their commitment to aid our nation's economic recovery by controlling public expenditure. The economic policies of the recent past are now truly bearing fruit, and the expenditure proposals before the House today are merely a continuation of the policies of the past four years that were instrumental in achieving a dramatic improvement in our economic fortunes.

The sound expenditure policies of the Government were overwhelmingly endorsed last summer by the electorate, and that should not be overlooked in any debate on public expenditure and the management of the economy. The proposals under discussion are also in line with the autumn statement of my right hon. Friend the Chancellor of the Exchequer, and between the present and 1986–87 the level of public expenditure is expected to remain broadly unchanged, after allowing for inflation. That must be right, and I welcome the plans not only because they show the Government's determination to continue on their chosen course but because they should allow for tax cuts as the economy grows over the next few years.

I realise that public expenditure is always an emotional subject for debate, as we have seen this afternoon. However, I regret the hysteria that we have seen from some Opposition Members, which seems to colour so many of our debates. To reinforce their views, they would seem to need a considerable amount of mythology. Two prominent myths have been reiterated this afternoon. Opposition Members seem to mention them every time that public expenditure is debated, presumably in the hope that if they are stated often enough someone somewhere will believe them.

I am sorry that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), the shadow Chancellor of the Exchequer, is not here to listen to my next comment. He often repeats the myth that the Government are dominated by dangerous economic radicals who delight in wielding a big axe on public expenditure and who, not content with cutting down the dead wood, are like crazy axe men or women, destroying all the trees in sight. However, the facts tell quite a different story. Expenditure for the current financial year is greater than ever before and is more than was planned last year. Next year it is expected to increase again. Therefore, that myth is destroyed by the facts. I know that the facts are often unpopular with the Opposition, but more money is being spent this year than ever before, and that is indisputable.

The second myth that is often perpetuated is that if the Labour party were given the chance to govern it could work miracles. It is said that a Labour Government could and would spend more money on just about everything. Indeed, the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) has just intimated as much. A Labour Government would either borrow more money on a massive scale or would tap the mythical pool of wealth that always seems to be ready and waiting for their expenditure plans. Of course, such economic nonsense is always trotted out in the knowledge that they will never have any chance of putting it into effect, at least in the foreseeable future. Indeed, we hope that they will not have such an opportunity for a long time, if ever.

That myth can be nailed by looking at the Opposition's alternative strategy together with their record when they were in power. We have heard the same old policies trotted out time and time again. They would continue with the policy that they had when they were in Government, when the public sector borrowing requirement rose dramatically. I take the House back to 1974–75, when their forecast of £2.7 billion became £7.6 billion and the amount continued to rise until 1976. What happened? Did unemployment fall because of this vast increase in public expenditure? No; it continued to rise. Inflation began to rise and the pound began to slide, so much so that the International Monetary Fund had to be called in to bail out the Government.

We have heard criticism of capital expenditure. What did the Labour Government do in the '70s about capital expenditure? They slashed it by some 45 per cent. between 1974 and 1978. When one listens to Opposition Members, including their economic spokesmen, one finds that they sound like the Bourbons: they learn nothing and they forget nothing. It appears, too, that they have not shifted one inch since their overwhelming rejection last June. Recently The Economist, dealing with Opposition economic policies, said that the shadow Chancellor had killed economic debate in Britain today by piling cliché on fallacy with all his customary fuss and flourish". That sums up what he said this afternoon. The second myth is therefore disproved.

Turning from the negative to the positive—the White Paper is positive—I believe that the proposals contained therein must be faced with a sense of reality, as they are. I do not agree with the hon. Member for Stoke-on-Trent, Central. It is reality we are considering. The great strength of the Government since assuming power in 1979 has been their endeavour to bring a sense of reality to the economy.

The Government say that the public sector takes too large a share of the national cake, that taxation, particularly of the lower paid, is too high and that real jobs can be created only when companies produce at competitive prices the goods that people want to buy. These are all common sense. I congratulate the Chief Secretary on continuing this commonsense approach.

The overall picture that the Chief Secretary presented to us of stable real spending disguises some big changes in the expenditure programmes of individual Departments. That must be right. Times change. Expenditure programmes have to be changed. There will be substantial increases in the expenditure of some Departments. Social security expenditure will go up, of course. Already it is 29 per cent. of central Government expenditure, but there will be an increase of nearly £6.3 billion in three years, as is right.

The hon. Member for Knowsley, South (Mr. Hughes), referring to education, said that there will be less spending in cash and real terms from April 1984, and the Chancellor agreed. This is because the school population will fall by 2 per cent. in the coming year. There has been a considerable increase in expenditure during the last five years in real terms when the school population has been falling.

The expenditure of more and more money does not mean better education or better services. It depends on how the money is used. Those of us who have lived in, worked in and represented London constituencies know that ILEA has proved the point that the expenditure of more and more money does not improve education provision. Nothing has been achieved by greater expenditure in the past and nothing will be achieved by more and more expenditure in the future. The important point is how the money is used.

Despite the claims of the Opposition, I believe that there is no alternative strategy to that advocated in the White Paper. Spending is expected to fall from 43 per cent. of the national product this year to 40 per cent. by 1986–87. This is welcome. It proves the point that what is proposed is hardly the destruction of the public sector or public sector services. The public will not fall for the kind of nonsense they hear from the Opposition, which is empty and emotional rhetoric. The public are well aware of the true situation and they will support Government strategy on public expenditure.

However, there are two important needs to which the Government must turn their attention in the next few years. As we have heard from some of my hon. Friends, there is a real need for tax reform and tax cuts. The system has become so complex and people are so overburdened by tax that there is a justifiable demand for change.

After the Government's hard struggle to get public expenditure under control, which has been attained, I am confident that the goals they have set can be achieved. Therefore, it is time for the Government to get to grips with longer-term planning for public expenditure, priorities in expenditure and the economic effect. I look forward with considerable interest to the publication next week of the Green Paper.

It is time for the Government to go forward to the next stage with the necessary radicalism and confidence and establish a fundamental reappraisal of Departments' responsibilities and expenditure in the long term. Undoubtedly there will be some hard choices and decisions, but we all know in our heart of hearts that they have to be made. The people accept that and will go along with it. Therefore, I hope that the debate will begin now so that by the time of the next public expenditure White Paper it will be well on its way to conclusion.

7.26 pm

Dr. Jeremy Bray (Motherwell, South)

It is a pleasure to welcome my right hon. Friend the Member for Chesterfield (Mr. Benn) back to the House and to hear him in such excellent form after the splendid by-election that he fought. He and I had jolly times buccaneering in the Ministry of Technology in the past, as I hope we shall again in similar roles in future.

The hon. Member for Erith and Crayford (Mr. Evennett) struck me as a well-meaning loyalist, doing his best for the Front Bench and, alas, a man sadly deluded, who in a few years' time will have to eat all his words, though not perhaps with the speed with which the last Tory party conference had to reverse its clapping from one day to the next. If Government Back Benchers are not living utterly in another world, they are reaching crisis point in the suspension of their beliefs between the reality that they see in their constituencies and the phoney PR front which they try to put down to public relations inadequacies, the exposition of party policy and so on. That is his problem.

The problem we face today is that of public expenditure and the White Paper. There ace two arguments underlying the debate. The first between the parties is about whether public expenditure should for its own sake be reduced or whether it should be increased, whether there is a role in the spending of money or in the using of resources for community need, or whether all resources are best left to the private individual to spend in whatever way he likes. That is an argument that takes us into social policy where I believe the arguments are overwhelming for a large and increasing element in communal provision today. That is the mood in the country.

I should like also to stress the role of public expenditure in what Tory hon. Members so misleadingly call the production of wealth. We all produce wealth, but I refer particularly to the producers of traded goods. I spent a most refreshing morning with my old friend Ian Barron, the managing director of Inmos, in Bristol and Newport. When I was in the Ministry of Technology, as my right hon. Friend the Member for Chesterfield will remember, we were advised to strangle Ian Barron. The production of small computers was to be concentrated on Ferranti and one other firm. Ian Barron came to see me and said that he did not want any Government orders or subsidy; he just pleaded that we should not knock him but should allow him to sell his product. With the generosity that is typical of the man, he asked me to open his first factory, Computer Technology Limited.

My right hon. Friend rightly pointed to the loss that we would face if the Government were so foolish as to sell Inmos. The £200 million that my right hon. Friend mentioned will, I am sure, be seen within a short time as a gross under-valuation of Inmos. For the Government even to have considered an offer from AT and T was lunatic, but for them to sell it at all, at a time when its profits are increasing as rapidly as they are, would be the height of irresponsibility. It would put Hamilton college into the shade for sheer financial mismanagement. There is no reason why the efficiency of investment achieved in Inmos should not be repeated in many parts of the economy and industry today. The opportunities for investment, innovation and development are immense, and the City of London still is not organised to support them properly.

However, there is a third argument with which the Government are principally obsessed, and it is the reduction of public spending—not in the social sphere or in industry, but to reduce public sector borrowing. The Government believe that if there is large public sector borrowing it will send money supply for a burton and we shall be off into an inflationary spiral. Here, I believe, that the Government are in a muddle.

If new Conservative Members want to understand the Government's economic policy, I commend to them the Treasury Select Committee report on monetary policy in the last Parliament. We wrote it at a time when sterling M3 — the chosen measure of broad money which the Government were targeting — was going all over the place. That was put down, first, to removing the corset. Then it was put down to complications and innovations in financial markets, and so on. In fact, there was such chaos with the effect on the exchange rates, interest rates and so on, that continuous targeting of sterling M3 from year to year was effectively abandoned. It was rebased between years, and targets during the year were infringed with impunity. So chaotic was the effect on sterling M3 that it has effectively been abandoned as a measure of monetary policy.

The interest rate effects on sterling M3 were found to be dynamically unstable. In other words, one gave interest rates a jerk and money supply responded. Then it would bounce the other way, so one reversed interest rates and found oneself in an increasing oscillation. That makes nonsense of a control system of any kind, and the Treasury model today has no absolute interest rate term in it at all to explain sterling M3. It has been abandoned, and no longer plays a part in rational targetry.

So the hunt is on for a substitute. Clearly, the new M2 is important, because building society deposits now outnumber bank deposits. They were totally left out of sterling M3. We do not have a time series going back far enough to make M2 modified a viable target, because we do not know how it behaves. Attention has turned, therefore, to the cash in our pockets. We are counting the notes, coins and paper clips, and adding to that the current accounts in banks in an effort to see whether that offers a basis for controlling the economy.

The Treasury published a fascinating document in February — Treasury working paper No. 28, "The demand for non-interest bearing money in the United Kingdom" by R. B. Johnston. It is hilariously funny. It is also rather mathematical, so hon. Members perhaps need an interpreter, and I hope that the Treasury and Civil Service Select Committee will oblige. Technically it is an admirable piece of work. It follows conscientiously the best practice in current time series analysis, and looks sensitively and objectively at the actual effects on non-interest bearing deposits recently and in the past. One does not have to read far to discover that one has to consider financial innovation in what has been happening. Financial innovation and structural change sound all very grand, but they mean simple things, such as the fact that the number of wage packets has fallen drastically. As a result, there is less money in the country. As a proxy to that, one uses unemployment—believe it or not—as a measure of the number of wage packets that one no longer has. Then, not the total amount of money in current accounts, but the number of current accounts is another factor in structural change, as well as the number of building society accounts and the number of cash dispensers in banks. In the past, people were too shy to go to the counter to withdraw anything less than £10, or even £20 nowadays, but they cheerfully go to a cash dispenser to draw out a fiver to tide them over a Saturday night. That has been a major effect on structural change.

The number of credit cards is also used as an explanatory factor by Mr. Johnston. Here we get really close to home. Here is last year's and next year's Visa card. For my sins, I used to think that one needed an American Express Card, but not so. I am sure that hon. Members other than I find that the House of Commons pass is a good credit card on appropriate occasions. As a long-term credit card with the Almighty, there is nothing better than this kidney donor card—"I would like to help someone to live after my death". That is a credit card with a difference. All these are worth exploring for their effects on what people do with money.

In Mr. Johnston's admirable work, he comes to the conclusion that these simple, practical and common-sense influences on the changing ways in which people use money are very important, and affect the amount of money in circulation and its relationship to income, and thus to inflation. Mr. Johnston's conclusion is that to explain notes and coins on non-interest bearing deposits one has to have some measure of transactions, and volume of transactions in the previous month is an adequate measure. One has to have a variety of bank interest rate terms. However, it is not just enough to have the bank lending rates; one has to have building society rates, and so on, and the measure of financial innovations required, the number of current accounts, the number of building society accounts, and so on.

The importance of that is seen in the fact that the innovation effects in the monetary system increase the velocity of money by about 3 per cent. It means that the real rate of growth of money supply is not the 11, 12 or 13 per cent., as published, but 14, 15 or 16 per cent. If one is to compensate for that with higher interest rates to bring down the effect on incomes and inflation, one will be into savagely deflationary and depressive interest rates and into an over-valued pound as well.

