Commons Sitting of 18 February 1987

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answers to Questions
  FOREIGN AND COMMONWEALTH AFFAIRS

    Brazil
    Mr. Jim Callaghanasked the Secretary of State for Foreign and Commonwealth Affairs if he will seek to pay a visit to Brazil.
    The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tim Eggar): My right hon. and learned Friend has no plans at present to pay a further visit to Brazil. However, my right hon. and noble Friend the Minister of State, Foreign and Commonwealth Office will visit Brazil from 19 March to 23 March.
    Mr. Callaghan: I thank the Minister for his reply. Is he aware that Brazil has the largest foreign debt in the world—£104 billion—and an internal inflation rate of 450 per cent.? Is he further aware that if Brazil defaults on its payments it will create havoc in the world's banking and trading system? Given that our Chancellor is the hardest of all hawks in relation to Third world countries, what advice or assistance can the Minister give to help Brazil to stabilise its financial and trading affairs with the rest of the world and with this country in particular?
    Mr. Eggar: We are, or course, aware of the debt problem that Brazil faces, but we welcome the strenuous efforts that have been made by the Brazilians to meet their repayment obligations. We are entirely convinced that an IMF agreement offers the best route to long-term economic recovery. We are, of course, confident of Brazil's long-term economic potential.
    Mr. Maxwell-Hyslop: On this crucial matter, will my hon. Friend bear in mind that it is pointless to ask Brazil to pay a rate of interest higher than 6 per cent. on its debt, because a higher rate would be wholly incompatible with the minimum growth rate required to provide a degree of economic opportunity for its population, without which democracy cannot be sustained?
    Mr. Eggar: I recognise my hon. Friend's great knowledge of the problems that Brazil faces. I am not sure that I go all the way with him in his assumptions about the maximum interest rate, but we have, of course, welcomed the accord on official debt that was reached at the Paris Club meeting of Brazil's creditors in January.
    Mr. Foulkes: Does the Minister agree that Brazil represents a great opportunity for British trade and
    894
    investment, particularly in view of recent reports that the Arabs are about to pull out? Will he confirm that he has received representations regarding the lack of Export Credits Guarantee Department cover? Have he and his colleagues been able to persuade their colleagues in other Depertments to consider restoring this important element in our trade with Brazil?
    Mr. Eggar: I welcome the importance that the hon. Gentleman attaches to inreasing our trade with Brazil. As I am sure he is aware, Brazil is already our largest market in Latin America, but we need to increase our market share even further. As a result partly of the Paris Club meeting in January and the agreement to which I have referred, we are giving close attention to how that agreement affects our policy on export credits.

    Hong Kong
    Mr. Simsasked the Secretary of State for Foreign and Commonwealth Affairs when he expects the new Governor of Hong Kong to take up his post.
    The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): Sir David Wilson will take up his duties as Governor of Hong Kong on 9 April.
    Mr. Sims: Will my right hon. and learned Friend assure Sir David that when he takes up his duties he will carry with him the good wishes of the many hon. Members who are friends of Hong Kong, particularly at this difficult stage in Hong Kong's history? Will my right hon. and learned Friend also consider easing Sir David's path as he takes up his duties by taking an international initiative to ease the problem of Vietnamese refugees in Hong Kong, a problem that has existed for many years and is imposing upon the people of Hong Kong a burden of £10 million per year, not to mention the human suffering and misery involved?
    Sir Geoffrey Howe: I shall be glad to convey to Sir David Wilson the good wishes and support of the whole House as he embarks upon his difficult task. I know that he, together with Her Majesty's Government, will consider the particular problem of the refugee camps that has been raised by my hon. Friend. It is right to say that this longstanding problem, which has given rise to a great deal of difficulty and personal hardship, has been getting better over the years. Even last year, the numbers in the camps dropped by about 1,400 to a figure just in excess of 8,000 — itself much lower than the 12,000 some four years earlier. Nevertheless, we are actively considering what more might be done to help in that respect, and it is certainly a matter that can benefit from international consideration.
    Mr. Faulds: Does the right hon. and learned Gentleman accept that all parties in the House wish Sir David all the very best in his new job, realising that he is just one of a distinguished line of recent governors? Will the right hon. and learned Gentleman please take very carefully to heart the fact that Britain is in duty and in honour bound to do considerably more than she has been doing to help relieve the difficult and intractable problem of the suffering of the Vietnamese refugees in Hong Kong?
    Sir Geoffrey Howe: I welcome what the hon. Gentleman said in the first half of his question, and I take note of the emphasis that he places on the importance of addressing ourselves to the problem under discussion.
    Sir Peter Blaker: Will my right hon. and learned Friend confirm that, despite recent political changes in China, the policy of the Government of China towards Hong Kong remains the same as it has been—that is, the policy set out in the joint declaration and agreement of two years ago? Will he confirm that he expects that situation to continue and that there is therefore every ground for continued optimism about the future of Hong Kong?
    Sir Geoffrey Howe: I am glad to be able to respond to my right hon. Friend in the way that he would hope. I think that the whole House will have welcomed the statement of the Chinese Prime Minister, Mr. Zhao Ziyang, that China's internal and external policies will not be affected by recent events. In particular, a number of Chinese Government spokesmen have emphasised that China's policies towards Hong Kong will not be affected.
    Mr. Anderson: Sir David will know that he carries with him the good wishes of the whole House. On the question of direct elections, will the Foreign Secretary state what construction he places on the warnings, both by senior officials and in magazines, that direct elections, if implemented, might be halted after 1997? Will he reassure the people of Hong Kong that if the internal consultation process in Hong Kong this year shows a clear majority in favour of an element of direct elections it will indeed come about? Will he also make it crystal clear to Beijing that although we shall, of course, work very closely with the Chinese Government, we in Britain remain in effective control of the territory until 1997?
    Sir Geoffrey Howe: I understand, of course, the importance that the whole House and, indeed, the Government of the People's Republic of China attach to the maintenance of Britain's responsibility for administration until 1997. As the hon. Gentleman knows, direct elections are one of the issues being considered in the review by the Hong Kong Government of the further development of representative government. It would not be right for me to try to anticipate the outcome. It is a genuine and objective review, in which the views of the Hong Kong people will be taken fully into account. I am equally confident, in this as in other respects, that it is possible for the British and Chinese Governments to take full account of each other's concerns as well as those of the people of Hong Kong.

    Poland
    Mr. Stevensasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on Her Majesty's Government's relations with Poland.
    The Minister of State, Foreign and Commonwealth Office (Mr. Tim Renton): Recent contacts with Poland have included a meeting between my right hon. and learned Friend and the Polish Foreign Minister at the United Nations General Assembly in September, and my visit to Warsaw from 5 February to 8 February. We intend to continue an active dialogue in which human rights and the need for national reconciliation in Poland will play a major part.
    Mr. Stevens: I thank my hon. Friend for that encouraging reply. Does he regard today's news that the United States Government are to lift some economic
    896
    sanctions on Poland as encouraging? What are the prospects of the Polish Government ceasing to jam broadcasts to Poland by the BBC world service?
    Mr. Renton: I raised this matter specifically with Mr. Olechowski the Polish Deputy Foreign Minister, during my visit, and this morning in the course of a discussion with Mr. Urban, the Polish Government press spokesman. It was denied that the Polish Government jammed BBC broadcasts in Polish, but I was assured that it was not the Polish Government's intention to "disturb" BBC broadcasts. I use the word "disturb" deliberately because that is the word that was used. Mr. Urban told me that on his return to Poland he would investigate the sources of any disturbance and would take steps aimed at ending it.
    Mr. Freeson: Did the Minister discuss with the Polish representatives the recently revealed shameful policy of successive British Governments since 1948 in failing to pursue Nazi war criminals who carried out terrible acts on Polish territory and the revelations that we assisted the departure of war criminals responsible for such conduct in Poland and other territories to safe haven in the United States? Is that why the Mengele file was not published, for sensitive reasons, a year or so ago?
    Mr. Renton: The hon. Gentleman has made wide-ranging allegations that go far beyond any evidence that has ever been put before this or any other Government. He has raised matters of great seriousness and if he cares to write with full details to me or to other Ministers we shall consider very carefully what he says.
    Mr. Galley: Does my hon. Friend see any prospects for the development of further democracy in Poland and for improvements in human rights? On the latter point, the amnesty on political prisoners last year was very welcome, but a number of opponents of the regime are still held on minor, supposedly criminal, offences. Perhaps the most celebrated case is that of the Krakow leaflet bombers. Does my hon. Friend believe that there is now a more enlightened attitude on human rights issues in Poland?
    Mr. Renton: During my visit to Warsaw I raised specifically the question of the 18 prisoners who are still detained, following the release of substantial numbers of political prisoners last autumn. In the case of those 18, there certainly seems to be evidence of a political nature either in the charges brought against them or in the sentences that they have received. The Polish authorities have promised to send me full information about those 18 cases, which I will examine further when I receive it.
    On the more general question, I believe that Poland is at the crossroads, as so often in the history of that troubled nation. The Polish authorities have released many thousands of political prisoners, but it is hard to detect any true democracy or pluralism as we see it emerging either in the Polish trade union movement or in the new consultative council. These are developments which, with our long-standing friendship with the Polish nation, we shall be watching very carefully.

    Strategic Defence Initiative
    Mr. Wallaceasked the Secretary of State for Foreign and Commonwealth Affairs what is his assessment of the policy implications for the United Kingdom of an early deployment of the strategic defence initiative; and if he will make a statement.
    Sir Geoffrey Howe: The policy implications of deployment would include those identified in the agreement reached by my right hon. Friend the Prime Minister and President Reagan at Camp David in 1984. Meanwhile, the strategic defence initiative remains a research programme. No early deployment of strategic defences appears to be in prospect.
    Mr. Wallace: Given that the Foreign Office is reported to have said that the United States is willing to continue consultation with its European allies on arms control issues, including any possible conflict between SDI and the anti-ballistic missile treaty, does the Foreign Secretary of State not think it important that Her Majesty's Government should clarify their position as to the
    interpretation of that treaty in relation to deployment and to testing and development? Will the right hon. and learned Gentleman take this opportunity to say that the
    Government support the narrow interpretation of the treaty?
    Sir Geoffrey Howe: The House will understand the importance which Her Majesty's Government and the Alliance attach to the ABM treaty. The interpretation of it—I emphasise the word "interpretation"—is a matter for the two signatories to the treaty. The way in which it has been applied is a matter of importance, quite apart from whatever the lawyers may say. The House will recollect the statement made by Secretary of State Shultz to the North Atlantic Assembly in October 1985 drawing attention to the distinction between the broad and the narrow interpretation. He then said:
    "our SDI research program has been structured and, as the President has reaffirmed last Friday, will continue to be conducted in accordance with a restrictive interpretation of the Treaty's obligations."
    That is the basis on which the research programme has been conducted heretofor. Yesterday, my right hon. Friend the Prime Minister said:
    "If they change what has hiterto been understood to be the interpretation, yes, we do ask for consultation because that has considerable effect upon the arms control negotiations that are taking place in Geneva".
    Thus far, quite apart from the lawyers' analysis, the programme has been conducted on the basis of the narrow interpretation. My right hon. Friend the Prime Minister
    has made it clear, as I have done—she said this at the Anglo-Italian summit last week—that
    "our main message to the United States is please consult your other allies in NATO on this matter of vital importance to us all."
    Mr. Cyril D. Townsend: Is my right hon. and learned Friend aware that may of us who support the concept of anti-missile defence and the need for Britain to take part in the research programme have grave reservations about the way in which President Reagan launched this initiative and are extremely cautious about early implementation without the widest possible consultation within the NATO Alliance?
    Sir Geoffrey Howe: I understand that the programme gives rise to a wide divergence of views on both sides of the House. The one thing about which there is unanimous agreement is the importance of the ABM treaty and of consultation about any change in the way in which it is applied.
    Mr. Deakins: Do the Government oppose the early or subsequent deployment of the SDI? If so, will the right hon. and learned Gentleman explain why?
    Sir Geoffrey Howe: As was agreed between my right hon. Friend the Prime Minister and President Reagan at the first Camp David meeting, deployment
    "would in view of treaty obligations have to be a matter for negotiations."
    As I said in my original answer, deployment is not a matter about which any decision has been taken. No decision is imminent or likely to be imminent for a considerable time.
    Sir Anthony Kershaw: Will my right hon. and learned Friend impress upon the American Government the importance of having an agreed interpretation of the treaty? Should we rely upon Mr. Shultz's interpretation, or on that of Mr. Adelman, who is now temporarily in charge?
    Sir Geoffrey Howe: It has been made clear that because of the importance of the ABM treaty as part of the framework within which arms control negotiations are being conducted there should be agreement about the interpretation or at least the basis on which the treaty is being applied and interpreted.
    Dr. Owen: As the Foreign Secretary knows, the Secretary of State for Defence has already made the Government's position clear. He said:
    "we very much welcomed the US commitment to pursue its SDI research programme in accordance with a strict interpretation of the ABM treaty".—[Official Report, 19 February; Vol. 92, c. 336.]
    Why is the right hon. and learned Gentleman so shy of reaffirming the view that he, the Foreign Office and the Secretary of State for Defence have constantly put forward, namely that the strict interpretation is being applied? The United States has already told the Soviet Union in Geneva that it wishes to change the interpretation. Why will the Foreign Secretary not say that that is a retrograde step and a retrospective interpretation of the treaty, which the British Government do not support?
    Sir Geoffrey Howe: The right hon. Gentleman need not go as far back as 1986 or to my right hon. Friend the Secretary of State for Defence to seek affirmation of our endorsement of the President's application of the narrow interpretation. I made the same point in my speech to the International Institute a fortnight ago.
    I repeat what my right hon. Friend the Prime Minister said to the House yesterday:
    "If they change what has hitherto been understood to he the interpretation, yes, we do ask for consultation because that has considerable effect upon the arms control negotiations that are taking place in Geneva".—[Official Report, 17 February 1987; Vol. 110, c. 764.]
    Dr. Owen: A change has been made.
    Sir Geoffrey Howe: It is wrong for the right hon. Gentleman to assert that a change has been made. Some are arguing for change, but it is clear that no change has been made. It is equally clear that it is important that consultation should take place.
    Mr. Heathcoat-Amory: Does my right hon. and learned Friend recall the speech that he made on SDI to the Royal United Services Institute for Defence Studies in 1985, when he raised a number of doubts about SDI and, in particular, about the instability that might result from deployment of a partial defensive system? Has my right hon. and learned Friend had answers to the important questions that he raised in that speech, particularly with

    899
    regard to the possible vulnerability of our continent of Europe if a defensive system were to be deployed by the United States?
    Sir Geoffrey Howe: I well remember the important speech that I made—it was rather a good one—and I made another on the same topic two weeks ago. Clearly, those important questions still require consideration as the SDI research programme proceeds on both sides of the iron curtain. For that reason, my right hon. Friend the Prime Minister agreed with President Reagan that SDI-related deployments should be a matter for negotiation because of the importance of the ABM treaty.
    Mr. Healey: Does the Foreign Secretary agree that Mr. Shultz said that the United States believes that the broad interpretation of the ABM treaty is justified, even though for the time being—he said this some time ago—the United States will, in its conduct, adhere to the strict interpretation? Has the right hon. and learned Gentleman made any response to the gratuitous insults that were heaped on him by Mr. Perle and Mr. Adelman every time he suggested that the Reagan Administration should stick to the undertakings that they gave the Prime Minister at Camp David? Why has the Prime Minister consistently undermined the right hon. and learned Gentleman's efforts and those of the Secretary of State for Defence to persuade the United States to adhere strictly to the terms of the ABM treaty? The right hon. Lady said yesterday that she had no right to have a view on this because she had not read the negotiating record. Does the right hon. and learned Gentleman agree that if the United States were to carry out tests in its star wars programme in outer space it would violate the ABM treaty and seriously jeopardise all hopes of disarmament?
    Sir Geoffrey Howe: The right hon. Gentleman is right to remind the House, as I think I did earlier, that the United States—not only Mr. Schultz, but others—has contended that the broader interpretation is one that can be upheld. It also said that it would continue to conduct the SDI research programme within the narrower interpretation — [Interruption.] The right hon. Member for Plymouth, Devonport (Dr. Owen) persists, rather uncharacteristically, in interrupting from a sedentary position. I must tell him that the White House spokesman has made it clear, and it has been reaffirmed since, that no decisions have been made on development and deployment. That has been affirmed today by my right hon. Friend the Secretary of State for Defence after his meetings in Washington yesterday. It is a matter of importance about which consultation is clearly necessary and will clearly be forthcoming.
    As for the allegedly insulting observations of Mr. Adelman and others, after 12 years in opposition to the right hon. Member for Leeds, East (Mr. Healey) I am well inured to resisting absurd and insulting remarks of every kind. I brush them aside with the contempt that they deserve.

