Public Expenditure

HC Deb 04 March 1985 vol 74 cc677-752 4.49 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 1985–86 to 1987–88 (Cmnd. 9428).

Mr. Speaker

I should announce that I have selected the amendment in the name of the Leader of the Opposition.

In view of the late start of the debate, I shall have to apply the 10-minute limit on speeches between 7 pm and 8.50 pm. If hon. Members make relatively brief speeches, it may be possible to relax that limit.

Mr. Rees

This is only the second occasion on which I have had the privilege to commend to the House the annual public expenditure White Paper, but that brief experience has taught me that only an incurable optimist would expect this annual document to be received with rapturous acclaim. Therefore, I approach my task with, I hope, suitable diffidence.

As has become customary, the House has the benefit of a detailed report on the White Paper from the Select Committee on the Treasury and Civil Service. I am delighted to see my right hon. Friend the Member for Worthing (Mr. Higgins), the Chairman of the Select Committee, in his place and I hope that we shall have a notable contribution from him. I am sure that the House will, once again, find the Select Committee's report a valuable contribution to our debate.

The Select Committee made a number of criticisms, with which I shall attempt to deal during my speech, but it has been good enough to acknowledge a number of changes and improvements introduced in this year's White Paper. I should emphasise that many of those changes were made in response to the Committee's recommendations last year. Our aim has been to improve the intelligibility and clarity of the document. I shall certainly not claim that we have reached perfection, but I hope that we have made certain advances.

On the policy background to the expenditure plans set out in the White Paper, our aim, which has been consistently followed since 1979, is prudent financial policies, a sustainable level of public expenditure and a reduction in the level of public borrowing.

I look forward to hearing the contributions of hon. Members, and particularly that of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), because I waited in vain during our debate on the autumn statement for a statement from him on what level of expenditure he would plan for and how he would finance it. I also understand that the country has been privileged to hear the advance Budget of the alliance, and I hope that the hon. Member for Colne Valley (Mr. Wainwright) will elaborate on those proposals.

The Government have demonstrated their willingness to face the implications of a rigourous public expenditure target. The White Paper also demonstrates the commitment that we have shown, and will continue to show, to certain sensitive areas of public spending. The social security programme has been more than maintained and, with increased take-up and demographic changes, is expected to increase. The health and social services programme will be broadly maintained in real terms, and the job creation schemes of the Manpower Services Commission and the Department of Employment are being maintained.

However, we have also been prepared to identify the areas of spending, such as the provision of subsidies to industry and agriculture, which should be pruned back, and the expenditure on public sector housing—

Mr. Nicholas Budgen (Wolverhampton, South-West)

Is my right hon. and learned Friend making a new announcement about the subsidies given to agriculture? Can we expect him to apply to farmers the same harsh logic that has been applied to the miners?

Hon. Members

Hear, hear.

Mr. Rees

The interesting analogy that my hon. Friend draws has received enthusiastic applause from the Opposition. It would divert me from my main theme if I were to make the various points of distinction which can be observed from the Government Benches. I have to disappoint my hon. Friend. The decisions have been announced by my right hon. Friends responsible for the Departments involved. The conclusions are drawn together in the White Paper and I am sure that if my hon. Friend is called to speak he will be able to amplify his imaginative proposals for economies in these areas.

Mr. Tony Marlow (Northampton, North)

Will my right hon. and learned Friend give way?

Mr. Rees

I appreciate the keen concern that my hon. Friend shows in these matters, but perhaps he will allow me to get a little deeper into the debate. I shall then give way to him.

Following the rapid growth in spending on defence up to 1985–86—an increase in real terms of, on average, 3 per cent. per annum, which is in line with our NATO commitment—we are planning to consolidate in later years.

I make no secret of the fact that important factors in our plans are the targets set for the nationalised industries. Their plans for total external finance show a fall from £3.21 billion in 1984–85 to minus £110 million in 1987–88. It has been suggested that that shows a measure of optimism verging on unreality and that such targets could be achieved only by insensitive and insupportable price increases.

That opens up a debate about the role that we see for our nationalised industries and reopens the debate on what return we expect on the enormous investment of public money that has been made over the years. After all, even in the private sector, the investor expects a return.

I take my stand on the White Paper produced in 1978 when the right hon. Member for Sparkbrook was Minister for Prices and Consumer Protection and the right hon. Member for Chesterfield (Mr. Benn) was Secretary of State for Energy. That White Paper suggested as the norm a real return of 5 per cent. on the investment programmes of nationalised industries. That seems a practical and sensible contribution to our thinking on this matter, and I hope that the right hon. Member for Sparkbrook will confirm that that view is still the policy of the Labour party.

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

In the Select Committee on the Treasury and Civil Service last year, the Chief Secretary refused to address himself to the effect of the miners' strike on external financing limits. Is this not the opportunity for him to make a full statement about the effects of the strike this year and during the coming financial year? Surely the historian has a right to know what that strike cost the nation. Will the Chief Secretary make that statement and let the country know?

Mr. Rees

I am coming, as far as I can, to the consequences of the miners' strike. The right hon. Member for Chesterfield said that history would be written sooner than we care for, but we are still rather in the middle of things. I am flattered that the hon. Member for Workington (Mr. Campbell-Savours) should think that within 24 hours of the conclusion of the delegates' conference we could see through and evaluate all the consequences of that great industrial turmoil.

Mr. Campbell-Savours

Will we get the figures in the end?

Mr. Rees

I am coming to that point. The hon. Gentleman may not be fully satisfied today, but we will do our best to satisfy him over the coming weeks, and I am sure that my right hon. Friend the Chancellor of the Exchequer will do his best to satisfy the hon. Gentleman in about two weeks' time.

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

Will the right hon. and learned Gentleman give way?

Mr. Rees

No. If I had known that the hon. Gentleman was about to intervene I would have given way to him, because he pressed me on this matter in the Treasury and Civil Service Select Committee last year. If he will allow me to continue, I shall do my best to give way to him later if he is still dissatisfied. I wish to move on from this emotive subject.

Our critics seem to take scant account of the savings which increased efficiency could generate in nationalised industries. Savings of between 3 and 5 per cent. per annum are commonplace in the private sector. Is it too much to expect the same in the public sector?

On the question of prices — ultimately it is for the boards of nationalised industries to set prices consistent with their targets—we have the statement of Sir Denis Rooke that the British Gas Corporation can achieve its targets by prices level with, if not slightly lower than, the rate of inflation. Similar statements have been made by the chairmen of the electricity supply industries.

Mr. Austin Mitchell (Great Grimsby)

What about the water industry?

Mr. Rees

I am coming to that.

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

May I help my right hon. and learned Friend?

Mr. Rees

I am always grateful for assistance from my hon. Friend. I noticed his slightly highly charged statements at the press conference after the publication of the important report by the Select Committee on the Treasury and Civil Service.

In response to the hon. Member for Great Grimsby (Mr. Mitchell), I should add that I was just coming to the question of water. One exception will, of course, be the water industry, but those who press for increased investment in the infrastructure, and particularly in what they describe—with a degree of universality which is not quite justified and which would not be seen as such, I believe, by Mr. Roy Watts—as collapsing sewers and leaking water mains, cannot in the same breath complain if the water authorities' targets envisage an increase of 10 per cent. in their capital programmes to be funded by increased prices. I can understand that the right hon. Member for Sparkbrook may feel a moment of unease when he addresses himself to such matters, particularly as he was once Secretary of State for Prices and Consumer Protection. He will recall that between May 1979 and the end of 1984 electricity prices to the consumer, for example, rose by 16 per cent. in real terms, but that they rose by 27 per cent. under the previous Labour Government.

I turn to the question of capital spending and infrastructure.

Mr. Beaumont-Dark

I am aggrieved that my right hon. and learned Friend should have thought I made a slightly charged statement at the press conference. It was only meant to be helpful to the consumer. My right hon. and learned Friend has set himself the target of reducing £3 billion of external financing limits to a positive £110 million over a very short period. Last time that target was set, there was an utter failure to reach it. Without those milch cows of water, gas and electricity paying more than the rate of inflation, how can the figures come right? Does my right hon. and learned Friend accept that the method of accountancy adopted to arrive at the figures sought has been called the accountancy of Bedlam by respected members of the accountancy profession? How can it be right to use that system of accountancy to arrive at such figures when everybody, with the exception of the Minister's advisers, considers it daft?

Mr. Rees

My hon. Friend has taken the statements of members of the accountancy profession when they were uttered in a slightly different context.

Mr. Beaumont-Dark

I spoke to them.

Mr. Rees

My hon. Friend may well be fortunate enough to catch your eye later, Mr. Deputy Speaker, but those statements were made when the accountancy profession was considering a change in methods of accounting, although not particularly in relation to the nationalised industries. If my hon. Friend wants to try to demonstrate that Sir Denis Rooke and the chairman of the electricity industry are wrong, we shall pay the closest attention to his speech.

My hon. Friend said that the targets had not been achieved, and of course it is true that the Central Electricity Generating Board, British Rail and the National Coal Board have been affected by the industrial action of the past 12 months. My hon. Friend is apparently saying that we will face a similar cataclysmic occurrence during the next 12 months, and I agree that if that happened we would have to reconsider our public expenditure plans. However, I am not quite such a pessimist as he clearly is.

I turn again to the question of capital spending and the infrastructure. As The Times perceptively remarked last Friday, "infrastructure" has become the political buzz word of the 1980s. I suspect that many of the contributions to the debate generated on this subject are more of a thinly veiled plea for more public expenditure than a critical analysis of what the infrastructure requires. I was much pressed by the Select Committee on whether we could have a comprehensive review, or a sort of Doomsday survey, setting out the value of all public expenditure assets and the proper rate of appreciation. But if the House reflects for a moment it will recognise that public expenditure assets cover a wide and heterogeneous area which includes the Tower of London and the Treasury building, and will recognise some of the practical difficulties involved in such an exercise.

The truth is that there is no absolutely correct aggregate level of capital spending, that each project must be assessed on its merits — as it is — and that the total investment in the economy, running at £55 billion this year, has never been higher, and is still rising.

The debate on the level of infrastructure spending highlights the importance of assessing the outputs obtained from public spending. I hope that in this debate we can move away from the crude assessment of a Government's or a Department's performance in any public activity by the amount of a cash thrown at an objective. As a distinguished 19th century legislator observed some years ago: Large increases in costs with questionable increases in performance can only be tolerated for racehorses and fancy women. So far as I am aware, I have no ministerial responsibility for either of those interesting areas of human endeavour.

The Government are firmly committed to planning the inputs to public expenditure in cash terms. What we spend must be determined by what cash resources are available. Where volume is important is in relation to public spending outputs. The Treasury and Civil Service Committee, if I may say so, is absolutely right to draw attention to this issue. Increasingly, all those involved in the planning and control of public spending must first clearly define their aims and objectives—what they are trying to achieve—and then focus on how effectively and efficiently scarce resources are being used to meet those targets.

For example, much more is being achieved by the National Health Service. In 1983, 9,000 more inpatients a day were treated than in 1978. That is set out in the White Paper. The output of first-degree graduates has risen from 81,000 in 1979 to an estimated 101,000 in 1984–85, including a more than proportionate rise in science graduates. I hope that my old university, Oxford, took full account of those figures in its recent debates. Administrative efficiency is improving and there have been, for example, lower unit costs in social security administration. That is set out in a table in volume II of the White Paper. Those are just a few specific examples of what has been achieved, and they represent an indication of the general trend that must continue.

Most of these examples are drawn from central Government. Local government in general — and of course there are shining exceptions — has been less successful in getting value for money. Expenditure has risen by nearly 10 per cent. in cost terms since 1979, largely because of excessive pay settlements. Manpower has fallen by only 4 per cent., compared with 14 per cent. in the Civil Service.

Critics of the White Paper have pointed out that public spending has continued to rise in real terms since 1979—particularly if one makes a number of adjustments to the public expenditure planning total figures which some people favour. We can have an interesting if somewhat technical debate about the figures which should, or should not, appear in the planning total. However, I suspect that at the end of the day this debate is more about presentation than substance, particularly if, as I said in my evidence to the Select Committee, the figures are presented clearly and consistently, as I hope they are in both volumes of the White Paper.

I would be the first to concede the continuing difficulties of containing public expenditure. However. I derive some comfort from the fact that although over a 20-year period public expenditure has risen by 3 per cent. per annum on average, it has risen by only 1.5 per cent. since 1979. I also readily acknowledge that there are substantial uncertainties in some areas, particularly bearing in mind that the White Paper figures were finalised in December. Life does move on. The coal strike and its aftermath are the most conspicuous example, and of course I was much pressed on that when giving evidence to the Select Committee.

The White Paper explicitly draws attention to the need to review the position at the end of the strike, and that we are doing. Costs are certain to be higher than those assumed in the White Paper, which had to be based on the assumption of a conclusion at the end of 1984. In two weeks' time my right hon. Friend the Chancellor of the Exchequer will present his Budget proposals to the House. As I made clear when giving evidence to the Select Committee, he will seek to provide an updated assessment of the cost of the stike.

Mr. Fisher

Does the right hon. and learned Gentleman recall that, in evidence to the Select Committee, his Treasury officials agreed that they had the figures but that they were not allowed to publish them? Will he explain why, if he had the figures, he did not publish them, and why he does not publish them now?

Mr. Rees

The hon. Member misrepresents the position. We gave figures before Christmas on the basis of an end to the strike at the end of the year. We could have made tentative estimates of what the costs were likely to be, but it would not have assisted the debate if we had given tentative figures at fortnightly intervals. Now that the strike is over, we cannot accurately predict the consequences. Mr. Scargill has talked about guerrilla activities. We do not know how long it will take to shore up some of the faces and to pump out the pits. We do not know how long it will be necessary for the CEGB to continue with oilburn. These matters will have to be determined coolly, and in due time we shall give the House a proper estimate of the costs. The most up-to-date figures will be given at Budget time in two weeks.

Sir Kenneth Lewis (Stamford and Spalding)

When assessing the cost of the miners' strike, I assume that the Treasury will work out how much has been lost in income tax. Will my right hon. and learned Friend be able to tell the House whether Mr. Scargill and Mr. Heathfield have taken their salaries for the last year? Since they are paid on a yearly basis, they could take their salaries in full between now and 4 April. May we be told whether they do that?

Mr. Rees

That is an interesting question, but whether they take their salaries is a matter for them and their union. I would not be permitted to see their tax files even if I were curious about their tax affairs.

As part of the normal preparation for the run-up to the Budget and the associated updating of the medium-term financial strategy, it is necessary to review the prospects for expenditure as well as for revenue and borrowing. This year the review will have to take into account a considerable range of uncertainties, with the developments over the past two or three months. We shall need to review the White Paper figures against that background. I am sure that the House would not expect me today to try to anticipate what my right hon. Friend the Chancellor will have to say on 19 March.

Another area of uncertainty which the Select Committee identified is local authority expenditure. I make no complaint of its concentrating on that. Local authority expenditure is an integral part of total public expenditure. It accounts for about £38 billion out of a planning total of £130 billion. More than a quarter of total public spending is by local authorities. The Government cannot, in a unitary state, be indifferent to what is spent. If central Government think that local expenditure is threatening national objectives, they are bound to act.

As the Select Committee observed in paragraph 36 of its report, we have had to revise our estimates of local authority expenditure for the current year, 1984–85, upwards by about £2 billion. A total of £1.2 billion is on account of current expenditure, and £700 million on account of capital expenditure. That is why we have had to tighten current spending.

Councils which exceed their targets will in future face a more severe holdback of grant. That is why we have had to introduce rate capping. To put the problem in perspective, the 18 authorities which my right hon. Friend the Secretary of State for the Environment has designated for rate capping last year accounted for 75 per cent. of total overspend. Profligacy of that order affects not only domestic ratepayers, but commercial and industrial ratepayers. It affects jobs.

That is also why we have had to tighten up on the existing system of control of local authority capital expenditure. Where there was an underspend in previous years, as there was in 1981–82 and in 1982–83, we rightly encouraged spending up to the control figure. In 1983–84 there was an overspend of about £400 million, and in the current year, as the Select Committee observed, there is likely to be an overspend of between £600 million and £700 million.

The tightening of existing controls — I emphasise again that there has been a system of control on this basis since the 1980 Act, and we shall debate the orders next week — is designed simply to ensure that the gross capital spending figure of £5 billion, which is no small figure, will not be overspent as it was in preceding years.

As my right hon. and hon. Friends have emphasised, this system of control does not deprive local authorities of moneys raised from the sale of assets. It is, and always has been, designed to regulate the rate at which capital expenditure is incurred by reference to current and past receipts. Again, as my right hon. and hon. Friends have emphasised, there is an overhang of £5 billion of accumulated receipts. That does not mean, however, that local authorities in the aggregate have £5 billion of accumulated cash or liquid assets.

With respect to those of my hon. Friends who have put their names to early-day motion 283, the Government do not and could not share the relaxed view that they appear to take about the macro-economic impact of allowing uncontrolled capital expenditure on anything like this scale.

Without the tightening of the present system of capital controls which we are proposing there would be a risk of a substantial increase in local authority expenditure above the amounts for which we have planned and allowed. I emphasise that a potential overspend running into hundreds of millions of pounds could not fail to have a major impact on the Chancellor's budgetary policy.

Mr. Michael Forsyth (Stirling)

I apologise for interrupting. I fully understand my right hon. and learned Friend's arguments, and I support him, but I am puzzled why local authorities in Scotland are being allowed to spend all their receipts from local authority housing and why there is no control of rate spend.

Mr. Rees

I am sure that my hon. Friend has made a close study of these matters. The position north of the border is slightly different. Local authorities are allowed to spend only their in-year receipts. A different control system operates in a different fashion. In Scotland there is no problem about the overhang of accumulated receipts.

It would have been naive to expect the official Opposition to approve of the White Paper, but their amendment hardly sets out a factual basis for their disapproval. The basis of almost every point that they single out is plainly wrong. They single out unemployment. They appear to overlook the fact that in the 18 months to last September employment increased by nearly 500,000. They single out investment, but business investment increased by 12 per cent. in 1984 to reach an all-time high.

In their amendment the Opposition point to damage to industry, but the gross domestic product is at its highest ever level and has increased every year for the past four years. They refer to housing, but private sector completions last year were the highest for nearly 10 years. They glanced at the infrastructure, but total investment is currently at record heights.

The amendment talks of increased fuel prices, but gas and electricity prices are not expected to rise in real terms, as the chairmen have made clear. The Opposition suggest an attack on the living standards of the unemployed, the sick, the disabled and the poor, but all the main social security benefits are higher in real terms than they were when this Government took office.

All this is cheap rhetoric, more appropriate to a Labour party conference than to a serious debate on public expenditure. I hope that the right hon. Member for Sparkbrook will throw away his prepared speech and make the thoughtful contribution of which we know he is well capable.

It is no secret that the business of controlling public expenditure has been, is, and will remain an arduous and thankless task. Looking back, I remind the House of what Lloyd George said in a Budget debate. He said: The path of the economist"— he was using the term broadly, and I would not claim to be an economist— is hard. His is not a very attractive or popular role in any Government."—[Official Report, 29 April 1909, Vol. IV, c. 501.] I sometimes think that in considering the problems thrown up we pay insufficient attention to the way in which similar problems are faced abroad. I commend, for example, to the official Opposition the lessons to be learnt from the stern measures taken in France and Spain by parties which they regard, no doubt, as on the same side of the political spectrum as themselves.

To the House as a whole, I commend the current debate in Washington. The United States is, after all, the single most powerful economic unit in the world. We are sometimes encouraged by hon. Members on both sides of the House to follow the American example and take a more relaxed view of the public deficit. I refer them to some wise words of Mr. Paul Volcker. In his evidence to the Joint Economic Committee of Congress on 5 February he said: The answer most fundamentally is that economic analysis and common sense coincide in telling us that budgetary and trade deficits of the magnitude we are running, at a time of growing prosperity, are simply unsustainable indefinitely … The hard fact is that the budget deficit, on top of the private investment needed to support growth and productivity, outruns our internal savings potential … In that real sense we are living beyond our means … The resulting imbalances and financial strains generate political pressures here and abroad for counterproductive protectionism, for economic nationalism and for excessive money creation that would, if implemented, undercut and jeopardise all the progress we have made. The aim and object of Her Majesty's Government is based not on monetary dogmatism—if it were, I confess that I should not qualify as a prize pupil of Professor Friedman — but on economic analysis and common sense. To use Paul Volcker's words, we should live within our means so as not to set up political and economic strains which experience under Administrations of both colours shows we cannot support. We do not propose to undercut or jeopardise the progress that we have made.

The White Paper that I have presented to the House is a blueprint for living within our means in the next three years. On that basis, I commend it to the House.

5.22 pm

Mr. Roy Hattersley (Birmingham, Sparkbrook)

I beg to move, at the end of the Question, to add: but deplores the fact that the Government's Expenditure Plans compound their errors of previous years and will further worsen unemployment, inhibit investment, inflict additional damage on industry, further exacerbate the severe shortage of adequate housing in many parts of the country, prevent necessary improvements in public services and in the economic and social infrastructure, increase fuel and water prices, and make further attacks on the living standards of the people in this country, particularly the unemployed, the sick and disabled, pensioners and families living in poverty. Predictably, the Chief Secretary advanced to the House, in a slightly more oblique way, the assertion that he made so boldly at the press conference with which he launched the White Paper — that the Government's spending plans are on course and that the achievement of those plans and adherence to them is the certain way to achieve economic growth.

Anyone who has looked at the plans will know that the right hon. and learned Gentleman was wrong in both particulars. The Government's spending forecasts have been wrong in four out of the past five years. Indeed, as the Select Committee, to which I pay tribute, points out, the Government have been driven into boasting not that their forecasts have proved correct but that they have stuck to their forecasts right up to the moment when they were proved wrong.

However, much more disastrous than the errors in forecasting, which are simply a matter of incompetence, are the Government's concepts on which the White Paper strategy is based. The White Paper's strategy, like the wider economic strategy of which it is a part, is fundamentally wrong.

The White Paper should contribute to the plan for jobs — the strategy for greater employment — whereas it contributes directly, and I believe intentionally, to the creation of additional unemployment. It cuts capital spending and local authority spending, and it cuts Civil Service numbers. Each of those reductions will result in a loss of jobs.

Last year's White Paper sacrificed, it is estimated, 175,000 jobs. This year, according to the construction industry alone, the consequences of the White Paper will be a 60,000 reduction in jobs in building. The local authorities calculate that the reductions in teachers' numbers, which the White Paper will require if its forecasts are to be turned into reality, will add another 40,000 redundancies to the total.

The White Paper is part of the strategy which has increased unemployment in Britain by 2 million in the last five years, with a total cost to the Exchequer of £12 billion. The total cost to the Exchequer of the increase in unemployment in the last five years now amounts to our annual revenues from North sea oil. Of that annual sum, £4 billion is directly within the White Paper, not as a loss of income to the Treasury through the denial of income tax which would have been paid by men and women at work, but £4 billion a year that must additionally be paid to meet the growing unemployment bill.

While the Government prefer to invest in unemployment rather than in jobs, not only will the economy decline but—this may be less important in general, but it is specific to the debate — the Government's public expenditure forecasts will constantly be wrong, for the combination of prejudice and ignorance which now passes as economic policy is bound to result in sudden cuts in public expenditure which, by generating more unemployment and decreasing overall economic activity, will impose additional burdens on the public expenditure budget.

The most eloquent example of that is to be found in the coal dispute, which I hope ended today. That dispute, on an honest calculation, has already cost the country £3.5 billion. The Government spent that money to ensure that they had the freedom to destroy jobs in the coal mining industry—[Interruption.] I see the Chancellor smiling in his normal smug fashion, no doubt saying that he still believes that the £3.5 billion that the dispute has cost is a good investment for the nation.

If we can afford £3.5 billion this year to fight the miners, why can we not afford £3.5 billion next to fight unemployment? The answer—though I do not expect the Minister of State will give it — is that fighting unemployment is not one of the Government's priorities.