The other joke is that in the past those reasonable, obvious explanatory factors on the behaviour of money were explicable, but how does one predict the number of building society accounts in 1985, 1986 or 1987? If that cannot be done, nothing can be said about the velocity of money and, therefore, targets. Present conditions, which were admirably, lucidly and hilariously spelt out by Mr. R. B. Johnston, make nonsense of what the Chancellor is trying to do.

Those points have established what better people with a more reasonable perspective or argument thought all along. There is no tangible, firm, measurable element to which we can hitch our wagon and, therefore, remain on a straight path and clear of inflation, allowing the economy to look after itself and generate employment. To run the modern economy sensibly, an examination must be made of objectives, the rate of growth, balance of payments and the exchange rate. The basis of modern economic policy is the need to keep the ship on an even keel, despite the many dimensions involved. Once that strategy is set within the nation, the raw material can be used to build international economic co-operation. We can measure the trade-offs between America bringing its budget deficit under control and Britain bringing its gross budget surplus under control. If the Treasury and Civil Service Select Committee had its way and the corrections for public expenditure were produced, the most important correction would be cyclical. Such a correction would turn the public sector borrowing requirement into a huge budget surplus. The Government are pursuing fiscal and monetary policy in a savagely reflationary policy.

Perhaps it is a mercy that the Government's economic thinking is such that they are incapable of negotiating any economic co-operation with the Americans. Although mistakes may be made about the way the American economy is being allowed to develop in its medium-term perspective stretching beyond the presidential election, by screwing up interest rates, the dollar, and so on, those factors are nevertheless, a peccadillo by comparision with the long, sustained deflation from which this country has suffered.

The mumbo-jumbo of monetarism which underlies the total of public spending and the public sector borrowing requirement began as a star in a stormy night when the world faced a huge oil price increase and exchange rates were going all over the place. Nations needed something on to which they could hang. That need turned into a political excuse for many depressive and repressive policies. In the present phase, that policy is rapidly becoming a laughing stock. The sooner the honourable, faithful and loyal people such as the hon. Member for Erith and Crayford realise the laughing stock they are defending, the sooner this country will return to sanity.

7.43 pm

Mr. John Townend (Bridlington)

Earlier this afternoon I was amazed to hear the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), attacking nurses, doctors and teachers and making great play of the drop in the quality of services. He graciously gave way to me and accepted that under this Government the number of nurses had increased substantially by 46,000, that the number of doctors and dentists had increased by 6,000, that the teacher-pupil ratio had improved significantly from 18.9 to 18, and that there had been a real increase in spending per pupil. In view of those statistics and if the quality of education and health care has declined, the right hon. Gentleman must be questioning the efficiency, effectiveness and productivity of nurses, teachers and doctors.

The White Paper could be considered a progress report on the Government's achievements since 1979. I remind hon. Members, and especially my right hon. and learned Friends on the Front Bench, that we said in our manifesto: The State takes too much of the nation's income; its share must be steadily reduced … any future government which sets out honestly to reduce inflation and taxation will have to make substantial economies". However those words were interpreted, there was a clear feeling among the electorate, which supported us and returned us to power in 1979 and 1983, that there would be cuts and reductions in real terms in public expenditure.

From a departmental point of view the White Paper can be said to give the state of play in the continuous war between the Treasury and spending Ministers. I compliment my right hon. and hon. Friends in the Treasury. As guardian of the faith, the Treasury has manfully been trying to honour the 1979 manifesto. It is regrettably clear, however, in the White Paper that the Treasury has lost a major battle. There is no longer any commitment to reduce public spending in real terms during this Parliament. We must be thankful for small mercies, that the Treasury is continuing to do battle with the spending Departments. The White Paper invites us to believe that, based on the planning totals, public expenditure in real terms will remain almost the same until 1986–87. On the face of it, the Government still intend to hold spending down.

The Select Committee made two qualifications, to which my right hon. Friend the Member for Worthing (Mr. Higgins) alluded. The Chief Secretary made a point about the transparency of the White Paper. I challenge that, because our first reservation and qualification is that the figures are set out in such a way that expenditure cannot be compared from one year to another on a like basis. The distortions are significant and, therefore, the comparison of the planning totals from year to year does not disclose the extent of the substantial rise in departmental spending.

To obtain a correct comparison the Select Committee made adjustments and produced a table removing the following distortions: the reduction in national insurance surcharge, which is a reduction not in spending but in taxation and is a contra item; the change in the method of administrative arrangements for housing and sickness benefit; asset sales, to which a number of hon. Members have referred; and interest payments net of receipts. which were excluded from planning totals.

As an accountant, I remind the House that any public limited company that produced figures that did not make clear changes in the basis of accounting used from one year to another would probably be in breach of the Companies Acts and would certainly be severely criticised by financial journalists. It is clear from the White Paper that one cannot judge the success or failure of the Government's efforts to control expenditure merely by the planning totals.

Dr. Bray

Does the hon. Gentleman agree that, following good accounting practice, the Government should distinguish between current and capital expenditure? Has he examined the corrections that are made to the United States budget deficit by the council of economic advisers in Washington? Is he aware that if the Treasury Select Committee took that as its standard it would turn the Budget deficit in this country into the huge surplus to which I referred?

Mr. Townend

I have not read that document. but I agree that there is a good case for our dealing with capital and current spending in a way similar to the way in which it is dealt with in industry, and that brings in the whole sphere of depreciation.

The second reservation of the Select Committee was based on the performance of the Government. Based on their past performance, what chance have the Government of keeping within their spending plans? Despite a succession of plans since 1979, both to cut expenditure and to contain it, the Government have never achieved what they set out to do. Even if one considers the Government's figures—which we say are somewhat distorted—since 1978–79, one sees that Government expenditure in real terms has risen on average by 1.5 per cent. per year.

When the figures are adjusted to allow for distortions, that increase in real terms becomes 2.5 per cent. per year. That is a significant increase in public expenditure. Indeed, in the current year the Government have been particularly unsuccessful. Departmental spending — excluding increases in asset sales—was about £1 billion more than planned, and this in a year when inflation turned out to be lower than forecast, and therefore we should have expected expenditure to be below that estimated.

In evidence to the Select Committee, one Treasury official admitted that lower inflation had allowed departmental spending to rise in cost terms by no less than £1 billion. That is damning evidence of the Government's failure to control Departments. A fall in inflation to below the level forecast should have resulted in large underspendings. That would have happened in the private sector.

If one does a budget for a company in the private sector based on the rate of inflation and the rate of inflation turns out to be lower, by and large that money is not spent but goes straight into net profits. We are aware of the great difference between the constraints in the private and public sectors. In this case, Departments readily seized the opportunity to increase their spending in volume terms.

What has happened this year has highlighted a weakness in our present system of cash limits. As I said, in a period when inflation is rising faster than forecast, cash limits act as a curb on volume spending, and to those of us who want to see spending controlled, that is welcome. However, when the opposite happens, Departments have the opportunity to increase their spending. If the Government expect us seriously to believe that they are committed to controlling spending, if the rate of inflation in future years falls faster than the rate forecast, they should move in quickly and revise departmental budgets downwards.

I apologise to the occupants of the Government Front Bench for being sceptical of their plans. We still need to reduce public spending in real terms if we are to honour our commitment to reduce taxation. There is still a great need to reduce the burden of taxation on industry. The national insurance surcharge is a tax on jobs that we cannot afford at this time, and if we are to abolish that tax, as we should, we must find the money from somewhere.

I regret that the Government seem to have lost their will to take action to reduce spending. What really worries me is that when one looks into the future—towards, say, the next two decades—we shall be faced with a decline in North sea oil revenues, with the rising cost of an aging population and have the time bomb of earnings-related pensions ticking away. Then the need to cut spending will be imperative. Otherwise, we could be faced, not with reducing taxation, but with the probability of increasing it.

For that reason I look forward to the presentation of the Government's Green Paper on future expenditure plans. I hope that we shall not be told that all our problems will disappear by a mythical percentage rate of growth year after year, for while one might accept that for two or three years we could achieve a growth rate of 2 or 3 per cent., one would have to be an optimist to believe that we could achieve that rate of growth continuously until the end of the century.

Sacred cows must no longer be protected. The largest of those sacred cows is the Department of Health and Social Security, which by 1986–87 will account for 43 per cent. of total departmental spending. I question whether we can go on year after year increasing every benefit in line with inflation. In the last Parliament, in one year, the Treasury won a minor victory and secured a 5 per cent. abatement in short-term benefits. That victory was short-lived. As the result of pressure from Opposition Members and some of my less enlightened hon. Friends, a couple of years later the DHSS succeeded in clawing it all back.

I question whether some benefits which are universal should remain universal. Do the affluent really need to receive child benefit? I question whether earnings-related pensions should be dealt with by the state. Should we not consider the state merely providing the basic old-age pension, with earnings-related pensions being dealt with and funded by the private sector?

On the health side of the Department, is it sensible that not one penny of the savings from improved efficiency and privatisation — which, over the years, could run into millions, if not hundreds of millions, of pounds—should be returned to the Treasury and on to the taxpayer?

Many people say that overseas aid must not be touched. But do we need, and is it in our interest, to spend £1.25 billion a year in that way? To other people the arts are a sacred cow. Should we be spending £600 million a year on the arts, much of it going to subsidise the minority interests of wealthy people?

Many commentators are saying that the Government's momentum is slowing down, that they are losing the reforming zeal which was a major cause of our success at the polls in 1979 and last year and that they are becoming a Government of consolidation rather than of change, of restructuring and of radical reform. I regret that the White Paper lends considerable evidence to that view, because we see in particular the stabilising, rather than the reduction, of state spending.

Thatcherism caught the imagination of the people with its promise to roll back the frontiers of the state and restore individual initiative, to return power to the people and to let them keep more of what they earn. The Government are undoubtedly going some way along that road. They have had significant successes in implementing their policies of privatisation and in trade union reform.

We cannot, however, achieve what we originally set out to do without cutting expenditure in real terms. I must tell my right hon. and hon. Friends on the Treasury Bench that many Conservative Back Benchers, indeed many millions of people outside the House, urge them once again to do battle with the spending Ministries and achieve real cuts. It is only by getting out the hatchet that we shall be able to make significant cuts in taxation.

8.2 pm

Mr. Fred Silvester (Manchester, Withington)

I refer first to some of the difficulties that the country will face, to which my hon. Friend the Member for Bridlington (Mr. Townend) has just referred. We shall see a growth in the number of old people and in the earnings-related benefits scheme, at the same time as a decline in North sea oil. It is well recognised that that lies in wait for us. My hon. Friend concluded that the only way to tackle it is to cut public expenditure dramatically, to be able to pay our bills.

My conclusion, however, is to the contrary. I put this to my hon. Friend because there is a danger that we shall continue to fight battles of former times. Looking into the future, I see the three problems mentioned by my hon. Friend, as well as the possibility that we shall face the future with declining manufacturing capacity. That will make it more difficult for us to reach our goals.

If in the year 2000 I reconsidered our discussions on the 1984 White Paper, would I be able to say that we had used the time between now and then wisely? At present, the answer would be no. We would have been facing problems of growing current expenditure, which would have had to be paid for from many sources, but basically by having built up industrial, commercial, and service capacity to bear the load of those costs. They will not go away, and must be paid for out of what has been built up in the meantime.

I am greatly concerned that the industrial structure upon which we rely has been substantially weakened and eaten away. I should like to turn the question on its head. Would we not do better to spend our time in public expenditure debates asking how best to use those funds to strengthen that structure? I doubt whether we are getting it right.

I am not one of those who, like the hon. Member for Motherwell, South (Dr. Bray), advance the case that totals of public expenditure would be able to stimulate the economy if they were sufficiently increased, and would thus generate growth. This concept has been discussed many times in the House. That argument, although it still has great force, has become somewhat tarnished over time. We tend to see the matter too much in terms of total public expenditure, probably because public expenditure debates are related closely to accountancy. The important factor, however, is how public money is spent. One serious problem is that we tend to regard it simply as a total, and do not look underneath at what really matters.

We are considering public expenditure, among other things, as a means of producing a dynamo for public and private industries. That has been mentioned many times in our debate. I apologise for having had to pop out of the Chamber for half an hour earlier. One of my hon. Friends quoted £9 billion expenditure by public bodies in the private sector. In other words, the public system is buying £9 billion-worth of private production. That is right; many other examples can be given of the way in which public expenditure can be used to strengthen our industries.

We must study public consumption most carefully. I question whether we have grasped that nettle, even in the White Paper. A table in the White Paper has been much referred to, in trying to show that capital expenditure has been more or less on a plateau since 1973. It depends how it is defined, but let us not go into the technicalities. Even that table, however, does not show that public expenditure has been put into the part of capital expenditure that is likely to encourage the most productive elements of industry. We must put the money there.

I shall not be hidebound and say that the Vote of the Department of Trade and Industry for regional development grant should stay the same. I have grave doubts whether that sort of expenditure is the best way to approach the problem. We shall be in grave danger, however, if it is taken away and not replaced. Perhaps one should look at the Department of Transport Vote to see whether we should put the money into roads.