    Arms Control Talks
    Mr. Nicholas Bakerasked the Secretary of State for Foreign and Commonwealth Affairs when he expects to be able to announce further developments in the Geneva arms control talks.
    Mr. Soamesasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the latest progress in arms control talks.
    Mr. Renton: The current round of the Geneva nuclear and space talks began on 15 January and has several weeks still to run. The negotiations for a comprehensive ban on chemical weapons resumed on 3 February. In December last year we and our NATO allies proposed distinct negotiations on conventional arms control, one on confidence building, the other on conventional stability in Europe.
    Mr. Baker: Will my hon. Friend ensure that the closest attention is paid to the inclusion in any agreement arising from these talks of provisions for detailed verification? Will he draw to the attention of the right hon. Member for Leeds, East (Mr. Heeley) Mr. Gorbachev's recent rejection of a policy of one-sided disarmament? Does my hon. Friend agree that if any Government were so misguided as to adopt that policy the continuation of these talks would be unlikely?
    Mr. Renton: My hon. Friend is absolutely right. Proposals on detailed verification are essential to all the arms reduction talks that are currently in train. During the Vienna talks on mutual and balanced force reductions in December 1985 the West made proposals for force reductions, to which were attached detailed proposals for verification by on-site inspection. It is regrettable that so far the Warsaw Pact countries have failed to reply to those proposals.
    Mr. Soames: Does my hon. Friend agree that it is important for the cohesion of the Alliance that no new negotiating positions are taken by the Americans without the fullest and frankest discussion with their NATO allies?
    Mr. Renton: In recent months the Americans have consulted widely with their NATO allies about the proposals that they are putting forward in Geneva and in the other forums. There has been a sign of the Americans' willingness — indeed, instinct — to carry their NATO allies with them as we move on in 1987, a year which obviously could be crucial for arms control talks. To make these talks succeed, which is our earnest hope, the United States wants fully to consult its NATO allies.
    Mr. James Lamond: With regard to the negotiations on the reduction in chemical weapons, to which the hon. Gentleman referred, will he tell us whether the Americans agreed to have on-site inspection of chemical weapons manufacturing plants, including those that are privately owned?
    Mr. Renton: Yes. The Americans have tabled the most comprehensive proposals for challenge inspection, including on-site inspection, of any party to the conference on disarmament and the chemical weapons discussions in Geneva. The British proposal, which we tabled last July, is also a stringent regime on verification. In essence, it modifies some of the American proposals, while insisting on a very stringent verification regime. The Americans, as part and parcel of this regime, have accepted that there should be on-site inspection of the civil chemical industry.
    Mr. Wilkinson: Does my hon. Friend agree that an important element in the overall arms control equation is the balance in short-range nuclear delivery systems? Does he agree that the Soviet Union is continuing to deploy an

    901
    increasing number of SS21s, SS22s and SS23s, which directly threaten the south-eastern corner of this country and much of western continental Europe? Will my hon. Friend confirm that, unless these systems are withdrawn, it should be the policy of the Government with their NATO allies to deploy anti-ballistic missile defences—ATBMs—to counter this growing threat?
    Mr. Renton: As my hon. Friend, who is a considerable expert on these subjects, knows well, obviously this is of great concern to countries in central Europe, such as the Federal Republic of Germany. For that reason, in bringing forward suggestions for an agreement that would essentially remove the long-range intermediate nuclear weapons from Europe—an agreement which we believe could be achieved this year and which is certainly worth going for— we and our NATO allies have insisted that parallel constraints must be negotiated on the short-range weapons.
    Mr. George Robertson: On the subject of the chemical weapons negotiations, will the Minister confirm that yesterday the Soviet Union accepted much of the British proposal for a chemical weapons treaty at Geneva, especially in regard to on-site inspection, but that so far the United States of America has rejected the British compromise proposal which was tabled last year, as the hon. Gentleman said? Last week, Mr. Richard Perle launched a major attack on the British position following the attack on the Foreign and Commonwealth Secretary for "his mealy-mouthed evasions". Who precisely is on Britain's side in trying to get an agreement on this vital and critical issue in Geneva?
    Mr. Renton: I have also seen the proposals, or rather the newspaper reports of the proposals, that the Russians tabled yesterday. In terms of inspection of the chemical weapons sites that produce the weapons, those proposals look interesting and worthy of closer examination. I remind the hon. Gentleman that the United States' proposals on challenge inspection, which are at the heart of the verification procedures, are more radical and stringent than those of any other country. The question now is whether the proposals that we have put forward, which will none the less demand a stringent inspection regime, but give the challenge country an opportunity to satisfy the challenger by other quick means, form a basis on which a ban on chemical weapons can be achieved.
    I also remind the hon. Gentleman that, at Camp David in November, President Reagan and my right hon. Friend the Prime Minister made as one of their points the insistence on a chemical weapons ban. This is one of their priorities. I do not think that in his remarks in London the other day Mr. Perle was speaking for the United States Administration.
    Mr. Bill Walker: Does my hon. Friend agree that in any arms control talks the research and development of a new generation of weapons or of anti-weapons systems become an increasingly important element in negotiations? Does he agree that one will not get any give from the other side unless one has tabled something to get it, and that that is one area in which SDI and other developments could become more important as time goes on?
    Mr. Renton: Yes, that is obviously a point for argument. One could follow on from that and say that the NATO countries' decision in 1979 to deploy cruise and
    902
    Pershing missiles in the western European countries was what had brought the Soviet Union to the negotiating table today.

    Italy
    Mr. Jannerasked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a statement on the current state of the United Kingdom's relations with Italy.
    Mr. Eggar: Anglo-Italian relations are excellent. The summit meeting in London on 11 February was constructive and friendly. My right hon. Friend the Prime Minister announced on that occasion that President Cossiga has accepted an invitation from Her Majesty The Queen to visit this country from 17 to 20 November 1987.
    Mr. Janner: On that occasion, were there discussions between Her Majesty's Government and the representatives of the Italian Government about the apparent differences in the ways in which Italy and the United Kingdom deal with terrorists? In particular, were there any discussions and, if so, what was their result, about the reported release of a terrorist called Hindawi, who is the brother of the terrorist who is in prison in this country?
    Mr. Eggar: There was a re-affirmation of the commitment to the anti-terrorist measures agreed by my right hon. Friend the Prime Minister and by Signor Craxi at the summit. There is effective multilateral and bilateral co-operation with Italy on terrorism.
    Turning to the hon. Gentleman's specific question about Mr. Hindawi, we understand that he was released from prison at the end of January because of a lack of evidence to substantiate the charge against him of membership of an armed band. He is currently on bail pending the consideration of evidence against him relating to lesser charges that include the possession of explosives. It is not known when or whether charges will be brought against him.
    Mr. John Mark Taylor: Does my hon. Friend agree that while it is of the highest importance to be on good terms with Italy, it is also necessary to be vigilant about the unfair import penetration from that country, and necessary to stiffen the resolve of the European Commission to police it?
    Mr. Eggar: Yes, Sir.
    Mr. Skinner: When the Minister meets the Italian representatives he may notice their jauntiness, especially regarding the state of their economy in relation to Britain's. If he asked for a look at the books he would discover that Italy's foreign convertible currency reserves are greater than Britain's after seven years of Thatcherism, and that the lira is stronger than the pound on the forward exchange markets. Does that not say more about Britain's policy, economic and foreign, than almost anything else?
    Mr. Eggar: No, it shows the hon. Gentleman's fundamental misunderstanding of economic statistics.
    Mr. Skinner: It is all in the Financial Times.
    Sir Geoffrey Howe: The House will be interested to hear about the wide range of the hon. Gentleman's reading.

    Conference on Security and Co-operation (Vienna)
    Mr. David Atkinsonasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement of progress at the current Conference on Security and Co-operation in Europe review conference in Vienna.
    Sir Geoffrey Howe: The Vienna meeting has now moved on from the review of implementation to discussion of new initiatives. On 4 February, together with the other Western countries, our delegation tabled an ambitious three-stage action programme designed to ensure concrete progress on human rights, not only at Vienna, but thereafter.
    Mr. Atkinson: Although we must all be encouraged by what Mr. Gorbachev has been saying recently, does my right hon. and learned Friend agree that the true test is the full implementation by the Soviet Union of the Helsinki Final Act, not least its human rights provisions? Will he consider tabling further initiatives at Vienna to allow for the guaranteed protection of Helsinki monitoring groups and for citizens of all the participating states to have the right of individual petition to a human rights commission within the Helsinki process? That would show that Mr. Gorbachev means business.
    Sir Geoffrey Howe: I welcome and understand my hon. Friend's endorsement of the importance of the Helsinki monitoring groups. Like him, we look for action to deliver the consequences of the words spoken on human rights by the Soviet Union. The proposals that we have tabled at the Vienna conference contain ideas to deal with the problems to which my hon. Friend referred. The first stage would provide arrangements whereby Governments and other interested groups could raise individual grievances along the lines that my hon. Friend has in mind.
    Mr. Beith: Is it not important that there should be a positive response from the West to the limited, but nevertheless very important, actions which have been taken by Mr. Gorbachev in pursuit of his words, if only to make it clear to those who might challenge what he is doing that the achievement of real progress on human rights, while there are still thousands in prisons and psychiatric camps for reasons of conscience, is fundamental to the West's perception of whether we can do business with the Soviet Union?
    Sir Geoffrey Howe: The whole House will agree with the hon. Gentlman. There has been a widespread welcome for the decisions and actions that have taken place in the direction of improving respect for human rights and setting individual people free on a significant scale, but we must always remember that that is only a small portion of the much larger problem with which we want the Soviet Union and its allies to deal.
    Mr. Lawrence: Although we all appreciate and welcome the improved intentions on human rights from the Soviet Union, on implementation, is there any evidence that the Soviets are allowing more refuseniks to leave the Soviet Union, that they are releasing prisoners of conscience from imprisonment and that they are allowing greater freedom of religion and religious culture in the Soviet Union?
    Sir Geoffrey Howe: It is a matter of making a careful judgment. There has been some improvement in respect of the treatment of individual cases. There has been an
    904
    improvement, for example, although in a differenct area, with the ending of the jamming of the BBC Russian service. But all this takes place from a wretchedly low base. Massive abuses still exist. The January figures for Jewish emigration remained modest. There is vast room for improvement in all these matters, including attitudes towards religious and political dissent, and we await with interest a fulfilment of the promises.
    Mr. Winnick: Should we not warmly welcome the progress that has been made during the past few months, with the apparent release of 140 prisoners? One hopes that the Soviet Union will follow this with the release of all those who have been imprisoned because of their political or religious beliefs. Would not the views of Conservative Members be taken more seriously if their anxiety about human rights was not confined to Eastern Europe, but included countries such as Chile?
    Sir Geoffrey Howe: Having started off not too badly, the hon. Gentleman relapsed to his customary form at the end. Let us draw together both sides of the House on this. Of course we all welcome the fact that individuals are being freed and that there is some movement in the direction of more respect for human rights by the Soviet Union. We do not yet even know that all the 140 people identified to be freed have been freed. Let us welcome what has happened, but let us never cease to remind the Soviet Union that there is a great deal more to be done.
    Mr. Sackville: Does my right hon. and learned Friend welcome the announcement last night of the release of Dr. Anatoly Koryagin? Does he agree that the release of a small number of prominent dissidents and political prisoners, and their consequent removal from Western news bulletins, does not of itself denote a real alteration in the stance of the Soviet Union towards dissidents?
    Sir Geoffrey Howe: It is right to be both welcoming and wary. It is good in human terms that some releases have taken place, and it is good if they foreshadow much bigger change, but the changes have a disproportionately large impact on media reception in the West. Let us welcome what has happened, but let us go on pressing for a great deal more of a much more fundamental kind to happen.