Mr. Tim Yeo (Suffolk, South)

Is the right hon. Gentleman saying that his policy would have been to give in to the violent demands of Arthur Scargill? If so, how many billions of pounds does he think it would have cost to solve the double level of unemployment that would have resulted?

Mr. Hattersley

I give the hon. Gentleman three immediate answers. Had we applied—as we would have done had we been the Government—proper procedures over pit closures, there would have been no Cortonwood and no dispute—[Interruption.] Secondly, had we come to office in the middle of the dispute, we would have sought to end it rather than, as the Prime Minister has done, prolong it. Thirdly, whatever is the cost of keeping uneconomic pits open, it is nothing remotely like £3.5 billion in a full year, and nobody can begin to pretend otherwise.

The miners' strike demonstrates that the Government's ill-considered attempts to cut expenditure have managed only to cut desirable expenditure and promote, in its place, undesirable expenditure, year by year. As a result, despite the boasts and promises—

Mr. Tim Eggar (Enfield, North)

Will the right hon. Gentleman give way?

Mr. Hattersley

The boasts and promises—

Mr. Eggar

Will the right hon. Gentleman please give way?

Mr. Hattersley

It is no good the hon. Gentleman pleading with me. Winsome though he is, I propose to finish the sentence. I do not want to under-estimate the hon. Gentleman's winsome characteristics.

Despite the boasts and promises that the Government have made at successive general elections, public expenditure has risen in real terms by 9.4 per cent. since they came to power. If asset sales are excluded, the rise is 12.6 per cent. In 1979, when the Conservative party formed a Government, public expenditure accounted for 39.5 per cent. of national income. It is now 42.5 per cent. The Government's ambition is to reduce the level of public expenditure by 1987–88 to that which they inherited five years ago. The Government have managed to contrive simultaneously to increase the level of public expenditure and to reduce the level of public services. This is an act of economic ingenuity which was thought to be impossible before the Government's election.

Mr. Eggar

When I tried to interrupt the right hon. Gentleman earlier he was saying that the Government had differentiated between desirable and undesirable expenditure. I understand that expenditure on current items has increased, especially on social security.

Mr. Robin Corbett (Birmingham, Erdington)

That is because of unemployment.

Mr. Eggar

No. If unemployment-related social security benefit expenditure is excluded, social security expenditure has increased. Is the right hon. Gentleman saying that that is undesirable social expenditure?

Mr. Hattersley

I am not sure whether the hon. Gentleman came in late or was day-dreaming two or three minutes ago. The point that I made is one that he has made inadequately and incompetently. The desirable expenditure that the Government have reduced is, for example, investment in construction generally and housing especially. As a result of that undesirable cut, the undesirable expenditure that is incurred is the unemployment bill that is made necessary by extra building workers being put on the dole. It cannot be repeated often enough that the extra unemployment bill, which arises because of 2 million additions to the unemployment total, created by the Government, is about £4 billion.

Mr. Eggar

Will the right hon. Gentleman give way on that very point?

Mr. Hattersley

No, I shall not give way to the hon. Gentleman.

Mr. Eggar

Come on.

Mr. Hattersley

The hon. Gentleman has got it wrong once and I am not giving way to him again. I shall continue repeating, and so will the Opposition, that by their decision to cut projects which would have generated jobs, the Government automatically create for themselves other expenditures. That is why they have produced public expenditure forecasts in four years out of five which have borne little reality to the outturn one, two, three or four years afterwards.

The additional problem which the House must understand — I wish that the Chancellor of the Exchequer understood it — is that setting targets, insisting that reductions in public expenditure are essential to the economic well-being of the nation and then consistently failing to meet the targets which the right hon. Gentleman has described as essential, is doing appalling damage to international confidence in Britain. We should not be surprised that there is speculation against sterling when the Chancellor constantly fails to achieve what he describes as being economically essential. The Prime Minister constantly denigrates the structure and organisation of the British economy. The combination of a Prime Minister who sells Britain short and a Chancellor who falls over his own feet—

Mr. Neil Kinnock (Islwyn)

The right hon. Gentleman cannot see them.

Mr. Hattersley

—is lethal to international confidence.

Despite the obvious errors of the past, the Chief Secretary made a categoric promise at the press conference at which the White Paper was launched that the Government would continue pursuing their strategy "constant and unchanged". I fear that he was right to make that promise, but I shall recall what the strategy has produced. This is the strategy which the right hon. and learned Gentleman reassures us is to be continued. The strategy, which is to continue unchanged, has produced the highest level of unemployment in Britain, the highest real interest rates, the highest tax rates, the highest rate of sterling depreciation in our history, the highest deficit in manufactured trade and the highest number of liquidations in our history. The comforting message that the right hon. and learned Gentleman gives us in the light of all that is, "Do not worry. Nothing will change." The Gadarene swine reassure themselves that they are running to the cliff in an absolutely straight line. That may be of some consolation to the Chief Secretary, but not to others.

The errors in the Government's public expenditure calculations are based on a self-perpetuating failure which destroys their forecasts the moment that they are made. First, the assumptions on which the forecasts are based are patently absurd. I told the right hon. and learned Gentleman last year that his forecast assumptions were implausible. I warned him then that the assumptions about local authority spending, public sector pay, unemployment and nationalised industry external financing could not be justified and would not be achieved. In the event, none of them were achieved.

The assumptions on which the White Paper is based will be proved wrong again. Indeed, the assumptions are even more inaccurate this year than last. The inflation assumption for May, on which the upgrading of pensions and other benefits is to be based, is already overtaken, already wrong and already an under-estimate, although May is only about eight weeks away. The White Paper tells us that the upgrading will be based on an assumption of 4.75 per cent. inflation. We know already that that figure is to be exceeded. Next year's contingency reserve is already being reduced, two months before the financial year for which it has been provided.

I hope that when the Minister of State replies he will make clear what the inflation forecast now is for May and how much that already inflates the amount necessary for pension and benefit upgrading. I hope too, that he will make it clear that the new figure, which vitiates the White Paper forecast already, is to be properly honoured and that the rumours that we have heard and read about in newspapers—that the inflation updating may have to be abandoned because of the size of the error — are no more than rumours. What is more, I hope that the Minister who replies will tell us something about the real forecast for local authority spending. It was assumed last year that there would be a reduction of £1.9 billion, but there was not. There was to be a 13 per cent. cut, but that was not achieved. Indeed, local authority spending was substantially greater than that for the previous year, despite the 13 per cent. reduction which the Government estimated, forecast and predicted.

Local authority spending this year is said to be likely to fall by £1 billion. The councils have lost £12.4 billion in rate support grant since the Government came to power and they cannot make cuts next year of £1 billion. I believe that the Chief Secretary knows that. The local government spending forecast is either a negotiating posture to assist the Secretary of State for the Environment in his annual dispute with local authorities or it is a further episode in the campaign to erode local democracy and the power of the councils. In short, the forecast for local authority spending is intentionally too high and is intended to be broken. I hope that the Minister who replies to the debate will tell us what he really believes the increase or reduction in local authority expenditure is likely to be. If he persists in saying that he expects a reduction of the size specified in the White Paper, I hope that he will tell us why he believes that, in this year alone as distinct from all the other years when a forecast of that extent has been predicted, it can be achieved.

Thirdly, I hope that the Minister will explain his exact intentions with regard to public sector capital investment. This year, when virtually everyone in the country is demanding additional investment in the infrastructure, the Government propose a massive reduction in public sector capital spending. Between now and 1987–88, the Government propose to cut capital spending by £2.5 billion, or £4 billion if the figure for defence capital is removed from the total, as it should be. The figure for defence capital, which is not included in the statistics provided by our competitors in OECD, is inserted simply in order to make the cut in capital spending look more acceptable. The inclusion of that figure is clearly nonsense.

I should like to ask the Minister of State a specific question about the inclusion of defence capital. It was reported in The Sunday Times that in order to pad the figures and make the reduction in capital investment look less extreme, every possible item of defence capital has been included — even the cost of the Trident programme, most of which is to be discharged in the United States. Is that true? Perhaps the Chief Secretary, who carries such matters in his head, can tell me now whether the Government are so embarrassed about the capital cuts that they have had to pad the figures by including an item of capital expenditure that will not even be invested in this country. If the answer is yes, as I suspect it is, the capital cut is of nearly £4 billion. If the answer is no, the cut is still of well over £3 billion, and it is made at a time when there is, properly, a growing demand for increased investment in our decaying and dilapidated sewers, roads, housing stock, hospitals and railways, and all the other infrastructure items to which the report by the National Economic Development Council drew attention.

The report did not just point out the obvious need for investment in the infrastructure. It emphasised the fact that failure to invest now would result in further dilapidation and, in some cases, collapse, and that unless we spend some money now, future generations will have to spend much more. Investment in the infrastructure is financially prudent, economically necessary, and a certain way to create jobs. Nevertheless, the Government choose not to increase capital spending but to cut it dramatically.

Within the capital totals, the assault on the construction industry is barely comprehensible. The Government propose that spending on public sector housing should fall from £3 billion this year to £2.3 billion in 1987–88, despite the massive fall in public sector starts and completions, and in the number of public sector houses under construction, in the life of the present Government.

The Chief Secretary claimed today, as he always does, that our complaints about the loss of jobs that flows from cuts in capital spending in the public sector and in housing in particular are misconceived, because the gap is being filled by improvements and investments in, and extensions to, the private house building programme.

I hope that the chief Secretary is listening to me. For his benefit, I repeat what I have said. He constantly rebuts our claim that employment is being sacrificed by cuts in the public sector house building programme by saying that the cuts are being made up in the private sector. That argument is wholly unsustainable.

In 1978, the last full year of the Labour Government, there were 264,000 public and private starts. The figure has now fallen to 190,000. A reduction of 70,000 in the number of starts each year makes a massive difference to the number of men and women employed in the construction and ancillary industries. The claim that the gap is being filled by private enterprise must be the product of either ignorance or intentional deception. The assault on the house building programme is an assault on jobs.

That assault becomes even more unacceptable when local authorities have the money to build the houses. The local authorities have about £5 billion of capital that they were led to believe was theirs to invest in new projects and developments. After the autumn statement was made, I asked the Chief Secretary why he believed that the proceeds of the sale of council houses would automatically result in more investment in the public sector. The right hon. and learned Gentleman brushed aside the idea that there would not be such a result. The idea that it might be prohibited by the Government had clearly never struck him at the time. It should not have struck him or his colleagues since that time.

If the Chief Secretary wishes to contend that there has not been a wilful refusal to provide the investment that would have produced the jobs, he must give a much more convincing reason why local authorities who sold their houses, being encouraged in the belief that they could use the money for useful investment, should now be prevented from making such investment simply as part of the obeisance to the absurd doctrine of holding down the pubic sector borrowing requirement.

Mr. Peter Hordern (Horsham)

The right hon. Gentleman will recognise that in the latest housing survey the criticism of the nation's housing stock is that it is in poor condition and therefore needs much more repair and maintenance. How does he explain the fact that in the last year of the Labour Government only 70,000 grants were made to private owners to enable them to improve their houses, whereas last year 250,000 grants were made and far more money was spent?

Mr. Hattersley

I will say what the hon. Gentleman is longing for me to say—that last year the Government did far better than the Labour Government in their last year of office. However, the point that is relevant to the present debate is that next year and in the following year the Government's performance will be infinitely worse than in any one of the past 10 years. If the hon. Gentleman holds the beliefs that a brief look at his book suggests that he holds, he should be complaining about the cuts to be made in the Government grants next year and in the year after that. The Government are cutting those grants because of one of the basic fallacies underlying their economic policy, which is that economic redemption can be achieved through the constant contraction of the economy. That policy produces attempts to cut the PSBR by sudden and ill-conceived reductions in specific programmes.

Mr. Marlow

Will the right hon. Gentleman give way?

Mr. Hattersley

I shall not give way at the moment.

As the slump deepens, the amount required for unemployment benefit increases, tax revenues are lost, the oil revenues are dissipated, the pressure on the PSBR continues and the dreary round goes on and on.

The second fallacy underlying the Government's policy is the continued belief that somehow they can hold down inflation by increasing prices. This year's White Paper demonstrates the Government's wilful decision to push up the charges made by nationalised industries.

The Select Committee's comments on public sector prices are explicit. Referring to the Government's intention to use nationalised industry finance to affect public expenditure, the Select Committee concludes: If these targets are to be realised, it seems likely that the nationalised industries will resort to using their monopolistic power to raise prices". It is extraordinary that, despite the slightly extravagant compliment that the Chief Secretary paid the Select Committee, he did not feel able to make a judgment on either of those two points. The truth of them is overwhelming and their force cannot be denied. The Government intend to enforce public sector prices increases above what the industries need and want to the point at which they will do something that is coyly described as providing 1.5 billion of negative borrowing. To many people, negative borrowing will sound like positive lending — positive lending enforced by the Government to use the nationalised industries as a surreptious means of raising taxes.

The nationalised industries, gas and electricity in particular, are likely to make what by normal commercial standards would be called a profit next year, which is to be creamed off and used for a tax. If, in the Budget in 14 days' time, the Chancellor decides to impose VAT on gas and electricity, he will be charging 15 per cent. tax on what is already in part another tax. He intends that those industries should contribute to the public sector borrowing requirement exactly like a tax. It is a tax, especially as applied to the water industry.

Although appearing superficially to deal with the water industry, the Chief Secretary failed wholly to deal with the point to which the Select Committee has drawn our attention and which has been underlined and repeated by the Confederation of British Industry. Knowing a little about the Chairman of the Select Committee, I suspect that he would regard it as more of a courtesy if the Government abandoned the extravagant compliments and dealt with the point that he is trying to make—in regard to the water industry, with considerable effect.

The Select Committee takes the water industry as its example of extravagant and unreasonable financial attitudes towards nationalised industry, for the simple reason that it is to be required to finance all future investment out of revenue. Why has the Chief Secretary not thought it necessary to justify that extraordinary decision? Why are he and I, and other middle-aged men like us, required from our water revenues to finance investment for next year and 20 years' time? The concept has only to be described to be understood to be ridiculous. The Select Committee and the CBI realise that it is ridiculous. The latter reported in its bulletin one month ago that water charges are set to rise by an average of 12 per cent. and in some areas will rise by 20 per cent. or more and concluded: at a time when local authorities are being urged to cut local rates, the authorities are being pressed to raise water rates in what is clearly a tax-gathering operation". The CBI is opposed to it, the Select Committee drew our attention to it and the bold Chief Secretary cannot bring himself to say a word about it. I hope that, in that particular, the Minister of State will make up for the Chief Secretary's deficiencies.

Mr. Marlow

Perhaps the right hon. Gentleman could take himself back a couple of paragraphs to when he was saying that local government had £5 billion which could be spent on capital but which the Government would not let it spend in that way. Does the right hon. Gentleman believe that local government will stick that money under the mattress, or is it possible that the money might be lent to financial institutions that would then on-lend the money for the creation of wealth and jobs in other sectors of the economy?

Mr. Hattersley

I should be glad if that happened but, if the money were lent to institutions, some of it would be exported for investment in other people's jobs in other countries. It is perhaps more certain that it would not have the same job creation force as if it were invested in construction. We know from all the studies and all the surveys that investment in construction is the best and most certain way in which to create jobs. That is what the White Paper ought to be concerned with.

I should like the Minister of State to make up for some other deficiencies in the Chief Secretary's presentation by answering questions that to us seem central to the White Paper, but which, for some reason about which we can only speculate, the Chief Secretary did not think it right to comment on. Do the Government still support the view which was reported to them by the Central Policy Review Staff that for the Health Service to maintain its level of service, allowing for demographic change and medical advance, it must increase its spending by about 1 per cent. or 1.5 per cent. a year simply to stand still? If so, the Minister of State will confirm that a 2.1 per cent. increase, which has been much flaunted on Conservative platforms during the past month, will result in a deterioration in the service provided by the NHS. Will he confirm that even that figure can be maintained only by a massive increase in prescription charges, far beyond the level of inflation, which has been hinted at and leaked but which, as far as I know, no Minister has yet emboldened himself to announce?

What savings do the Government expect from the abolition of the Inner London education authority, the Greater London Council and the metropolitan county councils? Nowhere in this forecast does a figure for that saving appear, yet we were told that that was the purpose of their abolition. Will the Minister of State confirm the figures that I suggested a moment ago for the job loss that the White Paper entails? It would be extraordinary if the Government hypothesised every other outcome and predicted every other result but had not the slightest view and had not made the slightest estimate of how many jobs the proposed cuts were likely to lose.

The White Paper already makes one assertion look even shabbier that it did on the day that it was made—that the Chancellor looks forward to a fortnight tomorrow as an opportunity to present a Budget for jobs. In almost every aspect, the White Paper prepares for another year in which unemployment will increase. It prepares for that by cutting capital investment, by cutting Civil Service manpower, by reducing expenditure from local authorities and by setting the scene for the Chancellor to fulfil other obligations and to pursue other priorities which are more important to him. It prepares for the Chancellor once more, as is always the case, to choose the high unemployment option.

Mr. Peter Rees

The right hon. Gentleman has been free with his challenges, as he is entitled to be. I issued him one in the debate on the autumn statement and at the beginning of my speech today. It is simple but fundamental. What level of public expenditure would the right hon. Gentleman advocate if he were in power now and for the next three years, and to which areas would he direct it?

Mr. Hattersley

The right hon. and learned Gentleman always asks the questions. I shall give him two immediate answers. The Chancellor's decision, which is likely to be taken a fortnight tomorrow, to reduce the PSBR from this year's level is misguided and misconceived, as the money could be much better spent invested in job-creating projects. The £1.5 billion that the Chancellor still hopes to devote to tax cuts would be much better spent invested in jobs and in reducing unemployment. That area of expenditure is possible. I know, every time that I answer this question, the pathetic obsession of the Government with talking about any policy other than their own. In my 20 years in the House, I have never known a Chancellor who was so ashamed of discussing what he was doing and the consequences of his policy.

Mr. Budgen

rose—

Mr. Hattersley

That does not surprise me, because I have never known a Chancellor who was so unpopular. He is unpopular crucially because of the spirit and intention revealed in the White Paper — total disregard of the unemployed. Because of that disregard, we propose to vote for the amendment.

5.59 pm

Mr. Michael Portillo (Enfield, Southgate)

I am grateful to you, Mr. Speaker, for allowing me to catch your eye so that I can make my maiden speech.

I begin by paying tribute to my predecessor as the Member for Enfield, Southgate, Sir Anthony Berry. Sir Anthony was a popular member and his death in the bombing at Brighton last October was tragic. I had the privilege of hearing you, Mr. Speaker, outside the House deliver an address in which you recalled Sir Anthony's life and his many fine qualities. I shall not attempt to repeat the well chosen words that you used on that occasion, but, from my constituency experience, I shall add a few words.

It is clear that Sir Anthony was absolutely dedicated to the welfare of his constituents. He showed that dedication by his custom of visiting people in their homes to discuss their problems. That courtesy and kindness was typical of Sir Anthony. It is a stunning paradox that such a kind, courteous and gentle man should lose his life at the hands of men of violence. I know that the whole House joins me in remembering Sir Anthony, deploring his death and grieving for him. I am sure that all hon. Members also join me in paying tribute to Lady Berry, who has borne her bereavement with dignity and courage. [HON. MEMBERS: "Hear, hear."]

Sir Anthony Berry made his maiden speech almost exactly 20 years ago in January 1965. He referred to the part of the North Circular road that runs through the constituency of Enfield, Southgate. He looked forward to that piece of road being widened shortly. Twenty years later we are still expecting the road to be widened. We often hear the Government say that not all public expenditure is necessarily desirable. Many of my constituents agree, because they are living in properties that are decaying, not because anything is wrong with them but because of planning blight. A number of my constituents would like the Government to save the money that they have in mind for the project and to allow them to continue to live in their homes rather than cause those homes to be destroyed.

At the other end of the constituency, far from the din of the north circular road, my constituency reaches the countryside. One can drive along the Hadley road and see nothing but green fields on either side. I imagine that I am one of the few London Members who has the privilege of having a number of farmers among his constituents.

In the middle of my constituency is Winchmore Hill. One of my history books says that about the year 1600 the people of Winchmore Hill were very primitive and much given to witchcraft. Recently, my right hon. Friend the Chancellor of the Exchequer referred to the belief that public expenditure could cure all our ills as an ancient form of witchcraft. I assure my right hon. Friend that nowadays the good people of Winchmore Hill are no more attracted to that practice than their near neighbours in Palmers Green or Cockfosters.

Frequently, when discussion in the House turns to public expenditure, a number of hon. Members wonder whether they can improve on the traditional procedures by which they consider the revenue that the Government raise at one time of the year, in the Budget, and how that money is spent at another time of the year, in the autumn round of discussions. The Armstrong committee considered that matter in 1980 and came forward with a series of proposals for bringing the consideration of taxation and spending together. The proposal was considered by the Treasury and Civil Service Select Committee and the Select Committee on Procedure (Finance). The Government went some way towards meeting the point by devising the autumn statement in the form in which we now know it.

In its present form, the autumn statement has given rise to a number of unforeseen difficulties. Public and press attention naturally focus on that part of the autumn statement in which the Government say how they view the prospective fiscal adjustment in the following Budget—whether they consider that taxation is likely to be increased or decreased. During the past two years we have seen that, whatever the Government say, the results can be unfortunate. In November 1983 the Government announced that the prospect was for a moderate increase in taxation in the following Budget. The Government were denounced for being too gloomy. People asked whether the Government were still committed to their policy of cutting taxation. In the event, all that gloom was unnecessary, because the Government were able to decrease taxes in the Budget.

Last November, the Government said that the prospect was for a decrease in taxation in the Budget, but that statement brought denunciation on the Government. At first people said, "The Government have underestimated how much money there is to give away in the Budget." People thought that the Government were being too cautious. Subsequently, the Government were denounced for having thrown caution to the wind. It appeared that the Government were more determined to cut taxation than to continue their fight against inflation.

No one can reliably estimate in the autumn the leeway that the Government will have in the spring. Whatever figure is announced, it either increases or depresses expectations. More importantly, it creates confusion about the Government's policy. Sometimes that can have serious consequences.

Our present arrangements are an uneasy halfway house between our traditional procedures and the radical proposals in the Armstrong report. This middle position does not satisfy those hon. Members who want a thoroughgoing reform. On the other hand, it sets a number of hares running about in a way that is not helpful to the Government or to the House. I cannot help thinking that the present position is likely to prove unstable and that we shall want to move either forward towards the Armstrong proposals or backward to the position in the old days when the Chancellor said very little in advance of his Budget statement.

May I use the opportunity of my maiden speech, Mr. Speaker, to make a point that concerns the relationship between public expenditure and unemployment? I am reminded of what happened to me last year at the Conservative party conference in Brighton. At about 2 am on what proved to be that terrible morning of 12 October, I was standing in the bar of the Grand hotel. Because the hour was late I got into a heated discussion with a journalist. He said, "The Government's policies are designed to create unemployment." Of course, I disagreed with that. The discussion became heated. To emphasise his point, the journalist beat the pillar beside us with his fist and said, "This is a pillar; that is a fact. Your policies are to create unemployment; that is a fact, too." The discussion became even more acrimonious and the journalist rather abusive, so I left the Grand hotel and went safely to bed in my hotel down the road.

In the morning I reflected on two things. First, I was grateful to that journalist for having been abusive towards me; otherwise I might have stayed in the Grand hotel and been there at the time the bomb went off. Secondly, I reflected on the fact that the pillar which he had thumped with his hand and which represented for him absolute certainty was probably a pile of rubble. I thought that, in the light of day, the journalist, too, was a little less certain about the motives of Government policy.

Although I understand that the Opposition believe with absolute conviction that the way to reduce unemployment is to increase public spending, I ask them to understand the absolute sincerity with which Conservative Members say that to increase public spending is to increase taxation which would lead to fewer jobs and higher unemployment.