Mr. John Townend

Does my hon. Friend agree that an alternative way of helping industry would be to reduce the burdens of, say, the national insurance surcharge and rates? I question whether the only way to help industry is to give it handouts from the Department of Trade and Industry.

Mr. Silvester

My hon. Friend says two things that are commonly heard. He says that they are alternatives and that it is not possible to bring them in simultaneously, which is fundamentally wrong. Some of the changes that he espouses, such as tax cuts and reductions in national insurance surcharge, are important for stimulating industry. That does not mean that we cannot consider simultaneously ways of using public expenditure to stimulate industry. It is important for us to remember that such changes must carry on in parallel.

My hon. Friend further referred to "handouts" from the Department of Trade and Industry, which slightly offends me. Some of us from the north-west—I know that my hon. Friend also represents a northern constituency — find that offensive. Over the years, the south-east has received a higher proportion of public expenditure than the north. One of the functions of capital expenditure is the recycling of funds so that public expenditure does not always rain over the south. I do not regard such payments as handouts but as forming a natural balance in an over-centralised country. Some of the money should be recycled, although that is a matter for further discussion.

Mr. Alfred Morris (Manchester, Wythenshawe)

The hon. Member has made some important points about the balance between public and private expenditure, and speaks in accents quite different from the majority of Ministers. Is it not banal for Conservative Members to speak, as they often do, as if the public and private sectors were mutually exclusive? They imply that the public sector is wealth-consuming and that the private sector creates wealth. Is it not true to say that we can help private industry only if we are prepared to increase public investment? Would it not be good for the private sector of the building industry to have more public investment in housing?

Mr. Silvester

I do not recognise the hon. Gentleman's description of my right hon. and hon. Friends. I have not heard that view expressed. It is self-evident, however, from the information available to us, that some public expenditure is helpful to private industry, which no one doubts; indeed, that point was made earlier. I am merely trying to judge the public expenditure White Paper in terms of our present position, and suggest the direction in which we should go.

I believe, further that the Minister put forward a strong argument on the White Paper, so that people fully recognise the importance of containing the total of public expenditure. The Government however, have also maintained such a strong desire to keep down their borrowing that they have made it difficult to carry Dirt the secondary arm of the operation, which I am anxious to see, in developing the strength of British industry.

Few people believe that the increases in public borrowing that we are now contemplating would be such as either to raise interest rates substantially or to have a dramatic effect on inflation. If we wait for room to be made in current expenditure for the things that I am talking about, we shall never get there. They simply will not happen. Therefore, we shall be sitting on our hands from 1984 to 1986 waiting for the turnround from current to capital expenditure, which will not happen, and missing the time when we should invest money in the things to which I have referred.

I accept most of the philosophy underlying the White Paper. If one sits on the Public Accounts Committee, one can see that there is masses of public expenditure that should not be made. However, the Government should not be so concerned about the grand total and the inability to borrow more that, while they are waiting for control of current expenditure, they cannot begin to put more into the capital infrastructure, which is needed. That is a small plea. I know that it is not universally accepted, but it should be considered now.

8.12 pm

Mr. Stan Thorne (Preston)

I ask the hon. Member for Manchester, Withington (Mr. Silvester) to forgive me for not going down the path to which he addressed himself. I am much more concerned about the comments made by the hon. Member for Bridlington (Mr. Townend). I shall make a point of sending my brother and his family, who are constituents of his, a copy of Hansard because I think that they should have the pleasure of reading the views that he expressed.

The hon. Gentleman showed that he is in business to protect present society in all its forms. He tended to suggest that present Treasury Ministers are a little wet in that they do not appear to be pursuing the so-called reforming zeal that appeared to exist when the Government were re-elected in 1983. "Reforming zeal" is a curious way to describe the policies that have been pursued by the Conservative Government since 1979. I do not know how reforms have been part of the policies that have passed through the House. I am sure that if the hon. Member for Bridlington visited some of the deprived areas of Preston, Greater Manchester, and the north-west in general, he would find that people regarded the policies that he enunciated as unacceptable. That is to put it politely.

My right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris) put his finger on this point. When we consider public expenditure, we immediately think about what provision is being made for the people in respect of housing, health, services to the disabled and the sick and education—a variety of things, which are included in the White Paper. However, what do we see and have we seen over the past five years, when we examine those services? I admit that the process began earlier than five years ago, to my regret. It could be argued that there has been a steady decline in services to the community over the past seven or eight years. That is particularly disturbing.

In Preston we have a major housing problem. Many people, still with young children, are living in multi-storey blocks of flats. In some parts of Preston the housing is not fit for human habitation. In one road two families might be living in two houses, but the rest of the houses are boarded up because they are sub-standard dwellings. Estimates have been made by the Preston borough council with effect that in the immediate future, the council hopes, there will be expenditure from £3 million to £5 million on repairs alone so that such houses can be made reasonably habitable. Obviously, we shall not receive such money, as is known from previous debates on the rate support grant. The prospects for building new houses in Preston are almost non-existent. The housing committee and the finance committee have had to accept that it is impossible for them to put any money at all into early planning for new houses.

I am sure that I am not the only Member from the north-west or the north-east who receives mail telling stories about individual hardship arising from the lack of community health care. There is not much community health care in Preston due to cuts over some years. When one goes into the new Royal Preston hospital, one is initially extremely pleased about what has been provided until one addresses oneself to some basic problems. For example, patients with heart disease have to travel to my right hon. Friend's constituency in Wythenshawe in the hope that they will get surgery. However, my right hon. Friend knows better than me that even that hospital has serious doubts about its ability to continue to provide such care and operative treatment because of the cuts in resources.

Care of the elderly is one factor that is considered when setting up public expenditure plans. I and, I am sure, other hon. Members, have received complaints from organisations such as Age Concern and Help the Aged that are trying to grapple with problems of elderly people living on low fixed incomes, who are faced with the prospect of increased electricity and gas charges, against a background of housing benefit cuts and other factors that have reduced their ability to face the present cost of living with any optimism.

Pensions is a subject that the hon. Member for Bridlington brushed aside, suggesting that we might be overpaying certain sections of the community in benefits. That approach is appalling. It is clear that a major review of the subject of benefits to people such as the elderly, the sick and the disabled, who rely on them, is long overdue.

One of the things that the Government have completely failed to grapple with is the continually growing problem of the outflow of capital from Britain. No guidance backed by legislation has been or is being given by the Government to those who have the capacity to invest in British manufacturing industry. One is forced to the conclusion that the Government have no confidence in British manufacturing industry, without which we cannot possibly create the wealth to pay for the public services that we so desperately need. Private capital still dominates the economy, whether it is in the form of the multinational companies, the banks or the insurance companies. We need the mobilisation of public wealth, correctly deployed. I am thinking, in particular, about North sea oil revenues, which we continue to use to pay unemployment benefit rather than to invest in the public sector services, such as housing. A massive amount of investment is required in British Rail. We have the power to make that investment, but it is not the Government's policy to do so.

If we take the bull by the horns and invest in public services, the multiplier will enable manufacturing industry to create the wealth necessary to continue to support those public services. Keynes was right to approach our economic problems in that way. Historical evidence shows that, if a Government are prepared to invest in the public sector, whether in housing, rails, roads or other needs, the multiplier will be effective and our economic problems will begin to be solved. Public ownership is vital for that, which is why Opposition Members will continue to oppose every measure of privatisation.

8.21 pm

Mr. Timothy Yeo (Suffolk, South)

I am glad that the right hon. Member for Chesterfield (Mr. Benn) has returned to the House, and I congratulate him on that. He delivered his speech with a passion and sincerity, which I have no doubt reflect his convictions. His speech was, however, remarkable in that it made no mention of the public expenditure White Paper. That may be explained by his recent need for an all-purpose by-election speech, but I suspect that the real reason lies in the fact that those who, like him, espouse woolly Socialist rhetoric and relive the battles of the 1930s, do not want to face the economic realities of the 1980s. The right hon. Gentleman conveniently forgets that the hospitals, houses and school, of which he speaks so lovingly have to be paid for. To ignore that is to take a short cut to the economic chaos in which socialist France now finds itself.

The right hon. Gentleman departed farthest from reality when he said that he wanted to save the coal industry from Mr. MacGregor. Those hon. Members with a genuine concern for jobs in the coal industry and therefore, of necessity, for the industry's customers, know that the most urgent task is to save the coal industry from Mr. Scargill. In that process of salvation we are more likely to have the support of the miners of Chesterfield that is the right hon. Gentleman.

The format of the White Paper was elegantly analysed by my right hon. Friend the Member for Worthing (Mr. Higgins). The White Paper deserves a warm welcome because it represents substantial progress in the presentation of our spending plans in a much more meaningful form. We are at last getting comprehensible and relevant information, and credit must be given where credit is due. However, I hope that further improvements will be made in future years.

First, the assumptions for inflation and growth for the years covered by the White Paper should be stated explicity and should not have to be guessed at from the figures. The summary of the economic prospects for the period should be included because assumptions for the latter must have been made when the estimates of the costs of social security payments were arrived at.

Secondly, we still seem to be discussing expenditure without reference to how it will be financed. A reference to the revenue-raising implications is desirable, and an analysis of the cost of specific tax concessions would be helpful — for example, the cost of mortgage interest relief. The effect of that on the public sector borrowing requirement is the same as actual spending on housing.

Thirdly, there should be a better breakdown of capital expenditure — a point already referred to during the debate. I am unhappy about the treatment of some items included in capital expenditure, notably those relating to defence.

Fourthly, the exclusion of debt interest from the totals is unsatisfactory. It is not satisfactory to argue that the Government lack control of debt interest, because that applies equally, as the Treasury and Civil Service Committee pointed out, to the demand-led programmes. However, overall progress is encouraging.

It is good that the outturn for 1983–84 will be close to the figures quoted earlier for the financial year, because it suggests that controls are improving. The projected total, which remains roughly unchanged in real terms for the next three years, strikes the right balance. There is no reason to attempt to make a further overall cut in public spending, especially at a time when the economy is experiencing a sustained and satisfactory rate of recovery. In that respect I differ entirely from my hon. Friend the Member for Bridlington (Mr. Townend).

The White Paper must finally nail the lie that the present Government are bent on the destruction of the welfare state. The expenditure on health and personal social services is planned to grow slightly faster than the apparent assumption for inflation. I welcome that, and again, I differ from my hon. Friend because I do not see that section of the spending targets as a suitable area for further cuts.

Those features—combined with the emphasis, which is properly being placed, on improving efficiency to ensure that we get value for money from the enormous amount spent on health and social security—will permit the growth necessary to maintain care, while taking into account the growth and aging of the population.

The ending of the commitment to an increase in real terms of 3 per cent. per annum in defence spending is welcome. We must be realistic about the resources that we can afford to devote to defence. I hope that my right hon. Friend the Secretary of State for Defence is making progress in ensuring that his Department pays attention to achieving value for money.

My principal concern with the expenditure plans is the extent to which the public sector capital formation is still being constrained. Many of my hon. Friends referred to that point. Investment in the nation's infrastructure must increase in the long term. In any organisation it is tempting to balance the books for the short term by cutting back on items, such as maintenance and other similar, apparently hidden items, but a short-term solution inevitably produces serious trouble in the long term.

When significant national resources are under-utilised—most notably the work force—every possible effort must be made to put them to good use. I hope that when the Minister winds up, he will be able to assure us that consideration will be given to trying to find methods of expanding capital investment by the public sector.

I deal finally with the credibility of the White Paper's projected figures. The history of spending controls does not offer much encouragement on the record of the past few years. The consistent overshooting of targets in the past is bound to provoke a fair degree of scepticism in appraising the prospects for sticking to the figures contained in the White Paper.

There is some evidence that controls are becoming more effective. That is supported by our experience in the current year. The higher reserve that has been built into the White Paper's figures will help. I believe that there are some problem areas, including local authorities. I must question, particularly in the light of the Energy Committee's report on the electricity price increases, whether the assumptions for price increases by nationalised industries close to the rate of inflation will be acceptable.

Those and other reservations apart, I feel that there is a better chance of hitting these spending targets than some of those set in the past. I believe that the White Paper is a good document. I hope that in future years it will be refined into an even better document. We have come a long way since the days when the previous Labour Government were regularly going cap in hand to the International Monetary Fund.

The Government deserve support for their continuing efforts to keep spending under control. I hope that success in that regard will not be purchased at the cost of excessive restraints on public sector capital formation. I trust that progress on the expenditure side of the equation will be matched next week by progress on rationalising the income side.

8.31 pm

Mr. John Maples (Lewisham, West)

Opposition speeches seem to have divided into two categories. In one category was the speech of the hon. Member for Motherwell, South (Dr. Bray) who took us down the esoteric byways of monetarism. I sometimes think that he and the Chancellor of the Exchequer are the only people who understand it. The other speeches were all emotional pleas for increased public expenditure solely on the basis of need. None of them put the need into the context of an overall economic policy of the resources that would be required to pay for that additional public expenditure or the effect that it would have on the economy if it were raised and spent.

I should like to try to put the matter in the context of an economic policy. We are in a serious recession. The overwhelming objective of economic policy over the next few years must surely be to foster a virtuous cycle of low inflationary growth. With that objective, resources will have to be used to reduce costs and improve investment in the market sector so as to increase competitiveness, and thereby markets and employment.