    Central America (Mr. Madrigal)
    Mr. Rogersasked the Secretary of State for Foreign and Commonwealth Affairs what response the Government gave to Mr. Madrigal, Foreign Minister of Costa Rica, when he visited London to discuss his proposal for a new initiative iin Central America.
    Mr. Eggar: When Senor Madrigal called on my right hon. and learned Friend to explain Costa Rica's position, he reaffirmed our strong and active support for a political solution to the problems of the region.
    Mr. Rogers: At the recent Contadora conference only four EC Ministers out of 13 turned up. Does that not show the level of priority that is accorded to peace in Central America, or have we just been told by the United States to keep our nose out?
    Mr. Eggar: The hon. Gentleman is misinformed. All the EC countries were represented by senior Ministers. The fact that senior Ministers were prepared to travel to Guatemala from Europe for an important two-day conference shows the tremendous importance that is attached by EC Ministers to the Contadora process.
    Mr. Key: Will my hon. Friend do all that he can to continue the strong and independent line by the British Government in pursuit of the Contadora process? Does he agree that one of the biggest problems is that the very size of the Nicaraguan army is a cause for fear amongst many neighbouring Latin American countries?
    Mr. Eggar: We are deeply concerned about the situation in Central America and we are working constructively for peace, democracy and economic development. But we have to point out—it is regrettable that the Opposition do not join in pointing this out—that the Sandanista military forces are currently around 70,000. They receive considerable support from the Soviet bloc and they have a significant number of Cuban military and security advisers. That is not a way to promote peaceful evolution in the area.
    Mr. Tony Lloyd: Did the Minister discuss with the Costa Rican Foreign Minister the reasons for the size of the Nicaraguan forces? In particular, did he discuss the pivotal role of the United States in funding the Contras in their campaign of loot, rape and pillage, both against innocent civilians in Nicaragua and the Sandanistas?
    Mr. Eggar: The hon. Gentleman is extremely selective in the way in which he refers to the position in Nicaragua. I wish that he and other Opposition Members would share our desire to establish a full pluralist democracy with Nicaragua and would join us in urging a reduction in the massive quantities of Soviet weaponry already supplied, in urging Nicaragua to reduce subversion in neighbouring countries, in urging the Sandanistas to respect fully human rights and in urging them to restore full civil liberties, including a free press, the right to strike, the return of exiled Church leaders and full implementation of a new constitution.
    Mr. Bowen Wells: Will my hon. Friend give the result of the recent visit of Baroness Young to Guatemala in progressing the Contadora process, which was under discussion?
    Mr. Eggar: The conference served the useful purpose of bringing together all the Central American Foreign Ministers and their European and Contadora colleagues. The joint communiqué, with which my hon. Friend will be familiar, reaffirmed support for a peaceful negotiated settlement on the basis of the Contadora objectives.
    Mr. Flannery: Does the Minister accept that, in addition to having a freely elected Government—that is a fact—Nicaragua has a population smaller than that of Yorkshire? The idea that it is a menace or a threat has been thought up by the ailing President Reagan, who is sending armaments on a grand scale. I wish that the Minister would listen to what I am saying and make it clear to the Americans that we have nothing in common with the comments of Mr. Shultz, who said the other day that he thought that eventually America would attack Nicaragua.
    Mr. Eggar: As usual, the hon. Gentleman is highly selective in his views of events in Nicaragua. For instance, Nicaragua has adopted a new constitution—that is quite correct — but why, within hours, did it suspend civil rights and guarantees for human freedoms?
    Mr. Wilkinson: Did the Costa Rican Foreign Minister discuss with his British counterpart the oppressive treatment of the Miskito Indians by the Sandanistas? Did
    906
    the Costa Rican Minister welcome the presence of Her Majesty's forces in Belize and suggest that they remain there notwithstanding the resumption of diplomatic relations between London and Guatemala?
    Mr. Eggar: Those matters were not raised on this occasion, but of course they are raised in normal diplomatic discussions.
    Mr. Corbyn: Will the Minister tell the truth about the position in Central America and admit that the cause of the conflict, the war and the suffering, is the obsession of President Reagan and his Administration to destroy the process of social improvement and social revolution that is occurring in Nicaragua? President Reagan is frightened of the example that that will set to other poor and starving people throughout Latin America. It is time that the British Government came off the fence and properly supported and recognised the democratic Government of Nicaragua.
    Mr. Eggar: The hon. Gentleman is displaying the normal blinkered way in which he approaches matters on the international stage. The blinkered look that he has adopted towards Nicaragua is the same as that which he has adopted towards Afghanistan when he has welcomed the so-called regime's peace initiative and condemned the actions of the Afghan resistance—
    Mr. Corbyn: I did not mention Afghanistan.
    Mr. Eggar: —as the hon. Gentleman has done in early-day motions on the Order Paper.
    Mr. Foulkes: Does the Minister not accept that while this elaborate tangle of talks takes place innocent civilians—women and children—are dying directly as a result of United States-funded terrorism? Will the British Government have some guts for once and use their undoubted influence with the Americans to stop this war, which is increasingly seen as being waged to humour an increasingly dangerous and senile President?
    Mr. Eggar: I hope that the hon. Gentleman will pause and reflect on the terms of that question. It is extremely serious for an Opposition Front Bench spokesman to make an accusation and use such words.
    With regard to Central America we continue to advocate a political solution while, at the same time, expressing our concern at the direction of the Sandanista Government and their unwillingness to reach a peaceful conclusion to the problems in Nicaragua.

    Soviet Union
    Mr. Canavanasked the Secretary of State for Foreign and Commonwealth Affairs whether he will seek to arrange discussions on disarmament with representatives of the Government of the Soviet Union.
    Sir Geoffrey Howe: My hon. Friend the Minister of State, Foreign and Commonwealth Office, the Member for Mid-Sussex (Mr. Renton), had extensive discussions on arms control during his visit to the Soviet Union in January. My right hon. Friend the Prime Minister will also discuss arms control, among other issues, during her forthcoming visit to the Soviet Union. I see no need to arrange further specific talks in the meantime.
    Mr. Canavan: In view of the recent statements by representatives from the Soviet Union that they would

    907
    welcome more constructive bilateral talks with the British Government on disarmament, particularly nuclear disarmament, will the Secretary of State give more urgent consideration to the distinctive and constructive role that Britain could play, instead of the British Government always seeming to act like a puppet of Ronald Reagan, who does not seem to be all that serious about nuclear disarmament, test-ban treaties or anything else that might help world peace?
    Sir Geoffrey Howe: I certainly believe that the United Kingdom can and should play a substantial role in advancing the cause of arms control internationally. It is a role that we have been playing consistently under this Government. I have had more than a dozen meetings with my opposite number in the Soviet Union, and when I go with the Prime Minister in a few weeks' time it will be my fourth visit.
    The point that must be made clearly is that we are exercising that influence because of the responsible and straightforward policies followed by the Government. If the irresponsible policies advocated by the hon. Gentleman had been in effect there would have been no Camp David agreement, no meaningful consultations and no role for Britain other than that of the whingeing bystander so often represented on the Opposition benches.
    Mr. Latham: Will my right hon. and learned Friend confirm that if there are to be important discussions with Mr. Gorbachev and other Soviet Ministers they will be properly prepared, because we do not want any more disasters such as Reykjavik?
    Sir Geoffrey Howe: I do not think that the performance of Her Majesty's Government, and most of all the agreements reached at Camp David on two successful occasions, suggest that missions undertaken by the Government are anything other than well prepared. I agree with the importance of that.
    Mr. Healey: Is the Foreign Secretary aware that the Government's behaviour after recent discussions with Soviet representatives led the spokesman of the Soviet Foreign Office, Mr. Gerasimov, to complain that the Foreign Secretary, the Prime Minister and the Minister of State had misrepresented those discussions in
    "self-advertisement for election purposes"?
    Is he aware that if he and the Prime Minister continue to treat Soviet discussions in that way they will damage British interests and set back the prospects for peace?
    Sir Geoffrey Howe: Her Majesty's Government and their representatives need to take no special action to advertise the importance and significance of what we are doing in the search for progress on arms control. On the matter of self-advertisement for electoral purposes, we need no lessons in that from the right hon. Gentleman.

    Albania
    Mr. Ron Brownasked the Secretary of State for Foreign and Commonwealth Affairs if he has received recent representation calling for the restoration of diplomatic relations with Albania; and if he will make a statement.
    Mr. Renton: We have not received any representations recently. We offered in 1980 to establish diplomatic
    908
    relations with Albania unconditionally, and that offer remains open. Unfortunately the Albanians have not so far taken it up.
    Mr. Brown: Is it not time that we had direct links with Albania? Perhaps the sticking point is the returning of Albania's gold, which was seized by the Nazis at the end of the war and ended up in the Bank of England. Surely that should be returned. If there is any dispute about the so-called Corfu incident, that can be sensibly dealt with. An indiscretion by a small country is nothing compared to the activities of Germany, Japan or Italy. Let us make amends and return the gold so that we can have direct links with that small but important country.
    Mr. Renton: The House will wish to congratulate the hon. Gentleman on moving on from Afghanistan to Albania. Afghanistan is perhaps in danger of becoming too revisionist for him. The fact is, as the hon. Gentleman knows, that we cannot act unilaterally with regard to the Albanian gold. That can be done only by unanimous agreement of the Tripartite Commission for the Restitution of Monetary Gold—[Interruption.] I am not making excuses. We are anxious to resolve all the outstanding problems, but there still remains, for example, the Albanian refusal to settle the Corfu channel claim. That must be dealt with.
    Sir Anthony Kershaw: Is there any point whatever in having diplomatic relations with these ruffians?
    Mr. Renton: I sincerely hope that my hon. Friend was not speaking about the hon. Member for Edinburgh, Leith (Mr. Brown). If so, that would be unparliamentary language.

    Gambia
    Mr. Freudasked the Secretary of State for Foreign and Commonwealth Affairs what assessment he has made of the consequences for United Kingdom-Gambian relations of the proposed confederation between Gambia and Senegal.
    The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker): The Senegambian confederation was established five years ago, on 1 February 1982. It was created by the decisions of two independent and sovereign states. We enjoy excellent bilateral relations with both states of confederation. The enduring links that we have with the Gambia, a fellow member of the Commonwealth, have not been affected.
    Mr. Freud: I am grateful for that reply. Will the Minister tell the House that in the case of a complete creation of Senegambia she will take the most careful note of the concern of Gambians about the continuation of Commonwealth status?
    Mrs. Chalker: Yes, of course. As I understand it, there will be no need for such a change. I can give the hon. Gentleman the assurance that he seeks.
    Mr. Grist: Will my hon. Friend give an undertaking that any economic assistance that may be agreed with Senegal, which is a high tariff area, will not reflect on the Gambia, which is a low tariff area?
    Mrs. Chalker: I understand my hon. Friend's concern about this matter. Obviously this is a matter for further discussion, but in no way would we seek to disadvantage the Gambia if it decides to go forward with confederation.

Tamils (Removal)
3.30 pm
Mr. Dave Nellistasked the Secretary of State for the Home Department whether he would make a statement on the position of the 58 Tamil refugees who were to be deported from Heathrow airport yesterday.
The Minister of State, Home Ofice (Mr. David Waddington): As I informed the House yesterday, 64 Sri Lankan Tamils arrived here on Friday, having travelled from Malaysia via Bangladesh without visas. They were either carrying forged passports or had destroyed them in transit. When their claims to asylum were examined and found to be baseless, my right hon. Friend the Home Secretary decided that they sho:uld be returned to Bangladesh without delay.
Accordingly, arrangements were made to effect removal of 58 of the passengers by the Bangladesh Biman flight scheduled to leave at 5 pm last night. However, the flight was delayed by an apparently organised demonstration by those who were due to be removed. At approximately 7 pm the United Kingdom Immigrants Advisory Service informed my right hon. Friend's Office that it had obtained a High Court order staying removal action until Monday 23 February. Immediate instructions were given to comply with the order and to make arrangements for the passengers' accommodation or detention until the matter was resolved.
We shall take steps to contest the order and any application for judicial review. The Government remain of the view that the group has no claim to refugee status. If firm action is not taken against abuses of this kind, a potentially disastrous gap in our immigration control will be opened. We will make every effort to prevent this happening.
Mr. Nellist: No doubt the House will be grateful for that deferral, but we are not grateful to the Minister for his court action to challenge the grounds for that deferral. It is not the generosity of the Minister that is responsible for the deferral because he and his Department ignored the normal convention whereby 85 per cent. of those arriving in this country and seeking political refugee status are referred to the United Kingdom Immigrants Advisory Service.The Minister's Office usually takes 18 months to two years to deal with a single application for political asylum. In view of that, how can the minister convince us that in 72 hours the Secretary of State went through the cases of 64 people and became convinced that each one of those people is not entitled to refugee status? Were there not coordinated and organised attempts by the boat people and by the Jews in the 1930s who, without passports, visas or other documents, left the countries in which they were being persecuted? Does the Minister intend to send these 58 men, women and children back to their deaths in Jaffna?
Mr. Waddington: First of all, the hon. Gentleman referred to the referral system. That system was set up to ensure that those who had a claim to asylum were properly represented. The system clearly does not apply in cases where a bogus asylum claim is made simply as a means of evading our control. On the matter of the speed with which
910
the applications were dealt with, I assure the hon. Gentleman that careful examination of the claims was made, but we must send out a clear signal to others that rackets like this will not succeed. It does no service to the victims of that sort of racket to keep them in detention for a long period before they are returned. There is always a risk in this sort of case of the country from which the people have come refusing to take them back. Those are the three reasons why it is important that such applications should be dealt with speedily.
The comparisons made by the hon. Gentleman are ridiculous or, to use an adjective oft used by the right hon. Member for Manchester, Gorton (Mr. Kaufman), odious. The truth is that Tamils in Sri Lanka have the opportunity of going to our high commission in Colombo. In the summer of 1985 we made it plain that if they could show that they had a connection with this country and were suffering hardship they could come here. It is unfair to say that our policy towards Tamils has been other than extremely generous.
Several Hon. Members rose—
Mr. Speaker: Order. This is a private notice question. I propose today to give priority to those hon. Members who were not called yesterday.
Mr. Harry Greenway: Will my right hon. and learned Friend say how many Tamils have been granted asylum since the emergency in 1985? Will he say how many are currently having their claims looked at, and will he briefly describe how a legitimate claim for asylum is brought about?
Mr. Waddington: I cannot give my hon. Friend the precise figures that he wants. I can assure him that a large number of Tamils have been granted exceptional leave to remain in this country and that a large number who arrived in this country before the visa requirement was imposed in the middle of 1985, as my hon. Friend knows, have all been granted exceptional leave to remain.
Mr. David Winnick: No one wishes to see the system of refugee applications abused. I certainly have no wish to do so and I am not an apologist for racketeers of any sort. However, does the Minister accept that there is genuine concern on the part of a number of organisations such as the United Nations High Commission for Refugees, the British Refugee Council and others, including Amnesty International, which are deeply worried that if those people are returned they could possibly face persecution of some sort? Why should the Minister be opposed to a judicial review taking place early next week, through the courts, to determine whether those fears have any justification?
Mr. Waddington: I am sure that the hon. Gentleman will agree that it would be a grave mistake if organisations such as UNHCR or UKIAS were to give the impression that they were not as determined as we are to stamp out such rackets. It would be a grave disservice to genuine refugees if the impression got about the place that UKIAS was determined to bend all its efforts to allowing racketeers to succeed.
Sir John Biggs-Davison: Is my right hon. and learned Friend aware that the soundings that a number of Conservative Members have taken in their constituencies indicate that his statement today and his stand have overwhelming support in this country?