6.8 pm

Mr. Richard Wainwright (Come Valley)

It is a great pleasure to congratulate warmly the hon. Member for Enfield, Southgate (Mr Portillo) on an admirable maiden speech. I am sure that hon. Members on both sides of the House who had the pleasure of listening to him agree that he was eloquent, confident and witty. As one who took a humble part in the election which brought the hon. Gentleman to the House, I thought that he was as agile in marshalling his presentation this afternoon as he was during the campaign in dealing with the garden gates and garden paths of Southgate. I do not want the hon. Gentleman to be alarmed. I have no intention of carrying that congratulation to the lengths that were applied earlier to his colleague and hon. Friend the Member for Enfield, North (Mr. Eggar), was who was described as winsome. That is a compliment that I shall spare the hon. Member for Southgate.

I understand that one consequence of the hon. Gentleman's election to the House is that the Conservative party has lost his expert assistance in its back rooms. But it has gained an expert Back Bencher, who may not remain a Back Bencher for long if his party returns to power during his tenure of the Enfield, Southgate seat. I am sure that we all look forward to hearing a great deal more from him and also to discovering in his later speeches whether he is in favour of advance to a green Budget, or whether he wants to go back to the bad old days which were so warmly greeted by the Conservative party antiquarians when he mentioned them in his speech.

This annual debate, its form and terms have been greatly misrepresented outside the House, because in recent months the fact that we have a debate on the whole of public expenditure, including estimates, which usually turn out to he wildly wrong, of local government expenditure plans, has been represented to the country as an annual and firm precedent for Parliament grossly to interfere in local government finance by settling the local rates and how they should be spent.

I should like to take the opportunity to repeat the obvious point that we in the House do nothing of the sort. By tradition, we are only asked, and can only be asked, to take note of the public expenditure White Paper. There is nothing in the argument that Ministers have been adducing outside the House that this annual debate is a precedent for the House of Commons to interfere in the way that local government raises, and the extent to which it spends, its money.

I hope that Members will recall the fact that the last Labour Administration were defeated at the end of a public expenditure White Paper debate and carried on the next morning as Her Majesty's Government without any hitch, as, of course, they were naturally entitled to do. It is a debate for observing public expenditure plans, and not for sanctifying, let alone voting, the cash for them.

The first point that I wish to make about these plans is that whether we take them cooked by the Treasury for presentation to the House, or reduced to their raw but refined state by the Select Committee — whichever choice we care to make, I am sure that the Select Committee's adjustments are necessary for a fair presentation—public expenditure, on average, has been rising substantially year by year since 1980. It has been rising by 2 per cent., if we take the Treasury's unadjusted figures, and by some 3 per cent. if we make the necessary adjustments which the Select Committee makes year by year without apparently getting the Treasury to amend its ways. That of course, does not represent expenditure that produces marvellous tangible improvements in the country's equipment or the well-being of our people; it actually represents the appalling year-on-year cost of the medium-term financial strategy and the Government's approach to public finance and the running of the economy.

The British people are patient, and, fortunately for the Government, they have many other things which they regard as more important than politics or even their tax demands. For some years they tolerated that rise in cost. For some of them it might have been on the ground that this was an experiment which was worth making and which they must give a fair trial. Public opinion polls and other signs and portents show that even the long-suffering British public are now beginning to realise the appalling cost of the experiment and to say that it is time it was called off.

The fact that year by year we have all these public expenditure plans, usually underestimating the cost of the misery which the medium-term financial strategy is causing, but, nevertheless, costing it out in an appallingly graphic way, surely shows that the process should be severely modified, if not entirely reversed.

As is well known, the Government's policies have serious effects on the cost of cash benefits for the unemployed and the associated social problems, and on the personal social services, which are now under heavy strain as a result of the prolonged unemployment, especially among older people, who have given up hope of ever obtaining a job again, and young people who do not know what it is to go to work after leaving school.

There is also a substantial increase in the cost of law and order. We must count ourselves lucky and grateful for the fact that there has not been more disorder to contain — it must always be contained — as a result of the hardship that the Government have inflicted. But the cost of precautions is very high.

It is important to note that this steady rise in public expenditure does not just completely contradict the hopes of Conservative Members for their original policies; it also shows that the policies cannot be implemented without continuous and increasing social costs, and that the position will become worse. I challenge the Minister when he replies to give any sign that there will be an improving trend in social cost, reflected in the financial cost, of the policies which the Government stubbornly insist on implementing.

Nowhere is that more clear than in the reductions which the burden of providing for the unemployed and all their problems are causing in the nation's proper capital expenditure for maintaining, improving and modernising, its public assets. The Government are being deliberately perverse. The Chief Secretary gave that impression, to me at any rate, when he was good enough to appear before the Treasury and Civil Service Select Committee. On two counts, which I single out, he refused to acknowledge the reasonableness of the questions that we were putting to him. First—this is important if the Government are to retain control of public expenditure — he refused to admit frankly that when he meets Ministers in charge of spending Departments in the well-known round of the Chief Secretary dealing with departmental bids during the late summer, he is completely deprived of any efficient or acknowledged yardstick to measure their claims — they are simply asking for money to maintain the assets and physical properties for which their Departments are responsible.

In evidence the Chief Secretary eventually agreed—this is all carefully recorded in questions 262 to 268 in the evidence taken by the Treasury and Civil Service Select Committee on 18 February—that that in trying to counter and to reduce the spending bids of his opposite numbers in Government he, on behalf of the Treasury, had to rely on one's colleagues, obviously, to a degree, to judge these as they are put up to them on a case-by-case basis. The fact that the Government have no adequate record of public property, let alone the condition which it is in, renders the Chief Secretary virtually naked when he goes to the conference chamber to try to counter and control the spending bids of Ministers in charge of the great spending Departments.

Mr. Roger Freeman (Kettering)

Unlike the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who refused, both in the debate on the autumn statement and today, to say what level of public spending his party proposes for next year, and given the fact that the leader of the Liberal party, the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) has now joined the debate, will the hon. Gentleman tell us what precise level of public spending his party would like next year?

Mr. Wainwright

In response to such an intelligent question, I should like to oblige the hon. Gentleman straight away. However, I must point out—and the hon. Gentleman, as an accountant, will be the first to understand—that, just as the Chief Secretary is crippled, in his arguments with spending Ministers, by the fact that we have no record of public assets, their value and the extent to which they have depreciated, so every other party in the House is equally crippled. I make a plea for a proper record and data base of public assets as much in the interests of future Governments as in the interests of the Government of the day.

I mentioned a figure which we made public last week of an initial boost to public capital spending of £1 billion in the next financial year, which is one of the alliance's priorities for the Budget. We believe that that is the minimum that should be made available. However, I cannot prove that that is the figure required to maintain public assets at their present value. I suspect that it is an understatement to say that our figure for boosting public capital expenditure in the next financial year, £1 billion, is adequate. We would hope to maintain that if we were in power, year by year, for at least the next three years. There is no secret about that. It was made public last Friday.

When the Chief Secretary finally admitted that he was not armed with the necessary figures to deal with spending bids for more capital works by his opposite numbers in the Cabinet, he was asked whether the Government ought to start remedying that state of affairs by establishing a data base, a record of public assets and their condition, so that the House may know what is necessary year by year to provide for their depreciation. In tones of some surprise, the Chief Secretary said: If you are asking me whether the Treasury is a possessor of some kind of doomsday survey of all the capital assets of the whole public sector, the answer is no. The right hon. and learned Gentleman went on to explain to us, as if we did not know, that the public sector owns rather a lot of property. However, the "doomsday survey", as the Chief Secretary chose to call it, is nothing more than a register of plant and buildings and other assets which every limited company is required by law and accounting convention to possess and keep up to date. It seems extraordinary that the Chief Secretary should imply that what was done in the 11th century, with no equipment more sophisticated than a quill pen, should be beyond the resources of Governments in the present century, armed with all our devices and techniques of taking blocks of capital expenditure according to the year in which they are made rather than counting all the spoons in all the public canteens in the country. Nobody indulges in that sort of detail any longer, or needs to.

Without those figures, the House is put in a most unsuitable and unbusinesslike position. When we have debates like this, we do not know whether we are being presented with figures which keep the public assets in a reasonable state, or whether the Government are milking the condition of public property to try to reduce taxation.

I should like now to refer to the relief of the most urgent and pressing poverty, most of it in families, which is commonplace today and, I am sure, well known to all hon. Members through their surgeries, mailbags and in other ways. The alliance wishes to increase the provision for current public spending in the next financial year and years to come in order at the very least to bring relief to the hardest cases. We cannot responsibly suggest any way of banishing poverty or anything like that in the present situation. To get anywhere near that would require a much more buoyant economy and a working contribution from some 3.5 million people who are not allowed to work at present.

However, in our present economic straits, what would be possible is a great expansion of the family income supplement—not as a long-term remedy, but as a short-term and emergency remedy. There would also have to be a proper uprating of the supplementary benefit allowance to those who have been unemployed for more than 12 months. We regard it as a scandal that their benefits should be some 20 per cent. less than the general rate of long-term supplementary benefit. All that improvement could be done in the first year by expenditure of approximately £1.3 billion, and we believe that it is an urgent priority.

Under the ludicrous way in which the House debates public expenditure at a different time from debating revenue, it is possible to misrepresent that as simply a reckless bid for more public spending without saying where it is to come from. However, the fact is that the Government have their own views. It so happens that their views would not affect the expenditure side of the account but, instead, the revenue side. The rumour is that the Chancellor wishes to come to the rescue of all income tax payers in the country by raising the thresholds.

That is a debate for the revenue side of the account on a different occasion. I pause simply to point out how extremely difficult it is to handle these matters in the House when the same problems can be addressed through either the revenue or expenditure side of the account. However, I must add that, in the view of the alliance, a measure directed straight to those who are in the greatest poverty is greatly preferable to a raising of the thresholds, which benefits large numbers of people who, no doubt, are glad to have a tax saving, but are not in urgent need of the money. That is perhaps the biggest divide in terms of public finance, apart from the capital side of the account, between the Government and the alliance.

Mr. Campbell-Savours

Over the weekend several of us will have seen reports of the £4 billion reflation which, I am informed, is the policy of the alliance. Is that common policy to all sides of the alliance? Is it accompanied by any measure of exchange controls?

Mr. Wainwright

I am grateful to hear that reference to "all sides of the alliance". The more sides we can gather into the alliance, the better we are pleased. I think that it was clear to any reader of the reputable newspapers on Saturday morning that those were alliance Budget priorities, not an alternative Budget. People who cannot inspect the books must not try to present an alternative Budget. Those were the alliance's Budget priorities introduced by my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) to the press last Friday and then elaborated upon by the leader of the Social Democratic party, my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen). Yes, it is an alliance document which advocates — I must be careful not to annoy the Chair— a selective reflation which amounts to £4 billion in the first year.

Mr. Campbell-Savours

What about exchange controls?

Mr. Wainwright

I shall not discuss exchange controls in the middle of a public expenditure debate. I am happy to talk to the hon. Gentleman about that another time. I confirm that it fell to me—I have never repented of it—to welcome the former Chancellor of the Exchequer's decision to lift exchange controls when he made the announcement in the House. It was a wise, civilised and internationalist step to take.

The essential matter in this debate is to persuade the Government, not to reduce public expenditure or to repent of their covert increases in public spending, which have been about 3 per cent. a year since 1980, but to redirect their increased public expenditure so that, instead of dropping into the bottomless well of unemployment, it is used to build up our human and physical resources.

6.30 pm

Mr. Terence Higgins (Worthing)

It is my great pleasure to begin by congratulating my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) on an outstanding maiden speech, which we greatly enjoyed. He paid a fitting tribute to his predecessor, Sir Anthony Berry, who died in tragic circumstances. He was a good friend to many hon. Members, and certainly the words of my hon. Friend, when he paid tribute to Sir Anthony Berry's work in the constituency and in the House, were entirely appropriate. I have had the benefit of my hon. Friend's expertise and advice in one of his former incarnations, and therefore I know that he will make a good contribution to our economic debates. One of his predecessors in Enfield before the constituency was divided, the late Iain Macleod, played a major part in our economic debates. Therefore, he has predecessors of whom the House is proud. My hon. Friend will have a difficult task in succeeding them. We look forward to hearing what he has to say, not least about procedural reform. Some of the matters to which he referred have been covered by the report of the Select Committee on Procedure during the last Parliament, and I hope that we can make progress on them.

I shall proceed immediately to those issues. Public expenditure White Paper debates have never been satisfactory or popular. The reason is not difficult to discover. In a sense they are a post mortem on decisions that have already been taken. As my hon. Friend pointed out, much of the matter has already been discussed during the debate on the autumn statement. At the same time, such debates anticipate what is likely to be said in a few days' time in the Budget. As these debates are sandwiched between a post mortem and the Budget, it is not surprising that they have been never been successful.

It would be appropriate to have this debate not ahead of the Budget, but perhaps in June or July when we can appraise the previous White Paper in the light of the Select Committee's reports and consider the priorities for the forthcoming White Paper, which begins to be formulated in June or July. I am sorry that that has not had support from the official Opposition. The suggestion is certainly worth considering.

The hon. Member for Colne Valley (Mr. Wainwright) pointed out that on a previous occasion the Labour Government were defeated on a similar debate. The net effect of that defeat was nil, and proceedings continued exactly as previously. Therefore, it is not entirely surprising that the debate is not regarded as one in which the vote is important. However, the debate certainly is important. At one time it used to be a two-day debate, but that has lapsed, and perhaps it is just as well.

I hope that our debate will be enhanced by the report of the Treasury and Civil Service Select Committee. It was a considerable feat that the Clerks and advisers were able to produce the report in printed form two or three days after the report was agreed. Therefore, it is right to congratulate those responsible for that and to express our thanks to the Treasury officials who gave evidence and to my right hon. and learned Friend the Chief Secretary, who appeared before the Committee at short notice to answer questions on highly complex issues.

We have included in the report the Government's reply to our report on the autumn statement, which appears on page 42. The response was neither helpful nor adequate. The Select Committee seeks to raise the standard of public debate and to improve the mechanism for managing our economic affairs. In our report on the autumn statement, we pointed out that the question of priorities was not being dealt with satisfactorily. We said: The evidence we have received does not convince us that there are adequate machinery and procedures to enable Cabinet to take an overall view of the relative merits of departmental programmes … Recent events suggest that in some cases individual departments have been allocated a lump sum by the Treasury and then left to determine their own priorities within the limits set … Against this background we recommend a re-appraisal of the machinery for determining public expenditure priorities … with particular reference to the need to improve the allocation across departments. The Treasury's response to that recommendation is not as forthcoming as it might be. The allocation of priorities of public expenditure is one of the major tasks that face a Government and one of the major issues in which the House has a fundamental interest because it affects many different aspects of our public life. I hope, therefore, that further consideration will be given to that recommendation.

Does the White Paper give a reasonable appraisal of the public expenditure position? In our report we pay tribute to the improvement in the format and to the considerable trouble to which the Treasury has gone to make the presentation more understandable. We would not want anything that we say in the report to detract from that compliment. At the same time, some of the presentation is misleading. Chart 1.1 is a block diagram which shows that the block has scarcely changed in size for three years. That gives the impression that all is well in the best of all possible worlds, that the Government have everything under control and that their targets are being achieved. It seems to the Committee, which produced a unanimous report, that adjustments need to be made to those figures to give a much truer picture. I shall deal with three adjustments.

First, there is a strong case for considering the matter in cost rather than in cash terms. We should allow for the fact that as the rate of inflation has fallen more than anticipated — all hon. Members welcome that — the amount of cash going on public expenditure should be adjusted accordingly. We should see it somewhat below the cash limits.

My next point does not appear in our report. When cash limits were first imposed, they were a good idea because inflation was rising rapidly. Understandably, they curtailed the rate of increase in public expenditure. However, they are not an effective restraint when the rate of inflation is falling faster than anticipated, because in those circumstances one would reasonably expect Departments to spend below their cash limits. However, the danger is that they will spend up to their cash limits. That point should be considered if we want to bring public expenditure under control, given all the other pressures.

When cash limits were first introduced, the Treasury was understandably reluctant to change back to or even to take account of cost terms. That has long since passed. Therefore, we could now reasonably concentrate more on cost terms without undermining the Treasury's basic approach to cash limits.

The second adjustment relates to debt interest. Here I find the Treasury's approach very strange. If one looks at the figures for 1985–86, 1986–87 and 1987–88 — they appear on page viii of our report — one sees that debt interest goes up substantially from £9 billion to £9.5 billion to £10 billion. That figure is not included in the planning total. Consequently, public expenditure looks much better than would otherwise be the case. We are told that that is so because it is something which is subject to limited control, but that is true of much of the demand-determined expenditure which appears in the White Paper and which is part of the planning total. That is not a sensible reason for not including debt interest in the White Paper analysis.

We are told that interest is taken into account when considering the PSBR, fiscal adjustment, and so on, but it is difficult to see how that is done. We are constantly told by the Chancellor that the Government's policy is that revenue shall determine expenditure, not the other way about. If so, and if interest charges suddenly go up, one might expect some countervailing reduction elsewhere in the public expenditure programme. That is not the case. Therefore, the White Paper's method of accounting for interest is not satisfactory. It gives a misleading impression.

My right hon. and learned Friend the Chief Secretary said that all this was more a matter of presentation than of substance. That may be so. I agree that to some extent it is the presentation about which I am complaining, but if the presentation is not sufficiently transparent, matters of substance may go uncommented on, and the Treasury may delude itself into believing that it is doing better than it is.

There has been a long-running battle between the Treasury and the Treasury and Civil Service Select Committee on how asset sales should be treated. The Chancellor has consistently maintained that the proceeds of asset sales should be treated as if they were negative expenditure. That is convenient in the context of the presentation of the White Paper figures. For example, if one has a large chunk of sales of British Telecom, the public expenditure figure appears to be reduced by that amount, as does the PSBR. In our view, that is not a very good way of treating this. It would be more realistic if it were treated as a means of funding the PSBR rather than reducing the PSBR and public expenditure.

This is particularly relevant to council house sales. The sale of council houses is an asset sale which in the past has been treated by the Chancellor as a reduction in public expenditure and the PSBR. Understandably, councils now wish to spend the money which they have received from council house sales. As the Select Committee points out, that could be foreseen. It was apparent that if councils sold houses and got the proceeds, they would want to spend the money.

The Select Committee, in paragraph 40, points out: We find it strange that the Government did not foresee the problems inherent in this accounting treatment for these transactions, or its scale. We are left with the impression that the rationale for the existing arrangements has had everything to do with the Government's desire to reduce the apparent size of the PSBR, and too little to do with the rational use of local authority assets. The Select Committee's previous report was, I think, wrong when it said that this should be treated as a means of funding the PSBR rather than as a reduction in public expenditure. The Select Committee should have included the word "temporary", as it does in its present report. This was a temporary means of funding the PSBR. But having included a presentation which makes the figures look more favourable in previous years, the Chancellor is now confronted with the fact that, from a presentational point of view, the figures begin to look more difficult in the future.

More particularly, there is an underlying reality to these concepts. Therefore, the argument that councils should be allowed to spend the previously prescribed proportion—40 per cent. rather than 20 per cent. — against a background of considerable excess capacity in this industry, seems to be quite strong.

I wish to comment briefly on negative external financing limits and the nationalised industries, especially in relation to water authorities. It is slightly worrying that I seem to be in agreement with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). We must carefully consider the justification for saying that the water industry should pay off its debt and from then on should finance future investment entirely from current receipts. Most industries tend to finance a long-term project by borrowing, not by finance entirely from current receipts. We questioned the Chief Secretary about this, and he was kind enough to send a subsequent note which appears on the last page of the Select Committee's report. He gave GEC as an example. In reality, if investment is financed in this way, consumers are effectively financing the investment which, in the case of water authorities, will continue for perhaps the next 50 years to the benefit of future generations and those yet unborn. It must be arguable whether that is a good way of managing our affairs.

Sir Kenneth Lewis

I have just had a meeting with the Anglian water authority, which will have to increase its rates this year by 12.5 per cent., for the reason given by my right hon. Friend. The authority tells us that it will also have to increase its rates by the same amount next year and, perhaps, the year after, when paying from revenue rather than by borrowing will apply. If water authorities increase their prices by more than twice the rate of inflation for the next three years, that is surely serious.

Mr. Higgins

I have considerable sympathy with my hon. Friend's view. We must appraise the underlying concept on which this proposal is now based.

Against this background, the Chancellor is clearly faced with an extremely difficult set of choices when he considers the Budget. He will have to decide whether to alleviate the burden of taxation — perhaps to allow an increase in public expenditure in the area that we have just been discussing — or to reduce borrowing. He is in an immensely difficult situation, because in some respects the so-called fiscal adjustment will now be higher than some months ago due to changes in the exchage rate. On the other hand, the extent to which the economy is vulnerable to exchange rates, if we are to have a give-away Budget, is likely to be considerable. He must therefore make an extremely difficult judgment. It is a question of hitting the right balance between the three items that I have just mentioned.

We have recently been concerned about the effect which the rise in the dollar — rocketing upwards — has had on interest rates. That is of grave concern to mortgage payers and borrowers. I am more worried about the effect that a sudden collapse of the dollar may have on our economy and on the problems that the Chancellor will face in the Budget. I very much hope that at international level we can procure reasonable contingency plans to deal with that, because a comparatively slow rise in the dollar could present far greater problems than those we are now facing.

6.50 pm

Mr. Austin Mitchell (Great Grimbsby)

I do not intend to follow the line of the right hon. Member for Worthing (Mr. Higgins) who gave a clear and straightforward exposition of the recommendations of the Select Committee on the Treasury and Civil Service, which he chairs, and of which I am a member. I hope that his right hon. Friends on the Government Front Bench have noted that this is very much an agreed report by the Select Committee and that it is very critical of the Government's expenditure plans. The "Worthing handbag" of recommendations was endorsed by the entire Committee.

The problem with the public expenditure White Paper is that essentially it is an excercise in pulling wool over the eyes of the Government's own less intellectual supporters. Wooly-headed monetarists are having the wool pulled over their eyes. The White Paper claims that the Government are doing what they are not doing — namely, controlling public expenditure. The White Paper attempts to say that in their terms the Government have been successful. First, those terms are fallacious and directly harmful to the real economy, and, secondly, the Government have failed even according to their own terms. This public expenditure White Paper cannot conceal their failure. Indeed, from the way in which it is set out, the White Paper is an example of the debasement of the Government's own statistics. Our report was, in "Committeespeak", extremely damning. I refer only to a few of the recommendations: misleading impression, … consistent failure, — reserve allowance of £3 billion is likely to prove inadequate. That is "Committeespeak."

The report does not say that the Government are not telling the truth, but, in "Committeespeak", the report comes as near to saying that as it can. The members of the Committee came from both sides of the House. The report is a damning indictment of the Government's public expenditure plans. They are no more than an exercise in creative diminuendo. They minimise the expenditure for the years ahead. It is an exercise in slimming by prayer. In all their previous efforts, the Government have been right in only one of their five sets of predictions. The overall pattern has been that public expenditure has risen as a proportion of national income from 39 to 42 per cent. That may be more an example of their contribution towards the reduction of the national income than it is of their success in controlling public expenditure. However, even in their terms the indictment is damning.

The position is shown to be even worse in the White Paper. The Government are pretending that, with an election approaching, with Back Benchers becoming increasingly nervous, jittery and anxious about their seats, with the Confederation of British Industry venturing to get off its knees from the grovelling, supplicant position that it has adopted thus far towards the Government and with the infrastructure deteriorating as it is, they will be able to cut public expenditure. They will be unable to do so. The Government pretend that there will be dramatic reductions overall. Taking into account the cost of the miners' strike, the figures for which are to be published in the next two or three weeks, the Government are pretending that they will be able to hold public expenditure when experience shows that it will increase in the three years covered by the White Paper by 8 or 9 per cent. We know it, the Government know it, and the world knows it.