We have the beginnings of that virtuous cycle. Inflation is well down. We are seeing some growth. We must do everything possible to foster it, and if in the pursuit of that objective public or private consumption has to wait, then so be it.

Those who talk glibly about massive increases in public expenditure should reflect on what happened in the mid-1970s and the effect that such increases will have on competitiveness and output. If the increases are to be paid for by increased borrowing, what will that do to interest rates and costs? If they are to be paid for by increased taxation, who will pay the taxes and what effect will that tax increase have on output and employment? I hope that when the hon. Member for Birmingham, Hodge Hill (Mr. Davis) replies to the debate he will put the proposals for increased public expenditure in the context of an overall economic strategy. It is not reasonable to say that we should spend more on this or that, without saying how the money is to be raised and what effect he thinks that will have on the operation of the economy, output and employment prospects.

If we are to foster the recovery, we will have to restrain public expenditure at least for a few years to allow industrial costs and investment to improve. A growing economy would be able to pay for the improved public services that we all want to see. A stagnating or contracting economy can do that for only a limited period, after which those public services must inevitably deteriorate.

In that context, the public expenditure White Paper commitment, effectively, to zero growth for three years is to be welcomed, but past performance does not provide encouraging omens. On the Treasury's figures, the growth in public expenditure in real terms over the past five years was 7 per cent. On the figures as adjusted by the Treasury and Civil Service Select Committee, it was 12.5 per cent. Public expenditure targets have been consistently exceeded and the apparently inexorable rise continues. Even this Government's commitment to control public expenditure does not seem to have been successful.

I sometimes think that the acid test of a Conservative Chancellor's success will be his control of public expenditure. Someone once said that the definition of a successful man is one who can earn more than his wife can spend. Perhaps the definition of a successful economy is one that can earn more than the Government can spend.

If there are to be no real increases in public expenditure for the next few years, we will have to do something different from what we have done over the past five years. I hope that the Minister will tell us why and how we will succeed over the next three years in achieving an objective which has unfortunately eluded us in the past.

Thes areas of public expenditure where savings might be made, are extremely limited even to someone of a Conservative persuasion like myself. One studies the major areas of expenditure, such as defence. The commitment to 3 per cent. real growth goes after next year, but it is unlikely that we shall see any falls. I suspect that the pressure through the increased cost of Trident and increased demand for more conventional forces will lead to rises.

If unemployment decreases we may see some diminution of social security expenditure, but there will be no reduction in the number of pensioners. In the long term, I am sure we all agree that most social security benefits should be raised. They have been held down to the level of inflation, although some have done slightly better. Benefits are by no means generous. There will be pressure for an increased social security budget. There will be the same problem with the National Health Service. The combination of an aging population and advances in medical technique will lead to pressure for more spending, not less.

We have achieved some savings in education, but they are largely a combination of one-off savings and savings that have resulted from falling school rolls, and that will not continue. Within the next seven or eight years they will come to an end and there will be pressure for increased expenditure.

As we are all aware, those four programmes account for two thirds of total Government expenditure. There does not seem to be room for saving much in any of the items in those programmes. If one studies the other public expenditure programmes for savings, one sees that there are few where there is a real chance of effecting reductions in the Budget.

I want to consider briefly three areas where one might make savings. We spent £4.5 billion on transport. There has been no fall in real terms since the Government took office. Of that, £2 billion is effectively a subsidy to British Rail and bus services. I should have thought that there was room for savings there.

We spent £2 billion directly on supporting agriculture, and at the same time it has generous tax concessions. The price support mechanism is thought by farmers to be worth an additional £2 billion. Perhaps we could find a few savings there.

A total of about £6 billion is being spent on the trade, industry, energy and employment budget. There has been a small increase in real terms since 1978–79. Economic growth in the next few years may help with the nationalised industries' financing requirements. I hope that it will, but it seems to me that we could adopt a rather tougher attitude in that area. Although it is easy and tempting to offer help to industries that are in serious trouble, with the possibility of saving them and making them profitable and successful again, it is always done at huge cost to the rest of the economy.

If we could have all the money that has been invested in British Steel, British Leyland and the National Coal Board over the last 10 years and invest it in the industries of the future, we should be looking at a different economic picture today.

We may also receive a bonus from falling inflation on the debt interest. The net figure is about £7.5 billion. If inflation fell, one would expect interest rates payable by the Government to fall. As the debt is funded over a fairly lengthy period, the benefit would not be immediate. The room for saving on programmes is limited. Whatever limited room there is, I suspect that the Government will find that they will need it to make up the inevitable increases forced on them in other programmes.

We could look for some savings in Government consumption; on the actual goods and services purchased and paid for by the Government. Their total cost has risen from £11 billion in 1972 to a projected £65 billion next year. They constitute 50 per cent. of total public spending. We could look for some serious savings here. On the Treasury Select Committee's figures, total expenditure on Government-purchased goods and services rose by 18 per cent. in real terms from 1978–79 to 1983–84.It will be interesting to hear if the Minister can explain why there has been such an increase. Undoubtedly, part is due to an increase in the defence budget. Nevertheless, there is room for saving in this area.

As to the public sector wage bill, a large element of that, about £40 billion this year, or £60 billion if nationalised industries are included, represents a tax burden of either £60 or £90 a week for every family of four in the country. This element, therefore, is a candidate for careful examination, because very small percentage increases in it translate into very large increases in public expenditure.

The Government's manpower targets are to be welcomed. They have achieved notable success in reducing Civil Service numbers, but this success is not mirrored in the National Health Service or in local authorities, where we originally saw a drop of some 90,000 but where the figure has started to creep up again. There is overwhelming evidence that large areas of the public service could do what they are doing now with fewer people and without reducing the output or quality of service to the public. I suggest, therefore, that we concentrate on the efficiency of the public sector simply to enable us to achieve the target of holding still in real terms.

To do this we need modern management techniques. We need people with the ability, the skill and the will to take tough decisions and to manage the large organisations of which the public sector consists. Civil Servants will have to become managers rather than administrators. They will have to have budgets for which they are responsible, and their incentives and the training that they undergo must be geared to that end.

Two ideas emerge from the Select Committee's report. We need more and better output criteria so that we can measure what the Government achieve with the money that they spend. We also need more, and more extensive, unit cost comparisons. Those published by the Health Service are very useful. Would it be possible to extend them to other areas of Government activity, because they provide a measure of efficiency, or lack of it? Could we not have a Rayner-type team in every part of the public sector, looking for genuine savings? They should not seek ways of cutting services, since these are political decisions and we do not wish to see that anyway, but they could look for more efficient ways of doing what is done.

The Minister will tell us if what I am about to suggest is already the case. If not, could we not have a junior Minister in each Department actually responsible for the efficiency of the Department, promoting it and seeing that it is improved? That is an area where we can find substantial savings, but where proper and effective management will be needed to make them.

Members on both sides of the House want better public services, particularly in the National Health Service, pensions, education and social services, none more than a Member like me, who represents an inner-city constituency where these problems, which are all too easy to see, will almost certainly be cured only by Government spending. Such an improvement, however, can come only from a growing, healthy, productive economy. Priority must be given to achieving that growth, or we will end up with poorer public services. I welcome the commitment to no real rise in public expenditure in the next three years, but I am not sanguine about the prospect unless the public sector becomes much more efficient and we find further areas of saving.

8.43 pm

Mr. Tim Eggar (Enfield, North)

The central message of the public expenditure White Paper is the one that has been referred to least: that, just as the Government have decided that public expenditure is not going to rise in real terms, neither is the reverse going to happen: it is not going to fall. Anyone who asserted in 1980 that a Conservative Government elected on the 1979 platform would be happy to settle for public expenditure in real terms of the current level would have been heavily criticised; a good deal of surprise would have been expressed.

The contrast between this White Paper and that of 1980 could not be greater. Practical experience and political reality have won the day. The political will for a reduction in public expenditure has gone, rightly in my view. Unfortunately, my hon. Friend the Member for Bridlington (Mr. Townend), is not in the Chamber. but I am bound to say that he is re-fighting yesterday's lost battles.

It is one thing for the Government to plan for public expenditure to remain constant in real terms, but it is another to achieve such an aim. Apart from healthy optimism about the rate of inflation, which I consider a reasonable assumption, two major factors cast doubt on the Government's ability to achieve the plans set out in the White Paper. The first is that any reduction in expenditure planned in the White Paper is in just those areas where the Government have least control, namely, local authority spending — we all know, and the Treasury Select Committee have pointed out, the difficulty there — nationalised industry — with EFLs and the historical development there; again we need only to make a comparison with the 1980 White Paper — and asset sales, where the record of the Government in meeting the timetable for the disposal of assets has been rather poor. A question mark must, therefore, be put against those three areas.

I also doubt that the Government can achieve their aim in the Department with the largest expenditure, the DHSS. The expenditure is planned only to take account of demographic changes. The plans assume that both recipients of social security benefits and National Health Service and Government employees will be satisfied with constant real incomes during the life of this Parliament. Yet we all expect that the real growth in the economy that we are forecasting for the next two or three years will lead to real increases in the earnings of those outside the public sector. Can we really sustain a position during the life of this Parliament where social security benefits are constant in real terms and where Government employees have constant income levels in real terms and where everyone else in employment sees his real income rising? I have a feeling that the strains thus created over a period of three or four years will inevitably lead to an increase in the planned totals.

If I am right, it is possible that the Front Bench will point out that there is a large contingency reserve. Indeed there is. However, one has only to point to the way in which that large contingency reserve was gobbled up in 1980 to see the dangers that exist for the Government in resting their case on the size of the reserve. I doubt whether we shall be able to keep to the current plans.

Even if we accept, for a moment, Government's ability to keep public expenditure constant in real terms, we must ask how we are going to deliver the additional services that our constituents will inevitably require from us. The answer lies in shifting our focus from a concentration on the quantity of public expenditure to a concentration on its quality, trying to improve the value that we receive from the constant total of public expenditure. Shifting the focus is the only way in which we can hope to deliver both the improved services that we all want and even a minimal form of tax reduction.

Large savings in the public service are possible. The Rayner scrutinies have shown up ways of making them. the achievement of manpower targets has been significant and the MINIS system has undoubtedly been successful. Further improvement in the quality of public expenditure and value for money will be ever more difficult to achieve. There must be a real commitment to improve efficiency by both Ministers and permanent secretaries. Neither have management expertise by nature or training. Ministers see themselves as taking political decisions; civil servants see themselves as giving policy advice.

Good management requires devolved decision-taking. We must push decisions down the line within the Civil Service. Yet its whole tradition militates against that, and the way in which we look at public spending in the House militates in favour of centralised spending and centralised analysis of expenditure. We must have devolved decision-taking.

Within the House and through the media, Ministers and their Departments traditionally have been judged on their policy initiatives and on the quantity of funds they command at the end of the PESC process. It is time that the media and we in the House looked much more carefully at the value Departments obtain for the money they are allocated. We should try to judge ministerial performance on how their Departments carry out these objectives.

I recognise that the PAC is moving in the right direction. Unfortunately, we are not prepared to get down to the nitty-gritty analysis of value for money. We still concentrate far too much on the global quantity of expenditure.

The electorate at the next election will expect a reasonable standard of public services, even if personal taxation has been reduced. We all want more capital expenditure, yet few of us can see ways of reducing current expenditure. The gap can be bridged only by improving the quality of public expenditure and value for money.

The challenge facing the Government is whether Ministers can manage their Departments successfully so that they carry through policies, which were largely decided during the last Parliament, in the most effective and efficient manner. That is an extraordinarily boring task. To be a good manager does not make headlines in the newspapers. It is not something that the electorate will understand readily. But we must strive in that direction if we are to deliver the joint aim of constant and improved services coupled with reduced taxation.

8.54 pm

Mr. Peter Bottomley (Eltham)

The major problem is not simply ministerial performance or the task of permanent secretaries. It is a political problem. As I have said on other occasions, my amendment to Lord Butler's definition of politics as the art of the possible is that the real job of the politician is to make possible what is right.

Most things that Ministers would choose to do are blocked by sacred cows on both sides of the House. We can make party political speeches about the Labour party's difficulties with the National Graphical Association and other trade unions. The same applies to the Conservative party, especially relating to the tax or expenditure aspects of the public sector borrowing requirement.

For example, my constituency provides the equivalent of £1.5 million a year to the National Coal Board, and almost the same amount to British Rail. We need to spell out the enormous sums of public expenditure as they relate to constituencies and constituents. Only then can we generate sufficient public awareness of where the money is going, while at the same time offering any prospect of replacement jobs that must be justified by what people will pay.

I shall not spend much time on the DHSS budget. My hon. Friend the Member for Bridlington (Mr. Townend) is not here. I must tell him that, if he spent as much time discussing tax expenditure as he spent discussing child benefit, we might move forward rather than backward. My hon. Friend asked whether child benefit should go to the rich. Would he prefer to return to the previous position of child tax allowances which gave greater help to the rich than to the poor? Indeed, the very poor did not receive any help from child allowances because at that time many of the working poor were below the tax threshold. Child benefit as part of tax credits gives as much help to the poor as it does to the rich.