911
However, in so far as there may be Tamil political refugees from Sri Lanka, would it not be natural for them to return to their former homeland in India? Will the Foreign and Commonwealth Office discuss that aspect of the matter with the Government of India?
Mr. Nellist: The hon. Gentleman is 2,000 years out of date.
Mr. Waddington: I am grateful to my hon. Friend for what he has said about the stand that we have taken. However, I want to make it plain that we are determined to honour our obligations under the United Nations convention on the treatment of refugees. We have always done so, and we continue to do so. It does no service to genuine refugees if rackets like this succeed. I cannot get involved in the other matters that my hon. Friend raised. I remind the House that we are talking not about people who came here direct from Sri Lanka, but about people who travelled from Sri Lanka to Malaysia and on from Malaysia to Bangladesh. We are talking about returning people to Bangladesh. We cannot possibly accept that we have any obligation, under the United Nations convention, even in the case of people who are found to be refugees, to take such people in this country when they have not been prepared to take refuge in the first country to which they have travelled after they have left the country to which they say they are frightened to return.
Mr. Simon Hughes: How does the Minister's action yesterday accord with the discussions last week in Switzerland on the common European problem of asylum? Is not what is needed a constructive, compassionate and co-ordinated approach to refugees? Does the Minister accept that by yesterday committing a gross abuse of his own procedures and denying the opportunity of judicial review, representations by hon. Members, and an independent referral to UKIAs, his only honourable course is to resign and let somebody else do a better job?
Mr. Waddington: I never cease to be surprised at the opinions of the hon. Gentleman, but I do not beleive that even he thought, when we were debating stops last year, that we were saying that we would allow people to remain in this country even when it was patently obvious on their arrival that they were abusing the asylum procedures and were in no way refugees. I agree that European countries should work together to tackle this problem, because, unfortunately, it is growing. Over the past year or so, more and more people have claimed asylum in countries in Western Europe when there has been no substance to their claims. Already, many European countries have reacted to that. Denmark, Sweden and Germany have all now started refusing to hear asylum claims at their borders when they come from people who claim that they are frightened to return to one country, but have come from another.
Mr. Anthony-Beaumont-Dark: Does not this country have an enviable record on genuine political refugees? Is not this a case of exploitation of pathetic people? My right hon. and learned Friend is right to resist this because many people have a much better claim. Does not this country have its own people to look after, and is it not the case that once people know that we shall be a lot better off?
Mr. Waddington: My hon. Friend is right. Apart from the fact that they have had to pay enourmous sums of money to racketeers, these people have been treated just like cattle. They have come out of Columbo in batches, have been herded together in other batches in Kuala Lumpur and have travelled from there to Dhaka and then on here.
Mr. Nellist: And they are now in prison in Brixton.
Mr. Waddington: My hon. Friend is right. We have an enviable record on the treatment of genuine asylum seekers, and every hon. Member knows it well.
Mr. Max Madden: How can the Minister be so dismissive of the dangers that Tamils face in Sri Lanka when, on another case that I have put to him, a Tamil returned to Sri Lanka faces great danger, and his 14-year-old nephew was burnt alive by Sri Lankan troops, who set fire to his home? How can the Minister be certain that, if he returns these people to Bangladesh, they will not in turn be sent to Malaysia, and, in turn, sent back to danger in Sri Lanka? How can he be certain that refugees from a civil war should be expected to go to a high commission to ensure that their travel documents are in order? How are we expected to accept that these people are bogus, as the Minister frequently claims, when he, and nobody but he, has had an opportunity to test their claims? He has stopped them using the recognised procedures to test their claims.
Mr. Waddington: I certainly do not test their claims. The hon. Gentleman knows perfectly well that we have a highly skilled refugee unit that has always earned the respect of all hon. Members. I repeat that these people are not refugees. The hon. Gentleman is saying that anyone coming from that troubled part of the world should be allowed to stay here. We simply cannot accept that as policy. Even less can we accept the idea that people coming from a troubled part of the world can travel to a less troubled part of the world and then to here, and that we, and not the country to which they first travelled, should be expected to take them.
Several Hon. Members rose—
Mr. Speaker: Order. There is a further statement after this and an important economic debate. I shall allow questions to go on for a further four minutes until 10 minutes to four.
Mr. Richard Page: Although there must be a degree of sympathy for these poor dupes, does my right hon. and learned Friend agree that we cannot have our immigration policy run by eastern spivs and racketeers? Will my hon. and learned Friend look at the operations of such agencies and determine whether they can be blacklisted from any future dealings with this country?
Mr. Waddington: I am not sure that the matter involves any dealings with this country. We do not have power to blacklist them. All that we can do is to send out a clear message from the House that rackets of this sort will not work. That is why all hon. Members should support the action taken by the Government. The action taken by the Government supports those who make genuine claims for asylum, and supports the work carried out by the UNHCR and by the UKIAS. Hon. Members who attack

913
the action taken by the Government undermine the important safeguards that operate in this country for genuine refugees.
Mr. D. N. Campbell-Savours: On what basis was the British high commission in Colombo able to assure the Minister that these people would not be at risk if they returned?
Mr. Waddington: I am sure that the high commission keeps a close eye on events there. The hon. Gentleman is falling into the trap of his hon. Friend, the hon. Member for Bradford, West (Mr. Madden). The hon. Gentleman is now saying that, even if they are not refugees, we should not return them to Sri Lanka because of the general conditions there. I repeat what I said yesterday. There is no reason to suppose that people who have left Sri Lanka will be ill—treated on their return or that the Sri Lankan Government will take action against them. I am quite sure that our high commission in Colombo knows a lot more about that matter than does the hon. Gentleman.
Mr. Michael Morris: Is it not a fact that hundreds of Tamils have applied for visas through the British high commission, that they have been granted visas, that there are no queues, that the Tamil community has been contacted by the high commission and asked whether there are complaints, and that there are no complaints? Therefore, is it not extraordinary that these people chose not to apply for visas, unlike their compatriots who applied in the regular way?
Mr. Waddington: I gave the House the figures yesterday. Over 1,000 Tamils in Colombo have been granted visits, either for settlement or for visas here. In the face of those figures, it is quite impossible to mount the argument that we are adopting some sort of oppressive policy towards the Tamils. The figures speak for themselves.
Mr. Jeremy Corbyn: Would the Minister care to remind the House that on Monday afternoon a number of his hon. Members sought stops on the removal of these people, that on Tuesday, after he had refused those stops, outside the terms of the representations agreed by this House, he was informed by the solicitors representing the people due to be removed that they were applying for a judicial review of their case, that he knew that that was going on but that he tried to circumvent the course of justice by hastening their removal from this country? Will he assure the House that in any other case of a political asylum application he will accept a stop from an hon. Member and that he will personally examine the case, as he is required to do, within the terms of the United Nations convention on the status of refugees?
Mr. Waddington: Every case was examined under the terms of the United Nations convention on the status of refugees. We made it quite clear in our statement last October that we would not accept stops in respect of visa nationals who arrived here without visas. We said that there was no change in the arrangements for asylum, but I do not believe for one moment that the House contemplated that a stop would be taken when a claim to asylum was manifestly bogus, and it was never envisaged that we should face the situation that we are facing now, with large numbers of people coming here as a result of well—organised rackets. Finally, far from our not having
914
observed the order of the court, we very swiftly observed it, as the hon. Gentleman knows full well, and took the people who had been loaded on to the plane off it again.
Mr. Roy Galley: My right hon. and learned Friend can he assured that the vast majority of the people of this country in all communities, including resident refugees, will support the action that he has taken. We cannot afford an open door policy. We cannot allow our immigration laws to be flouted. We must take the firmest possible steps against fraudulent means to try to enter this country. Will my right hon. and learned Friend assure the House that he will not be deterred on a future occasion, as a result of the irresponsible attitude of the Opposition and of UKIAS, from taking swift and decisive action in similar cases?
Mr. Waddington: I am sure that my hon. Friend is entirely right. As I said yesterday, at least until the middle of last summer, both parties in this House were supposed to be in favour of firm immigration control. There is not the slightest doubt that the overwhelming majority of the people of this country expect us to operate firm immigration control. We should be abdicating our responsibilities if, faced with abuse on this scale, we were just to say, "It is all too difficult; we must listen to the beseechings of hon. Members like those who have spoken this afternoon" and did nothing about it.
Mr. Alfred Dubs: Will the Minister confirm that in the Government's White Paper of September 1985 the Government said that there were three safeguards that were relevant at the time to asylum applicants who were refused admission at points of entry—the representations of Members of Parliament, the UKIAS referral procedure and judicial review? Taking together the Minister's statement yesterday, which denied the representations of Members of Parliament and the UKIAS procedure in this instance, and the fact that the Government are seeking to prevent a judicial review, does this not represent a fairly significant change in Government policy, compared with two years ago? In that context, could the Minister say something about the 64 Tamils who arrived and the fact that 58 of them were to be removed yesterday? What has happened to the other six?
Mr. Waddington: They were granted temporary admission, and it was thought sensible to remove those who were in detention first. I should have thought that the hon. Gentleman would be pleased with that decision. I have already said all that it is necessary to say about the representations of Members of Parliament. It was made absolutely plain last autumn that we would no longer accept stops in the case of people who arrived here without visas when they were visa nationals. We said that there would be no change in the arrangements for asylum, but I do not believe that the House contemplated for a moment that a stop would be made when a claim for asylum was manifestly bogus. I do not understand what the hon. Gentleman is saying about a judicial review. If an application were made for a judicial review and the application were granted, we have always taken the view that we should not remove people until the matter has been resolved. The hon. Gentleman now seems to be arguing that in every case when an application is made, before it is even heard, we should not take action. We cannot accept that.
Mr. Nellist:On a point of, MR. Speaker.
MR. Speaker:I shall take it afterwards.

Local Government Bill
3.54 pm
The Secretary of State for the Environment (Mr. Nicholas Ridley): With permission, Mr. Speaker, I would like to make a statement about the Local Government Bill.
As the House will be aware, the Government had announced that the Bill would include powers to control advanced and deferred purchase arrangements; new powers for local authorities to grant aid housing associations; improvements to the land register system; measures to secure greater competition for council services; measures to stop political abuses of the contractual process; and amendments to the publicity provisions in last Session's Local Government Act.
Due to the time taken to prepare the Local Government Finance Bill, work on parts of the Local Government Bill is running very late. If we were to wait until the last three measures mentioned were completed the Bill could not be introduced for another month or even more. The Government consider that to wait until then to introduce the Bill would make it virtually impossible to secure Royal Assent during this Session.
We have therefore decided, extremely reluctantly, to proceed only with the first three items — deferred purchase controls, local authority grants to housing associations and land register improvements together with minor amendments needed to the legislation governing advanced further education pooling arrangements. The Bill incorporating these items is being introduced this afternoon.
I much regret postponing our proposals for securing greater competition in the provision of local authorities services, for stopping abuses of the contractual processes which many Socialist councils practise, and for improving the legislation preventing political propaganda on the rates. I want to assure the many people who want these proposals enacted that we shall certainly press on with them at the first opportunity, either before, or after, the general election.
Dr. John Cunningham: Is this not the third local government Bill in six weeks to be introduced by the right hon. Gentleman? We welcome the fact that he has just announced the abandonment of three major Tory political promises. He has abandoned enforced privatisation of local authority services. He has abandoned legislation to end contract compliance in local government contracts and he has abandoned promises to prevent the use of advertising in the media by local authorities which wish to explain their policies and services to their communities.
Is it not true that a much larger Bill exists in draft form in the Secretary of State's Department? Does he recall authorising the speech by his hapless Parliamentary Under-Secretary of State, the hon. Member for Southampton, Itchen (Mr. Chope), on 4 February which the Department described as "a keynote speech'', which the Under-Secretary of State promised that these very measures which have now been abandoned were soon to be introduced in legislation in the House? What has changed in the two weeks since the Secretary of State's unfortunate ministerial colleague had his speech approved by the right hon. Gentleman?
Is it not a novel technique of Government to blame the administrative incompetence for which the Secretary of

917
State is now notorious as a cover for the right hon. Gentleman's political misjudgments on these issues? Are not these rather lame and pathetic excuses for the abandonment of major items of Tory policy which the right hon. Gentleman promised to the Conservative party conference? Does the right hon. Gentleman recall saying at the conference:
"Our 'next move forward' is to make local authorities put about eight more services out to competitive tender…We will introduce legislation very soon."
Does he recall that these matters were promised to the House in the Queen's Speech? Does he also recall saying in the debate on the Loyal Address that it was his firm intention to legislate on these issues? What has happened to those and many other promises that he made both inside and outside the House to assuage the Right-wing of the Conservative party? Is not the real reason for this major political climb-down the fact that he and his right hon. Friends on the Treasury Bench are running scared of the electoral consequences of undermining thousands of jobs in local government by implementing policies that many of us, and even his Tory colleagues in local authorities, including councillor John Morgan, the Conservative leader of the Association of District Councils, have condemned? Has the right hon. Gentleman been forced to abandon these cherished Right-wing Tory ideas by his right hon. Friends the Patronage Secretary and the Leader of the House, who do not want the business of the House clogged up with contentious legislation?
Is this a recognition of errors of political judgment in local government policy? Is this a principled decision on the right hon. Gentleman's part or is it merely an election expedient?
Mr. Ridley: That long speech would have more sense if the hon. Member for Copeland (Dr. Cunningham) were right in his main assertion that we have abandoned these measures. I made it clear in my statement that they are merely delayed or postponed. I do not want to intrude in the public gloom of the Labour party about its chances at the general election. We shall return to these measures either before the next general election or after it and, as I have said, we shall enact them. The speech of my hon. Friend the Member for Southampton, Itchen, (Mr. Chope), the Under-Secretary of State for the Environment, and my own speech at the Conservative party conference, quite rightly presaged the fact that the measures will be on the statute hook either before or after the election.
Mr. John Heddle (Mid-Staffordshire): Will my right hon. Friend accept that, following his statement, there will be widespread disappointment among many ratepayers because of the actions of local authorities that abuse their interests and their money by not putting out services to private competitive tender and waste their money in political advertising?
Has my right hon. Friend considered introducing the clauses in another place? In the meantime, will he ensure that direct labour organisations become more efficient and do not trade at a loss? Will he ensure that every encouragement and incentive is given to local authorities to sell their surplus assets and to enable the realisation of them, to benefit the ratepayers?
Mr. Ridley: I thank my hon. Friend for saying what many millions believe. I wish to assure them through him
918
that the clauses will be brought forward. I think that my hon. Friend will agree with me that to have brought forward a Bill at the end of March that included all the measures that I have referred to with virtually no chance of it reaching the statute book by the end of the Session would have been to disappoint ratepayers even more. There will be widespread disappointment, but those who are disappointed that these measures will not be introduced immediately can have the consolation that supporting the Government will ensure that they come forward after a general election.
Mr. Michael Meadowcroft: Will the Secretary of State rectify the one omission in his statement and give us the date of the general election? Will he take it from me that the Bill's housing provisions will be supported in many parts of the House if they do not put further constraints on local authorities by requiring the consent of the Secretary of State for further cash to come into housing? We shall wish to judge the housing provisions by the possible alleviation of homelessness. Are the Government not showing a lack of competence by being prepared to promise what will be in Bills that they cannot deliver at the end of the day?
Mr. Ridley: The hon. Gentleman has asked me the date of the general election. According to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), an election is imminent because Britain is on the verge of economic collapse. During the week in which he said that, the stock exchange rose 65 points, and since then it has risen a great deal higher. I think that later today my right hon. Friend the Chief Secretary to the Treasury will be demonstrating that perhaps the economy can limp on for another few days, weeks, months, or maybe into next year. The hon. Gentleman must ask the right hon. Member for Sparkbrook when he thinks that the economy will collapse.
The hon. Gentleman will see the Bill when it is published this afternoon, and we shall be able to debate the detail of the housing clauses in Committee. I can assure him that the clauses will be favourable in bringing more houses into being for rent within the private sector.
Mr. Robin Squire: Is my right hon. Friend aware that he will have the sympathy of most Conservative Members for the position in which he finds himself, which is largely not his own responsibility or fault? Is it not fair to say in the meantime to authorities that have not privatised or even tendered out for any service that that option is still open to them and that it would save some money? Secondly, will he confirm, in contrast to a statement made by an Opposition Member from a sedentary position, that far from the Government's policy being deemed unpopular, it is so popular that even NALGO was told recently by MORI that it should not campaign against privatisation because the public were too supportive of it and believed it to be good?
Mr. Ridley: I am grateful to my hon. Friend. I confirm that local authorities can pre-empt the legislation by going ahead and putting their services out to competitive tender right now. If they do so, they will meet one of the other problems about which they have been coming to me a great deal. They have told me that they cannot live within their means without large rate increases, despite the high level of grant that has been paid this year. They will he able