Why are the Government going through this elaborate farce of pretending that they will be able to hold public expenditure? It is rather like the exercises performed by a failed slimmer—a slimmer who is still flabby. That is not a picture of the Chancellor of the Exchequer, but if the stomach fits he can wear it. This failed slimmer, still flabby, stands in front of the mirror and desperately holds in his stomach and says, "I have not done very well so far, but, oh boy, how I will lose weight over the next three years." Nevertheless, the circumstances which would help to bring about the weight loss — I am holding in my stomach as I say those words, Mr. Deputy Speaker — will be far more difficult politically than those faced by the Chancellor during the previous period.

The Government have carried out an exercise of fabrication and false prediction of distorting the basis of their policy. They have assumed in the White Paper that pay rises in the public sector will be held at 3 per cent. In no previous period have increases been held at 3 per cent., and all the signs are that they will not be held at 3 per cent. during this period. Yet the Government are still attached to this theoretical, unrealistic figure and to an unreal inflation figure.

The Government assume that inflation will come down, although we all know that, particularly because of the impact of interest rates by which the country is being crucified today, in a way which has never happened before, inflation will increase. Real interest rates are higher now than they have ever been since 1922. Yet the Government pretend that, despite that inflationary impact and the fall in the pound against the dollar, which is resulting in yet another inflationary impact, they will continue to bring down inflation. That inbuilt basic assumption will not be fulfilled.

The Government's standard assumption is that unemployment will not increase. I am assuming that a growth of 2 per cent. is built into the public expenditure White Paper, because that is the assumption made in the medium term financial strategy of 1984. However, even with an estimated growth of 2 per cent., there is still scope for an increase in unemployment of between 200,000 and 300,000 at a cost of about £500 million in terms of the increase in unemployment pay. Therefore, assuming that a growth of less than 2 per cent. will take place as the recovery falters, I believe that the increase in unemployment will be even more expensive. Even on the Government's assumption that the number of unemployed will remain constant, expenditure on the unemployed will increase by 9 per cent. Yet, even if we assume that the unemployment figure remains constant and that unemployment benefit will be increased in line with inflation, unemployment payments must increase by 14 per cent. Where, therefore, has this mysterious assumption of 9 per cent. come from? The Government have fiddled the inevitable basics of their prediction. The Government have fiddled even more the actual expenditures that they control. A system of creative accounting has been turned into a system of government by the Treasury Front Bench.

Local government expenditure is crucial. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to the assumed savings from the abolition of the Greater London council and the metropolitan counties. That saving, in paragraph 16, is estimated to be £100 million. It is not a scientifically worked out saving. The Government have told the civil servants to assume that this saving will result from the abolition of those authorities. We know that that figure will not materialise. There was an article last week in the Financial Times which pointed out that savings are unlikely to be made upon any prediction, yet there is an inbuilt assumption that £100 million will be saved. The real spending by local authorities on goods and services has increased during the last five years by 2.5 per cent. That has taken place despite all the cuts in rate support grant and all the attempts to restrain spending by local government. However, the Government assume that during the next three years local government spending will be reduced by 7 per cent. That is a totally unreal estimate, even given that torturer's gallery of weapons that the Government have mobilised against local government in their desperate attempt to control it. We all know that that is a fallacious assumption.

Mr. John Maples (Lewisham, West)

The hon. Gentleman says that local authority spending has increased by only 2.5 per cent., but that has been the result of adding in a substantial increase in capital spending. I am sure that the hon. Gentleman will agree that current spending has risen by 10 per cent. in real terms over that period and that is the figure that the Government expect to be able to control.

Mr. Mitchell

My point is that current and capital spending increased by 2.5 per cent. That is the important figure. Many hon. Members would prefer capital spending to be increased further because it is essential that it should be increased in so many areas. However, my point is that, even after mobilising all the weapons that the Government have mobilised until now, they have been able to screw down local government spending only by that figure. Their assumption that they will be able to screw it down by 7 per cent. over the next three years is totally fallacious. It is the usual trick of the Government saying, " We are unable to control our own spending, so let us pass the buck to somebody else. The buck stops at local government." If that is to be the Government's policy it will lead to chaos and extreme difficulties for local government. It will cut across several bases which underlie Govenment policy.

The Government want to transfer treatment in hospitals to treatment in the community, yet spending upon the personal social services is to come down by 2 to 3 per cent. at the same time as that transfer is brought about. The Government tell us that they want to improve the inner cities, yet urban spending is down 11 per cent. in the period covered by the public expenditure White Paper.

The fiddling becomes even worse with the nationalised industries. That has been adequately dealt with already. Gas and electricity are being used and will continue to be used as milch cows — a form of disguised taxation, putting the burden of heavy charges on those least able to bear them, and raising money indirectly for the Government at the expense of our competitiveness in the world market. That procedure is now being transferred to the water authorities, which will cause major problems for all the water authorities and a major outcry about water rates which is already building up.

Overall, the dramatic reduction in the external financing limits of nationalised industries which the Government posit is impossible on any prediction. It will mean either massive increases in prices or an enormous acceleration of growth in the economy, which we know will not occur.

The fiddling of the figures is also true for social security. If one deducts spending on the unemployed, that has risen by 13.5 per cent. in the past three years. Yet it is predicted that it will increase only 4.5 per cent. in times of even worse social difficulties in the three years ahead. That is impossible to achieve. One cannot see on what basis that prediction is made.

There is even inadequate allowance for the EEC budget contributions that we know we shall all have to make. It would be nice to see the Government dedicating themselves with the same determination to the control of agriculture expenditure, which increases pari passu with production, as they have shown to the miners. Can it be that the miners must be broken and their subsidies cut because they are a Labour-voting section of the community, when the even more massive subsidies which go to the farming community under the common agricultural policy and in a national support system as well, which have made 10,000 millionaires of the biggest landowners in Britain in the past few years, will not be tackled in the same way by the Government, who are dedicated to cutting spending, simply because those sections of the community vote for the Government?

The predictions in the White Paper are unattainable. I am an incurable romantic, rather like the man who has AIDS and herpes at the same time, but I can see no way in which the predictions will be fulfilled on the figures. The cuts which will be necessary will hit jobs in the Civil Service, local government and housing, when we need a huge increase. The Building Employers Confederation estimates a loss on those figures of 600,000 jobs in the building industry. Employment in all those areas will be hit and costs will be increased, just when the economy needs a boost from public spending.

This is an exercise in slimming by prayer. It has been implemented in an attempt to pull the wool over the eyes of the Government's Back Benchers in the House of Commons, particularly over those of the Government's monetarist supporters. Therefore, it is nothing more than a ritual casting of artificial pearls before very real swine. It is typical of a Government who have grown accustomed to the manipulation of facts, to half-truths, to fiddling of the statistics and to distortion of the trends. The Government are dedicated to thinking small and then pretending that they have achieved their target.

I realise that that method of thinking is forced from the top by someone who believes that the truth is in her own head, not in the world outside, which is the beginning of the bunker mentality. That bunker mentality is embodied in these public expenditure plans.

The tragedy is that the Civil Service is now being forced into becoming a machine for justifying on the figures predictions which are not its own, which are forced on it by Ministers, and which have no basis in fact. That is no basis for adequate decision-making on a sensible assessment of priorities. It is more a matter of abnormal psychology than economics, but I must point out that that is the basis of the strategy.

The real question, which Labour Members in particular must ask is why the whole farcical exercise is necessary. Why, when the country is getting meaner, shoddier, nastier and more divided, when our public capital and infrastructure are crumbling as they are, do we have to go for this kind of fallacious exercise to justify Government policies to people who are wrong in the first place?

The whole basis of the strategy is to get public sector borrowing down. It will not. Yet the Government have to pretend that it will. Why make that pretence in the first place? We are already suffering the consequences of having what I think is the second lowest public sector borrowing requirement in the advanced industrial world. We are already suffering the consequences of a deflationary stance. Why go on to make that worse when what we need is Vivien Nicholson, the major pools winner of the 1960s whose slogan was "spend, spend, spend", turned into a system of government.

The part of Vivien Nicholson is already being played with great effect by that supreme actor, Ronald Reagan, in the United States with a deficit, which any Keynesian such as myself, particularly a super-Keynesian—perhaps that is what President Reagan is — would approve of wholeheartedly. The result has been to bring down unemployment in the United States by 7 million. That option would be available to us were we not so fixated on unobtainable objectives and so busy pretending that we will achieve those objectives in the next three years.

Mr. Yeo

If the hon. Gentleman wishes to follow the policy of spend, spend, spend, will he remedy the deficiency left by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) and say to exactly what level his party is now advocating that public expenditure should rise?

Mr. Mitchell

All that the Government have to justify their policy is the endless asking of questions, such as how much the Opposition would spend, yet we are not in charge of the books. I would spend generously, liberally and even massively to stimulate the economy. If there is a deficiency of demand, as there is, the only way to remedy that deficiency is to spend. It is the only way out. It makes straightforward sense. That is what Reagan is doing in the United States.

The only growth that Britain has is a product of President Reagan's sin in the States — his enormous deficit financing which has stimulated the United States economy and is in turn stimulating our exports to that economy. We are not doing as well as other countries—

Sir William Clark (Croydon, South)

rose—

Mr. Mitchell

I shall not give way again. I am bringing my remarks to a close.

Keynesianism still works and the American experience proves that it works. To ask me now to put a figure on it is the most arcane kind of childish politics imaginable. The Government's stance is far too restrictive and deflationary. We need to expand, and the only way to do so is by borrowing. The only way that we shall keep any recovery going is by stimulating it further with public spending not only on the infrastructure, which is creaking and groaning and needs massive repair, but on housing. What a folly it is to have building workers out of work and houses that want building, and all the things that need doing around our communities, when the unemployed are available to do them. All we need is to spend the money to bring the resources together with the people, get the job done and stimulate the economy in that way.

I cannot see why, unless it is the absolute certainty of the second-rate mind that possesses the hon. Member for Suffolk, South (Mr. Yeo), the lesson that was so clear in the 1930s is not clear today. Everything points to an expansion triggered by public spending and sustained by low interest rates. At the moment, interest rates are crucifying not only the house buyer but anybody with an overdraft, anybody who wants to invest and the whole economy. It is wrong that the economy should be crippled by interest rates. Why have our interest rates been increased to a level well over twice that prevailing in West Germany, our major industrial competitor? We already run a deficit on manufactured trade of £5,000 million a year with West Germany. We are becoming an industrial colony of West Germany and we are making that situation worse by keeping the pound overvalued against the deutschmark and crippling our industry with high interest rates.

The expansion must be triggered by public spending and sustained by low interest rates and a competitive pound. That is the only way to stop the decline which is now going on into a bitter, divided society, characterised by the kind of industrial war that the Prime Minister has triggered off in the mining industry. More important, that is the only way to rebuild the economic and industrial strength of this country which has been so wilfully thrown away by this wasteful Government.

Several Hon. Members

rose—

Mr. Deputy Speaker (Sir Paul Dean)

Order. The 10-minute limit on speeches is now in operation. I appeal for the co-operation of hon. Members.

7.10 pm

Sir Michael Shaw (Scarborough)

I shall not take up the comments of the hon. Member for Great Grimsby (Mr. Mitchell), though I shall be referring to local government expenditure.

I add my congratulations to my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) on his maiden speech. I share his doubts about the value of an autumn statement, because last year's statement turned out to be a PR man's El Dorado; hon. Members have been bombarded ever since with the fears of constituents and others about what might finally appear in the Budget.

I have wholeheartedly supported the Government in their objectives of bringing down inflation, encouraging and modernising industry and creating the ability for us to compete in world markets. Achieving those aims, particularly given the position in which we found ourselves in 1979, has called for firm policies and a courageous Government to carry them out.

It is significant that the country understood the difficulties and continued to support the Government. However, the success of those policies has been delayed and we must show that what we are doing is not only essential, but is producing the results that were promised to the country.

The chief reason for the delay in the success of the operations is the miners' strike. The effects of that strike have been tragic for the British people. The strike has affected their attitude towards the Government's policies and, much more important, it has had serious effects on the industries connected with mining.

What would have happened if we had had, to take the figure quoted by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), £3.5 billion available for construction work and the creation of new businesses and new jobs — in other words, money for something creative, rather than the preservative emergency measures that we have had to take in the past year? The Government's policies are succeeding, but they would have been more clearly seen to be succeeding if that money could have been used profitably in the past year.

I disagree with the suggestion of the hon. Member for Great Grimsby that we would have been wise to follow the American example. The United States' difficulties are growing and it has advantages, particularly advantages of size, which we cannot match. Above all, the United States has sufficient strength to ensure that when the difficulties come, the rest of the world will share them. Again, we cannot do that. We must make sure that we get our policy right.

Having expressed my general support for what the Government are seeking to do, I hope that the Government will note my anxiety about one aspect of their policy. As we have a strong policy, we must make sure that we fully understand its effect and the problems that it is trying to solve. We must monitor that policy and be prepared to change it as circumstances change.

Let me give two examples. I take both from periods of Conservative Government, because I cannot see in the period 1974–79 any continuation of carefully thought out policies, only a series of emergencies, with frantic policies to put a finger in the dam. In 1970, it was felt that we should expand our business activity. We duly primed the pump and the policy was effective. However, there was a longer time lag than had been expected and the policy was, unnecessarily and unwisely, continued. Had that time lag been recognized — and we must carefully examine the effects of our policies — the over-priming of the economy would not have taken place.

In 1979, we faced the serious problem of inflation. The Government took determined and effective action. High interest rates and credit restrictions were quickly effective in the private sector, but not in the public sector. A true reading of that situation was that while high interest rates were effective in the private sector, political considerations were the dominant factors in public sector borrowing and spending. As a result, the private sector was squeezed for too long and considerable damage was done to some of our industries, including the textile industry and others engaged in exports.

What I am saying is that policies and definitions must continually be matched against the changing facts. That leads me directly to the public sector borrowing requirement. To listen to some people, one would think that the Government are refusing to invest money in anything. That is not the case. We are investing large sums in the public sector. It looks as though capital spending overall will probably have been a record in 1984. Much of that was in public sector investment.

However, there must be a discipline within which the Government have to operate and, within that discipline, there has to be a limit to the PSBR. My concern is whether the present definition of public sector borrowing needs to be re-examined. Different situations may demand different solutions.

For example, if credit is tight and both the private and public sectors are being restrained, a simple definition may suffice. However, if there is no monetary squeeze in the private sector, the definition of the public sector and the conditions applying to it need careful examination if unnecessary damage is not to be done.

I appreciate that this is a difficult area and I have no easy solutions to offer. However, I believe that it is an area which must be examined continually, particularly at the present time. Obviously, privatisation provides an answer, because it takes an undertaking into the disciplines of the market place.

I particularly noted a comment made during the recent debate on water authorities. It was said, "Whatever the difficulties, we will look at switching the water authorities into the private sector, and that will ease the problem as they will no longer fall within the public borrowing sector." But those water authorities would still be operating within the economy as a whole. It would seem to me that one cannot argue that there is a case for different treatment and for different limitations just because a body moves from one sector to the other under those circumstances. For other investments within the public sector—

Mr. Deputy Speaker (Sir Paul Dean)

Order. I must ask the hon. Gentleman to come rapidly to a conclusion.

Sir Michael Shaw

I hope that my right hon. and learned Friend the Chief Secretary will continue to look at the definitions that I have outlined, and that his policies will have the success that they deserve.

7.20 pm

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

I join other hon. Members on both sides of the House in paying tribute to the hon. Member for Enfield, Southgate (Mr. Portillo), who made his maiden speech today. He certainly added to the quality of today's debate, and with his undoubted expertise, I am sure that he will contribute considerably to the quality of our debates on all economic matters.

This debate on public expenditure should be the most important of the financial year, and should be the best attended, but the attendance on both sides of the House is a grave disappointment, especially as public expenditure lies at the very heart of Government policy and of the difference in the political policies of the Government and the official Opposition. The Government believe that a reduction in public expenditure will suppress inflation, will lead to industry becoming more competitive and will thus lead to jobs. It is true that the Government have suppressed inflation—it is the one thing to which they can lay claim—but they have yet to deliver any of the benefits which they have claimed, during the past few years, would flow from that.

We believe exactly the opposite, that an expansion of public expenditure will lead not only to a growth in the number of jobs but to industry becoming more competitive as investment goes into research, plant and machinery. Those are all areas which the Government are foolishly and gravely neglecting. Such an expansion in public expenditure would also have the added benefit of improving the quality of life for all our people.

As a contribution to that debate, this White Paper is not a success. On the very day that it was published the Opposition's great friends, the Financial Times, the Daily Telegraph and The Times described it as "wishful thinking", "shoddy" and "misleading". The Chief Secretary smiles, but he received similar treatment at the hands of the Select Committee, albeit in terms of the all-party eloquence and politeness for which it is famed. He and his officials had a fairly rough time when giving evidence, and had an even rougher time, albeit in Select Committee-ese, in that Committee's report.

Interestingly enough, the Chief Secretary dwelt on the whole question of capital spending and infrastructure. He rightly said that "infrastructure" was becoming something of a cliché, that there were many generalised protestations about the infrastructure, and that very little analysis was made of where the infrastructure was weak and of the effects of investment on different parts of the infrastructure, particularly with regard to employment.

I shall concentrate on one area, Stoke-on-Trent, which I have the privilege to represent. I shall try to see what effect investment in the infrastructure might have on that community, on services and on the quality of life on those who live in that city. Wherever one looks in Stoke-on-Trent, one sees the infrastructure in decay—1.5 million sq ft of empty industrial buildings, two thirds of which were built before the second world war, and spoiled land that needs reclaiming, even though our city has the best record of land reclamation and consistently won European awards for that during the 1960s and 1970s. Large tracts of land still need reclaiming, and the building costs on that land are £60 a square metre higher than anywhere else in the United Kingdom. Wherever one looks in Stoke-on-Trent, one sees old houses. The need for infrastructure investment is obvious to everyone. In Stoke-on-Trent "infrastructure" is not a cliché or jargon, but a physical necessity for the life of industry in that city and for the people who live there.

In looking at the problems, I have been aided by an interesting book, which I commend to the Chief Secretary. However, I suspect that he has seen it. It was published last October by the Policy Studies Institute and is called "Rebuilding the Infrastructure". It makes a detailed study of three areas — Teesside, Southampton and Fareham, and Stoke-on-Trent. It makes horrifying reading with regard to all three areas. Stoke-on-Trent has 26,000 houses which were built before 1914. Furthermore, 10,000 of them are unfit or substandard. We have 30,000 houses in the local authority sector, 8,000 of which were built before 1939. Many of them do not have inside toilets or separate bathrooms, and many need rewiring and central heating. On any estate in my constituency one can see that putty is missing from windows, that there are broken downpipes and that there is often no lead flashing.

For the people of Stoke-on-Trent, the infrastructure lies at the heart of their lives. Last year, but 150 units were built in the public sector. That was the response, not because the local authority is unwilling, and not because there is a lack of finance—the local authority has £12 million of capital receipts which it would love to spend on public sector housing—but because the Government say that the money cannot be spent in that area. Is that really what the Chief Secretary wants to say to the country and to local authorities? Is he really saying that, however bad their housing and however manifest their needs, the money shall not be spent? That is the effect of the Government's policy, and that can be shown by the Government's figures, which are to be found in table 371, where the spend on housing is shown to have fallen from £4,522 million to £2,290 million.

Wherever one looks at the infrastructure—at health, highways, sewerage, land reclamation, urban renewal, education, the social services and particularly industrial building — the same story is told. There is a desperate need, and the Policy Studies Institute has come to the conclusion that £20 million a year needs to be spent for each of the next 15 years to get us to a reasonable standard of living. The need is there, and that is not a political, fantastic or irresponsible view, but a view that says that Money should be spent on the detailed infrastructure and capital services of our city.

The Government will not invest and will not even allow local authorities to invest their own money. If the Government's solution to Stoke-on-Trent's problems is that the private sector should invest, I must tell the Chief Secretary that it is not investing in those areas of the economy. Private sector investment is undoubtedly going on in the pottery industry and in some of our manufacturing industries, but investment is not being made in, for example, housing, land reclamation and new industrial building. The private sector alone cannot cope. There must be co-operation between the public and private sectors. The only solution to the problems presented by the squeeze on capital expenditure and by the White Paper is a totally new deal for local authorities and a new deal and spirit of co-operation between local authorities and local institutions, such as banks and pension funds, so that new competitive energy can be injected into investment in the public sector and into the infrastructure of cities such as Stoke-on-Trent. Nothing less than that will do.

If we are to give local authorities that role, and if we are to give the private sector an opportunity to play a part with the local authorities, there must be local planning. There must be planning agreements so that the skills are there to implement the sort of detailed infrastructure development that I envisage.

The White Paper simply will not do. It expresses the intention to continue squeezing public expenditure, in spite of advice from the Government's friends in the CBI and the British Institute of Management, and in spite of all the evidence. The Government are fooling themselves. Investment in research and microtechnology in West Germany and France is two or three times greater than it is in the United Kingdom. Nobody believes that the White Paper even begins to address the problem of dereliction, under-investment and the challenges of the future which the country presents to the Government, but to which the Government refuse to rise.

7.30 pm

Sir William Clark (Croydon, South)

The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) treated us to a good constituency speech on why his constituency should receive more money. His authority can spend 20 per cent., or £2.4 million, of its £12 million. It is, therefore, unfair and untrue to say that it is not allowed to spend its own money.

Opposition Members talk about the public sector borrowing requirement and overspending as if they do not matter. They suggest throwing money at every difficulty. That has been tried in France recently and we know what happened there. It is no good trying to compare our economy with that of the United States. The troubles for the American economy are growing daily. Mr. Paul Volcker knows that.

The control of public expenditure troubles some of my right hon. and hon. Friends. We all agree about the need to control it, but we fall out over the specifics. That is when the trouble starts. I agree with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) that when we took office public expenditure was about 39.5 per cent. of GDP and that next year it will be about 41 per cent. of GDP. We want to bring that figure down.

I congratulate my right hon. Friend the Member for Worthing (Mr. Higgins) and his Committee on reporting with such speed so that we can use today the information that he and his colleagues have so carefully sifted. I agree that we must do something about the presentation of our national accounts. To say that total expenditure this year will be £132.1 billion and not include interest is ridiculous. The interest should be included.

Many of us would also like a detailed investigation into what can legitimately be considered as capital expenditure. That should be taken out of revenue and presented to Parliament. The overall figure for overspending will be the same, but we should then be able to differentiate between pure current expenditure and capital exependiture. In that capital expenditure account I should like capital sales to be included.

Has a reserve been made for the increased Government liability on index-linked bonds issued since their introduction? I understand that only 2 per cent. or 2½ per cent. of an index-linked bond with a 2 per cent. or 2½ per cent. coupon is included in public sector borrowing accounts. The inflationary element is not taken into account. I hope that the Minister can give a firm answer about that. Where, if anywhere, does the inflationary element of an indexed-linked bond appear in our national accounts?

Of course we must have detailed control of all spending. I have long been an advocate of a Treasury watchdog in every Department. I say this in kindness to my right hon. and learned Friend the Chief Secretary because he has an awful job each autumn trying to balance the books, to keep the peace and to retain friendships with Ministers. The Treasury should operate like any other large organisation and put a financial director into every subsidiary—or Department.

I welcome the White Paper's comments about fewer civil servants. However, I am worried about the increase in employment in the Health Service and other public sectors. I welcome the investigation being carried out by the Secretary of State for Social Services. My information is that the Secretary of State has appointed 12 area managers who will be in complete control. I am worried because 11 of the 12 have been recruited from within the Health Service and only one from outside. I thought that the idea was to inject more business and administrative expertise into the Health Service.

In the White Paper next year it might be a good idea to include comparative mapower totals for each of the Departments so that we can judge from where the increase in manpower has come. My fear, which is shared by many of my right hon. and hon. Friends, is that too many administrators exist and too few people serve the public directly. We spend about 43 per cent. of our total expenditure on the Health Service and social security. That must be examined.