I shall now raise the sacred cow with which Brian Walden nearly dealt in his article in The Standard. If he wants to take the debate further, I am not available this Sunday, but I might be free the following Sunday if he wants me to appear on "Weekend World". He accused the Government of starting to kick some of their own supporters. We should start explaining to some of our supporters what we are doing on certain matters. For example, with mortgage interest tax relief it is wrong for someone on the highest rate of tax, with a mortgage at the £30,000 limit, to receive three times the help of someone with an average mortgage of £10,000 on the standard rate of tax. If my tax rate is 75 per cent., and I have a £30,000 mortgage, why should I receive an additional £50 a week to spend? If I were in a different stage of my life cycle with a mortgage rate of £10,000 and paying the standard rate of tax, I would receive only £800 a year in help.

That is a massive distortion of the way in which people might use their additional resources. It is far better to encourage them to use their disposable resources in a way that generates jobs. We must not become hooked on the idea that because we created a mortgage interest relief system in the days when only one in eight of us were buying a home, it is still appropriate. It is not.

One small caveat is that I do not want to see instant and massive change. During the next 20 years we can deliberately, openly and justifiably move to a system where we concentrate housing help at the time of family formation. Whether one is a wet—as I am—and wants to see help concentrated on those most in need, or on the dry side—I sometimes think that I can argue better than my dry colleagues—we can openly argue for a system that makes far more sense. It should be a matter of public debate in advance of Government decision.

Thus I would pick up from the Treasury Committee's report the idea of green budgets. Although I do not go along with the idea of forecasts more than a year ahead, because I think that the uncertainty has become too great, we can ask for projections—which if they do not come in response to the Treasury Committee's request, certainly ought to come as part of the Green Paper which we are expecting at the time of the Budget on the long-term future of public expenditure—on what, for example, is likely to happen to the time bomb of the cost of mortgage interest relief as the average mortgage doubles from £10,000 to £20,000, as I predict it will within over the next 10 years, at a time when more and more people at the time of household formation will be inheriting the value of the home from their parents or grandparents.

It seems to me that those who argue—as my hon. Friend the Member for Bridlington did — for the abolition of the national insurance surcharge are wrong. This is not the time to do anything substantial in further reducing that surcharge. All the evidence is that pay settlements are higher than the sort of settlement which would be consistent with generating greater wealth in this country and continuing to lower inflation and unemployment.

We are at the most critical time of this Parliament for the future of the economy of this country. I see signs that pay settlements are going to hold at about the present level, which appears to be about 7 per cent., and are likely to grow. I believe that the reason for this is that more employers feel that they can afford increases of that sort. The wrong message would go out to employers—who are the people who agree pay settlements, although they do not formulate pay claims—if the national insurance surcharge were abolished in the forthcoming Budget. I suspect that we would then see higher pay settlements, which would be counter-productive for the unemployed, counter-productive for the country and, most important of all, especially counter-productive for low-income earners at a time when they have family responsibilities.

I would therefore argue to my right hon. Friend the Chancellor of the Exchequer, through my hon. Friend the Minister of State, Treasury, that it is necessary to have a tough Budget and to say openly that the national insurance surcharge will be seriously reduced only when it is clear that pay settlements are being reduced again. so that people will know that there are bonuses to come if they take individual decisions which are consistent with the economic prosperity of this country.

I would go a stage further. In terms of any possibility of rate relief for businesses, I would not go down that line for the time being. There is no evidence that employers are briefing their employees on the rates burden on their job. Until that happens, we are not going to get sustained local community pressure which will make possible the achievement of the Government's target for local government spending.

It can be seen from the Committee report—which is very valuable and helpful to all of us—that two of the most doubtful elements of the public expenditure forecasts are nationalised industries' cash requirements and local government spending. I do not believe that we are going to see local government spending under control until both domestic ratepayers and the people at work realise what the burden is to themselves. We have got to enlist more people in the army of those who support what the Government are trying to achieve and whose involvement is necessary if it is to be achieved.

I have not got time to develop all my themes in this debate, but perhaps in this half-speech I can say publicly to you, Mr. Speaker, that I shall be hoping to catch your eye in the Budget debate in order to make the other half. I hope that I have said enough, however, to make it plain that, whatever differences there may be between hon. Members on the Government side or between hon. Members on either side of the House, it is important to try to tackle some of the issues which have been swept away because it has apparently been politically impossible to discuss them openly. It is only by open discussion of the options and the issues, and the pressures on Ministers, whether from Government supporters, other people in the country or members of the Opposition, that we are likely to set this country on a consistent course towards not only greater prosperity but greater and more rational matching of resources and needs over the family or individual life cycles.

Most of the arguments about income transfers and most of the discussions about taxation are not between two static groups within the community but are between each of us with our different financial positions, our ability to contribute and our needs for extra resources at different stages of our own lives. So I hope that when the Green Paper comes from the Treasury on time bombs, or long-term expenditure and revenue forecasts we are going to be able to consider those issues in the way in which I have tried to tackle public expenditure this evening.

9.4 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

It is unfortunately necessary for me to begin on a sad note. I should like to associate the Opposition with what was said by the right hon. Member for Guildford (Mr. Howell) about the loss of Sir Hugh Fraser today. We all express our sorrow and send our sympathy to his family.

Turning to a more pleasant task, I welcome back my right hon. Friend the Member for Chesterfield (Mr. Benn). I can imagine his feelings on 10 June when he found that he had lost his seat after representing the city of Bristol for almost 30 years. However, he has shown by his speech today that he will be an outstanding representative for Chesterfield, and a worthy successor to Eric Varley.

My right hon. Friend would agree that he has not made a maiden speech. He could not make a maiden speech three times. He has the distinction of having stood as a candidate in more by-elections, I believe, than any other Member of the House, and he has been victorious in every one.

I must say that I think my right hon. Friend was hard on the right hon. Member for Worthing (Mr. Higgins). He accused him of being too managerial in his approach. I would expect my right hon. Friend to agree that we need good management as well as passion if we are to build the caring society that he and I and all our hon. Friends want to see.

I must make one personal comment about the right hon. Member for Worthing who is Chairman of the Treasury and Civil Service Select Committee. Having made his speech, he remained in the Chamber for most of the debate. That was much appreciated on the Opposition Benches as well as his own. The courtesy of the Chief Secretary in remaining for almost all the debate has also not gone unnoticed.

My right hon. Friend the Member for Chesterfield will no doubt find that there have been several changes in his absence, and that some of them are changes for the worse. For a start, we have a new Chancellor of the Exchequer. Unfortunately, we have not had any change in the Government's policies. My right hon. Friend will have noticed that, at first sight, there do not even appear to have been any changes in the Government's plans for public expenditure. We are still discussing the total of £126.4 billion for 1984–85, as we were when he last sat in this place. That is significant.

A White Paper was published in February 1983 by the Chancellor's predecessor, the present Foreign Secretary. That was the first time that we heard the magic figure of £126.4 billion for 1984–85, but I doubt whether anyone—not even the then Chancellor himself—realised the fateful significance of that figure. It was clear at the time that the then Chancellor did not expect that figure to be treated as though it was written on tablets of stone—unalterable, untouchable and inflexible. After all, he drew attention to the fact that the figures for 1984–85 and 1985–86 were planning totals. He said that they should be regarded as provisional. He promised the House that they would be reviewed later in 1983.

That Chancellor has gone. Gone, too, is all thought of flexibility. The right hon. Member for Blaby (Mr. Lawson) has all the flexibility of an iron maiden. There is no question of provisional figures. As last year's White Paper contained the figure of £126.4 billion for public expenditure in 1984–85, £126.4 billion it will be. It was called a planning total, and a planning total it will still be called. Such inflexibility gives planning a bad name. It is not planning. It is a fetish. The Chancellor is obsessed with the public expenditure figures that he inherited from his predecessor.

It does not matter to this Chancellor what changes have taken place at home or abroad during the past 12 months. It does not matter to him whether unemployment is lower or higher than was forecast at the time that the figure was published. It does not matter to him that the Government have failed to reduce the cost of Common Market support for agriculture. Above all, it does not matter to this Chancellor whether the economy has done better or worse than was expected a year ago. Whatever happens, it makes no difference. Public expenditure will be £126.4 billion next year simply because that is what the Chancellor's predecessor said it would be one year ago. The magic number of £126.4 billion must appear at the bottom of the page.

It is not just the forensic skills of the Chief Secretary to the Treasury that have been called in aid; every possible accounting skill has been pressed into service to ensure that the sacred figure remains untouched. We had testimony to that effect this afternoon from the Chief Secretary himself. He told us that many people had worked for many months to keep the figure at £126.4 billion. To serve that idol, no sacrifice is too great for other people. No sacrifice is too great for the unemployed, for the sick and disabled, for pensioners or for the homeless. All must be turned away because the Chancellor believes with the unreal and unreasoning passion of a witch doctor that public expenditure must not be allowed to exceed £126.4 billion.

Everyone knows that the figure is bogus. I do not think that anyone really believes that total public expenditure will really be £126.4 billion. There is one possible exception. From his speech, I think that the hon. Member for Carshalton and Wallington (Mr. Forman) believes it, but we need not take him too seriously. After all, he understands so little of his Government's economic policy that he still believes that it is their policy to increase public expenditure as and when the increase can be afforded. That is what he described as the aim of the Government. He has not read the White Paper and has not even listened to the Chief Secretary, who assured us that that is not the aim at all. The aim is to keep the total "broadly stable".

The Chancellor's obsession with the total of £126.4 billion has other consequences. In the real world, the real costs of real Government programmes change in response to what is really happening and, as it is inevitable that the cost of some of the Government's programmes change, it is equally inevitable that, as a result of the Chancellor's grand obsession with the £126.4 billion, he must rob Peter to pay Paul.

If the cost of implementing the common agricultural policy is £400 million more than the Government anticipated one year ago, the Chancellor sells off another £400 million-worth of public assets to keep the magic figure of £126.4 billion at the bottom of the page.

If more people are unemployed than the Government expected one year ago and the Department of Health and Social Security must therefore pay out more in social security benefits to the tune of £1.3 billion, the Chancellor must make cuts elsewhere. Therefore, he has chosen, yet again, to cut the budget for housing and to force the gas and electricity industries to increase their prices to pay for their own investment programmes and those of the National Coal Board and British Rail. It matters not to the Chancellor that the money might be readily available in the money markets to finance the capital expenditure of those public corporations, and that such capital expenditure would produce a handsome return on investment in the energy supply industry. It matters not that such price increases will impose further hardship on the pensioners, the families of the unemployed and the families of the low-paid. It matters not that they will increase the costs of British industry which is fighting to beat foreign manufacturers that import into Britain and to win export orders abroad. It matters not that they are directly inflationary for everyone, industry and domestic consumers alike. It matters only that they help to keep the magic figure of £126.4 billion at the bottom of the page.

We must not allow the Chancellor's obsession or the details of the White Paper to distract us from the truth about the Government's policies. Like the amount of public expenditure, the pattern of public expenditure is as much a matter of politics as of economics. The hon. Member for Manchester, Withington (Mr. Silvester) drew attention to that. My hon. Friends the Members for Knowsley, South (Mr. Hughes) and for Preston (Mr. Thorne) also pointed out that the pattern of public expenditure is related to political philosophy.

We had a glimpse of Conservative political philosophy from the hon. Member for Bridlington (Mr. Townend), who demanded even greater cuts in public expenditure, in direct contrast with some of his hon. Friends such as the hon. Member for Suffolk, South (Mr. Yeo). The hon. Member for Bridlington particularly argued for cuts in health and social security, but in his haste to defend the Government he got his figures wrong. He claimed that there were far more nurses than have actually been employed under this Government, and wrongly accused my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) of attacking nurses, doctors and teachers. It is worth stressing, for those who did not hear him, that the hon. Member for Bridlington was questioning whether the people who depend on social security benefits should be protected against inflation. He did not take the time to identify the groups that he had in mind or to say whether he meant pensioners, the sick, the disabled, the unemployed or families with children.

Unlike the hon. Member for Lewisham, West (Mr. Maples) and possibly the hon. Member for Enfield, North (Mr. Eggar), who were, I think, arguing that the present levels of pensions and benefits are not sufficient, the hon. Member for Bridlington was asking the Government to consider the possibility of real cuts in pensions, sickness benefits and the rest.

Against this background, it is worth saying that the only thing offered by the Government to pensioners is protection against rises in the cost of living. There is no prospect in this White Paper of any improvement in the standard of living for pensioners during the next three years, or any prospect that they will be given protection against price increases. They will not share in any improvement in the standard of living of the population as a whole. Once retired, they are to be forgotten. Their contribution to the economic recovery will never receive its reward, according to the White Paper published by this Government.

Housing is an item of public expenditure that was mentioned by several of my hon. Friends and, to be fair, some Conservative Members. Next year, this Government will spend less in cash terms than in 1979–80. If we allow for the effect of inflation, the housing capital budget has been reduced by half in real terms under this Government, as my right hon. Friend the Member for Sparkbrook pointed out. As my hon. Friend the Member for Knowsley, South said, this will create misery for thousands of families and individuals.