919
to square both problems by going out to competitive tender voluntarily. My hon. Friend is right when he says that NALGO has been advised to drop its campaign against these policies because it was becoming extremely unpopular. For my part, I rather hope that NALGO will continue its campaign.
Mr. Allan Roberts: How can the Secretary of State justify dropping proposals for controlling local authority publicity on the ground that the necessary legislation is not sufficiently well advanced in preparation? The same proposals were introduced in a Bill in the previous Session only to be altered and defeated in another place and in this place. Cannot he reintroduce that legislation?
Is not the real reason for taking the course that the right hon. Gentleman has outlined his awareness that interference with freedom of speech in the way that was proposed after the BBC and New Statesman fiasco would be unpopular? Is he not clearing the decks to sacrifice Tory councillors for an election on 7 May? A differential turnout in a general election campaign that day would sacrifice Tory local government. It would seem that the Government have written off local government, including Tory councillors.
Mr. Ridley: The previous Bill dealing with political propaganda on the rates was weakened in scope by another place, and the Government undertook to set that right in further amendments. As I have said, those are the amendments that are not yet ready, but we shall proceed to publish the code of practice. It will be available for all local authorities to read and for ratepayers to consider from the point of view of putting pressure on their local authorities to abide by it.
Mr. Ian Gow: Is my right hon. Friend aware that his statement is as unwelcome to those on the Benches behind him as it is to himself? Bearing in mind his passion for free enterprise, will he look favourably upon the future efforts of those who sit behind him, who may seek to repair the omissions of the parliamentary draftsmen by bringing forward their own clauses that would give effect to his own first intentions?
Mr. Ridley: My admiration of my hon. Friend goes very far. If he can surpass even the skill of the parliamentary draftsmen on this occasion, I am sure that that will be extremely welcome.
Mr. Reg Freeson: Will the Secretary of State please tell us whether he intends to take powers to control and stop local authorities from guaranteeing that private finance will go to housing association schemes? It is a simple question; could we have an answer?
Mr. Ridley: We intend to take powers in the Bill to enable local authorities to make contributions to housing associations for projects based on private sector money where they wish to provide houses but cannot afford to do so without grant or at rents that tenants could afford. The right hon. Gentleman will see the details of this legislation in the Bill. He will find it a most valuable way of increasing private rented accommodation without increasing the public sector.
Mr. Patrick McLoughlin: Does my right hon. Friend agree that unions should not oppose this
920
measure, but should welcome it? The measure he has said that he will bring forward to the House in time, if not straight away—and that disappoints many Conservative Members—will lead to lower rates for the ratepayer and a better service throughout our communities. Will he condemn, along with many of my colleagues on the Government Benches, Derbyshire county council's scheme to fight these proposals — which will improve local services—when they come before the House?
Mr. Ridley: I agree with my hon. Friend about the disappointment and about the savings which can be made from competitive tendering. Between 17 and 22 per cent. has been saved in the cost of refuse collection in the areas where councils have taken that action. We have had to stiffen up on the operation of direct labour organisations, which are losing money. We are considering what action to take following a special report on Hackney. My hon. Friend announced today that further requests have been made for special reports from Lambeth and Burnley, and that in future we shall consider action after two consecutive financial failures instead of three. We must insist on higher standards of efficiency from local government, as the hon. Member for Blackburn (Mr. Straw) insisted in an article in a newspaper the other day.
Mr. Nigel Spearing: Will the right hon. Gentleman answer the question asked by my hon. Friend the Member for Bootle (Mr. Roberts)? Are these clauses in draft or are they not? If they are, and the right hon. Gentleman thinks that they are so popular, why cannot they be published to enable the electors to make up their mind in the election of which he speaks?
Mr. Ridley: As I said in my original statement, the parts of the Bill that we are not proceeding with are not yet drafted and that is why we are not proceeding with them and that is why they are not in the Bill. They will not be drafted until a month from now. The only reason why we are not including them in the Bill is that they are not drafted. If they were, they would be in the Bill this afternoon.
Mr. Jerry Hayes: Does my right hon. Friend agree that if any heads should be put on spikes they belong to the parliamentary draftsmen? Conservative Member are becoming increasingly alarmed at their degree of incompetence, which knows no bounds. When we finally have the legislation, will my right hon. Friend give an undertaking that there will be a clause putting parliamentary draftsmen out to competitive tender?
Mr. Ridley: My hon. Friend is unfair; I take full ministerial responsibility. I said in the statement, and I repeat, that we did not know at the time of the Gracious Speech that we would have the problem of total expenditure which, as the House will acknowledge, proved to be an exceptionally complex and complicated matter. The truth is—I am not disguising it or blaming anybody —that preparation of the Bill took so much of the time of the skilled draftsmen that the clauses that we are talking about slipped, and that is the reason for our problem. It is not fair to blame the draftsmen.
Mr. Peter Pike: Will the Secretary of State admit that the measures that he is deferring are not in the best interests of local government? His Department is more interested in attacking local government. It is the politics of local government with which the Government

921
are concerned, rather than its efficiency. The efficiency of local government is in serving the people that it represents, and it is far better at that than the Government. Is it not time that the Secretary of State changed direction in his Department, or took the honourable course of action and resigned?
Mr. Ridley: I cannot accept that local government performs efficiently in all cases. There are some extremely efficient councils, but some councils' performances are so grievously inefficient that the House is right to intervene and make them better on behalf of the ratepayers. I should have thought that the hon. Gentleman would share that view, like his hon. Friend the Member for Blackburn. His attitude that it does not matter how inefficient local councils are is extraordinary. The evidence of that inefficiency is in many reports published by the Audit Commission.
Dr. Keith Hampson: Does my right hon. Friend recognise that if he proceeded with clauses to stop propaganda on the rates, he would assuage the feelings, not just of the Right-wing of the Conservative party, but many of us who have to live with that propaganda in places such as Leeds? Ratepayers have been wanting this for a long time. We find it hard to understand why, if there is the will, there is not the way to provide civil servants to draft clauses which my right hon. Friend can bring forward — the necessary clauses, the mere amendments—and which satisfy the requirements that most of us placed on him when we considered the Bill last year.
Mr. Ridley: Those clauses will be brought forward. I say to the many millions of people who would like to see this abuse ended that the return of another Tory Government will secure the matter once and for all.
Mr. Allen McKay: Will the Secretary of State now answer the question that was put to him? Does he or does he not intend to take powers to stop local authorities from moving private finance into housing associations? Has he not proved, once again, that the only fault with local government is central Government and the Department of the Environment?
Mr. Ridley: If the hon. Gentleman studies the Bill, he will discover that no authority is stopped from doing anything that it has done hitherto. In future, consent will be given, subject to certain conditions, for schemes where local authorities seek to assist housing associations or other bodies to provide further private rented housing. What will not be allowed is straight borrowing by local authorities to circumvent the capital controls.
Mr. Spencer Batiste: Is my right hon. Friend aware that, although there is considerable disappointment among Conservative Members that the legislation to control the abuses of Left-wing local authorities is not to be introduced immediately, there is, nevertheless, recognition that these councils have in the past left no stone unturned in trying to find loopholes in the legislation? Therefore, it is particularly important that the legislation should be developed carefully and in as watertight a fashion as possible. Can my right hon. Friend confirm that the drafting will continue on these clauses, that they will form a centre point in our manifesto at the next election and that they will be introduced in our first legislative Session in the new Parliament?
Mr. Ridley: I confirm all that my hon. Friend rightly asks me to confirm. That will be done. The Bill contains some carefully drafted means of stopping authorities from borrowing money to maintain a profligate style of life—often at the expense of other authorities and to the detriment of their ratepayers. These measures wilt do much to contain the extreme Labour councils that are becoming such a menace in our society.
Mr. Dennis Skinner: Is it not becoming clear, as a result of the exchanges in the past few minutes, that what this measure is about is stopping the work of local authorities, which somehow or other have managed to build a few houses in the public sector during the past few years — despite the Government's attacks, the cuts in rate support grant and all the other efforts that they have made to stop local authorities building bungalows for pensioners and disabled people? This action will prevent local authorities from doing the job that they have been doing on a minimal basis because of Government interference. They will be able to do less than before. Instead of being able to build to about the figure of 20 per cent. in the public sector—as opposed to 100 per cent. in 1979—it will be down even further.
Mr. Ridley: On the contrary, what matters is the total number of houses. The measures in the Bill will enable local authorities to contribute to more houses being built by using private capital for the community.
Mr. Edward Leigh: Does my right hon. Friend agree that many Conservative-controlled authorities — notably Lincolnshire — have made considerable savings by contracting out? Does not this unfortunate slippage make it even more important for voters and ratepayers in Labour-controlled areas to work for a Conservative victory to ensure that the creative accountancy carried out by Labour authorities is not copied by a Labour Government intent on national bankruptcy`?
Mr. Ridley: My hon. Friend is entirely right. I hate to put it this way, but the enactment of these measures would remove a major incentive for people to vote for another Conservative Government. We shall enact them as soon as Parliament resumes.
Mr. Jack Straw: A few moments ago, the Secretary of State sought to justify his incompetence and misjudgments in leaving these three major Conservative promises out of the Bill. Does he recall saying that he did not know at the time of the Gracious Speech of the problems of total expenditure? Does the right hon. Gentleman not recall that the Gracious Speech was on 12 November? He admitted to the House on 16 December and 12 January that he knew by the end of September of the problems of total expenditure and of the need for a local government finance Bill and that he had received the Attorney-General's advice on the matter by the end of October—a good fortnight before the Gracious Speech. In those circumstances, has not the Secretary of State just misled the House? Should he not withdraw what he said?
Mr. Ridley: The hon. Gentleman is trying to make a great deal out of that. May I just take him through what happened? My right hon. and learned Friend the Attorney-General gave us his advice at the end of October

923
that we would need to legislate. That is right. The process of drafting the Local Government Finance Bill took until the middle of December.
Mr. Straw: The right hon. Gentleman knew that.
Mr. Ridley: If the hon. Gentleman would let me reply, he would have better manners. It took six weeks to master the intricacies of what had to be done on the Local Government Finance Bill. The hon. Member for Blackburn and his hon. Friends will know how complicated the legislation was and how difficult they found it to understand the legislation. If I may pass Labour Members a compliment, I do not think that they understand it now. This shows how difficult the matter was.
At the time of the Gracious Speech, the sheer effort and complications involved in introducing the Bill, which, after all, was for the benefit of local authorities in the sense that they could not have received rate support grant without it, caused a delay—I admitted that in my statement—in the preparation of part of the Local Government Bill, with the consequent results which I have put before the House.
Several Hon. Members rose—
Mr. Speaker: Order. I shall call the three hon. Members who have been rising regularly. I ask them to be brief.
Mr. Michael Fallon: Will my right hon. Friend complete this exhilarating, forward-looking and visionary statement by saying exactly how much might have been saved for ratepayers and taxpayers in a full year by the ending of a monopoly in these eight areas of local government? Can my right hon. Friend say when this legislation will be introduced?
Mr. Ridley: It is difficult to put a figure on the amount saved. The Audit Commission is to publish a paper soon which will give an estimate of the savings. In one service alone—refuse collection—there could be between 20 per cent. and 30 per cent. savings. Any local authority that wishes to make savings of that order can do so now, but many do not wish to do so. I cannot forecast when we shall be able to come forward with the other measures, but it will be as soon as there is a clear opportunity for them to proceed on to the statute book.
Mr. John Mark Taylor: Does my right hon. Friend agree that the most important improvement required for the local government land register is that registration should be compulsory? Does he agree that the register will not work properly until it is?
Mr. Ridley: My hon. Friend will see in a schedule to the Bill the powers which are taken. I think that he will find that these will greatly assist my officials to ensure that land that is not used by local and public authorities is quickly brought on to the market.
Mr. Tony Favell: It will not have escaped my right hon. Friend's notice that the Labour party wants the country to believe that he is conducting a vendetta against the whole of local government. Will he confirm that he is after the crackpot councils, not the responsible ones, such as Stockport, which spend about half as much per head of population as neighbouring Manchester?
Mr. Ridley: I confirm that many local authorities are extremely well run. It is when the Labour party gets control of local authorities that the trouble starts. That is another reason why Labour will never win control and form the Government.

Local Government Bill

  BALLOT FOR NOTICES OF MOTIONS FOR FRIDAY 6 MARCH
  Members successful in the ballot were:
  Mr. Tom Cox.
  Mr. John Carlisle.
  Mr. Derek Spencer.

  BILL PRESENTED
    LOCAL GOVERNMENT
    Mr. Secretary Ridley, supported by the Prime Minister, Mr. Secretary Edwards, Mr. Secretary Baker, Mr. John MacGregor and Dr. Rhodes Boyson, presented a Bill to amend Parts VIII and X of the Local Government, Planning and Land Act 1980; to authorise and regulate the provision of financial assistance by local authorities for certain housing purposes; to make further provision about the adjustment of block grant in connection with education; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 79.]