In the next year or so we must investigate earnings-related pensions. They are a contingent liability which might become insupportable for the taxpayer in the next 10 to 15 years. The Government must do everything possible to encourage private and occupational pensions. It would be ridiculous to tax pension schemes or funds in the next Budget because that could push more and more people on to the state system. Of the 9 million state pensioners, about 1.6 million receive supplementary benefit.

If the occupational pensions industry goes down, more and more employers will contract back into the state scheme, more and more employees will be dependent when they retire on the state pension and more and more people will need supplementary benefit. There is a huge contingent liability for the future generation of taxpayers.

I shall not rehearse the Opposition's deplorable financial history when they looked after our finances. Let us not make party points—[Interruption.] At least, we should not make them so patently. The Labour Government went to the IMF. They seemed to like going to the IMF and the World Bank. Their gross, incompetent handling of our financial administration made them go to the IMF.

I remind Labour Members that in the last five or six years our overseas investment has increased tremendously—by far more than we have received from North sea oil—and it is clear that no investment in this country has ever gone short of money if it has been a profitable enterprise. Nor should they forget that the investment that we make abroad is all profitable. It brings in not only dividends but export orders as well.

Labour Members have a bit of a nerve in tabling an amendment such as that which is before the House. It is clear from the Conservative record of the past few years that we have weathered the recession, GDP is up, real incomes are up, inflation is down, overspending has been reduced, social security benefits in real terms have increased, the rate of owner-occupation has gone up by nearly 2 million people, and nearly 2 million people are new share owners.

We need more control of public expenditure, but I urge the Government not to change their economic strategy because it is clear that it is working.

7.42 pm

Mr. Stuart Bell (Middlesbrough)

I hesitate to comment on the remarks of the hon. Member for Croydon, South (Sir W. Clark) because when he described as deplorable the economic situation that the Government had inherited, I thought that he was talking about the situation that faced the incoming Labour Government of 1974. That Government inherited a massive balance of payments deficit, rising unemployment, increasing inflation and a miners' strike. We had the suspicion then — I believe that it has since been confirmed — that the outgoing Heath Government had opted for an election knowing that had they waited another 18 months, the inflation, unemployment and balance of payments figures would have become apparent.

Sir William Clark

That is incorrect.

Mr. Bell

The hon. Member for Croydon, South says that I am wrong. I listened to him. I trust that he will listen to me.

The hon. Gentleman spoke of France and Spain with reference to the speech of my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher). The hon. Member for Croydon, South should know, from his knowledge of economics, that Spain and France face a difficulty that does not confront us. They have constraints on their balance of payments. They have the orthodox problems that confronted us in the 1960s and 1970s—balance of payments deficits—which we no longer have because of North sea oil. Therefore, his comparison between Britain and the Socialist Governments of Spain and France has nothing to do with ideology or doctrine, but simply with balance of payments constraints.

I am tempted to say that I shall miss the hon. Member for Croydon, South in the deliberations of the Standing Committee on the Finance Bill. Indeed, I am tempted to say that I shall miss the Chief Secretary, too. However, I had better not say that too loudly, lest one of the Whips hears me and puts me on that Standing Committee again this year; then again I might see the sun rise over the Thames after protracted deliberations of that Committee, as happened last year.

Whenever I listen to the Chief Secretary I am reminded of those immortal words of the American writer, Emerson: The louder he talked of his honour, the faster we counted the spoons. The more the Chief Secretary speaks of financial rectitude, the more we count the cost in terms of higher unemployment.

The right hon. and learned Gentleman described his policy as representing prudent financial arrangements, being a sustainable level of public expenditure with a reduction in the level of public borrowing. He said that the health and social services programmes would be maintained in broad terms.

The right hon. and learned Gentleman did not have any kind words for the heads of nationalised industries and those who work in those industries. He said that total external financing of the nationalised industries should fall from 1984ߝ85 through to 1987ߝ88, and we know what such a fall means for those who work in those industries. Those people are entitled to know whether the Government intend to drain the nationalised industries of finance and whether that drain will result in more jobs being lost in the public sector. Will the people in those industries have job security or will that, too, be destroyed?

The Chief Secretary perceives the role of the nationalised industries entirely in financial terms. That is the cause of many of the troubles facing the Government. They deal only in financial terms. Indeed, as I listened to the right hon. and learned Gentleman, I heard echoes of Neville Chamberlain making the same sort of statements in the 1930s.

The Chief Secretary asked the non-rhetorical question: what return can we expect on the enormous investment in the public sector? That kind of thinking gave us the miners' strike. The right hon. and learned Gentleman pointed out that the private sector invested and expected a return. My hon. Friends and I believe in a social as well as a financial obligation. In our view, the two can be married for the benefit of the nation as a whole.

The right hon. and learned Gentleman poured scorn on the idea of increasing investment for infrastructure purposes. As my hon. Friend the Member for Stoke-on-Trent, Central pointed out, a Policy Studies Institute document referred to the infrastructure problems that we have on Teesside. The hon. Member for Stockton, South (Mr. Wrigglesworth) will, I am sure, develop that point if he has an opportunity to speak in the debate.

As a former Newcastle city councillor, I know that throughout the northern region we desperately need to repair school buildings, for example, that have steadily deteriorated since 1979, being the first casualty of Conservative Government cuts. Many houses need renovating; we must provide appropriate lighting and security in blocks of flats which lack both; and we must cure dampness in many houses. That work, together with repairing the roads, will require infrastructure investment of perhaps £350 million. By spending that money, we will improve facilities for school children, for the tenants of council houses and for users of the roads. But all that money will go into the local economy for the benefit of the people.

In Middlesbrough, almost every family I visit has an unemployed teenager. Those teenagers would benefit from a different orientation of the Government's public expenditure plans as laid out in the White Paper. They would, of course, benefit enormously from a £350 million investment programme in the local economy.

The Chief Secretary referred to lower unit costs in the administration of social security. Although he boasted proudly about that, he did not carry his financial logic much further; otherwise he would have referred to the delays that have become apparent at the sharp end of social security. He might, for example, have referred to the recipients who wait in the queues, and those who rind themselves entangled more and more in bureaucratic red tape. I am sure that they will be pleased to know that the right hon. and learned Gentleman has lowered unit costs in social security.

The Chief Secretary explained how local government expenditure had risen by 10 per cent. in cost terms since 1979 and how, since 1979, manpower had fallen by 4 per cent. But how has the Government's manipulation of public expenditure affected, for example, council housing? As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) pointed out, when the last Labour Government left office, 264,000 starts had been made in public and private housing. That figure is now down to 190,000.

In my constituency, as the result of Government policy and financial constraint, there will be no new council house starts this year. That can only mean longer waiting lists and longer waits on those lists for those in urgent need of public housing, all building up the sense of frustration in the local community.

The right hon. and learned Gentleman paid scant attention to the medium term financial strategy of the Government. He referred to it in passing by saying that MTFS gave rise to "a range of uncertainty". After five years of MTFS, we have that admission from him before he hurries on.

The MTFS cannot achieve the aims that it sets itself. It cannot achieve a lower rate of inflation at the same time as creating more jobs in the economy. It cannot and has not created sustainable growth. We are asked many times by Conservative Members, "What would you do if you were in government?" If we were in government, we would not try to do the things that the present Government are attempting. When we get hold of the economy—we shall do so because the tide will turn against the Government—we shall increase public expenditure to an extent that is consistent with the needs of the economy and the investment plans of a Labour Government. We shall take into account the money that we shall get back through the imposition of appropriate exchange controls and the growth rate that we expect to achieve.

The Government are running into serious difficulties, and those difficulties are compounded by the White Paper. The Government are running into trouble, and that is not because their presentation is wrong, because they are incompetent or because they are inefficient. It may be that the Government are all those things, and I am sure that my colleagues would concur. But the Government are failing because their policies are wrong. Therefore, no amount of competence, efficiency or presentation, to which the hon. Member for Croydon, South referred, will save them. As the Chief Secretary said, time moves on. When time moves on for the Government, it will move them out.

7.52 pm

Mr. Alan Howarth (Stratford-on-Avon)

I add my congratulations to those already expressed to my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) on a most impressive and interesting maiden speech. As an old friend and colleague of my hon. Friend, it gave me particular pleasure to hear him and to note the warm reception which he was given in the Chamber.

It is an inexhaustible pastime for those who are that way disposed to pore over the tables and the small print of the public expenditure White Paper and its predecessor documents, to compare one with another and to deduce, according to taste, that the Government are continuing with their doctrinaire and heartless massacre of the public services or that they are feebly failing to control public expenditure.

For my part I believe that the Treasury and Civil Service Select Committee has made some shrewd points about the shifts to which the Treasury has been put to maintain the appearance of keeping to the Government's planning total. That is useful for all concerned. If my right hon. and hon. Friends in the Treasury have one anxiety, it is surely that there are too many people, participants in the political market place if not the financial market place, who believe that there is scope for a significant relaxation in our public finances.

We have seen two characteristic instances of this in recent days. The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was reported in the weekend press as calling for increases in social benefits and in public sector capital spending. As this afternoon, he declined to set a cost to this programme and its consequences. In his heroic style, he simply insisted on nothing less than substantial, nay massive, increases.

The leaders of the alliance parties are more exact, or perhaps more naive. They unveiled on Friday their mock Budget, which featured a demand for reflation amounting to £4 billion. They claim that by waving this wand, or starting the printing presses, unemployment will be reduced by 500,000. In the formulation of the right hon. Member for Plymouth, Devonport (Dr. Owen), this will be done without triggering high inflation. As the alliance parties acknowledge that the consequence of their policies would be to increase inflation to 6.9 per cent., it would be interesting to know whether the right hon. Member for Devonport or his colleague, the hon. Member for Stockton, South (Mr. Wrigglesworth) regards inflation of 6.9 per cent. as low or even acceptable. The unease of alliance spokesmen is betrayed by their suggestion that any awkward consequences of their policies can be averted by the devices of full membership of the European monetary system and the institution of a two-tier scheme of interest rates.

There are many reasons for the relative economic failure of Britain. One of the reasons is what I might call the Wilsonian assumption, of which hon. Members of the SDP are the primary legatees, that economic policy is a matter of ingenious wheezes. Another reason is that public expenditure has been allowed to take far too large a proportion of our national wealth.

During the period of Conservative Government in the 1950s, when public expenditure accounted for a third or less of GDP, Britain became rapidly more prosperous. Those were the days when a Tory Chancellor of the Excechequer, Lord Thorneycroft, could resign on the issue of a £50 million excess over the planning total. Now we have an interesting dispute between the Treasury and Civil Service Select Committee and my right hon. and learned Friend the Chief Secretary over whether public expenditure is or is not £17 billion above what it was planned to be.

The precise extent of the overspend is far less important than the necessity for an unblinking recognition that public expenditure has increased, is increasing and ought to be diminished. The Government used to say that it should be diminished absolutely. With the 1982 White Paper, the Government said that public expenditure should be reduced as a proportion of GDP. The reality is that since 1982 even that has not happened. It is projected in this White Paper that by 1987–88, after two terms of Tory Government—these are the Government's assumptions, which represent a considerable assertion of hope over experience—public expenditure will be back to 39.5 per cent. of GDP. We shall be back at square one, where we began in 1979. Public expenditure at 39.5 per cent. of GDP, let alone the 41 per cent. as postulated for 1985–86 in the White Paper, is ruinously high.

It is not that there is any precisely quantifiable and predictable causal connection between a particular planning total and the PSBR and the indices of interest rates, sterling and so forth, by which we are so mesmerised. It is that with public expenditure in the region of 40 per cent. of GDP we are in a realm of high taxes, high interest rates, endemic inflation and appallingly high unemployment. This is a stifling, unhappy and degenerative condition.

The condition is degenerative because the public sector cost of alleviating the evils of inflation, poverty and unemployment, which are themselves the consequences of an excessively burdensome state, compound the problem. Week by week, Members of Parliament capitulate a thousand times to local special pleadings—the retention of an uneconomic pit or an uneconomic maternity home here, an extra bypass or an extra leisure centre to be squeezed into a programme there. Week by week the organised lobbies become more importunate. The word processors grind and churn out letters to every one of us. They churn again to produce letters to our constituents urging them to write to us to complain about cuts and to ask for additional spending. All the time the onward momentum of indexed benefits and subsidies exerts upward pressure for increases in taxes, interest rates and inflation. The public sector grows, but the resources which are in the public sector, because they are not subject to market disciplines, are used relatively inefficiently. The result is that we proceed further into economic debilitation, competitive failure and unemployment.

My right hon. and learned Friend the Chief Secretary reflected mournfully in his evidence to the Select Committee, and again this afternoon, that over 20 years the average annual increase in public spending was 3 per cent. He was hardly more cheerful when he observed that since 1979, since the Conservative Government have been in office, it has been 1.5 per cent. The Select Committee argues that the average has been maintained at 3 per cent. even over that period.

In his evidence to the Select Committee my right hon. and learned Friend the Chief Secretary also alluded to last year's Green Paper on public expenditure and taxation into the 1990s. It was intended to outline options and to initiate debate for the future. Irrespective of whether the Green Paper provides the text, we need urgently a debate on the future pattern of public expenditure.

Broadly, there are two options. One option is to stagnate in a state-dominated and increasingly feeble economy. The other option is to embark on a systematic strategy to limit the role of the state to those functions which are necessary and which only it can undertake. The second strategy, which is the one that we should adopt, would mean that the state would concentrate on doing what it has to do and doing it better than it does now. It should concentrate on the relief of poverty, the maintenance of the security of the realm — law and order, defence and the promotion of Britain's interests abroad. It would concentrate on maintaining in proper condition the institutions of justice and of capitalism. It would concentrate on ensuring the proper provision of infrastructure and basic utilities.

The state would do all those things better than it does now, and the state should progressively withdraw from functions which it should never have undertaken. In particular, it should cease to pay out subsidies other than to the poor. In the White Paper, £5.6 billion is earmarked for subsidies to agriculture, industry, transport, the arts and so on. Subsidies force up prices, distort decision-making, and generate political clients whose demands are insatiable. We should have a determined programme to get rid of such subsidies.

Time does not permit me to elaborate upon the programme of withdrawal that I would like to see. In conclusion, I would only say that the Conservative party must give much fuller support to my right hon. and hon. Friends at the Treasury. I do not believe that, with the array of pressures to increase public expenditure as they are, it will prove possible to hold public spending constant in real terms. We therefore need to develop a more confident debate and a more ambitious programme than is set out in the White Paper.

8.1 pm

Mr. Ian Wrigglesworth (Stockton, South)

I have listened with interest to the hon. Member for Stratford-on-Avon (Mr. Howarth), but I found no justification for his view that public expenditure is inherently bad and leads to low productivity, low economic growth, and higher levels of unemployment and inflation. The hon. Gentleman also believes that if public spending were cut substantially and if everything were left in the hands of the private sector, the whole picture would be rosy. Inflation and unemployment figures would be low, there would be rapid growth, and all our aims would be achieved simply through the operation of market forces.

In this country, as in others, the Government and the private sector—the Government and the markets—must work together. Ideally, they should not conflict with one another but should work together as far as possible. The Government should work with the grain of the market, as Governments in countries such as Japan and Germany, which have been so successful and have outperformed our industry year in and year out, have done so successfully over the past 30 years. The hon. Gentleman provided no evidence that there was any basis for his views in fact or in the experience of other countries.

The Select Committee's report has shown that in their expenditure and other financial White Papers the Government are working on back-of-the-envelope figures. To present the Government figures as though they were the precise calculations on which companies and other institutions operate is to give a grossly misleading impression. If the Select Committee report and today's debate help to persuade the Government to improve the figures given in the White Papers that are published for the information of the public and of the House, so that decisions can be taken on a more rational basis, that will be a change to be welcomed.

We have heard that debt interest — a substantial amount of expenditure for the Government — is not included in planning figures because it cannot be controlled. That fact illustrates my point. Capital assets, capital formation and capital depreciation are not quantified in any way. That shows how farcical it is for the Government to attack their critics by saying that capital expenditure is not important or that it does not have beneficial consequences. That argument is futile, because it is clear that the Government are working with guesstimates just as much as anyone else. They do not have the figures that would enable them to work in a serious and sensible manner.

This is an area of guesstimates but above all, it is an area of politics and political priorities. That is how we should consider the White Paper.

The cuts in the capital expenditure programme—I am pleased that the figures appeared in the White Paper—are deeply disappointing and should be reversed. If the defence figures are excluded from the capital expenditure programme, there are to be cuts of some £700 million in real terms this year, £1.4 billion next year,. £600 million in the following year and another £600 million in the year after that—a total cut in capital expenditure over that period of £3.3 billion in real terms. The defence figures show a slight increase over the same period, so the true figure is even worse.

That is the last treatment that the country should be subjected to over the next few years. As capital assets are sold and as the revenues from North Sea oil diminish, we should be investing more in capital assets rather than cutting back as is suggested in the expenditure White Paper. There is considerable doubt whether the Government will be able to contain their expenditure in programmes such as defence. There is also considerable doubt whether the 3 per cent. public sector pay assumption will be meaningful. It is difficult to see how the Government will be able to achieve even the figures laid out in the White Paper.

That is a major criticism of the Government's strategy, which has rightly been criticised across the political spectrum, by Government Back Benchers as well as organisations representing different parts of the political and industrial spectrum. I hope that the Government will respond to that criticism at some stage and restore some of the cuts imposed on capital expenditure in the White Paper.

The alliance wants an increase in Budget expenditure in order to encourage the economy to grow even more rapidly, to get people back to work and to alleviate poverty. There should be a cut of 1 per cent. in the employer's contribution to national insurance, in order to encourage firms to take on more labour and to help to make firms more competitive. Capital expenditure should be increased by some £1 billion in order, in particular, to restore jobs in the construction industry and to ensure that more imports are not drawn into the country, making our balance of payments problems even worse than they are now, despite the export of North Sea oil.

Current expenditure should be expanded in order to help those who are suffering the most severe poverty. The family income supplement should be substantially increased, and long-term supplementary benefit should be extended to the long-term unemployed. The heating addition to supplementary benefit should be restored and the youth training scheme should be doubled in length, from one year to two. The community programme should be substantially expanded. The number of places on that programme should be increased from 130,000 to 250,000 so that people can be found work immediately and in a cost-effective way. All of that adds up to a programme involving an increase in public expenditure of some £4 billion more than the Government are suggesting. It implies a net increase in the PSBR of £2 billion, but we think that a reasonable increase. The PSBR would grow to only 2.6 per cent. of gross domestic product—hardly a fantastic figure as compared with other Western countries. The economy could stand that without a massive increase in inflation.

The hon. Member for Stratford-on-Avon criticised us for saying that we are prepared to accept an increase in inflation to 6.9 per cent. We believe that that is a modest price to pay for a decrease in unemployment. He might be prepared to tolerate the present level of unemployment into the foreseeable future, but we are not. We are prepared to accept a modest increase in inflation to get some people back to work and to start the growth which could get more people back to work. I hope that the hon. Gentleman will not go away thinking that we favour rampant inflation. The programme that we published on Friday of last week, and all the runs through the model, show that we have chosen a combination of policies that will not increase inflation substantially but will nevertheless start getting people back to work and the economy on the move, thus giving some hope to those who have suffered for the past six years.

8.11 pm

Mr. John Maples (Lewisham, West)

I should like to put my remarks on the White Paper into the context of trying to solve the problem of mass unemployment. In many respects, the Government's economic policy has had considerable success. Inflation is down to 5 per cent. and appears to be steady, the economy is growing at about 3 per cent. and new jobs are being created at a rate of about 25,000 a month. The problem that overshadows all of that is that unemployment is not falling. Unless it starts to fall soon, we shall face a social problem that might take a generation to cure and risk losing the present widespread support for the Government's economic strategy.

People outside the rarefied atmosphere of politics and economics are not much interested in the level of the public sector borrowing requirement, money supply or total public expenditure. They are interested in the real economy of unemployment, inflation and living standards. The statistical measures to which we pay much attention are vital tools in analysing what is happening in the economy and they help to construct policy, but they are not ends in themselves. We are in danger of constructing a statistical straitjacket which leaves little, if any, room for fiscal manoeuvre.

The level of the PSBR does not tell us anything about what is happening in the economy. It has become important because the Government have promoted it as a measure of their success or otherwise in economic policy. I am not suggesting that the level of public borrowing is unimportant, but PSBR targets have tended to concentrate attention on the arithmetical difference between revenue and expenditure while often ignoring the different economic effects of different items of taxation and spending. Those qualitative differences in fiscal policy have a far more important effect on the economy than the total of the PSBR. Similarly, concentration on public expenditure totals seems to imply that all types of spending have the same effect, when we all know that that is not so. We know that spending on a capital project, such as the M25, which reduces private sector industrial costs, is not the same as paying higher wages to public sector employees. Such distinctions tend to be forgotten when we concentrate on the total.

Although the PSBR and public spending totals are important, their detailed composition is far more important. There is no correct level for the PSBR. It is projected to be 2 per cent. of GDP next year. That is arguably low. The effect of the current level of unemployment on the PSBR is about £15 billion. If we could halve unemployment, the PSBR would disappear. That seems to lead to the conclusion that it might be worth having a modest short-term increase in the PSBR if it led in the longer term to lower unemployment and a considerably lower PSBR.

In a speech to the Zurich Society of Economists in 1981, my right hon. Friend the present Chancellor of the Exchequer, said: in a recession it would be wholly appropriate, and wholly consistent with declining monetary growth, for the PSBR to be allowed to rise above the medium-term trend line. I should have thought that that was as good an authority for greater flexibility of the PSBR as one could get. It is vital that any extra borrowing is used to finance measures that directly promote growth and employment, but, subject to that caveat, a higher PSBR would give fiscal room for some form of job-creation package in the Budget.

Some people argue that increases in the PSBR lead automatically to increases in interest rates. The evidence is not on their side in regard to a modest increase in the PSBR. This year's overshoot of £ 1.25 billion did not lead to an increase in interest rates when it was announced in the autumn. The recent increase in interest rates has been due far more to what has happened in the United States and to money supply factors here. Some of those factors, such as the rate of domestic credit expansion, are, to a large extent, under our control, but many, such as oil prices and the level of American interest rates, are not. Whatever the causes of rises in interest rates, marginal differences in the level of the PSBR are not one of them. I doubt whether £2 billion either way on the PSBR makes as much difference to the level of domestic interest rates as a speech by Sheik Yamani on oil prices or another by Mr. Henry Kauffman on the prospects for American interest rates.

The commitment to no real growth in the total of public expenditure has led to concentration on the total at the expense of the components. As a result, the components tend to be treated the same. I accept that control of public spending is a vital factor in promoting growth. The idea that our economic problems can he solved by a massive increase in Government spending is dangerous nonsense. However, the control is needed in respect of those items of current spending which are in the nature of an overhead on the economy. In practice, it appears that current spending on most programmes has increased and the total has been kept in line by reducing capital spending and increasing asset sales. Qualitatively, we cannot balance increases in current spending against reductions in capital spending.

The Select Committee report shows that, during the past five years, current spending on goods and services has risen by 16 per cent. in real terms, that transfer payments have risen by 22 per cent. and that general Government fixed investment has fallen by 15 per cent. Capital spending is predicted to fall further during the next two or three years. That is a crude qualitative distinction of different types of public spending, and I do not mean to imply that all capital spending is good and that all current spending is bad. Nevertheless, that illustrates the qualitative effect that is disguised by concentrating on the total of public spending.

Last year's public expenditure White Paper showed capital spending remaining static in real terms. This year's shows a decline in real terms from £21.8 billion in 1983–84 to £18.5 billion in 1987–88. Those figures include defence capital spending, which I believe is not counted as capital spending in national accounts. Omitting defence spending, one discovers that, at 1983–84 prices, capital spending has fallen from £20 billion in 1978–79 to £16 billion this year—and it is predicted to fall to £13.5 billion in 1987–88. That is a fall of 20 per cent. during the past five years. If that trend is continued, capital spending will have fallen by one third from 1978–79 to 1987–88. That is an enormous reduction and shows how an apparently steady total can disguise widely different effect.