The hon. Member for Colne Valley (Mr. Wainwright) pointed out that there was need not only for more capital expenditure to increase the housing stock, but for more capital expenditure to correct the defects built into a large proportion of the housing stock during the 1960s. He pointed out that there are 1.5 million dwellings — I cannot confirm his figure but I am happy to accept it—for which it would cost £7 billion to deal with the problems of system-built housing. That will not be financed by the provisions of this White Paper and will not receive any money for the next three years.

Above all, there will not be an adequate supply of new housing in the next three years.

When the Chief Secretary replied to my right hon. Friend the Member for Sparkbrook this afternoon, he lost my personal respect. I have had great respect for the right hon. and learned Gentleman in the past, but he made a blatantly misleading point today. He conceded the accuracy of the figures given by my right hon. Friend the Member for Sparkbrook in describing the decline of public expenditure on housing, but he claimed that this simply reflected the switch from the public to the private sector. He sought to reinforce his point by telling the House that starts in the private sector are now higher than they have been in any year for the past 10 years. As far as that goes, it is true, but it is misleading.

Let us put on one side the entirely valid point made by my right hon. Friend about the people in greatest need, and the people with lowest incomes, being served by the public sector with regard to housing. Let us approach the issue without any reference to the argument about the rival merits of public or private ownership, or any disagreement as to whether housing should be owner-occupied or rented. What matters is the total of housing starts with the private sector and the public sector added together.

There has been a catastrophic fall in the number of starts in the public sector since 1978, and the private sector has failed to fill the gap. The total for all starts—the total of public and private sectors added together— is not only lower than 1978; it is lower than it was 10 years ago, and it is lower than in any year between those dates. In fact, the total is lower than it was in every year during the 1970s. It is only higher than the previous three years of 1980 to 1982 under this Government. When one considers completions, the figures for last year were even worse. The Chief Secretary must be desperate to stoop to such a misleading point in order to try to defend the Government.

If the Chief Secretary made a misleading point about housing, I must tell him that the White Paper comes pretty close to deception in its section on the Health Service. The White Paper, volume II, at page 76, referring to the Health Service budget, states: On the Government's projections of price and pay movements this provides scope for real growth in resources of some 1 per cent. However, the same White Paper admits elsewhere that the effect of demography is estimated to average just under 1 per cent. The fact is that the impact of demographic change is equal to the increase in the budget for the Health Service given in the White Paper. By the Government's own statement, there is no real growth in resources for the National Health Service. As my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) said, an increase is needed just to stand still. To argue otherwise is tantamount to claiming that there is a real increase in the social security budget of the same Department, because the provision is increased to take account of increased numbers of elderly people and unemployed people. Not even this Government are suggesting that the increase of £1.3 billion in social security is anything other than keeping pace with the number of people dependent on social security benefits.

The social security budget is accepted to be what the Chief Secretary calls "demand-led". I must say that "demand-led" is a funny phrase, as if thousands of people throughout the country were demanding to be treated as unemployed, but I will let that pass. For the sake of discussion, let us use the Chief Secretary's language, and ask the Minster of State to explain why the Treasury accepts that the increase in the social security budget of the Department is demand-led, because there are more children and more elderly people than previously, but then claims that the increase in the health budget is a real increase when it is due to that same increase in the number of children and elderly people.

However, we cannot leave the budget for the National Health Service there. Any hon. Member who takes an interest in the Health Service knows that the budget needs to be increased by another 0.5 per cent. to take account of more expensive forms of treatment — what the Department calls technological change. There is no provision for technological change in the public expenditure White Paper. It is not simply that there will not be an increase in provision, as claimed by the hon. Member for Suffolk, South and urged by the right hon. Member for Guildford. Indeed, a real cut in the budget for the National Health Service will be experienced in the next three years.

However, the cut in public expenditure for social services is even greater. The White Paper boasts that next year spending on the personal social services — the services on which the elderly, children in the worst possible family circumstances and the disabled depend—will be £39 million more than was proposed a year ago.

It fails to note that this amount is £3 million less than is being spent in the current year. Thus, there is a cut in cash terms, despite the fact that everywhere the White Paper forecasts inflation running at 5 per cent. That is to happen despite the same demographic factors as affect the NHS and social security budgets. If the NHS needs an extra 5.7 per cent. to stand still, the personal social services need the same increase. In practice, the effect of the White Paper is to cut spending on social services by more than £100 million.

I apologise to those hon. Members I have not mentioned but who spoke in the debate. In particular, I apologise to the hon. Member for Lewisham, West, who made the thoughtful speech that we have come to expect from him in such debates. He put several questions to me, but I do not have time to answer them now. Instead, I look forward to debating the issues with him in the future because I respect the way in which he approached those questions. I shall certainly do my best to answer them in our future debates.

But it is the Government who should really apologise—they should apologise for the White Paper. The truth is that it is a miserable White Paper, which means misery for thousands of pensioners with no prospects of any improvement in their standard of living; misery for thousands of parents trying to bring up children in flats that have no gardens, and who have no prospect of moving into council houses; misery for thousands of people who will suffer or even die as a result of ill health that is directly related to all the inequalities catalogued in the Black report entitled "Inequality in Ill Health"; and misery for the thousands of people who are waiting for the help that they are entitled to receive from the social services. That is why the Labour party will vote against the White Paper.

9.27 pm

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

The hon. Member for Birmingham, Hodge Hill (Mr. Davis), began by expressing sentiments that I think are shared by all hon. Members. First, he referred to Sir Hugh Fraser, whom many of us have known for many years. I knew him when I was a young Conservative, and he was exceptionally kind to me long before I came to this House. No doubt many others could cite similar experiences. He also played a great part in many of our financial and economic debates.

The hon. Member for Hodge Hill also referred to my right hon. Friend the Member for Worthing (Mr. Higgins) and to the way in which, as Chairman of the Select Committee, he had stayed close to the debate. Like the hon. Member for Hodge Hill, I also thought that the new Member of Parliament, the right hon. Member for Chesterfield (Mr. Benn), was a little less than fair in his comments about my right hon. Friend's speech.

However, the debate has been useful, and much more wide-ranging than the two previous debates in which I was privileged to take part. Several hon. Members made highly technical speeches, while the right hon. Member for Chesterfield, on his return from the by-election, made a deeply emotional and passionate speech—if that is the appropriate description. I may have something to say about his contribution later.

However, my right hon. Friend the Member for Worthing was unfairly criticised by the right hon. Member for Chesterfield, who seemed to imply that the figures did not matter. My right hon. Friend began his speech by drawing attention to the enormous sums that we are dealing with. The White Paper shows total public spending this year at a little over £120 billion and next year at £126 billion. In other words, the public expenditure there described amounts to about £40 per week for every man, woman and child in the country. We are talking about very substantial sums. When we talk of them in millions and billions, they mean very little to people, but when one sees them in terms of £40 per week for every inhabitant of the country, one gets a better appreciation of the amounts involved. Expenditure 20 years ago was only £3 to £4 per week. The contrast between the figures shows not only the ravages of inflation but also a near doubling in real terms of spending by central and local government over the last two decades.

My right hon. Friend the Member for Worthing spoke of the difficulties over the timing of these debates. I agree with much of what he said. With the Budget only a week away, with people obviously interested in the first Budget of the new Chancellor and with the Green Paper on long-term public expenditure being promised for publication next week, this debate has been made more difficult. Some essential elements in speeches about the economy and about public spending and all the implications associated with it require information which will not be available until next week.

Some of the answers about revenue projection and economic forecasts, and answers to questions that have been properly raised by the Select Committee in its report, will be given by my right hon. Friend the Chancellor in his Budget Statement, but I must hasten to make it clear that in no way am I anticipating, prejudging or preempting what he may say from the Dispatch Box next Tuesday. The Government will, of course, study the Select Committee's recommendations and the further work which the Select Committee has decided to undertake, and will be responding in due course.

I should like to say something about overspending, which has been referred to by quite a number of right hon. and hon. Gentlemen who have taken part in the debate. The Select Committee commented: despite a succession of plans for either reduced or constant real expenditure levels, the actual outturn has invariably exceeded the planning targets—by significant amounts. For the last three years, our plans have been based upon cash. We no longer work in real terms in regard to public expenditure plans. We are not dealing with funny money, as we used to, but with cash planning. We are following and, indeed, building upon the first steps which were taken by the right hon. Member for Leeds, East (Mr. Healey) when he was Chancellor of the Exchequer.

As a result of the switch to cash planning, the main reason for the real increase in the value of the plans has been our success in getting inflation down faster than anyone expected. One of the benefits is that the cash provided this year will buy more. The public are benefiting as a result, as they do in so many other ways, as we succeed in bringing inflation under control.

For each year from 1981–82 to 1984–85 the new plans are within the cash totals published in 1982, the first year of cash planning, as is clearly shown in table 1.1 of volume I of the White Paper. It is worth noting that a variation of 0.5 per cent. in the forecast rate of inflation is worth £1 billion of expenditure in cost terms. We cannot fine-tune the plans to this degree of accuracy. If we clawed back modest increases, surely then we would be expected to increase the cash when inflation was higher than expected. In other words, we would be undermining the whole principle of cash limits and cash planning. That would seriously weaken the disciplines that those regimes imply.

The planning and control of public expenditure is not simply a matter of allocating funds to certain programmes. We are equally concerned to secure value for the money made available. The Civil Service is already smaller by 100,000 than it was in April 1979, and some of my hon. Friends referred to our success in achieving the target of 630,000 for the Civil Service that was set by my right hon. Friend the Prime Minister in July 1979. The White Paper now shows that we plan a further rundown of nearly 40,000 by 1988. The reductions so far represent a saving of about £600 million a year in the Civil Service pay bill — a very considerable saving. It underlines what my hon. Friend the Member for Enfield, North (Mr. Eggar) said about the successes that can be achieved by improving efficiency in the Civil Service. He referred to the Rayner reviews which, together with other parts of the centrally organised efficiency programme, yielded savings in excess of £450 million between 1979 and 1983. I pay tribute, as I have done in the past, to all the help that we have been given by civil servants, who share our aims of improving efficiency and effectiveness in the public service.

Good progress is being made in strengthening financial management in Government Departments. A report on the plans announced last September will be published in the White Paper in July. I am grateful to my hon. Friend the Member for Lewisham, West (Mr. Maples), who spoke convincingly on this sphere of our activities. We are looking for comparable improvements in efficiency in the other public services. So far, local government has reduced its manpower by only 4 per cent. since 1979, and the figures are beginning to rise again. This is most disappointing, and I hope that the trend will soon be reversed. Manpower reductions are the key to reducing local authority spending.

The National Health Service is also expected to introduce major efficiency savings to provide improvements in services and to reduce waiting lists. The Griffiths report recommends ways of transforming the management of the NHS and will make it easier to secure such savings.

My right hon. Friend the Member for Guildford (Mr. Howell) spoke about future medical needs. I am sure that he shares my hope that the promise of the Griffiths report of greater efficiency and effectiveness will be achieved, and that this will provide initial resources for patient care. The hon. Member for Hodge Hill took no account in what he said about public expenditure plans over the coming years of any change in efficiency. That is wholly unrealistic, because, unless we can get improvements in efficiency and effectiveness in the public service, just as they are now being achieved in the private sector, there is no chance of our economy growing steadily in the future.

My right hon. Friend the Member for Guildford referred also to the 3 per cent. pay factor, as did the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who said that the figure was unrealistic. I want to make it absolutely clear that the 3 per cent. pay factor is not a pay norm, as the right hon. Gentleman seemed to think. It applies only to central Government pay, not to the nationalised industries or to local authorities, which are not directly controlled by central Government. Of course, in 1984–85, as in earlier years, there is a clear presumption that the additional cost of any settlement above the pay factor will be found from within the existing provision. While recourse to the reserve in such circumstances is not absolutely ruled out, there can be no easy assumption that it will be allowed.

I hope that no one will take the Select Committee's comments in paragraph 28 of its report as implying that there will be easy and ready access to the reserve to cover pay increases in the coming year. I am glad that my right hon. Friend the Member for Worthing, the Chairman of the Select Committee, assents to that proposition. I am sure he would be quick to repudiate any such idea. I confirm that the Government are committed to genuine pay negotiations with the Council of Civil Service Unions, and I hope that an agreed settlement will be reached this year as it was last year.

Mr. Hattersley

I am sure that the Minister was trying to be helpful, but he has left many of us more confused than before. Will he tell us in simple and precise language whether he is expecting the pay negotiations in the relevant public service to which he has referred to come out at 3 per cent? Is that his intention?

Mr. Hayhoe

I am expecting the pay negotiations in the relevant public service to be genuine, and I trust that we will get agreed settlements. I certainly will not be conducting those pay negotiations over the Table in the House of Commons. The right hon. Gentleman shows how far removed he is from reality by making such a suggestion. [Interruption.] Those involved in negotiations, who know what they are talking about, recognise that in recent years settlements have been a little higher than the pay factor and have generally been absorbed within the cash limits, although some additional provision was made from the reserve in 1982–83 and 1983–84 for the National Health Service.