People's Right to Fuel
4.25 pm
Mr. Dennis Canavan: I beg to move,
That leave be given to bring in a Bill to stop the disconnection of domestic fuel supplies in cases of hardship; to introduce a comprehensive system of heating allowances and insulation grants; and for related purposes.
This is my fifth attempt to introduce such a Bill. Since my first attempt four years ago, domestic fuel disconnections have increased alarmingly, no doubt largely due to the increase in mass unemployment and the inadequacy of pensions and other benefits. Last year, there were 158,586 domestic fuel disconnections compared with 146,000 in the previous year—an increase of about 9 per cent. In the case of the recently privatised British Gas, the increase was 27 per cent. during the same period. As for the electricity hoards, two of the worst offenders are the North of Scotland hydro-electric board, with an increase in domestic fuel disconnections of 28 per cent., and the South of Scotland electricity board, with an increase of 25 per cent. during that period.
Recently, the Policy Studies Institute conducted research on individual cases and estimated that 90 per cent. of the people who are suffering from the effect of disconnection are special cases which are specifically mentioned in the existing voluntary code of practice. Those special cases include families on low incomes, families on supplementary benefit and family income supplement, the unemployed, the elderly, the sick, the disabled and families with young children. Recently, considerable publicity was given in Scotland to the case of a 79-year-old pensioner whose electricity supply was cut off by the South of Scotland electricity board. Clearly, the existing voluntary code of practice is not working. These people require the statutory protection which my Bill would give.
The voluntary code would be replaced by a statutory code. Disconnections of domestic fuel supplies would not he allowed unless the electricity hoard gained a court order. Surely, if a landlord is not entitled to evict a person from a house without a court order, the electricity and gas hoards should not be allowed to disconnect domestic fuel supplies without one. Of course, a court order would be issued only if it were proved that no hardship would arise from the disconnection.
That is the negative side of my Bill. On the positive side, I should like to tackle the root cause of disconnection—the growing incidence of fuel poverty which has been exacerbated by the escalation in gas and electricity prices since 1979, when the Conservative party took office—an increase of 134·8 per cent. in gas prices and of 94·1 per cent. for electricity. Those figures are considerably above the corresponding increase in the retail prices index.
My Bill proposes the introduction of a comprehensive system of heating allowances. There has been a lot of publicity about severe weather payments since the turn of the year. However, such a payment amounts to only £5 per week, which will scarcely buy a bag of coal. The present system is hopelessly inadequate because it helps only a tiny minority of the people who are in need. Under my Bill,
926
there would be a much more generous and comprehensive scheme for all the recipients of supplementary or housing benefit. If that was done, the need for yet another means test would be avoided, but, at the same time, assistance would be targeted to those people who were most in need.
I also propose the introduction of an insulation programme. It is ironic that at a time of a growing awareness in this country and throughout the world about the need for energy conservation, the Government are cutting, instead of extending, the meagre system of grants for insulation. Recent estimates show that no fewer than 15·7 million houses in this country require insulation, or improvements to their existing insulation. In many of those cases, the heat is literally going through the roof.
Conservative Members might ask where the money for those schemes will come from. A good nationwide insulation programme could be financed by the cost of one new nuclear power station. There is over-capacity in some parts of the country. For example, in Scotland we have almost double the generating capacity that we require. A nationwide insulation programme would also provide fobs for many of the construction and allied workers who are on the dole. About 7 million households receive housing benefit or supplementary benefit. If we gave them £5 per week, that would amount to a total cost of £35 million per week for heating allowances. I do not suppose that even Terry Wogan would say that that was "mere peanuts".
Many of this morning's newspapers reported a possible Cabinet leak and suggested that the Chancellor of the Exchequer has about £4 billion to play around with in the forthcoming Budget as a result of alleged underspending. I hope that those reports are true and that there is £4 billion to play around with. I hope that, instead of handing it out by way of tax concessions to his rich friends, the Chancellor will bear in mind those people who are less well off and who are most in need, many of whom have to choose between eating and heating.
Age Concern has estimated that more than 100 old people die every day from cold-related illnesses. That figure is a national scandal to which the House should respond. My Bill is a charter to eradicate fuel poverty from this country. It would literally help to save the lives of many people and also to improve the quality of life for many others. Therefore, I ask the House to support my Bill.
Question put and agreed to.
Bill ordered to be brought in by Mr. Dennis Canavan, Mr. Gavin Strang, Mr. Don Dixon, Mr. William McKelvey, Mr. Ernie Ross, Mr. Martin Redmond, Mr. Dennis Skinner, Mr. Michael Welsh, Mr. Max Madden, Mr. D. N. Campbell-Savours, Mr. Jeremy Corbyn and Mr. Tony Lloyd.

People's Right to Fuel
  PEOPLE'S RIGHT TO FUEL
  Mr. Dennis Canavan accordingly presented a Bill to stop the disconnection of domestic fuel supplies in cases of hardship; to introduce a comprehensive system of heating allowances and insulation grants; and for related purposes: And the same was read the First time: and ordered to be read a Second time upon Friday 6 March and to be printed. [Bill 80.]

Public Expenditure
Mr. Speaker: I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition.
Mr. Michael Brown: On a point of order, Mr. Speaker. Before the debate begins, can you give us some clarification about who is to speak in it? I see that the hon. Member for Dagenham (Mr. Gould) is on the Opposition Front Bench. Therefore, it looks as though this will be a debate to which the Treasury team will respond. Can you make it clear whether the hon. Gentleman will speak in his capacity as Treasury spokesman for the Opposition or in his new capacity as employment spokesman, now that he has taken over from the hon. Member for Kingston upon Hull, East (Mr. Prescott)?
Mr. Speaker: That is not a matter for me, but I am sure that it will be clarified when the hon. Gentleman rises to speak.
4.35 pm
The Chief Secretary to the Treasury (Mr. John MacGregor): I beg to move,
That this House takes note of the White Paper on the Government's expenditure plans 1987–88 to 1989–90 (Cm. 56 —I and II).
The Government's public expenditure programmes for the next three years have already been widely discussed in this House and outside since the Chancellor's autumn statement. This annual debate on the White Paper that was published last month provides an opportunity not only to consider the broad themes and any of the thousands of details which individual hon. Members may wish to pick out, but also to reflect on the observations made in the Treasury and Civil Service Committee's report published last Friday.
However, the debate also provides this year an opportunity to bring out the world of difference between the way in which we on this side of the House approach public expenditure issues and that seen on the Opposition Benches. However, as there is no representative from the Social Democratic party or the Liberal party, I can concentrate on only one Opposition Bench, and I will start with that.
One important difference between us is that we have always emphasised that what the Government spend must reflect the resources available, and that, in turn, depends on the performance of the economy. Wealth must be created before it is spent. The Opposition, by contrast, believe in an ambitious programme of public spending so that, when taxes have been raised to pay for it, the private sector has to put up with what is left. To judge from the experience of the last Labour Government, that means little improvement in individual living standards.
Our determination to give priority to strengthening the economy by reducing inflation and achieving sustained growth has been entirely vindicated. As a result, we were able in the autumn statement to make a significant addition to our spending plans of £4·7 billion in 1987–88, and to do so safely because it stems from our improved economic performance.
That is completely strange to the Labour party, and it left it quite nonplussed. It has been fascinating to see its twists and turns ever since. However, Opposition
928
Members have at last settled down to an entirely predictable response. Having failed spectacularly to agree on anything resembling an economic strategy of their own, they have instead embarked on a vain attempt to instil terror into the electorate at large by conjuring up an imagined vision of crisis round the corner. They will do anything to divert attention from the actual performance of the economy and the paucity of their own policies.
The facts belie them. In recent months, inflation has been registering rates last seen 20 years ago, while Government borrowing last year and this looks set to be the lowest since the early 1970s. Our firm financial policies, our measures to remove supply side constrants and the many steps that we have taken to improve the way in which markets of all kinds operate have laid the foundation for sustained growth in output and employment.
We are now well into our sixth successive year of growth, achieving nearly 3 per cent. a year. We have been topping the growth league of major EC countries, a welcome change from our position at the bottom in the previous decade.
That growth is not, as the Opposition are trying to make out, simply the result of an extravagant consumer boom fuelled by excessive consumer credit. In fact, over these six years, consumers' expenditure has risen by an annual 3 per cent. — just as fast and no faster — [Interruption.] Opposition Members should note that I am talking about six successive years of growth. That consumption has risen just as fast as, and no faster than, it did under the last Labour Government's recovery. However, investment has risen faster still, at over 4 per cent. a year—three times as fast as the corresponding annual increase when Labour was last in office, and twice the Community average.
So the steady progress of recent years is continuing. Indeed, in many areas it is speeding up. Manufacturing profitability is higher than at any point since 1973, and manufacturing exports have reached record levels. Since 1979, productivity in this country has risen faster than in any other industrialised country, by 3½ per cent. a year.
Since the country gave our policies its overwhelming vote of confidence in June 1983, employment has grown strongly. Indeed, the number of new jobs has risen for 14 quarters in a row — the longest period of continuous employment growth for almost 30 years.
As for the balance of payments, my right hon. Friend the Chancellor of the Exchequer has already referred in the House to the reasons for the move into deficit this year after a substantial build-up of surpluses during the past few years. But as a result of our policies, we have a cushion of net overseas assets totalling £80 billion at the last count in 1985—more than six times the level we inherited, and one of the largest holdings in the world, yielding an annual income of almost £5 billion.
So the first theme of this White Paper is that the growing strength of our economy has enabled us to increase our public expenditure plans within what demonstrably we can afford; this has enabled us to meet our public expenditure objectives and to find room for more spending in 1987–88.
My second theme is that the White Paper demonstrates our consistency of purpose, for the planning totals for public expenditure as a whole and for our priorities in individual programmes. As I have said, the success of our economic policies has enabled us, responsibly, to raise our

929
public spending plans, but in doing so we have been able to give the assurance that there would be no increase in borrowing this year or next. Moreover, the plans allow for a rate of growth of spending in real terms which is significantly less than we project for the economy as a whole. So the Government's fundamental objective, set out in the 1979 manifesto, that
"the State takes too much of the Nation's income; its share must be steadily reduced",
is being achieved. The ratio of general Government expenditure to GDP has been falling during the past four years and will continue to do so over the next three.
But what is also important is that, within that overall objective, we have been able to increase substantially our spending programmes in our key priority areas. As a result, we have considerably strengthened our priority services. That process has been repeated this year, with extra funds being allocated to, among others, the Health Service, the road programme, education, housing priorities, the sick and disabled and law and order. Obviously, I can deal only —and briefly—with a few programmes.
On health, the plans provide for 2·8 per cent. real growth in net Health Service spending next year. That allows sufficient provision to meet pressure on services from the growing numbers of elderly people and for improvements in the services provided. It follows the 26 per cent. real growth since 1978–79. The plans provide for more spending on hospitals — more than 100 new hospitals should be completed by 1990. Within our plans, £50 million has been specifically allocated to reduce waiting lists and waiting times during the next two years.
Capital spending on the national roads programme is up 30 per cent. in real terms since 1978–79, after a 30 per cent. fall under the Labour Administration. In cash terms, that means nearly £6 billion.
Our plans provide for £11 billion of spending on housing over the survey period. That follows a 40 per cent. real terms increase in spending on renovation — £1·3 billion in all—since 1978–79.
The largest cash increase in this year's White Paper is for the education programme. Spending per pupil has already increased by nearly a quarter from 1979–80 to 1985–86.
Expenditure on retirement pensions is up by 25 per cent. in real terms since 1978–79 to cover the needs of the growing numbers of pensioners and to more than meet our commitment to protect the pension against inflation. Spending on benefits for the long-term sick and disabled grew by 75 per cent. in real terms between 1978–79 and 1986–87.
Law and order has always been a priority, and will continue to be. Spending has gone up by 50 per cent. in real terms since 1978–79, and this is by no means all for the police.
Even within our priority areas, however, I am constantly aware of the need to scrutinise programmes to ensure that we are getting value for money and that the programmes are being efficiently applied, administered and targeted.
Mr. Tam Dalyell: The Chief Secretary mentioned priority areas, but he has not mentioned the science budget. May I raise the problem, which the Minister of State knows is serious, of the research councils, which are obliged to pay their staffs between 13 per cent.
930
and 16 per cent. extra, but have not been given the funds to do so, which means a cut in real research, including research related to AIDS. Will the Minister consider this problem especially?
Mr. MacGregor: I shall certainly ensure that the hon. Gentleman receives an answer on that point, but he will know that we have a good record of spending on research and development. He mentioned AIDS; he will know that the Medical Research Council approached us with a request for additional spending on research on AIDS, to which we immediately and readily responded.
Even in our priority areas, we must ensure that we are getting value for money and that the programmes are being efficiently applied, administered and targeted. For example, in the law and order programme, one area of growth stands out—legal aid. Between 1979–80 and 1984–85, total gross expenditure from the legal aid fund rose from £87 million to £263 million. It trebled in only five years. The Government are the biggest single purchaser of legal services in the country. Therefore, they have a compelling interest in the efficiency of the system which delivers justice. At a time when we insist on rigorous examination of spending on health, education and many other matters, we cannot exempt the legal system from such scrutiny. That is why, in 1985, we asked for an efficiency scrutiny of the whole legal aid system. The Government's proposals following public consultation will be announced soon.
That brings me straight to the third theme which runs throughout the White Paper, and that is the emphasis on what is described in the jargon as "output and performance measures", or, more simply, getting better value for money for the taxpayer. Immense efforts have been made by the Government to improve the efficiency and cost-effectiveness of the delivery of public goods and services, and results are now showing through quite strikingly. To those who are interested, I cannot underline too strongly the significance of the White Paper in this respect. It provides an account across the whole of Government not only of what is planned to be spent but of what the country is getting for it. This year, there are about 1,800 illustrations of output being achieved, of measures of performance and of the targets which Departments are setting themselves compared with about 1,200 in last year's White Paper. That is a significant advance.
Here again, we have another crucial difference between the approach to public spending of our Government and that of the Labour party. We do not judge the contribution of a programme solely by the resources that are put in, but by the service that is delivered. The Labour party thinks that we are being virtuous only if we are spending more —preferably much, much more. As Lord Barnett, the Chief Secretary to the Treasury in the Labour Government, put it in his book "Inside the Treasury",
"You name it, we were pledged to increase it".
Nothing has changed.
Of course, it is so much easier to get a headline—"X million more on roads"—than to get over the message that, because of the better value for money we are getting from the roads programme, we can build four miles of road for the same price in real terms as three in 1979–80, and we are spending more, too. Of course, one is liable to be accused of parsimonious ungenerosity if one queries whether a programme is delivering its objectives, or