All items of public expenditure should be evaluated in terms of their effect on industrial costs, economic growth and employment. Those areas of public spending that do not have a beneficial effect should be tightly controlled to give scope to allow the beneficial items to be expanded, or at least not reduced.

I should like to draw those two points together by suggesting that we could have a slightly higher PSBR without an adverse effect on interest rates if the extra money were productively spent in pursuit of increased economic growth and employment. Tackling unemployment is surely now the overwhelming policy objective. If we settle for a PSBR of £10 billion with an implied £1.5 billion fiscal adjustment built into the autumn statement, the Chancellor would have £4.5 billion with which to finance a job creation package in the Budget by a combination of carefully targeted tax reductions and public spending increases. My preference is for cuts in employers' national insurance contributions, increased home improvement and urban renewal grants, more, positive industrial and trade policies and changes in our education and training system. All those measures would help to create new employment in the private sector and enhance economic growth.

No hon. Member would pretend that we can create 3 million new jobs overnight, but it is important that we start to develop practical and imaginative policies to reduce unemployment. I have suggested a modest programme wholly consistent with the Government's overall economic strategy. Whatever we decide to do, it is important that we do not place ourselves in a statistical straitjacket of overall PSBR and spending targets which effectively allow us to do nothing.

8.21 pm

Mr. Peter Hordern (Horsham)

The House has had some harmless amusement in poking fun at the public expenditure White Paper. I shall not continue that trend because I am sure that the points have already been well made. We have seen an acceptance over a long time that public expenditure programmes should remain more or less as they have been for some years. I do not believe that anyone is satisfied with that approach. I cannot find anyone who feels that the Government are spending enough on a particular programme. Although my right hon. and hon. Friends on the Treasury Bench take credit for controlling public expenditure — I applaud their efforts—they do not seem to be satisfying many people.

We are often told that we should follow the example of America, West Germany and Japan and examine the way in which public expenditure is a much smaller part of their gross domestic product. But if one follows the advice of my right hon. and hon. Friends on the Treasury Bench one sees distinct differences between our pattern of expenditure and that of other countries.

I criticise the public expenditure White Paper because all the programmes appear to be set in concrete. Other countries do not spend money on public services in the way in which Britain does, in terms of current or capital expenditure. I believe that, even with the best will in the world, with all the financial management initiatives and the careful scrutiny of departmental programmes as carried on at the moment, we need something quite different. We need a wide-ranging review of the whole of public expenditure by the only people who can really do it—a Cabinet committee formed from the star chamber committee sitting for a long period and examining carefully whether we need to spend money in the way in which it has been habitually spent. We would find that other countries do not spend money in the way that we appear to find necessary.

We should establish our priorities, with one priority being the granting of supplementary benefit payments and subsidies only to low income earners or those with no support. Another should be that employment can best be secured by low taxes and competition.

I should have thought that it was generally agreed that it is a mistake to pay subsidies to millionaires; yet, year in, year out, we continue to pay large subsidies to cereal farmers. I believe that there is a good case for helping the small dairy farmers because they form the social fabric of the agricultural community. There is simply no case for subsidising cereal farmers.

There is no Department of Trade and Industry in the United States or West Germany. I believe that it would be better to amalgamate the Ministry of Agriculture, Fisheries and Food with the Department of Trade and Industry and call it "the Department of Ease and Comfort". Those Departments are in the same business of handing out subsidies unnecessarily. I understand that this year we have spent £627 million in regional grants and that that amount is due to be reduced next year to £401 million. That is pretty good, but it does not mean that I am against regional policy. I am certainly not against regional policy, but I believe that its objective would be better achieved by tax incentives than by indiscriminate grants.

The House has heard criticism of what would happen if the nationalised industries improved their balance sheets by increasing prices. They will certainly do that. I understand that we shall soon receive buff envelopes telling us that our water rates have increased by 10 per cent. There will be further increases of 10 per cent. during the next two years. The same is true of electricity prices. We are told that, on current cost accounting, the electricity authorities earn only 2.6 per cent. I believe that the electricity authorities would rightly say that they have been made to install machinery which they would not have chosen and they are still not permitted to import coal to make a proper return on their assets. Undoubtedly, higher charges and prices will feed through the economy in industrial costs, making imports more competitive, and in increases to the RPI, which will affect pensions and the cost of supplementary benefits. The net beneficial effect is likely to be much smaller than the Government would like.

So far the Government have achieved a good programme of sales of nationalised assets, but I believe that we should take it further. Ministers often use the analogy of what happens in the United States, Germany and Japan. If people in those countries were invited to nationalise the water, electricity and gas authorities, they would think that their Governments had taken leave of their senses, and they would be absolutely right. I believe that we should start to denationalise those large institutions. If we privatised the gas, electricity and water industries, we would receive about £27 billion, using the same analysis that applied to British Telecom. I do not suggest that we should privatise those industries all at once—we should do so over a long period.

Privatisation would not only help the PSBR—that is a particularly desirable objective—but it would keep prices down, because denationalised industries would not need to increase their costs as much as the Treasury wishes. If one took a very conservative attitude, one would reduce the national debt. That would cause a bit of a stir. It has not been done for a long time. I do not suggest that we should reduce the national debt, but if there were more privatisation some of my hon. Friends' suggestions about capital investment programmes in the public sector could be properly followed.

From where will the money come? It will come from the pension funds. Anyone noting the growth in recent years in pension funds would be astonished. In 1979, there was £40 billion in pension funds. I am told that there is now £120 billion. In 1979 the institutions managing the pension funds invested £900 million; this year they invested £6 billion. I do not believe that the pension funds in Britain would not support the buying of public utilities, just as pension funds in other countries do. Think of the opportunity that would present for wider ownership. My right hon. Friends on the Treasury Bench should be following those practical considerations. They would greatly ease the Government's path, and they would not be inflationary. There would be lower prices.

I suggest that such policy should be carefully considered. I disregard what the Opposition have said in their nitpicking criticisms of the Government. I notice that they have been careful not to put forward their own policies. Perhaps that is just as well.

I congratulate my right hon. and hon. Friends on the steadfastness with which they have pursued their objectives. I hope that they succeed.

8.30 pm

Mr. John Maxton (Glasgow, Cathcart)

There speaks the soft south-east of England, where perhaps the populace do not depend to the same degree upon public expenditure as do my constituents and many constituents in the north, Scotland, Wales and even the midlands, for the provision of their most basic services. Public expenditure in the main, not entirely, is about providing services for people. If we cut them, the poor, the elderly, the disabled and the young are the hardest hit. It does not hit the well-off—those who live in the big, fat comfortable villas in Horsham; I have been there and I know it—but it does hit those who live in the tenement dwellings in Castlemilk in my constituency, who suffer as a result of the public expenditure cuts.

The hon. Member for Horsham (Mr. Hordern) almost completely misunderstood what public expenditure is about and its relationship to private sector industry. His speech continued the Tory party's vendetta against public expenditure. I only hope that at the next general election — this has been increasingly true in Scotland for two elections—those who are employed in the public sector will turn against the Government and reject them completely. I hope that those employees will do that, not just because they are less well paid than they were or because their standard of living has decreased, but because they are insulted and degraded by the Government, who treat them as parasites.

Anyone employed in the public sector is a parasite. Any teacher teaching in school, lecturer teaching in college, anyone working in direct works departments and social workers are parasites, because the Government consider, as does the hon. Member for Horsham, that public expenditure is wrong. That is all based on the myth that there are two separate sectors — the private and the public. That is not true. The private sector of industry depends more upon public expenditure and the Government expending money on it than the public sector depends upon the private sector to obtain money.

I wrote to Glasgow district council recently about repairs to a privately owned, privately rented tenement in Glasgow. It contains 10 flats, all of which are privately rented and owned by one landlord. The roof is about to collapse, the windows all need taking out and replacing and there is seepage from the brickwork because there is no proper damp course. The flats need to be properly repaired. Glasgow district council has inspected the flats, and it admits that it is almost prepared to put on a public sector order to have them repaired compulsorily. I received a letter from the council this morning, in which it says that it has no money for grants for that work.

I received a letter from the landlord of that tenement last week. I had pointed out that he had a responsibility to ensure that those repairs were carried out. His answer to me was: Why do you not use your good offices to get us a 90 per cent. grant from the local authority to ensure that that work is carried out? That private landlord is refusing to do his job and carry out his responsibilities as a landlord to ensure that the house is water and wind tight because he cannot obtain public expenditure to subsidise him. He will continue to collect his rents. He will expect every tenant to pay rent. If they do not, he will evict them or try to have them evicted. Here we have a small business man—he is not a millionaire—being subsidised by public expenditure. That is true throughout the building industry.

Some time ago I met the Scottish Institution of Civil Engineers. It was complaining bitterly about Government capital expenditure cuts. That association correctly pointed out that it is entirely within the private sector. There are virtually no publicly owned civil engineering companies or organisations, yet 95 per cent. of the work that they do is paid for by the public purse. The Mossmorran petrochemical complex has just been opened in Scotland. The company building it received large amounts of regional grants and aid to build it. Even within the 5 per cent. of the remaining civil engineering work there is a great deal of public expenditure. The private sector of industry depends almost entirely upon public expenditure to survive. That is true of housing, civil engineering and large numbers of other undertakings.

Tourism comes within the Scottish Office budget. The Secretary of State for Scotland tells us time and time again how important it is that we should increase expenditure on tourism to attract more tourists to Scotland, but the tourist industry depends on public expenditure. The tourist board, the Highlands and Islands Development Board and the Scottish Office give grants to hotels and boarding houses and to those who wish to let their houses for self-catering holidays, but that is insufficient. Although we have had some lovely summers in Scotland, we cannot depend on the sun always being out, and if the weather is bad we rely on public services to provide leisure activities to give us a proper holiday. If they are not there, the tourists will not return.

The Burrell collection in Glasgow has now outpaced Edinburgh castle as the largest tourist attraction in Scotland, yet the Burrell collection nearly did not open because of the Government's refusal to give proper funds to Glasgow district council. The council nearly decided not to open the collection. That would have been an enormous loss to the Scottish tourist industry. That is true of parks, concert halls, subsidies paid to the Scottish National orchestra and many other things to which tourists are attracted for leisure activities. They are almost entirely paid for out of the public purse, yet the Government insist on making cuts.

Members who, like me, represent areas where unemployment is running at 30 to 35 per cent., and where youth unemployment is running at 60 to 65 per cent.—that is true of Castlemilk—have been horrified by the increase in heroin addiction and by the number of youngsters who are now taking hard drugs. The Government shed crocodile tears about it. I admit that they have recently put in sums of money to educate youngsters about drugs, but they have cut—the hon. Member for Horsham knows this as well as I do, because he was on the Public Accounts Committee that examined it — Customs and Excise staff by 3,500 since 1979. I am not saying that all the cuts have been in drug investigation. Of course they have not. However, as the number of staff dealing with VAT collection has been increased, it is arguable that there has been a cut of even more than 3,500 in other activities, including heroin and drug supervision, and attempts to stop it coming into the country.

Equally, there is no question but that one reason for the increase in heroin addiction is the despair, frustration and hopelessness that have been created among many of our youngsters in the areas of high unemployment. They feel that there is no hope and nothing for them to look forward to except unemployment. In the housing schemes, which are being increasingly run down, there are fewer facilities, because almost all are provided for out of public expenditure. Out of despair, these youngsters turn to heroin as at least some escape, some hope, some sort of dreamland in which, at least for a short while, their despair is dissipated. Yet much of that despair and frustration has been created by the Government's refusal to recognise that, at the very heart of our economy, the only way that the economy can move forward is by increasing public expenditure, investing in and repairing our infrastructure, and not, as the Government are doing increasingly, by cutting it back.

8.40 pm

Mr. John Townend (Bridlington)

When the Government set out on their radical journey in 1979, a vital cornerstone of their policy was to cut public expenditure so that they could cut taxation and reduce the proportion of the gross domestic product taken by the public sector. The 1980 White Paper confirmed that intention and forecast that expenditure would drop through to 1983–84. We all know that the Government failed to meet their targets. In 1982 they abandoned their policy of reducing expenditure and adopted a policy of keeping expenditure broadly level in cost terms.

This White Paper gives the House the opportunity of judging how successful the Government have been in keeping to that less ambitious policy. It is increasingly clear that the Government have failed yet again to achieve their objectives. Even on their own basis, chart 1.2 on the planning totals shows that in real terms those figures have risen in every year since 1979–80 and, in total over six years, by £10 billion. However, if one defines public expenditure along the lines of the Select Committee, and of most accountants, economists and business men, one has to make several adjustments, which were mentioned by my right hon. Friend the Member for Worthing (Mr. Higgins), such as the inclusion of debt interest, allowing for asset sales and making adjustments for the reduction in the national insurance surcharge. When one makes those adjustments, the situation is even worse. In four years, in real terms, public spending has increased by no less than £18 billion. That is 3 per cent. per annum in real terms. So much for the cuts that the hon. Member for Glasgow, Cathcart (Mr. Maxton) talks about. How I wish that there had been some real cuts in public spending.

Paragraph 20 of the Select Committee's report shows that after allowing for those adjustments, spending will be about £6 billion more in the current year than was planned in the 1983 White Paper. I suggest to my hon. Friend the Minister of State that many of the Government's problems stem from the fact that they have failed to achieve their spending targets and then, having failed to do so, they have tried to hide that fact by overemphasis on the planning totals, which do not show a true and fair view of the situation. By failing to cut spending, they have been unable to reduce taxation and we all agree that the burden on the low paid is far too high. By pretending that they are controlling expenditure, the Government have lost much support in many areas and from many bodies for their policy of endeavouring to do better in the future.

I suggest to my hon. Friend the Minister that if the Government came clean and admitted that they had failed to reduce public expenditure and, indeed, to control it, and that it had gone up every year roughly by 3 per cent. in real terms, that would convince more people of the need for further pressure on public spending and that public spending was too high.

In order to keep up the charade that spending is under control, the Government have made tremendous efforts to keep to their planning totals by what we in the Select Committee call creative accounting. Several of the Government's recent political problems have been caused by those efforts. I shall cite two examples. The first is restrictions on local authorities' rights to spend capital receipts and the second is setting new targets for water authorities. If the Government had dealt with departmental spending, especially in the Department of Health and Social Security, those politically sensitive measures would not have been necessary.

Mr. Budgen

Will my hon. Friend give way?

Mr. Townend

No, because I am short of time.

The Government are clearly hoping to do better in future and are proposing, compared with the upturn for this year to reduce spending in the coming year. The Chancellor must excuse me if I tell him that while I support him most strongly, I am slightly sceptical of his likely success for two reasons. First, the 3 per cent. Wage increase, which is included in the White Paper, seems very low unless we get much more demanning in the public sector than in the past. Secondly, the cost of the miners' strike will be much greater next year than was anticipated.

In my view, the only way that the Government will achieve their targets in the next few years is by continuing their pressure on spending. That means thinking the unthinkable. First, we must tackle DHSS expenditure, which is out of hand in some areas. If all the people who were entitled to benefits actually claimed them, the cost would be horrendous. I should like to quote two examples. Housing benefit replaced rent and rate allowance. In 1979–80 the cost was £278 million a year, but in the next financial year it will be no less than £2,800 million. The Government must bear responsibility for much of that because they brought in housing benefit. I am sure that they never anticipated the number of people who would claim that benefit. It is not restricted to the real poor—I understand that about 12 million people collect it. My second example is the board and lodging allowance, which in 1979–80 started off at £62 million and has increased almost tenfold in six years.

I welcome the DHSS reviews. The whole system is too complicated, and spending in some areas is virtually out of control. Most of the public are confused by the multitude of benefits and consequently often fail to claim what they are entitled to. What we need is simplicity and a lower total cost. We shall need some form of cash limit on that heading. That will mean that in areas where we have no commitments, we shall have to end the automatic indexation of those benefits.

The need to restrain expenditure will grow as oil revenues decline. There are several other areas that we should question over the coming years, such as the cost of the EEC at nearly £1 billion a year. It does not seem that we are likely to get complete control of the common agricultural policy. It must be tackled. Until it is, I for one will not vote for an increase in the VAT contribution. Will we really be able to afford Trident? As oil revenues go down, will we continue, year in year out, to spend £1 billion on overseas aid, very little of which—only some 10 per cent. or 15 per cent.—goes on food or famine aid? Are the manning levels in the local authorities really too high? What about the efficiency of the National Health Service? What about considering bringing back the teacher-pupil ratio to what is was when the Labour Government left office? That would save about £170 million in England alone. As we move towards the end of the century, with declining oil revenues, can we really afford the state earnings-related pension? I know that my right hon. Friend the Chancellor of the Exchequer and his colleagues at the Treasury are making strenuous efforts, but often they are fighting a losing battle with their colleagues in the high-spending Ministries. Many Conservative Members strongly support the Treasury Ministers in their efforts to control spending. However, we shall continue to criticise them when they fail to grasp the nettle in those areas which are out of control. In recent months the Government have seemed to be losing their sense of direction. We now need a return to the aims and optimism of 1979. That means lower spending and significant reductions in taxation. They are two vital ingredients for economic expansion and the creation of new jobs.

new jobs.

8.50 pm

Mr. Nigel Forman (Carshalton and Wallington)

I shall seek to make a brief and truncated speech. Overall, there are some welcome elements in the public expenditure White Paper, not least the fact that the overall total does not seem to be seriously out of control. I pay tribute to the Government for that. I am also glad to see that it has not been necessary during the past year to have a hasty mid-year adjustment, such as we saw in July 1983, which can be damaging. However, a great deal more can and should be done to increase output, efficiency and the performance of public spending. I shall dwell mostly on those aspects.

I also wish to make a procedural point. I agree with my right hon. Friend the Member for Worthing (Mr. Higgins), who argued that it was preferable to find ways of debating both sides of the public accounts at the same time on a basis of comparable figures at an appropriate stage in the financial year. I hope that such a procedural change may be considered and made by the Treasury.

I have many constructive suggestions to make which arise from paragraph 16 of volume 1 of the public expenditure White Paper. It argues fairly that there are three ways of analysing public spending: where it goes—in other words the programmes; who spends it—the spending authorities; and in what form it is spent—in other words, 40 per cent. on transfer payments, 30 per cent. on public sector pay, 25 per cent. on goods and services, and 5 per cent. on public subsidies. A much more important fourth question, which was implicit in some speeches, but should have been more explicit in volume 1 of the public expenditure White Paper, is: what value do we get for the money we spend? That should commend itself to both sides of the House, if we consider these

To find answers to that vital fourth question we need to consider such things as policy priorities, economic efficiency, social benefits and opportunity costs. In future public expenditure White Papers I should like to see greater emphasis on those aspects. The Treasury documents should make them more explicit.

I shall give some examples because examples illustrate matters better than general statements. Could the Treasury justify the steep real increase in defence capital spending, which has been shown in table 1.13? Can we explain how and why the Export Credits Guarantee Department is supposed to have negative interest support costs by 1987–88, compared with the present position? Why is no attempt made to estimate the rate of return on rail electrification, for example, when road building is said to have a 74 per cent. positive rate of return?

As performance indicators suggest that first degrees in higher education have a real rate of return between 5 per cent. and 8 per cent., why is the participation rate in higher education being allowed to fall? As 11 per cent. of the cost of family practitioner services, but only 1 per cent. of the cost of hospital services, is recouped in charges, does it mean that one is too high, the other too low or both?

Why is no information given this year on the take-up of social benefits, as it was last year? Why is there so little discussion of the alternative economic costs of job-creating measures, when table 3.12.8 shows that each person taken off the unemployment register saves the Exchequer an average of £2,000 in social benefits? How is the increase in benefits to the unemployed to be held at 9 per cent. during the review period, when the total of unemployed is expected to remain above 3 million and inflation during the period is expected to be 14 per cent.?

How realistic is it to expect a 7 per cent. real cut in local authority expenditure in 1985–86, and have Ministers considered the consequences of achieving or failing to achieve such a change? Why are there no assessments published of the different rate of return on different investment projects in the nationalised industries?

In short, why has not the Treasury and the rest of Whitehall been required to emulate the excellent work done by the Department of Employment in table 3.4.10 on the relative cost effectiveness of various employment creating measures? That should be the model for all Departments, if we are serious about looking for value for money.

In bad economic times, public expenditure will tend to rise because of the costs of recession. In good economic times, it may also rise, but perhaps not so fast, because of rising public expectations. The difference is that in the latter case an advanced country with a sensible Government should be able to afford it. Indeed, the figures produced by Lord Kaldor and Terry Ward in The Times recently back that up. Whether the times are good or bad, the top priority must be to ensure that we get the best possible value from the large totals that are spent.

8.56 pm

Mr. Peter Pike (Burnley)

I am grateful for the opportunity to speak about the public expenditure White Paper because this debate is as important as the debate on the Budget in a few weeks' time. Often people overestimate the importance of the Budget debate and downgrade this debate.

In my constituency there will be grave anxiety that the proposals in the White Paper do nothing to deal with the unemployment problem and, indeed, will add to unemployment. That was clearly pointed out by my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) in his opening remarks. There will be no reduction in unemployment. In my constituency it was announced today that a further 200 people are to be made redundant at Lucas Aerospace, and obviously I am worried about that.

I was surprised when the hon. Member for Horsharn (Mr. Hordern) suggested that we should privatise public enterprises. That does nothing to help our country's problems, because, when the Government receive the money, they squander it on keeping people unemployed instead of providing work for them.

The hon. Gentleman referred to the water authorities. The North-West water authority faces some of the biggest problems of any water authority. Most of the waterworks are extremely old and need new mains and additional supplies. Most of the sewers were constructed before the turn of the century. In the city centre of Manchester one never knows in which direction one can travel because of the diversions caused by the collapse of the sewer system. Near the Mersey estuary every town until recently has been pumping sewerage into the river Mersey. That is a disgrace. Only recently the first treatment works were opened on that stretch of the Mersey. In the not too distant future there will also be sewage treatment for Liverpool. Work of that type must be tackled. When we speak of water authorities, we speak not only of water supply but of other aspects of the water industry which people tend to ignore. Many people often forget that the water industry also includes sewage. Although there may have been votes in water, there were never any votes in spending money on sewerage, yet that important problem must also be tackled.

Only last Wednesday, we debated the Government's decision in respect of local authority capital receipts and public expenditure. In my constituency, there are still council houses with bathrooms outside the back of the house. Yet, even in 1985, the council is unable to modernise them and provide people with the facilities that they need. More money is necessary if such work is to be undertaken. It is nonsense to limit capital receipts so that only 20 per cent. can be used for housing.

The Government claim to be the friends of the private sector. There was a housing grants bonanza before the general election, but the position has now changed and people are unable to obtain grants to improve or modernise their homes. In my constituency, many pre-1914 houses, and others built in the last century, are in urgent need of modernisation. These are good, stone-built terraced houses which lack basic amenities. Many of them have waste water toilets which depend on the tippler system, whereby waste water is discharged through the sink. People living in such conditions must be given grants to improve their homes.

My constituency has a town hall and many offices which, if in the private sector, would be condemned. In 1981, the council planned to build a town hall extension in an attempt to save money and to avoid rate penalties and the difficulties associated with curbs on revenue expenditure. Now that revenue restraint is so tight—with penalties, ratecapping, and so on — there is no justification for placing further restraints on capital spending which local authorities must take into account when considering revenue. Money should be spent on such things.

In many of our towns, street lighting has deteriorated and is no longer maintained. Many of our roads are potholed and pavements are no longer maintained to the same standard as before. Many parks no longer have flowerbeds, simply because councils do not have the money. Such amenities should be provided.

It is nonsense that in 1985 there should still be Health Service waiting lists. We should be developing the Health Service to allow for early diagnosis so that patients can be cured, but all too often an illness is discovered long after treatment is effective. That might cost money initially, but in the long run there would be a saving. Even if there were not, it would still be right because it would save pain and suffering.