I endorse the statements of my right hon. Friend the Member for Guildford about the damaging effect if the pay negotiations within the public services, as with anywhere else in the economy, are not conducted with great responsibility by all. There is, of course, a link between pay and jobs, and surely by now that is understood in the House and elsewhere. Unrealistic pay increases will destroy jobs. I hope that will not be forgotten by all involved in pay bargaining during the coming months in the public and private sectors.

Having referred to that link, it is right to refer to unemployment, which the right hon. Member for Sparkbrook mentioned. I saw his comments when the White Paper was published. He criticised the assumption of 2.85 million unemployed which, as he should know, is used to calculate the social security programme. The right hon. Gentleman knows that no Government, including those in which he served, have forecast a level of unemployment. However, a figure is needed to construct the plans for social security, so the convention is adopted of assuming for the forward years the unemployment level of the current year. That procedure is not invariably adopted, but broadly speaking——

Mr. Hattersley

rose——

Mr. Hayhoe

It was certainly adopted for five years ahead in the last White Paper produced by the last Labour Government. There have been minuscule changes away from that procedure, but, broadly speaking, that convention has been followed. It is no more than a convention. The actual level of unemployment will, of course, depend on a mass of factors at home and abroad, all of which affect the economy and, hence, the unemployment levels. I make it clear that the Government are not forecasting 2.85 million unemployed to 1986–87.

In 1984–85 we are planning, as the White Paper makes clear, to spend about £2.1 billion on special employment and training measures, which will help provide people with the training needed for jobs as well as help those hardest hit by the recession and its aftermath. As my right hon. and learned Friend the Chief Secretary said earlier, we must look to more fundamental improvements in the structure of the economy to reduce the level of unemployment in the longer term. We need to create real jobs in profitable industries. They are the only jobs that will be of lasting benefit to the economy. That has meant maintaining sound financial policies, including containing public expenditure.

Creating the conditions for sustainable growth and employment does not, of course, preclude direct measures, and the Government have, for example, done much to help small businesses because small firms are indispensable to the creation of jobs and wealth in the economy. In giving direct help, we have switched industrial support away from subsidising loss-makers and towards encouraging the industries of tomorrow.

We plan to spend £280 million next year supporting innovation and the application of new technology. This compares with less than £40 million—it is seven times as great in cash terms — spent by the Labour Government in their last year in office. Projects such as the expansion of National Semiconductors at its plant at Greenock means that "Silicon Glen" is becoming a reality, and that is good for Scotland and the United Kingdom.

There has been a lot of other good news in the last few days. The Secretary of State for Trade and Industry has announced launch aid for the British Aerospace Airbus project; we have had the United States Army order for aircraft from Shorts in Belfast; and the Prime Minister was talking at Question Time today of a number of investment projects in Wales. All this is extremely good news.

I suppose that the same can be said of the return of the right hon. Member for Chesterfield, although, as I looked on the faces of Labour Members, I was not sure that the welcome was quite so wholehearted on the Opposition Benches as it was on the Conservative Benches.

The right hon. Member for Chesterfield treated us—I mean that literally—to a vintage rhetorical performance. His campaigning zeal, as he came to us direct from the hustings, was clear for all to see, and his message, "Never forget the people," will, I hope, be echoed and understood by hon. Members in all parts of the House. It was important that he should refer to the very roots from which we in Parliament draw our democratic power.

However, when the right hon. Gentleman went on, as the detailed proposals flowed from his experience in that by-election, to say that he had now decided that the way out of our difficulties was an extension of the public sector—more nationalisation—one had to wonder with whom he was in touch. Increased public services, apparently regardless of whether they could be afforded, and the imposition of exchange control; and no doubt he complains that the exchange rate is too high and should be lower so as to achieve a better competitive position. He believes in clobbering the rich and doing what the trade union bosses tell him to do.

Mr. Stuart Bell (Middlesbrough)

rose——

Mr. Hayhoe

The hon. Gentleman has not been here all day, whereas the right hon. Member for Chesterfield has.

All the plans of the right hon. Member for Chesterfield represented precisely what his colleagues and he were doing at the time of the 1974 Labour Government. Where did that land them? It landed them after a couple of years right in the arms of the IMF. Yet there came not a word from the right hon. Gentleman about the 1976 economic crisis. Surely he has not forgotten living through those troubled days when he shared—presumably he shared—collective responsibility for all the decisions that were then taken. After all, he stayed in the Cabinet and did not resign.

Mr. Bell

What was the exchange rate of the dollar in relation to the pound in 1976 and what is it today?

Mr. Peter Tapsell (East Lindsey)

$1.54.

Mr. Hayhoe

I think that it was not far off being within the range of 10 per cent. I do not carry those figures in my head. No doubt the hon. Gentleman does. For Ministers who were involved at that time and who went through the searing experience of having followed policies which led them into the arms of the IMF, such figures should be indelibly marked on their consciences and minds, whereas it is not in the same way memorable to my hon. Friends and me.

Mr. Tony Favell (Stockport)

Does the Minister recall that in 1976 the then Chancellor of the Exchequer went on television to warn the nation that, if the IMF did not come up with the goods, there would be rioting in the streets, which would have been similar to the recent Liverpool disturbances?

Mr. Hayhoe

I sincerely hope that there will be no more rioting on the streets of Liverpool and that enough members of the city council will adopt a responsible attitude with regard to votes on the city budget.

The right hon. Member for Chesterfield accused the Government of imposing taxation through the back door by means of energy prices. It would not be very kind to remind the right hon. Gentleman of the principles that he set out in 1978 when he was the Secretary of State for Energy, and when the right hon. Member for Sparkbrook was Secretary of State for Prices and Consumer Protection. However, the right hon. Member for Chesterfield said in the 1978 Green Paper on energy: The principle that prices should reflect the costs of supply on a continuing basis while providing an adequate return on capital is now firmly established … the relevant cost is the cost incurred or saved in expanding or contracting supplies in the present or in the future, rather than an average of past costs. The prices, the rate of return and the EFLs are set broadly on that principle for the energy industry and other nationalised industries. It is absurd to suggest that something has gone wrong if a nationalised industry makes a profit. I know that nationalised industries are often incapable of making profits, but when they do so it is right for a reasonable return to be achieved. By those standards, based on comparisons between the public and private sectors, profits in gas and electricity are, if anything, on the low side. The private sector has been making profits equivalent to a 5 per cent. real return on investments, and the British Gas Corporation is making about 4 per cent. and the electricity industry about 2 per cent. profit. No reasonable person could argue that that is backdoor taxation. Although the Government will be giving careful consideration to the points in the Select Committee's report, I hope that there will be a robust response to some of the report's suggestions.

Opposition Members who refer to electricity prices being so high—when we know that domestic electricity prices are going up by only 2 per cent. for the first time in two years, compared with a 2 per cent. rise every six weeks when the Labour Government were in office—should keep a discreet silence.

The hon. Member for Hodge Hill and many of my hon. Friends referred to the need for more capital expenditure, especially on construction. My right hon. and learned Friend the Chief Secretary referred to that in his opening speech. I am happy to confirm that we are always ready to encourage worthwhile capital projects.

The word "worthwhile" is important. A sane person would not suggest that we should undertake capital projects irrespective of their merit just to keep up the figures for capital spending. There is no right overall level of spending, which is why we have no overall target. The essential prerequisite is that the total for replacement, improvement and new investment should be genuinely needed, earn an adequate return and be appropriate to the public sector. We shall be happy to consider any project on its merits against those general criteria.

It is worth drawing attention again to table 1.13 of the White Paper, which has been generally welcomed on both sides of the House. It shows that public sector capital spending has not shown the downward trend that so many presumed, but has remained roughly level for a considerable span of years.

Mr. Wainwright

Will the Minister be a little more precise as to what he means by "worthwhile"? Does the Minister regard it as worth while to tackle now the problem of 1.5 million system-built dwellings, before they become irreparable?

Mr. Hayhoe

I am sure that my right hon. Friend the Secretary of State for the Environment, who has made statements on some aspects of the problem, will have it closely in mind. As the hon. Gentleman knows, a regime of improvement grants has been available, which comes to an end in March this year. It was instituted to give a substantial boost to the construction industry, and I think that it has done a great deal to restore the fabric of much housing.

We are often accused by a number of Opposition Members of wasting North sea oil. One hears that charge from time to time, but the benefits of North sea oil to the balance of payments have helped us to transform the nation's overseas balance sheet in the past five years. In 1976—[Interruption.] Opposition Members may laugh, but when the Labour Government were in office, overseas borrowing, which they incurred when they had to go to the IMF in 1976, had risen to a level roughly equivalent to cancelling out all the overseas assets owned by this country in every part of the world. Since then, as a nation, we have added to our overseas assets to a point where at the end of 1982 we had net assets of over £40 billion. There has been a £30 billion net improvement since the end of 1978. Since mid-1979, official foreign currency debt——

Government borrowing abroad—has been reduced. We have reduced the debts incurred by our predecessors from $22 billion to a figure approaching $12 billion, the lowest figure since the war in relation to overseas trade.

The benefits of those improvements are spread among millions of people who have investments in insurance companies and pension funds. No doubt the National Coal Board pension fund is benefiting. That will provide a continuing benefit to the nation in overseas earnings after the value of North sea production has begun to decline. Therefore, that valuable asset, far from being wasted, is being put to good use and, with proper management, will be to the continuing benefit of future generations.

My right hon. and learned. Friend the Chief Secretary posed some simple though searching questions to the right hon. Member for Sparkbrook. I listened carefully to the right hon. Gentleman's speech because I wanted to hear how he proposed to remedy the deficiencies of the Opposition's policies that he had so clearly perceived in the heat of his bid for the leadership of the Labour party in the summer and early autumn of last year. At that time he wrote: The idea of 'borrowing to expand' proved crucially unpopular. The British people—not being stupid—realised that the whole strategy lacked two essential ingredients: a coherent plan for investment and a scheme to combat inflation. We would all say amen to that, except perhaps the new right hon. Member for Chesterfield, and some of his friends. However, we are still waiting for coherent answers from the right hon. Member for Sparkbrook to his own questions about Britain's real problems. The omens are not encouraging. Anyone who continues to think, as he does, that they can increase Government borrowing and reduce interest rates at the same time will not convince the British people now, any more than the right hon. Gentleman and his colleagues did at the general election. Whereas the Government are planning for stability in public expenditure, the Labour party stands for instability. Whereas the Government want to keep public spending steady in real terms, Labour, according to its election manifesto, wants to increase it by £20 billion.

Whereas inflation has been brought under control and should continue on its downward path, the economic policies of the Labour party would send it soaring again. I ask the House decisively to reject the amendment.

Question put, That the amendment be made:—

The House divided: Ayes 199, Noes 301.

Division No. 183]	[10.00 pm
AYES
Adams, Allen (Paisley N)	Cowans, Harry
Alton, David	Cox, Thomas (Tooting)
Anderson, Donald	Craigen, J. M.
Archer, Rt Hon Peter	Crowther, Stan
Ashdown, Paddy	Cunliffe, Lawrence
Ashley, Rt Hon Jack	Cunningham, Dr John
Ashton, Joe	Dalyell, Tam
Atkinson, N. (Tottenham)	Davies, Rt Hon Denzil (L'lli)
Bagier, Gordon A. T.	Davies, Ronald (Caerphilly)
Banks, Tony (Newham NW)	Davis, Terry (B'ham, H'ge H'l)
Barnett, Guy	Deakins, Eric
Beckett, Mrs Margaret	Dewar, Donald
Beith, A. J.	Dixon, Donald
Bell, Stuart	Dormand, Jack
Benn Rt. Hon. Tony	Douglas, Dick
Bermingham, Gerald	Dubs, Alfred
Bidwell, Sydney	Duffy, A. E. P.
Blair, Anthony	Dunwoody, Hon Mrs G.
Boothroyd, Miss Betty	Eadie, Alex
Boyes, Roland	Eastham, Ken
Bray, Dr Jeremy	Edwards, Bob (W'h'mpt'n SE)
Brown, Hugh D. (Provan)	Ellis, Raymond
Brown, N. (N'c'tle-u-Tyne E)	Evans, John (St. Helens N)
Brown, R. (N'c'tle-u-Tyne N)	Fatchett, Derek
Brown, Ron (E'burgh, Leith)	Faulds, Andrew
Bruce, Malcolm	Field, Frank (Birkenhead)
Buchan, Norman	Fields, T. (L'pool Broad Gn)
Caborn, Richard	Fisher, Mark
Callaghan, Jim (Heyw'd & M)	Flannery, Martin
Campbell, Ian	Foot, Rt Hon Michael
Campbell-Savours, Dale	Forrester, John
Canavan, Dennis	Foster, Derek
Carlile, Alexander (Montg'y)	Foulkes, George
Carter-Jones, Lewis	Fraser, J. (Norwood)
Cartwright, John	Freeson, Rt Hon Reginald
Clark, Dr David (S Shields)	Freud, Clement
Clarke, Thomas	Garrett, W. E.
Clay, Robert	George, Bruce
Cocks, Rt Hon M. (Bristol S.)	Gilbert, Rt Hon Dr John
Cohen, Harry	Golding, John
Coleman, Donald	Gould, Bryan
Concannon, Rt Hon J. D.	Gourlay, Harry
Cook, Frank (Stockton North)	Hamilton, W. W. (Central Fife)
Corbett, Robin	Hardy, Peter
Corbyn, Jeremy	Harman, Ms Harriet