931
whether a given purpose could be achieved more cheaply or efficiently. Of course, too, this is the unglamorous side of public expenditure management, requiring enormous, but often unrecognised, effort. But the taxpayer is quick to complain when he spots what he regards as an example of waste. I am convinced that the monumental efforts that we have put into this side of public expenditure are paying off, and not only in terms of value for money for the taxpayer.
I was interested to see that, in his address to the Labour party national local government conference, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) paid lip service to the subject when he inserted in his speech these words:
"every penny we can afford for job creation will have to be wisely spent"
and
"it will involve and require detailed plans which are precisely targeted and carefully costed."
If imitation is a form of flattery, that is a tribute to this side of the House which has been constantly preaching this message. It is certainly a belated recognition of what we have been telling him for months and months: that his employment programmes are badly targeted and ill-costed and would be unwisely spent. But I suspect that it is only lip service.
But these measures and targets for costs, output and performance are not simply descriptive material produced for the purposes of the White Paper. They are being used by Departments in their day-to-day management and in the year-by-year planning and control of programmes.
I see three main benefits from better measurement and targeting. By relating outputs to the costs involved, managers can make better choices. By setting out in advance what a programme is expected to achieve, by when and at what cost, subsequent review and evaluation is improved. By telling this House and the outside world what has been achieved and how that relates to previous targets, Departments are made more accountable.
I am grateful to the Treasury and Civil Service Select Committee for the attention it is giving to this subject. It has an important role to play in following through, year by year, the performance of Government in achieving their targets. I hope it will encourage other Select Committees to pursue more rigorously these aspects, not only because it is an important development in accountability but also because it focuses directly on Parliament's role of ensuring that taxpayers' money is not only properly but also wisely spent.
Mr. Dalyell: On Select Committees, the right hon. Gentleman will have seen the report of the House of Lords Select Committee on the science budget. Does he or does he not accept that this is serious for the country? AIDS is not a party matter but is monumentally important. I would not ask for an open cheque book on anything, but could we have an open cheque book for one matter, that is, research into viruses without which a vaccine cannot be produced to do anything to arrest the AIDS problem? Can we at least have an open cheque book for good science on that?
Mr. MacGregor: I should have thought that the hon. Gentleman would not expect an open cheque book on anything, as he said at the beginning before he promptly
932
went on to ask for one. It is important to evaluate carefully every public spending proposal to see that it gives value for money and to see whether it can be afforded. That is entirely the approach that we take.
Reference to the Treasury and Civil Service Committee brings me to its report. I should like to pay tribute to the speed with which my right hon. Friend the Member for Worthing (Mr. Higgins) and his Committee have absorbed what is now a very substantial White Paper and the constructive way in which they approach their tasks. Treasury Ministers and officials have always appreciated in particular the recommendations on technical and presentational matters, and I hope that the Committee would agree that from the positive way in which we have responded this has been a worthwhile dialogue. The Government will be replying in full in the normal way to the report, so the House will forgive me if I comment today only on some of the main points.
The Committee suggested that, in emphasising the objective of reducing public expenditure as a proportion of national income, there could be a weakening of control. I should like to reassure the Committee on this point. In order to secure progress towards the overall objective, the Government each year set intermediate targets in the form of cash planning totals. These cash planning totals are not only the crucial method of control within the year in question, but are also the means by which, step by step, we continue to achieve our medium term objective. So we attach importance to the achievement of the planning total, which is why throughout the year I devote much time and effort to rigorous scrutiny of any claims on the reserve. I grant that we have not always hit the target of delivering the planning total spot-on—
Mr. Roy Hattersley: Something of an understatement.
Mr. MacGregor: That is rich from the right hon. Gentleman, given the way he is so careless about planning totals. If he ever had the opportunity, which God forbid, to carry through his programme, he would be equally careless about hitting the targets.
Given the overall size of the programmes and the inevitable uncertainties, our record has been creditable. In the five years since the introduction of cash planning, the average overrun for the planning total set for the year ahead has been about 0·8 per cent. and, but for the coal strike, would have been about half that. So there has been no weakening in the efforts to maintain control.
The Committee's warning in the same section against basing plans on over-optimistic assumptions about economic growth is entirely right, and one which the Government support. A glance back at our record in government would demonstrate that we have heeded it, which is why public expenditure as a proportion of gross domestic product is coming down. I say to my right hon. Friend the Member for Worthing and to members of the Committee that it is to the Opposition that the point should be directed, although I doubt whether they would ever pay much attention to it. Neither the record of the past Labour Government nor the party's current spending plans suggests that it is one to which they give more than a passing thought.
Next I would like to respond to the Committee's remarks about capital spending. In paragraph 31, the report states that capital expenditure is declining. That is

933
not actually so. In the current year we expect the outturn for total capital spending to he around £22½ billion. In real terms that is almost exactly the same figure as in 1978–79. Thus, capital spending has not declined but has been maintained — which is in sharp contrast to the record of the Labour party who cut capital spending by over 20 per cent. in their period of office.
One point to which I frequently have to draw attention is that looking at the departmental programmes for the three years ahead does not give a complete picture of what the eventual capital expenditure will be, because almost invariably in practice some of the expenditure from the reserve in any given year is devoted to capital spending. If I may give an illustration, in last year's public expenditure White Paper, for 1986–87, capital spending on departmental programmes was shown as 5·3 per cent. below the amount for 1985–86 in real terms. In fact, it is now 1·6 per cent. above 1985–86.
But I take the spirit of the Committee's report on this point and am fully with the Committee on the relative importance of capital expenditure. The Committee will have noted that in the survey we added an additional £1 billion of capital expenditure to the plans for 1987–88.
Finally on the report, the Committee has shown a continuing interest in Government Departments' running costs and manpower. Obviously, any new system will have its teething pains, but the running costs arrangements introduced last year have settled down well. The running costs limits set in this year's Estimates are being pretty well adhered to; where there are increases — amounting to £80 million out of a total running costs of £13 billion—in almost all cases these reflect deliberate policy decisions. It has been our firm policy that higher pay costs should be absorbed within running cost limits.
In introducing the running costs system, we decided that it would be sensible to continue with separate manpower targets for an initial period. These have been to date an essential part of our strategy for achieving a leaner and more efficient Civil Service. Numbers have fallen by more than 130,000 since April 1979, and nearly 90,000 of that reduction results from increased efficiency, improved methods of working, and general streamlining. That is a significant achievement, due in no small part to the efforts of individual civil servants in improving their Departments' efficiency and in providing better value for money. I should like to pay tribute to them and acknowledge the debt that we owe them.
Mr. Dalyell rose—
Mr. MacGregor: I have given way to the hon. Gentleman often enough.
But we have always recognised the difficulty of running two separate controls side by side for any length of time. Moreover, the "belt and braces" approach runs counter to our other broad objective of extending greater responsibility for financial management and budgeting to Departments and much further down the line within Departments. So we did not publish a separate manpower target beyond April 1988, and made it clear that we would review the need for continuing separate manpower targets beyond that date in the light of our exprience of the new running costs system.
I can now tell the House that, in the light of the encouraging start made by the new control arrangements, we do not intend to set further overall targets for
934
manpower after April 1988. We shall need to continue to take a close interest in manpower during the annual public expenditure survey. The White Paper will continue to give each Department's manpower plans for each of the forward years of the survey and any increase will have to be agreed with the Treasury. The primary consideration in considering extra manpower will be whether the revised manpower plans are consistent with the running costs limits.
I can assure the House, therefore, and particularly those of my hon. Friends who take a close interest in such matters, that the new arrangements — which are a combination of manpower plans and the control on running costs — will maintain the momentum of the drive for increased efficiency and leaner staffing by Government Departments.
Mr. Dalyell: Will the Minister give way?
Mr. MacGregor: I believe that I have given way enough to the hon. Gentleman. He may make his points in his own speech.
The overall control will be the one set by the running cost limits and that will give individual Civil Service managers greater flexibility to make best use of the resources available to them.
Mr. Dalyell: Will the Minister give way?
Mr. MacGregor: I do not want to be too long. I have already given way twice to the hon. Gentleman.
In short, the message is that we are achieving success in economic growth and success in our public expenditure programmes through good management and responsible and prudent economic policies. When those expenditure programmes were first announced, the Opposition were totally at a loss. They did not know whether to describe them as irresponsible pre-election spending or as grossly inadequate. So with their characteristic confusion they promptly did both at the same time. That is only one illustration of how much they are at sixes and sevens.
Last year, the right hon. Member for Sparkbrook pledged that the Labour party's "anti-poverty" progamme of £3·6 billion would be met by increasing taxes on the richest 5 per cent. When we pointed out that to raise those sums would not only reintroduce the investment income surcharge and restore capital taxes to 1978–79 levels, but would require a return to destructively high levels of income tax—in this case it would mean a 70 per cent. rate on all incomes above £24,500, including couples' joint incomes — the right hon. Gentleman prevaricated. The right hon. Gentleman started to talk about taxing the very rich—he may have used a different word but he implied the very rich. When it became clear who he had to include among the very rich, his public statements became very confused. Eventually he settled for those with incomes over £27,000, but the electoral impact of that was too much for his leader. Therefore, last weekend, the right hon. Member for Islwyn (Mr. Kinnock) put it up to £30,000.
Now, according to The Daily Telegraph of today, the right hon. Member for Sparkbrook last night tried to reconcile the irreconcilable by saying:
"any individual earning £25,000 a year is likely to be affected, anyone earning £27,000 is almost certain to be affected and anyone earning £30,000 is certain to be affected."
That is very clear. The right hon. Gentleman does not say affected by how much, so I can tell him. All those

935
concerned will be paying marginal tax rates of 70 per cent. The trouble is that Labour's tax policies are as confused and damaging as their expenditure plans.
Not long ago, the hon. Member for Kingston upon Hull, East (Mr. Prescott) grandly announced that Labour, if elected, would introduce a I per cent. training levy on industrial turnover, at a cost to industry of between £5 and £6 billion a year. The right hon. Member for Sparkbrook tried to put it smartly back into the bottle, but his colleague kept pulling it out again. We still do not know where they stand, but the massive threat is there.
Not so long ago the hon. Member for Kingston upon Hull, East described the Labour local authorities as the engines of growth for reducing unemployment. On this one at least, he was backed up by the right hon. Member for Sparkbrook, who last year, told the Association of Direct Labour Organisations:
"Local authorities will lead the way in Labour's drive to reduce unemployment by I million within two years."
The response has been predictable. Southwark chipped in with a scheme, commended by the hon. Member for Kingston upon Hull, East, which if implemented nationally would have cost a cool £20 billion spread over two years. Sheffield, Manchester and Haringey are queuing up with their big spending plans. Last week Islington produced a scheme, supported by the same hon. Gentleman, to produce just over 4,000 jobs at a cost of £51 million. One million jobs created "Islington's way" would cost over £12 billion. Is that what the right hon Member for Sparkbrook means by "precisely targeted" schemes and money "wisely spent"?
No wonder, rumour has it, that concern is spreading in the innermost regions of the Shadow Cabinet at the uncontrolled way in which the hon. Member for Kingston upon Hull, East is spewing out such plans—so much so that it is reported that the hon. Member for Dagenham (Mr. Gould) has now therefore taken over the employment portfolio. I say to him and his right hon. Friend the Member for Islwyn that he should take over the social security portfolio as well.
I hope that the top bedside reading of the hon. Member for Dagenham will be the recent Audit Commission report. I am sure he will be aware of the profligacy, scandalous creative accounting, overmanning and mismanagement of eight Labour local authorities identified in that report. The hon. Gentleman will have read the Audit Commission's conclusion:
"One of the lessons of the past is that 'throwing money at the problem' all too often simply means more waste".
Mr. Dalyell: Will the Minister give way?
Mr. MacGregor: I have already said that the hon. Gentleman should seek to make his speech later.
It is extremely important to the taxpayer and the electorate to understand the points I am making at the moment. I suspect that the hon. Member for Dagenham, with all his skills, is having nightmares about Labour's spending programmes. If not, he certainly ought to be.
It was almost exactly a year ago that I announced the full-year cost of the Labour party's commitments on public spending. In the spring of last year, other Labour spokesmen, and in particular the hon. Member for Oldham, West (Mr. Meacher), made several further pledges and I revised the overall total to £28 billion, which
936
did not include some £7 billion of further pledges made by the hon. Member for Oldham, West — I gather that another pledge was given this morning on the radio. Since then we have had a steady flow of further pledges. Pledges at the Labour party conference alone amounted to at least £9 billion.
Throughout, I have said that if the right hon. Member for Sparkbrook will tell me which of his colleagues' pledges he will drop, I will take them off the list. We have given them every opportunity, most recently when my right hon. Friend the Chancellor asked specific questions in the debate in this House on 20 January. Answer was there none.
The hon. Member for Kingston upon Hull, East has at least suggested that the Labour party would want to abandon the pledge to introduce a minimum wage, to introduce the 35-hour week and to introduce early retirement. Perhaps the hon. Member for Dagenham can tell us today whether that is so. But I have to tell him that, even with those out, the extra pledges made since my last costing would certainly take the figure at least back to £28 billion.
We are told that the hon. Member for Dagenham is working on it. We look forward to the results of his labours. However, the clear lesson of the past year is that, even in opposition, the right hon. Member for Sparkbrook has little or no control over his colleagues. The process by which the Opposition make their plans shows no signs of anyone trying to make choices or impose priorities. We are sorry that the right hon. Member for Sparkbrook is not contributing to this debate. The Opposition's policies are similar to the clamour of the Chicago market for pork belly futures — no co-ordination; just people shouting out their bids.
The right hon. Member for Spark brook tours the City, sober-suited, trying to persuade his audience that Labour's policies are well thought out and financially responsible. However, before he has got to the dessert, another of his colleagues has announced some new policy. In recognition of this failure to impose some order, the hon. Member for Dagenham has been brought in to see what he can do. But even while he has been in charge, further pledges have been made in Labour's latest local election document, published some two weeks ago, "Investing in People" — a document which incidentally reconfirmed a large number of existing pledges.
Mr. Dalyell: On a point of order, Mr. Deputy Speaker. On Monday night you will recall that you had me up for being out of order. In relation to the Government's business of the day, is all this in order? Sauce for the goose is sauce for the gander.
Mr. Deputy Speaker (Sir Paul Dean): This is a debate on public expenditure and, by convention, debates on public expenditure can go very wide. Mr. Speaker has selected the amendment in the name of the Leader of the Opposition, so the Chief Secretary is entitled to canvass the merits of that amendment as well.
Mr. MacGregor: I am not surprised that the hon. Gentleman does not want this put before the House; he will see the relevance in a moment.
That is why the hon. Member for Dagenham, an honourable man who does assiduous work, must face the fact that the Labour party faces such a huge credibility