There is also a need for residential accommodation for the elderly. The only growth area at present is the building of private residential homes which ordinary people cannot afford but must depend on simply because councils do not have sufficient resources to build such dwellings. Ironically, the private sector is supported by the DHSS, in that benefits are given to ordinary people who have to live in such dwellings. Consequently, that makes a profit for the private sector. We must provide residential homes for the elderly and sheltered homes for those who need them. Much more money should be spent on such projects. If the Government began putting money into such schemes, we would begin to get people back to work.

Most of my constituents believe that the reviews now being carried out by the Secretary of State for Social Services are designed to cut benefits rather than to improve efficiency. I was amazed to hear the suggestion that the earnings-related pension scheme should be brought to an end. Why should ordinary people be unable to maintain a decent standard of living once they retire? Why should they not have proper protection from the social and welfare state? Why should there be a death benefit of only £30? That is now irrelevant and should be brought up to date. Why should the Christmas bonus amount to only £10? That sum should be more realistic.

The Government's means of solving unemployment is to ask people to take lower wages. We hear that time and again from Conservative Members. Such an attitude makes me weary, because millions of people do not get the average wage, but must cope on below average wages. Even the average wage is very much inflated by shift and premium payments for working unsocial hours — for going to work, for example, at 10 o'clock on a Saturday or Sunday night as I had to do before I was elected a Member of Parliament. It is no solution to ask people to accept low wages. I do not oppose the family income supplement, but I believe that it is a subsidy to those who pay low wages. We should look very carefully at this question and ensure that everybody is provided with decent wages and living standards while they are at work, and also when they retire.

9.5 pm

Mr. Tim Yeo (Suffolk, South)

If the House will forgive me, I shall not follow the hon. Member for Burnley (Mr. Pike) on his depressing tour of local problems. All I would say to the hon. Gentleman is that the deprived groups of people to whom he referred have enjoyed in the last six years the enormous benefit of a lower rate of inflation. May I also congratulate my hon. Friend the Member for Enfield, Southgate (Mr. Portillo) on the fluency and excellence of his maiden speech.

This debate has raised a number of issues about the presentation of the White Paper. If next year my right hon. Friend could include, alongside the column which shows the estimated outturn for the current year, in this case 1984–85, the planning total for 1984–85 that was contained in the previous year's White Paper, it would be the best means of checking the controls between one year and another and would mean that we should not need to have before us both White Papers.

I join my hon. Friend the Member for Lewisham, West (Mr. Maples) in his concern about unemployment. Every decision that we make about public expenditure must, first and foremost, be related to unemployment. A reduction in the level of unemployment must now rank alongside the defence of the realm and the preservation of law and order as one of the primary responsibilities of Government. If the Government were to affirm that as their priority, it would enable other subsidiary aims—I stress subsidiary aims—such as the reduction of inflation and the control of spending to be seen as a means to an end, the end being lower unemployment.

It might be possible, as the Opposition have suggested this evening on several occasions, to solve the unemployment problem by a massive dose of public spending. The Opposition have been very careful not to say how much they want to spend. They just want to spend a huge amount of money. At a cost of perhaps £25 billion or £30 billion many new jobs could no doubt be created, but we cannot afford to spend such a sum. Additional public expenditure on that scale would involve a huge increase in interest rates which, in real terms, are already dangerously high. A prolonged period of real interest rates in almost double figures would have an old-fashioned, deflationary impact on the economy which would eventually destroy jobs in the private sector.

Another reason why we cannot afford a huge increase in public expenditure is the cost of servicing the debt. As my right hon. Friend the Member for Worthing (Mr. Higgins) has already pointed out, debt interest is already rising more quickly than any other component of public expenditure. It has risen by 148 per cent. since 1979–80—from £3.5 billion to £8.5 billion. In the three years covered by the White Paper it is projected to rise faster than the spending of any single Government Department. This is a measure of the way in which debt interest is becoming a great burden on the British economy. The cost of servicing our debt now amounts to 6 per cent. of all Government receipts, as opposed to only 4 per cent. five years ago. It would be a reckless act to embark upon a spending programme of the size described by the Opposition which would impose a permanent and heavy burden of interest payments on future generations.

Having made that general point, I hope that the Government will not ignore what could be very favourable effects of showing some flexibility over the question of their spending total. An extra £1 billion, or even £2 billion, as was suggested earlier, would not have disastrous consequences for interest rates or for the total level of debt. Although it would not by itself solve the unemployment problem, it would be a welcome sign of the Government's determination to tackle this problem. Those who have jobs in relatively prosperous areas like my constituency of south Suffolk are just as anxious to see such a sign from the Government as those who are out of work. Indeed, it is my conviction that the concern of the privileged employed for the unemployed is now growing to such an extent that most of them would be willing to see further income tax cuts postponed if the revenues could be used to generate jobs. Extra expenditure on successful schemes such as the enterprise allowance scheme would be widely supported.

Let me touch briefly on some of the specific suggestions for expenditure savings. First, I support the reference made by my hon. Friend the Member for Bridlington (Mr. Townend) to EEC expenditure. Even after the stout effort made by my right hon. Friend the Prime Minister, our expenditure is still running at £1 billion a year. Reference was also made, rightly, to Trident whose military usefulness is already being called into question and whose cost is well beyond what the country can afford. The cancellation of that project and the reduction in spending on the EEC would have no unfavourable employment implications.

With the social security reviews that are coming up the question of the state earnings related pension scheme arises. The country cannot afford the long-term cost of that and the sooner we face up to that the better. However, in that context I hope that we shall protect child benefit. If in the Budget we choose to raise tax thresholds—I hope that we do not because a far more effective form of relief for the economy would be through raising the lower earnings limit for employees' national insurance contributions — let us not make the mistake that we made last year of failing to raise child benefit in line with the increase in thresholds.

There is one area of public expenditure in which I cannot advocate cuts; indeed, I must oppose the reductions already being put forward by the Government. It is deplorable that we should be reducing expenditure in the highly labour-intensive area of local authority housing. In doing so, we are penalising particularly severely just those local authorities that have been most successful in carrying out the Government's policies.

I hope that my hon. Friend the Minister of State will be able to refer to some of those points with others that have been raised earlier in the debate. If we concentrate our efforts on the reduction of unemployment we shay see that success brings its own rewards. As has been pointed out this evening, the cost of benefits paid to the unemployed over the past five years has risen from £1.5 billion to £6.5 billion, quite apart from the additional cost of lost revenue. I commend those points to my hon. Friend.

9.12 pm

Mr. Roger Freeman (Kettering)

In the brief time available I want to make one simple point. I want to concentrate specifically on public sector capital expenditure. In 1981, the National Economic Development Council considered, with representatives of the Treasury, the tests which would have to be met for the introduction of private sector capital into public sector projects.

In 1981 the Treasury representatives set out two tests which have been draconian in their effect. I can think of no example of private sector capital coming into public sector projects since 1981. The two tests were, first, that the private investor should not get an unfair advantage of state guarantee, implicit or explicit, in a public sector project, and, secondly, that the higher costs of the private capital should be paid by higher returns from the particular project. As I have said, there are no examples of private sector capital coming into building roads, pumping stations, railways projects and so on.

Economic conditions have changed and in 1985 that working party should be reconvened. This time, may we have some accountants on the body? Take, for example, the water industry, where, as a result of the negative EFLs being reduced substantially this year, the financing ratio of the industry has been cut from 40 per cent. to some 26 per cent. If private capital came into the water industry to the extent of £100 million, water charges would not have had to have gone up by 11 or 12 per cent. By my calculations, they would have gone up by 4 or 5 per cent. Private sector capital, achieving the same borrowing ratio as has existed in the past year—which, therefore, has presumably been acceptable as prudent financial management—could come into the water industry if the tests established in 1981 were revised.

I urge the Government to consider reconvening the working party, so that it may examine whether the tests can be changed. Private sector capital could then come into public sector projects and, at the margin, enable projects that might otherwise be postponed to go ahead.

9.15 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

The Chief Secretary to the Treasury said that this was the second time that he had opened a debate on a public expenditure White Paper. This is the second time that I have wound up such a debate and on both occasions I have had the pleasant task of commenting on a maiden speech.

I am sure that the hon. Member for Enfield, Southgate (Mr. Portillo) will understand when I say that my pleasure is tinged, as I am sure his is, with deep sadness because of the circumstances that caused the by-election in his constituency. The Opposition and I associate ourselves with everything that the hon. Gentleman said about Sir Anthony Berry. I knew Sir Anthony only slightly, but he was a very nice man and I am sure that the hon. Member for Enfield, Southgate will be a worthy successor to him. The hon. Gentleman made an interesting speech and, after the tour of his constituency, he made a telling point. I shall return to it in a moment.

There were some other interesting speeches from Conservative Members. The debate has shown that, contrary to the conventional wisdom, the Labour party is united, in urging an increase in public expenditure, and the Conservative party is increasingly split. From one wing of the Conservative party, represented by, for example, the hon. Member for Lewisham, West (Mr. Maples), we had pleas for increases in public expenditure. From the other wing, we had the usual ritual calls for cuts in public expenditure from hon. Members such as the hon. Member for Bridlington (Mr. Townend), who made his usual speech. He always calls for cuts in social security benefits, and today he added a call for cuts in housing benefit. He does not seem to be aware that housing benefit has already been cut for many people as a result of changes made by the Secretary of State for Social Services in increasing the assumed scale margin. However, the hon. Member for Bridlington is not easily satisfied and he wants to cut public expenditure even more.

I must draw particular attention to what I can only describe as a notably brave speech by the hon. Member for Stratford-on-Avon (Mr. Howarth), who called not only for the withdrawal of all subsidies to agriculture—I am sure that the farmers of Warwickshire will be interested to read that—but for an end to subsidies to the arts. That was an especially brave call from an hon. Member representing Stratford-on-Avon. I understand that the subsidy to the Royal Shakespeare Company this year is £4.9 million and I am sure that the citizens of Stratford-on-Avon will be pleased to know that their hon. Member has called for an end to that subsidy. The Opposition hope that the Government will turn a deaf ear to his pleas. This is already the first Government under which theatres have closed.

I was impressed by the speech of the hon. Member for Southgate. He respects the sincerity of Opposition Members who urge increases in public expenditure as a way of reducing unemployment. We respect his sincerity in taking the opposite view, although we do not agree with him. Indeed, the hon. Gentleman put his finger squarely on one of the three reasons for the Labour party's opposition to the White Paper. We oppose it because it is based on a misunderstanding of the connection between public expenditure and the economy. This Conservative Government regard public expenditure as a burden on the economy. As the hon. Member for Southgate explained, they regard an increase in public expenditure as leading to fewer jobs whereas we regard such an increase as something that will create jobs. We believe that an increase in public expenditure will create jobs directly because it will involve increased capital investment and increased employment opportunities in the social services. It will also involve the creation of jobs indirectly, as my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton) explained, and we believe that an increase in public expenditure will also lead to an expansion of the economy, which will in turn lead to even more jobs. In brief, the Government see public expenditure as a brake on the economy, while the Labour party sees it as the accelerator.

That is why we reject the White Paper's approach, with its emphasis at the beginning on public expenditure being held constant in real terms and amounting to a falling proportion of the nation's income. In our opinion, that is the wrong approach.

Against that background, we also oppose the White Paper because the Government have got the wrong amount for public expenditure. It is interesting that, although the Chancellor of the Exchequer begins his White Paper with the statement that public expenditure is being held constant in real terms", he harks back to 1983–84. He does not compare next year with this year but goes back a year and compares 1985–86 with 1983–84. I suggest that he makes that comparison in order to distract attention from the fact that what he is proposing next year is a cut in real terms in what has been spent this year. That is what the Government are really planning.

Before we look at the truth behind the figures, let us first follow the Chancellor a little further into his White Paper. Having claimed that the Government's aim is for public expenditure to remain static in real terms, he devotes a whole page to showing us that public expenditure is static in cash terms. Having established a so-called planning figure of £132 billion in cash terms for 1985–86—a figure that he established two years ago—he now regards himself as committed to that figure. It does not matter what has changed in the last two years or what has happened to inflation, unemployment, interest rates, or to the pound. The right hon. Gentleman regards inflexibility as a virtue. To prove his inflexibility and to advertise it to the nation, he devotes a whole page to the subject in his White Paper.

Almost a whole page is given over to a bar chart—chart 1.1—which is intended to show that if one draws a bar 8.2 cm long and one then draws another bar 8.2 cm long, they look the same, and that if one then draws another bar that is 8.3 cm long, it looks almost the same. A whole page is devoted to that picture for the less intelligent supporters of the Government's policies.

But the real effect of that rigidity is shown in table 1.7. If we look at what the Government are really doing by comparing what will be spent next year with what has been spent this year, and if we adjust for the effect of inflation, we can see that public expenditure is not being kept stable but is being reduced by £1.6 billion. That is a reduction of 1.3 per cent.

We also oppose the White Paper because we see public expenditure as representing public services. Most items of Government expenditure are rightly termed social services. If the Chancellor of the Exchequer would pay some attention, I would tell him that that point was made time and again by my hon. Friends. An analysis of what makes up those real totals of £120.7 billion for public expenditure next year compared with £122.3 billion spent this year, shows that the biggest reduction is in industry, energy, trade and employment. Yet that is at a time when unemployment is rising.

I concede that the figures are distorted by the inclusion of the effect of negative external financial limits. The Chief Secretary tried, in the most unconvincing part of his speech, to explain that away but he cannot escape the fact that prices for gas and electricity will rise next year by more than they would otherwise have risen if the Government had not changed the EFLs. A tax on gas and electricity is coming.

Mr. John Townend

The main cause of the big difference between this year and next year is the cost of the miners' strike. As the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said, the cost will run into billions of pounds.

Mr. Davis

I do not agree that that is the reason for the difference, and I shall explain how the big difference is caused. In addition to the tax on gas and electricity as a result of negative external financing limits an effect will be caused by the changes in corporation tax announced in last year's Budget. They are not shown in the White Paper.

The most significant reduction in the White Paper, which has nothing to do with the miners' strike, is the reduction of £900 million in real terms in public expenditure on housing. That is a reduction, in one year, of 30 per cent. in the Government's spending on housing. That has nothing to do with miners, but it has everything to do with Ministers.

That is happening when there is growing evidence of the need for more to be spent on the repairs and renovations of local authority housing. That evidence is supported today by the document published by the Association of Metropolitan Authorities which says that £19 billion is needed to modernise and renovate council housing and to repair serious defects in non-traditional, industrialised and system-built dwellings. At such a time, to suggest that the amount spent on housing should be reduced by 30 per cent. is nothing less than criminal.

Not only people who rent council accommodation will suffer as a result of the White Paper. The Government are also hitting owner-occupiers by cutting £900 million from expenditure. A large part of housing expenditure is on improvement grants. The hon. Member for Horsham (Mr. Hordern) intervened in the speech by my right hon. Friend the Member for Sparkbrook to draw attention to the number of improvement grants allocated last year. I accept that in 1983–84 about 250,000 improvement grants were made. The hon. Member contrasted that with the 70,000 improvement grants made in 1979–80.

If the hon. Gentleman had read a little further in the White Paper he would have seen a straightforward statement—perhaps "confession" would be a better word—that expenditure next year is expected to fall to the levels which prevailed before the recent urge of grant-aided activity". That means that the Government intend to reduce the amount available for improvement grants, and the number of improvement grants, to the levels that they were before the increase. The Government intend to move back to the levels that existed before 1982–83, back to the levels before the 1982 Budget, back to where they were three years after the 1979 general election and one year before the 1983 general election. That is the nub. Improvement grants have served their purpose—not for housing, but for the Conservative party's electoral purposes.

This Conservative Government claim to care about home ownership. The truth is that they do not care about home owners. They care even less—

Mr. Marlow

Rubbish.

Mr. Davis

The facts are there in the White Paper for which the hon. Member for Northampton, North (Mr. Marlow) will vote tonight. The hon. Gentleman has not been present for much of the debate.

Sir William Clark

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) says that the Conservative Government do not care about home owners, but many council homes are being sold to sitting tenants and the Labour party opposes that.

Mr. Davis

The hon. Gentleman makes my point. The Government care about home ownership and are anxious to encourage tenants to buy their properties. Once they have bought them, the Government wash their hands of those people. My hon. Friends and I are constantly having former council tenants coming to our advice bureaux asking for help to get them the improvement grants that they were led to believe, before the general election, that they would receive under Conservative rule.

The Government care even less about those who need accommodation, rented or owner-occupied. Last year there were only 38,000 starts in the public sector, fewer than in the year before and only 37 per cent. of the figure for 1978.

A year ago the Chief Secretary urged us to look at the figure for new starts in the private sector. He did not refer us to that figure this year. I was not surprised, because that figure has gone down in the last 12 months. The number of new starts in the private sector is not only lower than the year before but is lower than it was in 1978, the last year of Labour rule, yet we have in power a Government who are supposed to care about home owners.

The British people are not concerned with any doctrinal distinction between public and private sector starts. They are interested in the total number of new starts, public and private together. Last year, the total number of new starts went down, as it had gone down the year before, and there were only 190,000 new starts compared with 265,000 in 1978.

This year, says the Chief Secretary, let us consider not starts but completions, in particular in the private sector. Completions in that sector in 1984, he says, were the highest for 10 years. I must tell the right hon. and learned Gentleman, as I told him last year, that I would respect him more if he was more fastidious in his use of statistics.

The number of completions in the private sector last year was only 1,000 more than in 1978. Completions in the public sector were 83,000 fewer than in 1978. Thus, the right hon. and learned Gentleman must know that last year, 82,000 fewer dwellings were completed than were completed in 1978, a reduction of 30 per cent. Those are the facts that matter to those who need somewhere to live.

In his closing remarks the Chief Secretary criticised on several grounds the Opposition amendment, but unfortunately he did so with less than his usual careful enunciation. Unusually for him, he gabbled through that part of his speech at such a speed that I could not make notes quickly enough. I apologise to the right hon. and learned Gentleman if I am unable, therefore, to reply to all his strictures, but I will deal with those points that I managed to note.

He quibbled with our reference to worsening unemployment. He said that employment had risen by 500,000 during the 18 months to September 1984. I am not sure of the source of the right hon. and learned Gentleman's figure, and he may wish to write to me about that after the debate. More important, he may wish to confirm whether his figure of 500,000 new jobs included 450,000 imaginary jobs.

In June 1983 or thereabouts someone, I am not sure who, decided to take the figures of people in employment and add 58,000 each quarter for employees—58,000 assumed or imaginary jobs—and another 18,000 jobs each quarter for the self-employed who were supposed to have got new jobs, giving a total of 76,000—assumed or imaginary jobs—each quarter. The Chancellor of the Exchequer does not like it, but it is the truth. There was not a once-and-for-all adjustment of 76,000 because 76,000 were added every quarter for 18 months. I suspect that when we learn the source of the Chief Secretary's figures we shall find that he has included, as the Government usually do, at least 450,000, perhaps more, imaginary jobs in his figure of 500,000 new jobs.

Secondly, the Chief Secretary boasted that GDP is at its highest level ever. It would be, of course. It would be surprising if GDP were not at its highest level ever because of the level of inflation last year and the year before that. When we adjust the latest available figures for inflation, we find that GDP in 1983 was only £2.6 billion higher than in 1978. When we remove oil and gas from the calculations—I know that the Chief Secretary likes the finesse of figures presented in this way—we find that GDP was £4 billion less than during the last year of the Labour Government.

It is our case that the Government's policy on public expenditure is wrong. It is wrong in terms of economics, and it is wrong in social terms. They have it wrong in total and wrong in detail as well. The Government's economic policy is wrong throughout, and that is why the Labour Opposition will vote against it this evening.

9.37 pm

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

We have had a wide-ranging debate upon the White Paper with many interesting and effective speeches, but none more so than the maiden speech of my hon. Friend the Member for Enfield, Southgate (Mr. Portillo). I think the whole House welcomed the gracious and proper tribute that he paid to his predecessor, Sir Anthony Berry. We all reflected again during his speech on the tragic events that led to the by-election which resulted in my hon. Friend being here. I think that he blended insight, knowledge, wit and judgment and combined a felicity of phrase with brevity which left the House eager to hear from him again. He made comments about the difficulties of Government forecasting which were rather more perceptive than those made immediately before his by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). My hon. Friend's comments about the autumn statement and the speculation that it has generated—the way in which the media and other commentators have made use of the figures contained within it—deserve careful consideration. My hon. Friend's remarks have been reflected in the comments of others during the debate.

Few, if any, of those who follow these financial and economic debates are entirely happy with the present arrangements. The public expenditure White Paper debate comes close to the Budget and this leads to difficulties. My right hon. Friend the Member for Worthing (Mr. Higgins) referred to the difficulties. The Treasury and Civil Service Select Committee has suggested that June might be an appropriate time for the debate in seeking to influence the annual public expenditure survey that is then getting under way. I understand the concern about having the debate at this time of year, when inevitably it is overshadowed by expectations and keen anticipation of the Budget of my right hon. Friend the Chancellor of the Exchequer in a few weeks' time.

I know that others welcome the opportunity to discuss the Government's plans with the benefit of the report of the Treasury and Civil Service Select Committee as soon as possible after they are published. Given the pressure that the right hon. Member for Sparkbrook applied to obtain the debate, I think that he would fall into that category. It is not an easy dilemma to resolve, but I think that we should give further thought to the timing of the debate, and perhaps discussions through the usual channels could find a satisfactory solution.

Many Budget suggestions have been made during the debate. Much advice has been given to my right hon. Friend the Chancellor of the Exchequer, some of it helpful from my right hon. and hon. Friends and some of it less helpful from elsewhere. I must give the traditional reply to all and say that I cannot seek to anticipate my right hon. Friend's Budget statement.

Having said that, I turn my attention to the report of the Treasury and Civil Service Select Committee and to the references made to it by my hon. Friend the Member for Worthing, the Chairman of the Select Committee. The right hon. Member for Sparkbrook also referred to points made in the report.

My right hon. Friend the Member for Worthing referred to the argument about whether the figures should be given in cost or cash terms. The argument is fairly well worn. My right hon. Friend argued that if the rate of inflation was less than expected, the cash limits should be cut. However, I am fairly sure that he would not argue that if inflation was higher than expected, the cash limits should be increased. The Government have set their course upon the use of cash limits, and I believe that an attempt to change to cost terms would undermine the system. The Government are not convinced by the Select Committee's arguments on that point.

My right hon. Friend also referred to the treatment of debt interest. Many other hon. Members also commented on that point, including the hon. Member for Stockton, South (Mr. Wrigglesworth). The Select Committee suggests that debt interest should be included within the public expenditure planning total. I quite understand why the Select Committee takes that view, but I hope that the Committee, for its part, will understand why the Government have taken a contrary view. The issue, in essence, is: what arrangemens will best serve the interests of the control of public expenditure? The Government's view is that control is better secured with debt interest outside rather than inside the planning total.

No great issue of principle is at stake. Debt interest is not in any way neglected in the Government's statistics or in their planning procedures. It is included within the wider definition of public expenditure — general Government expenditure — that appears in numerous prominent official statistics. Public expenditure, so defined, is a key concept in the medium term financial strategy which is reviewed each year in the Budget.

Mr. Higgins

My hon. Friend has not explained why discipline is better enforced by excluding interest from the planning total.

Mr. Hayhoe

My right hon. Friend should refer again to the comments made in the Treasury's replies to the Select Committee.

No great issue of principle is involved. Either procedure could be adopted, but my right hon. Friend the Chancellor has decided that, on balance, it is better to exclude debt interest and to follow the practice of the past. There is not much virtue in going round and round the course.

The question of asset sales has been referred to. The argument about negative expenditure has been rehearsed before. I wish to refer now to the question of local authority capital spending in the context of council house sales. Local authority capital expenditure figures are an integral part of the overall expenditure plans set out in the White Paper. The new controls to be debated next week are designed not to impose cuts but merely to prevent further capital overspends. Uncontrolled capital spending by local authorities could not fail to have a major impact on my right hon. Friend's budgetary policy.