Harrison, Rt Hon Walter	Parry, Robert
Hattersley, Rt Hon Roy	Patchett, Terry
Healey, Rt Hon Denis	Pavitt, Laurie
Heffer, Eric S.	Pendry, Tom
Hogg, N. (C'nauld & Kilsyth)	Pike, Peter
Holland, Stuart (Vauxhall)	Powell, Raymond (Ogmore)
Home Robertson, John	Prescott, John
Howell, Rt Hon D. (S'heath)	Radice, Giles
Howells, Geraint	Randall, Stuart
Hughes, Dr. Mark (Durham)	Redmond, M.
Hughes, Robert (Aberdeen N)	Rees, Rt Hon M. (Leeds S)
Hughes, Roy (Newport East)	Richardson, Ms Jo
Hughes, Sean (Knowsley S)	Roberts, Allan (Bootle)
Jenkins, Rt Hon Roy (Hillh'd)	Roberts, Ernest (Hackney N)
John, Brynmor	Robertson, George
Jones, Barry (Alyn & Deeside)	Robinson, G. (Coventry NW)
Kennedy, Charles	Ross, Ernest (Dundee W)
Kilroy-Silk, Robert	Rowlands, Ted
Kirkwood, Archibald	Sedgemore, Brian
Lambie, David	Shore, Rt Hon Peter
Lamond, James	Silkin, Rt Hon J.
Leadbitter, Ted	Skinner, Dennis
Leighton, Ronald	Smith, C.(Isl'ton S & F'bury)
Lewis, Ron (Carlisle)	Smith, Rt Hon J. (M'kl'ds E)
Lloyd, Tony (Stretford)	Snape, Peter
Lofthouse, Geoffrey	Soley, Clive
Loyden, Edward	Spearing, Nigel
McCartney, Hugh	Steel, Rt Hon David
McDonald, Dr Oonagh	Stewart, Rt Hon D. (W Isles)
McGuire, Michael	Stott, Roger
McKay, Allen (Penistone)	Strang, Gavin
McKelvey, William	Straw, Jack
Mackenzie, Rt Hon Gregor	Taylor, Rt Hon John David
Maclennan, Robert	Thomas, Dafydd (Merioneth)
McNamara, Kevin	Thomas, Dr R. (Carmarthen)
McTaggart, Robert	Thompson, J. (Wansbeck)
McWilliam, John	Thome, Stan (Preston)
Madden, Max	Tinn, James
Marek, Dr John	Torney, Tom
Marshall, David (Shettleston)	Wainwright, R.
Martin, Michael	Wallace, James
Mason, Rt Hon Roy	Wardell, Gareth (Gower)
Maxton, John	Wareing, Robert
Maynard, Miss Joan	Weetch, Ken
Meacher, Michael	Welsh, Michael
Meadowcroft, Michael	Wigley, Dafydd
Michie, William	Williams, Rt Hon A.
Mikardo, Ian	Wilson, Gordon
Millan, Rt Hon Bruce	Winnick, David
Miller, Dr M. S. (E Kilbride)	Woodall, Alec
Morris, Rt Hon A. (W'shawe)	Wrigglesworth, Ian
Morris, Rt Hon J. (Aberavon)	Young, David (Bolton SE)
Nellist, David
Oakes, Rt Hon Gordon	Tellers for the Ayes:
O'Brien, William	Mr. James Hamilton and Mr. Frank Haynes.
O'Neill, Martin
Orme, Rt Hon Stanley
NOES
Adley, Robert	Berry, Sir Anthony
Aitken, Jonathan	Bevan, David Gilroy
Alison, Rt Hon Michael	Blaker, Rt Hon Sir Peter
Amess, David	Bonsor, Sir Nicholas
Ancram, Michael	Boscawen, Hon Robert
Arnold, Tom	Bottomley, Peter
Ashby, David	Bowden, A. (Brighton K'to'n)
Aspinwall, Jack	Bowden, Gerald (Dulwich)
Atkins, Rt Hon Sir H.	Boyson, Dr Rhodes
Atkins, Robert (South Ribble)	Brandon-Bravo, Martin
Atkinson, David (B'm'th E)	Bright, Graham
Baker, Rt Hon K. (Mole Vall'y)	Brinton, Tim
Baker, Nicholas (N Dorset)	Brittan, Rt Hon Leon
Baldry, Anthony	Brooke, Hon Peter
Banks, Robert (Harrogate)	Brown, M. (Brigg & Cl'thpes)
Batiste, Spencer	Bruinvels, Peter
Beaumont-Dark, Anthony	Bryan, Sir Paul
Bellingham, Henry	Buchanan-Smith, Rt Hon A.
Bendall, Vivian	Buck, Sir Antony
Bennett, Sir Frederic (T'bay)	Budgen, Nick
Benyon, William	Bulmer, Esmond

Burt, Alistair	Hordern, Peter
Butcher, John	Howard, Michael
Butler, Hon Adam	Howarth, Gerald (Cannock)
Butterfill, John	Howell, Rt Hon D. (G'ldford)
Carlisle, John (N Luton)	Hubbard-Miles, Peter
Carlisle, Kenneth (Lincoln)	Hurd, Rt Hon Douglas
Carttiss, Michael	Irving, Charles
Chalker, Mrs Lynda	Jackson, Robert
Chapman, Sydney	Jenkin, Rt Hon Patrick
Chope, Christopher	Jones, Robert (W Herts)
Churchill, W. S.	Jopling, Rt Hon Michael
Clark, Hon A. (Plym'th S'n)	Kershaw, Sir Anthony
Clark, Dr Michael (Rochford)	King, Rt Hon Tom
Clarke, Rt Hon K. (Rushcliffe)	Knight, Gregory (Derby N)
Clegg, Sir Walter	Knight, Mrs Jill (Edgbaston)
Cockeram, Eric	Knowles, Michael
Colvin, Michael	Knox, David
Conway, Derek	Lamont, Norman
Coombs, Simon	Lang, Ian
Cope, John	Lawrence, Ivan
Cormack, Patrick	Lee, John (Pendle)
Corrie, John	Lennox-Boyd, Hon Mark
Couchman, James	Lester, Jim
Cranborne, Viscount	Lewis, Sir Kenneth (Stamf'd)
Crouch, David	Lightbown, David
Dickens, Geoffrey	Lilley, Peter
Dorrell, Stephen	Lloyd, Ian (Havant)
Douglas-Hamilton, Lord J.	Lloyd, Peter, (Fareham)
Dover, Den	Lord, Michael
du Cann, Rt Hon Edward	Luce, Richard
Dunn, Robert	Lyell, Nicholas
Durant, Tony	McCrindle, Robert
Dykes, Hugh	McCurley, Mrs Anna
Edwards, Rt Hon N. (P'broke)	Macfarlane, Neil
Eggar, Tim	MacKay, Andrew (Berkshire)
Eyre, Sir Reginald	MacKay, John (Argyll & Bute)
Fairbairn, Nicholas	Maclean, David John.
Fallon, Michael	McNair-Wilson, P. (New F'st)
Favell, Anthony	Major, John
Fenner, Mrs Peggy	Malins, Humfrey
Finsberg, Sir Geoffrey	Malone, Gerald
Fletcher, Alexander	Maples, John
Fookes, Miss Janet	Marland, Paul
Forman, Nigel	Marshall, Michael (Arundel)
Forsyth, Michael (Stirling)	Mather, Carol
Forth, Eric	Maude, Hon Francis
Fowler, Rt Hon Norman	Mawhinney, Dr Brian
Fox, Marcus	Maxwell-Hyslop, Robin
Franks, Cecil	Mayhew, Sir Patrick
Fraser, Peter (Angus East)	Mellor, David
Freeman, Roger	Merchant, Piers
Fry, Peter	Meyer, Sir Anthony
Gale, Roger	Mills, lain (Meriden)
Garel-Jones, Tristan	Mills, Sir Peter (West Devon)
Glyn, Dr Alan	Miscampbell, Norman
Goodhart, Sir Philip	Mitchell, David (NW Hants)
Goodlad, Alastair	Moate, Roger
Gorst, John	Monro, Sir Hector
Gower, Sir Raymond	Montgomery, Fergus
Grant, Sir Anthony	Moore, John
Greenway, Harry	Morrison, Hon C. (Devizes)
Griffiths, E. (B'y St Edm'ds)	Moynihan, Hon C.
Grist, Ian	Mudd, David
Ground, Patrick	Murphy, Christopher
Grylls, Michael	Neale, Gerrard
Hamilton, Hon A. (Epsom)	Needham, Richard
Hampson, Dr Keith	Nelson, Anthony
Hannam, John	Neubert, Michael
Hargreaves, Kenneth	Newton, Tony
Harris, David	Nicholls, Patrick
Hawkins, Sir Paul (SW N'folk)	Normanton, Tom
Hayhoe, Barney	Oppenheim, Philip
Hayward, Robert	Oppenheim, Rt Hon Mrs S.
Heddle, John	Osborn, Sir John
Henderson, Barry	Page, John (Harrow W)
Heseltine, Rt Hon Michael	Page, Richard (Herts SW)
Hicks, Robert	Parkinson, Rt Hon Cecil
Higgins, Rt Hon Terence L.	Parris, Matthew
Holland, Sir Philip (Gedling)	Patten, Christopher (Bath)

Patten, John (Oxford)	Stokes, John
Pawsey, James	Stradling Thomas, J.
Peacock, Mrs Elizabeth	Sumberg, David
Pink, R. Bonner	Tapsell, Peter
Pollock, Alexander	Taylor, John (Solihull)
Porter, Barry	Taylor, Teddy (S'end E)
Powell, William (Corby)	Tebbit, Rt Hon Norman
Powley, John	Temple-Morris, Peter
Prentice, Rt Hon Reg	Terlezki, Stefan
Proctor, K. Harvey	Thomas, Rt Hon Peter
Raffan, Keith	Thompson, Donald (Calder V)
Rathbone, Tim	Thompson, Patrick (N'ich N)
Rees, Rt Hon Peter (Dover)	Thornton, Malcolm
Renton, Tim	Thurnham, Peter
Rhodes James, Robert	Townend, John (Bridlington)
Rhys Williams, Sir Brandon	Townsend, Cyril D. (B'heath)
Ridley, Rt Hon Nicholas	Tracey, Richard
Ridsdale, Sir Julian	Trippier, David
Rifkind, Malcolm	Trotter, Neville
Roberts, Wyn (Conwy)	Twinn, Dr Ian
Robinson, Mark (N'port W)	van Straubenzee, Sir W.
Roe, Mrs Marion	Vaughan, Sir Gerard
Rossi, Sir Hugh	Viggers, Peter
Rost, Peter	Waddington, David
Rowe, Andrew	Wakeham, Rt Hon John
Rumbold, Mrs Angela	Waldegrave, Hon William
Ryder, Richard	Walden, George
Sackville, Hon Thomas	Walker, Bill (T'side N)
Sainsbury, Hon Timothy	Wall, Sir Patrick
St. John-Stevas, Rt Hon N.	Waller, Gary
Sayeed, Jonathan	Walters, Dennis
Scott, Nicholas	Ward, John
Shaw, Giles (Pudsey)	Wardle, C. (Bexhill)
Shaw, Sir Michael (Scarb')	Warren, Kenneth
Shelton, William (Streatham)	Watson, John
Shepherd, Colin (Hereford)	Watts, John
Shepherd, Richard (Aldridge)	Wells, Bowen (Hertford)
Shersby, Michael	Wells, John (Maidstone)
Silvester, Fred	Wheeler, John
Sims, Roger	Whitfield, John
Smith, Sir Dudley (Warwick)	Whitney, Raymond
Smith, Tim (Beaconsfield)	Wilkinson, John
Soames, Hon Nicholas	Wolfson, Mark
Speed, Keith	Wood, Timothy
Speller, Tony	Woodcock, Michael
Spicer, Michael (S Worcs)	Yeo, Tim
Squire, Robin	Young, Sir George (Acton)
Steen, Anthony	Younger, Rt Hon George
Stevens, Lewis (Nuneaton)
Stevens, Martin (Fulham)	Tellers for the Noes:
Stewart, Allan (Eastwood)	Mr. David Hunt and Mr. Douglas Hogg.
Stewart, Andrew (Sherwood)
Stewart, Ian (N Hertf'dshire)

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House takes note of the White Paper on the Government's Expenditure Plans 1984–85 to 1986–87 (Cmnd. 9143).

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1. MATRIMONIAL AND FAMILY PROCEEDINGS BILL [LORDS] (COMMITTAL) 32 words
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2. MEMBERS' INTERESTS 29 words