This has been a wide-ranging debate and I should like to consider manpower, for which I have special responsibility. My hon. Friend the Member for Croydon, South (Sir W. Clark) asked about the index-linked element of index-linked bonds allowed for in the accounts. He will find that the figures for debt interest on a national accounts basis are given in paragraph 26 on page 21 of the White Paper.

Sir William Clark

If, for some unknown reason, the net interest payment of £9 billion is not included in the 132 billion of total public expenditure, is the index-linked amount included?

Mr. Hayhoe

The figures in paragraph 26 include the revaluation of principal in line with the retail price index as well as normal interest and bonuses. The RPI assumptions are consistent with those used for social security upratings. If my hon. Friend is dissatisfied after examining those figures, perhaps he will write to me.

The Select Committee recommended the inclusion of a composite table in future White Papers showing manpower figures for past and future years. As my right hon. and learned Friend the Chief Secretary told the Committee, we shall certainly do our best to improve the White Paper's presentation in this respect next year. We should be able to meet the Committee's wishes and provide figures for earlier years, but the inclusion of planning figures for future years, other than for the Civil Service, may prove impractical. For example, targets are set for manpower for each regional health authority in England, but otherwise the Government do not directly control NHS manpower. Nor do they control local authority or nationalised industry manpower. There are therefore considerable difficulties in providing figures for future years on a common and comparable basis with those for the Civil Service.

Mr. Ralph Howell (Norfolk, North)

How has it been possible to make a judgment on the funding of education when there are 590,000 so-called "others" in education in England who are not mentioned in the White Paper? Throughout the United Kingdom, it is likely that 700,000 people are not mentioned in the White Paper. If so, how can a judgment be made?

Mr. Hayhoe

Off the cuff, I cannot answer my hon, Friend, but I shall certainly look into the matter and write to him.

When the Government came to office, we pledged to reduce bureaucracy and administration wherever possible. We have made significant progress in reducing the number of civil servants. The figures have now been brought crown below the targets that we set immediately after the 1979 general election. The result is that we are now saving £750 million net on the pay bill. The reductions have been achieved by improving efficiency, dropping or materially curtailing functions and by privatisation and contracting out. It has for some years been our policy to contract work out of the public service when it is commensurate with sound management and provides good value for money for the taxpayer. That makes a valuable contribution to reducing public expenditure and the better use of resources. Much has already been done and substantial savings have been made. For example, virtually all cleaning and laundry in the Ministry of Defence is contracted out.

The Government believe that more can be done in the NHS, in local authorities and in Government Departments. My right hon. Friend the Secretary of State for the Environment plans to introduce legislation along the lines of the recent consultative paper which will require local authorities to extend the successful competitive tendering regime for building work to a range of other services—school meals, cleaning of buildings, and so on. My right hon. Friend the Secretary of State for Social Services is actively pursuing with health authorities the possibilities for increased competitive tendering.

For Government Departments we are proceeding in two ways. First, Departments will continue to ensure that as much departmental work as possible is subject to competition and that they identify every opportunity for competitive tendering across the widest range of departmental activity. The top management systems which Departments have set up will provide a useful means of identifying suitable areas. Secondly, and more specifically, Government Departments will be required to test the market for five specified services: cleaning, laundry, catering, security guarding — subject to appropriate safeguards—and some kinds of maintenance work.

Mr. Campbell-Savours

This is boring.

Mr. Hayhoe

It is important, because the amount of taxpayers' money that is devoted to paying public servants is a significant part of our overall public expenditure. It is perfectly right and proper that we should be seeking to obtain the best value for the taxpayers' money.

I turn to more controversial matters. The right hon. Member for Sparkbrook talked about the spending linked with the coal strike and compared other cuts in public spending. A number of hon. Members asked questions about the contrast between the cost of the miners' strike and tighter controls on public spending. I emphasise that the Government had no wish to see the cost that the coal strike has imposed on all concerned. Others must answer for that cost. We much regret the cost—whether faced by miners and their families or by the public purse. The Government were certainly not prepared to give in to violence and intimidation or to be deflected from pursuing the right policies for long-term viability in the coal industry by accepting the unreasonable and unprecedented demand that pits should be kept open until the last tonne of coal was exhausted, regardless of cost. When challenged, the right hon. Member for Sparkbrook made it absolutely clear that he would have given in to Mr. Scargill's demands. There was no equivocation about what the right hon. Gentleman said. He was prepared to give in to those demands because of the cost involved. That means that the right hon. Gentleman would have betrayed the working miners who kept industry and commerce going.

Mr. Campbell-Savours

Does the Minister accept that if there had been a Labour Government there would not have been a miners' dispute? The hon. Gentleman's point is irrelevant.

Mr. Hayhoe

I am grateful to the hon. Gentleman for confirming immediately the craven behaviour that we would have expected from the Labour Front Bench.

I reiterate the Government's firm commitment and determination to hold public spending at a level that we can afford and that will further the aims of lower inflation and sustained economic growth.

What do the official Opposition offer? The debate has shown once again that Labour has lost the economic argument", that People do not believe Labour policies will work and that Labour has little credibility on policies for dealing with the economy. They are not just the views of Conservative Members; they are quotations from a Labour party document which was leaked to the New Statesman at the end of last year.

Even Opposition Members now agree with the realism of the conclusion: Labour has lost the economic argument. They know that when they deailed their policies, they generated disbelief among the electorate. In their election manifesto, they set out proposals for increasing public expenditure by approximately £40 billion. When their politics of that pork barrel failed to get them elected, the Leader of the Opposition was punting for a spending increase of £6 billion. By October last year he was down to £2.3 billion—little more than one twentieth of the figure that he and his party had been proposing only six months before.

Today, when the right hon. Member for Sparkbrook was challenged by my right hon. and learned Friend the Chief Secretary, the right hon. Gentleman was surprisingly coy. Despite his customary bluster, he did not wish to reveal how much increase in public expenditure he wanted to see. The only figure that he mentioned was £1.5 billion. I shall give way to the hon. Gentleman.

Mr. Austin Mitchell

rose—

Mr. Hayhoe

I should like to give way to the organ grinder, to use an expression the right hon. Gentleman has used before. I should willingly give way to the hon. Gentleman if there is some confusion.

Mr. Austin Mitchell

rose—

Mr. Hayhoe

It is clear that that the right hon. Member for Sparkbrook does not know by how much he would like to increase public expenditure.

Mr. Terry Davis

It is plain that the Minister wrote that part of his speech, like the rest of it, before he listened to my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley). When the Minister reads Hansard tomorrow, he will see that my right hon. Friend gave the figures in his speech.

Mr. Hayhoe

When the right hon. Gentlemn was challenged by my right hon. and learned Friend the Chief Secretary, he failed to give the figures. When I challenged him a moment ago, he would not give them. He put up the hon. Member for Birmingham, Hodge Hill (Mr. Davis) to try to bail him out.

The reason is that the right hon. Gentleman knows that increases in public expenditure would tend to be inflationary and higher inflation would mean fewer jobs. When he was restrained by ministerial responsibility, in December 1978, he said: in terms of promoting employment opportunities throughout the country … nothing is more important than containing inflation."—[Official Report, 7 February 1978; Vol. 943, c. 1271.] As the right hon. Gentleman so aptly put it in his manifesto for the party leadership: Our vague hopes of achieving growth through Government spending were barely understood and rarely believed when they were put to the electorate at the last general election.

The contrast between the economic weakness which Labour party policies would bring and the present resilience of the economy is stark. Who would have believed a year ago that the economy could withstand a 12-month coal strike without power cuts, massive lay-offs and short-time working? Just think what the British economy could have achieved in 1984 without that damaging dispute, supported by so many Opposition Members. Now that it is over, we can look for increased growth in the months ahead, but to ensure future success we must again reject the irrelevant and irresponsible policies of the Labour party. That is why we shall vote against the Opposition amendment tonight.

Question put, That the amendment be made:—

The House divided: Ayes 182, Noes 357.

Division No. 137]	[10 pm
AYES
Adams, Allen (Paisley N)	Bidwell, Sydney
Alton, David	Blair, Anthony
Anderson, Donald	Boothroyd, Miss Betty
Archer, Rt Hon Peter	Boyes, Roland
Ashley, Rt Hon Jack	Bray, Dr Jeremy
Ashton, Joe	Brown, N. (N'c'tle-u-Tyne E)
Atkinson, N. (Tottenham)	Brown, R. (N'c'tle-u-Tyne N)
Bagier, Gordon A. T.	Brown, Ron (E'burgh, Leith)
Barnett, Guy	Buchan, Norman
Beckett, Mrs Margaret	Caborn, Richard
Beith, A. J.	Callaghan, Jim (Heyw'd & M)
Bell, Stuart	Campbell, Ian
Bennett, A. (Dent'n & Red'sh)	Campbell-Savours, Dale
Bermingham, Gerald	Canavan, Dennis

Carlile, Alexander (Montg'y)	Lloyd, Tony (Stretford)
Carter-Jones, Lewis	Loyden, Edward
Cartwright, John	McCartney, Hugh
Clark, Dr David (S Shields)	McDonald, Dr Oonagh
Clarke, Thomas	McGuire, Michael
Clwyd, Mrs Ann	McKay, Allen (Penistone)
Cocks, Rt Hon M. (Bristol S.)	McKelvey, William
Cohen, Harry	Mackenzie, Rt Hon Gregor
Coleman, Donald	Maclennan, Robert
Concannon, Rt Hon J. D.	McNamara, Kevin
Conlan, Bernard	McTaggart, Robert
Cook, Frank (Stockton North)	Madden, Max
Cook, Robin F. (Livingston)	Marek, Dr John
Corbett, Robin	Marshall, David (Shettleston)
Cowans, Harry	Mason, Rt Hon Roy
Cox, Thomas (Tooting)	Maxton, John
Craigen, J. M.	Maynard, Miss Joan
Crowther, Stan	Meadowcroft, Michael
Dalyell, Tam	Michie, William
Davies, Ronald (Caerphilly)	Millan, Rt Hon Bruce
Davis, Terry (B'ham, H'ge H'l)	Miller, Dr M. S. (E Kilbride)
Deakins, Eric	Morris, Rt Hon J. (Aberavon)
Dewar, Donald	Oakes, Rt Hon Gordon
Dixon, Donald	O'Brien, William
Dobson, Frank	O'Neill, Martin
Dubs, Alfred	Park, George
Duffy, A. E. P.	Parry, Robert
Dunwoody, Hon Mrs G.	Patchett, Terry
Eadie, Alex	Pavitt, Laurie
Eastham, Ken	Pendry, Tom
Edwards, Bob (W'h'mpt'n SE)	Penhaligon, David
Evans, John (St. Helens N)	Pike, Peter
Ewing, Harry	Prescott, John
Fatchett, Derek	Radice, Giles
Field, Frank (Birkenhead)	Rees, Rt Hon M. (Leeds S)
Fisher, Mark	Richardson, Ms Jo
Foot, Rt Hon Michael	Roberts, Allan (Bootle)
Forrester, John	Roberts, Ernest (Hackney N)
Foster, Derek	Robertson, George
Foulkes, George	Robinson, G. (Coventry NW)
Fraser, J. (Norwood)	Ross, Stephen (Isle of Wight)
Freeson, Rt Hon Reginald	Rowlands, Ted
Freud, Clement	Ryman, John
George, Bruce	Sedgemore, Brian
Gilbert, Rt Hon Dr John	Sheerman, Barry
Godman, Dr Norman	Sheldon, Rt Hon R.
Golding, John	Short, Ms Clare (Ladywood)
Gould, Bryan	Short, Mrs R.(W'hampt'n NE)
Gourlay, Harry	Silkin, Rt Hon J.
Hamilton, James (M'well N)	Skinner, Dennis
Hamilton, W. W. (Central Fife)	Smith, C.(Isl'ton S & F'bury)
Hancock, Mr. Michael	Soley, Clive
Hardy, Peter	Spearing, Nigel
Harman, Ms Harriet	Steel, Rt Hon David
Harrison, Rt Hon Walter	Stott, Roger
Hart, Rt Hon Dame Judith	Straw, Jack
Hattersley, Rt Hon Roy	Thomas, Dafydd (Merioneth)
Hogg, N. (C'nauld & Kilsyth)	Thomas, Dr R. (Carmarthen)
Holland, Stuart (Vauxhall)	Thompson, J. (Wansbeck)
Home Robertson, John	Tinn, James
Howell, Rt Hon D. (S'heath)	Torney, Tom
Howells, Geraint	Wainwright, R.
Hoyle, Douglas	Wallace, James
Hughes, Dr. Mark (Durham)	Wardell, Gareth (Gower)
Hughes, Robert (Aberdeen N)	Wareing, Robert
Hughes, Simon (Southwark)	Weetch, Ken
John, Brynmor	Welsh, Michael
Jones, Barry (Alyn & Deeside)	White, James
Kennedy, Charles	Wigley, Dafydd
Kilroy-Silk, Robert	Williams, Rt Hon A.
Kinnock, Rt Hon Neil	Wilson, Gordon
Kirkwood, Archy	Winnick, David
Lambie, David	Woodall, Alec
Lamond, James	Wrigglesworth, Ian
Leadbitter, Ted	Young, David (Bolton SE)
Leighton, Ronald
Lewis, Ron (Carlisle)	Tellers for the Ayes:
Lewis, Terence (Worsley)	Mr. Frank Haynes and
Litherland, Robert	Mr. Austin Mitchell.

NOES
Adley, Robert	Dorrell, Stephen
Aitken, Jonathan	Douglas-Hamilton, Lord J.
Alexander, Richard	Dover, Den
Alison, Rt Hon Michael	du Cann, Rt Hon Sir Edward
Amery, Rt Hon Julian	Dunn, Robert
Amess, David	Durant, Tony
Ancram, Michael	Dykes, Hugh
Arnold, Tom	Edwards, Rt Hon N. (P'broke)
Ashby, David	Eggar, Tim
Aspinwall, Jack	Emery, Sir Peter
Atkins, Rt Hon Sir H.	Evennett, David
Atkins, Robert (South Ribble)	Eyre, Sir Reginald
Atkinson, David (B'm'th E)	Fallon, Michael
Baker, Rt Hon K. (Mole Vall'y)	Farr, Sir John
Baker, Nicholas (N Dorset)	Favell, Anthony
Banks, Robert (Harrogate)	Fenner, Mrs Peggy
Batiste, Spencer	Finsberg, Sir Geoffrey
Beaumont-Dark, Anthony	Fletcher, Alexander
Beggs, Roy	Fookes, Miss Janet
Bellingham, Henry	Forman, Nigel
Bendall, Vivian	Forsyth, Michael (Stirling)
Bennett, Rt Hon Sir Frederic	Forsythe, Clifford (S Antrim)
Benyon, William	Forth, Eric
Best, Keith	Fowler, Rt Hon Norman
Bevan, David Gilroy	Fox, Marcus
Biffen, Rt Hon John	Franks, Cecil
Biggs-Davison, Sir John	Freeman, Roger
Blackburn, John	Gale, Roger
Blaker, Rt Hon Sir Peter	Galley, Roy
Body, Richard	Gardiner, George (Reigate)
Bonsor, Sir Nicholas	Garel-Jones, Tristan
Bottomley, Peter	Gilmour, Rt Hon Sir Ian
Bottomley, Mrs Virginia	Goodhart, Sir Philip
Bowden, A. (Brighton K'to'n)	Goodlad, Alastair
Bowden, Gerald (Dulwich)	Gorst, John
Boyson, Dr Rhodes	Gow, Ian
Braine, Rt Hon Sir Bernard	Gower, Sir Raymond
Brandon-Bravo, Martin	Grant, Sir Anthony
Bright, Graham	Greenway, Harry
Brinton, Tim	Gregory, Conal
Brittan, Rt Hon Leon	Griffiths, E. (B'y St Edm'ds)
Brown, M. (Brigg & Cl'thpes)	Griffiths, Peter (Portsm'th N)
Browne, John	Grist, Ian
Bruinvels, Peter	Ground, Patrick
Bryan, Sir Paul	Grylls, Michael
Buchanan-Smith, Rt Hon A.	Gummer, John Selwyn
Budgen, Nick	Hamilton, Hon A. (Epsom)
Bulmer, Esmond	Hamilton, Neil (Tatton)
Burt, Alistair	Hampson, Dr Keith
Butcher, John	Hannam, John
Butler, Hon Adam	Hargreaves, Kenneth
Butterfill, John	Harris, David
Carlisle, John (N Luton)	Harvey, Robert
Carlisle, Rt Hon M. (W'ton S)	Haselhurst, Alan
Carttiss, Michael	Havers, Rt Hon Sir Michael
Cash, William	Hawkins, C. (High Peak)
Chalker, Mrs Lynda	Hawkins, Sir Paul (SW N'folk)
Chapman, Sydney	Hawksley, Warren
Chope, Christopher	Hayes, J.
Churchill, W. S.	Hayhoe, Barney
Clark, Hon A. (Plym'th S'n)	Hayward, Robert
Clark, Dr Michael (Rochford)	Heath, Rt Hon Edward
Clark, Sir W. (Croydon S)	Heathcoat-Amory, David
Clarke, Rt Hon K. (Rushcliffe)	Heddle, John
Clegg, Sir Walter	Henderson, Barry
Cockeram, Eric	Heseltine, Rt Hon Michael
Colvin, Michael	Hickmet, Richard
Conway, Derek	Higgins, Rt Hon Terence L.
Coombs, Simon	Hind, Kenneth
Cope, John	Hirst, Michael
Cormack, Patrick	Hogg, Hon Douglas (Gr'th'm)
Corrie, John	Holland, Sir Philip (Gedling)
Couchman, James	Holt, Richard
Cranborne, Viscount	Hordern, Peter
Critchley, Julian	Howard, Michael
Crouch, David	Howarth, Alan (Stratf'd-on-A)
Currie, Mrs Edwina	Howarth, Gerald (Cannock)
Dickens, Geoffrey	Howell, Rt Hon D. (G'ldford)
Dicks, Terry	Howell, Ralph (N Norfolk)

Hubbard-Miles, Peter	Moore, John
Hunt, David (Wirral)	Morrison, Hon C. (Devizes)
Hunt, John (Ravensbourne)	Morrison, Hon P. (Chester)
Hunter, Andrew	Moynihan, Hon C.
Irving, Charles	Murphy, Christopher
Jenkin, Rt Hon Patrick	Neale, Gerrard
Jessel, Toby	Needham, Richard
Johnson Smith, Sir Geoffrey	Nelson, Anthony
Jones, Gwilym (Cardiff N)	Neubert, Michael
Jones, Robert (W Herts)	Newton, Tony
Jopling, Rt Hon Michael	Nicholson, J.
Joseph, Rt Hon Sir Keith	Normanton, Tom
Kellett-Bowman, Mrs Elaine	Norris, Steven
Kershaw, Sir Anthony	Onslow, Cranley
King, Roger (B'ham N'field)	Oppenheim, Rt Hon Mrs S.
King, Rt Hon Tom	Osborn, Sir John
Knight, Gregory (Derby N)	Ottaway, Richard
Knight, Mrs Jill (Edgbaston)	Page, Sir John (Harrow W)
Knowles, Michael	Parkinson, Rt Hon Cecil
Knox, David	Parris, Matthew
Lamont, Norman	Patten, J. (Oxf W & Abdgn)
Lang, Ian	Pattie, Geoffrey
Latham, Michael	Pawsey, James
Lawler, Geoffrey	Peacock, Mrs Elizabeth
Lawrence, Ivan	Pollock, Alexander
Lawson, Rt Hon Nigel	Porter, Barry
Lee, John (Pendle)	Portillo, Michael
Leigh, Edward (Gainsbor'gh)	Powell, Rt Hon J. E. (S Down)
Lennox-Boyd, Hon Mark	Powell, William (Corby)
Lester, Jim	Powley, John
Lewis, Sir Kenneth (Stamf'd)	Prentice, Rt Hon Reg
Lightbown, David	Price, Sir David
Lilley, Peter	Proctor, K. Harvey
Lloyd, Ian (Havant)	Pym, Rt Hon Francis
Lloyd, Peter, (Fareham)	Raffan, Keith
Lord, Michael	Raison, Rt Hon Timothy
Lyell, Nicholas	Rathbone, Tim
McCrindle, Robert	Rees, Rt Hon Peter (Dover)
McCusker, Harold	Renton, Tim
Macfarlane, Neil	Rhodes James, Robert
MacGregor, John	Rhys Williams, Sir Brandon
MacKay, Andrew (Berkshire)	Ridsdale, Sir Julian
MacKay, John (Argyll & Bute)	Roberts, Wyn (Conwy)
Maclean, David John	Robinson, Mark (N'port W)
McNair-Wilson, P. (New F'st)	Roe, Mrs Marion
McQuarrie, Albert	Ross, Wm. (Londonderry)
Madel, David	Rossi, Sir Hugh
Maginnis, Ken	Rost, Peter
Major, John	Rowe, Andrew
Malins, Humfrey	Rumbold, Mrs Angela
Malone, Gerald	Ryder, Richard
Maples, John	Sackville, Hon Thomas
Marland, Paul	Sainsbury, Hon Timothy
Marlow, Antony	St. John-Stevas, Rt Hon N.
Marshall, Michael (Arundel)	Sayeed, Jonathan
Mates, Michael	Shaw, Giles (Pudsey)
Maude, Hon Francis	Shaw, Sir Michael (Scarb')
Maxwell-Hyslop, Robin	Shelton, William (Streatham)
Mayhew, Sir Patrick	Shepherd, Colin (Hereford)
Mellor, David	Shepherd, Richard (Aldridge)
Merchant, Piers	Shersby, Michael
Meyer, Sir Anthony	Skeet, T. H. H.
Miller, Hal (B'grove)	Smith, Tim (Beaconsfield)
Mills, Iain (Meriden)	Smyth, Rev W. M. (Belfast S)
Mills, Sir Peter (West Devon)	Soames, Hon Nicholas
Miscampbell, Norman	Speed, Keith
Mitchell, David (NW Hants)	Speller, Tony
Moate, Roger	Spence, John
Molyneaux, Rt Hon James	Spencer, Derek
Monro, Sir Hector	Spicer, Jim (W Dorset)

Spicer, Michael (S Worcs)	Waddington, David
Stanbrook, Ivor	Wakeham, Rt Hon John
Stanley, John	Waldegrave, Hon William
Steen, Anthony	Walden, George
Stern, Michael	Walker, Cecil (Belfast N)
Stevens, Lewis (Nuneaton)	Walker, Bill (T'side N)
Stevens, Martin (Fulham)	Wall, Sir Patrick
Stewart, Allan (Eastwood)	Waller, Gary
Stewart, Andrew (Sherwood)	Walters, Dennis
Stewart, Ian (N Hertf'dshire)	Ward, John
Stokes, John	Wardle, C. (Bexhill)
Stradling Thomas, J.	Warren, Kenneth
Sumberg, David	Watson, John
Taylor, John (Solihull)	Watts, John
Taylor, Teddy (S'end E)	Wells, Bowen (Hertford)
Tebbit, Rt Hon Norman	Wells, Sir John (Maidstone)
Temple-Morris, Peter	Wheeler, John
Terlezki, Stefan	Whitney, Raymond
Thatcher, Rt Hon Mrs M.	Wiggin, Jerry
Thompson, Donald (Calder V)	Winterton, Mrs Ann
Thompson, Patrick (N'ich N)	Winterton, Nicholas
Thome, Neil (Ilford S)	Wolfson, Mark
Thornton, Malcolm	Wood, Timothy
Thurnham, Peter	Woodcock, Michael
Townend, John (Bridlington)	Yeo, Tim
Townsend, Cyril D. (B'heath)	Young, Sir George (Acton)
Tracey, Richard	Younger, Rt Hon George
Trippier, David
Trotter, Neville	Tellers for the Noes:
Twinn, Dr Ian	Mr. Carol Mather and
Vaughan, Sir Gerard	Mr. Robert Boscawen.
Viggers, Peter

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 1985–86 to 1987–88 (Cmnd. 9428).