937
gap. For we have seen it all before. In "Inside the Treasury" Lord Barnett quotes the right hon. Member for Sparkbrook as saying
"The Labour Party is always wanting to bake plum pies before we have picked the plums."
It is a nicely turned phrase, but oh, so telling.
It is right for me to make that contrast in this debate. For on public expenditure, our plans are not empty bribes incapable of fulfilment and if attempted likely to wreak havoc on the economy. They are solidly based on economic achievement. The country is getting the fruits of our prudent and responsible stewardship and we are determined to keep it that way.
5.11 pm
Mr. Bryan Gould: I beg to move, as an amendment to the motion, at end to add:
'but condemns the Government's continuing hostility to public expenditure on vital community services which has produced such damaging cuts and imposed additional costs; regrets that so much public spending still has to be devoted to such unproductive purposes as unemployment; and recognises that the apparent relaxation of spending limits has been largely inadvertent, falls far short of what is needed to achieve satisfactory provision of services, and is in any case not intended to survive the General Election.'
We are invited in this debate to take note of a more than usually uninformative White Paper. It is particularly coy about some of those details on which the Government rightly feel political sensitivity, for example, on the matter of the cost of some aspects of the privatisation programme. Even where it does tell us things, we are bound to remark that that information must be treated with great caution in view of the obvious point that that, like so much else currently emanating from the Government. is so clearly geared to their pre-election needs.
The Chief Secretary demonstrated again today the basic unease that the Government always demonstrate when they talk about public spending. It was remarkable how much more comfortable he was when he was attacking what he fancifully called Labour's spending plans and how much more reticent and embarrassed he was when talking about his White Paper.
It is worth pausing to speculate as to why that should consistently be so. The reason is that the Chief Secretary has to come to the House and for the third or fourth time—so embarrassing for a Government who maintain that there have never been any alternatives and that their economic prescriptions are set in stone—and go through an exercise in which he concedes that his public spending target has once again had to change. We recall that the first target was that public spending was simply to be cut. There were no ifs or buts; that was what they were going to do. Unfortunately, that proved impossible. The next target was that it was to be kept level in real terms. I am afraid that that, too, proved to be impossible and went out of the window. We are now told that the target, yet to be achieved, is to reduce public spending as a proportion of the national income. What we have now is a pattern of behaviour where targets are fixed and then, in each case, missed. That is the first and obvious example of why the Chief Secretary should feel embarrassed.
There is a second reason. He dare not concede or reveal why he has found hitting his target so difficult. The reason is that he has found it impossible because the rise in public spending that he is now attempting to claim as a victory—a few years earlier he would have hidden it away as a
938
defeat—is a manifestation of economic failure. Of the £19 billion increase in real terms since 1979–80, no less than £16·5 billion can be attributed to economic failure; to the social security programmes, unemployment, debt and interest payments on the national debt. The Chief Secretary has again tried to make a virtue out of necessity.
What has been forced upon him in the past is clearly set to continue because the White Paper concedes, in the assumption that it makes about unemployment, that unemployment will rise from the level specified in the preceding year's White Paper. The Chancellor's hand is still being forced by economic failure and by rises in public sector wage settlements, which he has fought tooth and nail to resist and has condemned root and branch, but which he is now forced to say are the basis upon which public spending has been allowed to rise.
There is a third reason for embarrassment. The Chancellor's efforts to cut public spending have been counter-productive in more than just macro economic terms, although that is very clear because the cuts have led to the economy collapsing in on itself. — [Interruption.] This point may elude Conservative Members but the public sector is a part of the economy. If one makes cuts in the public sector, one damages the economy and increases unemployment arid the cost of unemployment. It is no accident that the cost of unemployment to the public sector budget is now running at £22 billion per year. There are more direct and detailed consequences. The Audit Commission in an earlier report made it clear that the ill-considered and arbitrary cuts forced on local authorities meant that it was more difficult for them to reduce costs and to deliver services efficiently.
The real embarrassment is an ideological one. We have come a long way since the right hon. and learned Gentleman, now the Foreign Secretary, was the Chancellor of the Exchequer and said that public spending was at the heart of our economic problems. Is that still the view of the Chancellor of the Exchequer and the Chief Secretary? If it is, how can they justify the position to which they now have to adhere which is that they have done absolutely nothing to amend the levels of public spending which have risen throughout the bulk of their period in office as a proportion of national income? Do they wish to say that they have adhered to that fundamental proposition made by the first Chancellor in this Tory Administration, or are they to remain silent and to concede by their silence that a fundamental change has been forced upon them by harsh practical experience and by the needs of the pre-election position? I see that they do not rise to that challenge.
No wonder, in the light of those matters, there is a certain ambivalence, not to say schizophrenia, about the way in which the Chief Secretary attempts to deal with public spending. He is not a t all clear which way to face. He is not clear whether to speak to the audience in the City, which he is trying to show by a series of nods and winks and little bits of coded language that nothing has really changed and that the leopard has not changed its spots. He is saying that if the Conservative party was to fluke a win at the next general election the brakes would be on again. At the same time he has to say to the wider audience, the audience with many millions of votes, "Forget about what we used to say. All those bets are off. We have changed. We are reformed characters and we are now set on a course where public spending is a virtue and

939
we shall restore all those cuts which we told you in the past we could not avoid, but which we now concede can be restored. What a wonderful thing that will be."
Mr. Nigel Forman: Since the hon. Gentleman is now preaching the virtues of clarity, perhaps for reasons of balance he could explain what is meant by the Opposition motion where it says that the spending relaxation, to which he refers, has led to increases which fall
"far short of what it needed".
How much more is needed in the eyes of the Labour party?
Mr. Gould: The hon. Gentleman's intervention, which I was glad to allow him to make, comes at an opportune moment. That is the point to which I now wish to turn. It is on precisely that point that the Chief Secretary demonstrated that he was not keen to speak about his own spending plans, or, more particularly, his public spending record, but was much more comfortable talking about Labour's spending plans.
The Chief Secretary started a hare some months ago which no doubt will run again. The hon. Member for Carshalton and Wallington (Mr. Forman) is doing his best to keep it running. The mystery about that exercise is why the Chief Secretary, who we are told is normally a sane and sensible man, a prudent Minister in the Treasury and accustomed to dealing carefully with figures, should lend his name to such an outrageous exercise as he has repeated again. Why should that intelligent man suddenly spout rubbish when he fantasises about Labour's spending plans? I can throw light on that mystery. I was idly looking through the 1986 "Parliamentary Year Book" and 1 turned to the reference to the Chief Secretary. Among his hobbies, the gardening, the music and the travel, was conjuring. As soon as one understands that crucial aspect of the right hon. Gentleman's personality and knows his range of interests, a great deal becomes clear—not only about his current exercise but about his antecedents.
How was the right hon. Gentleman suddenly transformed from a decent, obscure Minister in the Ministry of Agriculture, Fisheries and Food to a senior Minister in the Treasury? There he was, an Agriculture Minister supervising the breeding of white rabbits. Suddenly he developed the habit of using that catch phrase so widely popularised by his hero, the television magician Paul Daniels. In answer to every question put to him he began to reply, "Not a lot". It came to the Prime Minister in a blinding flash that that was the ideal qualification for the Chief Secretaryship in the Treasury. That is why he said in answer to every request for spending, "Not a lot". He became known as Not-a-lot MacGregor, the conjuror and Chief Secretary.
Mr. Forman: Will the hon. Gentleman give way?
Mr. Gould: No, because the House needs to know about this. It was at this point that the full potential of the right hon. Gentleman's talents became apparent. He was asked, I suppose by the Prime Minister or the Chancellor, to turn his conjuring skills to what was laughingly called Labour's spending plans. He did so, and on some occasions the trick worked to the extent that he produced £24 billion worth of spending. On other occasions, it was £28 billion. Sometimes when his mail order conjuring set worked really well he was able to produce £35 billion.
940
It is an engaging picture. We see the hon. Gentleman with his top hat, white gloves and cane using his conjuring skills. However, they are rather amateurishly deployed. The right hon. Gentleman has nowhere near the skills of the Chancellor who demonstrates time and again the unusual ability to twist and distort almost everything while keeping a straight face.
We can see the top hat and know where the white rabbits come from. We know why the tricks are done. When we are asked what we make of the ludicrous fantasies and are asked to comment upon and evaluate them and asked if we take them seriously, we are entitled to say, "Not a lot." That is our answer. We take no responsibility for commenting on this absolute invention.
Mr. MacGregor: Will the hon. Gentleman tell the House which items are not white rabbits and are clearly documented in black and white? Which items does he think should not be in the programme so that the programme comes down to, "Not a lot"?
Mr. Gould: The right hon. Gentleman is trying to put a false value, a false certainty and a false worth—one might almost say a false bottom—on an entirely fanciful exercise. I have said many times, and I shall say once more for the sake of the right hon. Gentleman and Conservative Members, that if they want to see an absolutely convincing repetition of all the nonsense that the right hon. Gentleman has peddled and which, as a sign of his desperation and to my great surprise, he continues to peddle, they should ask the question—
Several Hon. Members rose—
Mr. Gould: I hesitate to act as a sales agent for the Institute for Fiscal Studies, for the National Institute for Economic and Social Research, for Phillips and Drew, for the ITEM group or any of the other independent economic forecasters who have looked at this matter and have made it perfectly clear that the basis of the right hon. Gentleman's calculations is so ludicrous as not to warrant serious attention.
Mr. MacGregor: I have read what the Institute for Fiscal Studies has to say. The key point that it makes sbout the £28 billion is that the Labour party—if the country ever had the misfortune to see it in government—would not expect to implement it all in the first year. 1 have always granted that and said that it would be in the full flood of the Parliament.
Mr. Gould: I am delighted to see what I trust is the right hon. Gentleman's true character. He has at last said that he is prepared to make that concession. Is he prepared to make the other concessions which would start to make more sense and give a rather lower total to the exercise that he has so often gone through?
Bearing in mind the debate on the Government's White Paper and the embarrassment so clearly suffered by the Government when they are required to talk about public spending, it is clear that their view is quite simply that the public sector is a foreign country, even an enemy. They say that public spending is a drain on the national resources.
We have no such inhibitions and believe that public spending is not only desirable but necessary in the interests of making the investment in our economy without which we simply cannot face the future in a modern industrial world. We feel no embarrassment about that and we

941
intend to increase public spending. We shall make clear exactly how much and for what purposes we shall spend the money.
Mr. Patrick Nicholls: How much and when?
Mr. Gould: We shall do it as soon as the Chief Secretary and the Prime Minister give us a general election. After that we shall begin to remedy the deficiencies in the Government's record. They have allowed public spending to be cut and cut again so that there is now a lack of investment in the training of our people and, as was made clear in the debate, in the research and development needed for our industrial future. We have committed ourselves, and do so again today, to increase public spending in the interests of the infrastructure required by a modern industrial economy. [interruption.] Despite the barrage from the Government Benches, let me make it clear that we are not alone in saying that. The Labour party does not stand alone or make a unique claim on the virtues and benefits of public spending. Our claim is supported by a range of independent bodies, many of which are often close to the ear of the Government. Let me also make it clear that the level of public spending that we are talking about is in no sense excessive by international standards, and certainly not excessive by comparison with countries rather more successful than ours. It is certainly above the level thought to be appropriate in successful economies such as in West Germany and Canada.
Mr. Keith Raffan: Will the hon. Gentleman give way?
Mr. Gould: My record on giving way is good.
Mr. Raffan: It is deplorable.
Mr. Gould: I shall not give way to the sort of rabble in the Conservative party who are making a noise.
We are talking about a level of public spending that would take us to the European average. At present we are below that European average. Our level of public spending is a little higher than that of Japan and the United States. However, I wonder whether the Conservative party would wish to align itself with either of those two examples. Japan is a rather special case, after all. The Japanese spend less than 1 per cent. of their national income on defence. Or does the Conservative party wish to align itself with the example of the United States? They certainly have a lower proportion of public spending than us, but is the long-term objective of the Conservative party to aim for American levels of public spending? Is it prepared to pay the cost, in terms of social divisiveness and bitterness, that comes from that level of public spending?
The Labour party would spend that public money on such things as the training that is now desperately needed, on the research and development that the House of Lords Select Committee made clear was desperately needed. We would spend it on the infrastructure which even the CBI now demands that we should make.
Mr. John Maples: Will the hon. Gentleman clarify something about which we are in some doubt? He said that Labour would spend more money on training. The hon. Member for Kingston upon Hull, East (M r. Prescott) made a commitment of a £6 billion training
942
levy on industry. Does the hon. Gentleman agree with that, and what does he think will be its effects on industrial policy?
Mr. Gould: I am sorry to say that the hon. Gentleman has taken a leaf out of the conjuror's book so often used by the Chief Secretary. I invite the Chief Secretary now to concede that he wrote to me on that point. [Interruption.] Let me answer one question at a time. The Chief Secretary wrote to me on that point and he asked me that question. I refer him to a passage in Hansard, in which my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) made it perfectly clear that we are committed to a substantial training programme, to financing it from a mixture of public money and a levy from industry and that we have yet to decide what the level of those contributions should be. That is a perfectly proper position for a party in opposition to take.
It is not surprising that in this debate, allegedly about public spending, so much attention is being paid in the House and outside to the public sector borrowing requirement figures, because it is quite clear that that is thought to be the bull point that the Chancellor will make in his Budget preparations.
Let us be perfectly clear that that leeway of increased and additional revenues that the Chancellor now enjoys is not the reward of economic- success. It is the fruits of profligacy. That is almost entirely a representation arid reflection of increased VAT revenues on increased consumer spending, fueled by record family debt which produces a rapid deterioration in our balance of trade because it sucks in such huge quantities of imported manufactures.
Let us also be clear that, to the extent that these increased revenues are available on a sustainable basis—that remains a wide open question — they are also revenues available to the incoming Labour Government. We would make those revenues available for our investment programme. We would not make them available for the irresponsible and profligate spending boom which the Chancellor hopes will sweep him to a general election victory.
Mr. Nicholls: How does what the hon. Gentleman ha .s just said square with the Fabian tract that he wrote in 1983 in which he called for more money to be left in the coffers of the people to ensure that they could buy the country back to full employment?
Mr. Gould: The hon. Gentleman is absolutely right and takes the answer out of my mouth. That was 1983. We are now four years on. Incidentally, I hope that fisticuffs are not about to break out among Conservative Members.
In 1983 we were still enjoying a surplus in our manufactured trade. We now have a deficit which the Treasury forecasts will rise to £7·5 billion this year. If that deficit were produced in British factories, it would account for three quarters of a million jobs. That is the extent of the deterioration. That is why we now need to invest. That is why we know that leaving things to the Tory private market simply will not work. That theory has been tested to destruction over the past four years. We now know that, if investment is to be made, it must be made by the public sector.
I return to the Chancellor's much touted surplus available revenue. That surplus cannot be sustained because the consumer boom arid the balance of payments,

943
in all its precarious position, simply cannot be sustained. If those revenues melt away it is perfectly clear that, if tax cuts are made in the Budget, they will have to be reversed after the election.
Here is a rare opportunity for the Chief Secretary or the Chancellor to answer a question that matters to the people of this country. We know, from the experience of 1979, that a Tory Government who offer cuts in direct income tax are perfectly prepared, despite the most solemn assurances given before an election, to double the rate of VAT after that election. In the past week there have again been reports that that is part of the hidden agenda that the Tories would follow if they were to win the next election. Part of that hidden agenda is a pay-as-you-go economy where everyone pays or stays away. Part of that agenda is for switching the burden from income tax, by which the rich will benefit so much, to indirect tax, where those who pay little or no income tax will have to shoulder the major burden.
It was significant that the Prime Minister, when confronted with those reports and asked to deny them, said simply that she had no knowledge of such plans. That is a formula that she uses when, for her own purposes, she wants to suggest that the Government are nothing to do with her. I wish to hear from the lips of the Chief Secretary or of the Chancellor, a categorical denial that any such plans are being worked on in the Treasury now. Here is an opportunity. Let us hear that.
Mr. MacGregor: I will give the hon. Gentleman a much clearer answer than was given in the letter that he mentioned earlier. On 12 February my right hon. Friend the Chancellor in his letter to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), made the facts clear about what the hon. Gentleman described as stories going around. The Chancellor said:
"Needless to say, I can confirm that these are not the Government's tax proposals".
Mr. Gould: That was a very ingenious attempt. It was not, however, an answer to my question. My question is, will the Chief Secretary deny that there is no work going on in the Treasury on proposals to switch the burden from income tax to indirect tax after the next general election? I invite a rather better answer than was given. If he cannot give us that categorical denial — with all the sharp recollection of our experience in 1979—we shall know what to expect after the next general election. We know what the people would have to expect after the next general election, if the Tories were to win. We know that the tax cuts, whatever they may be in the Budget, will be taken away in the most damaging possible way, in a way that will be damaging to their family budgets, to the inflation rate, to employment and to the economy.
The debate gives us a clear opportunity to put before the British people the sort of choice which they will face at the general election. On the one hand, the Government are committed to reining back the public sector on ideological grounds. The public sector alone, as we have demonstrated over recent years, can now make the investment that we need. At the same time, the Government are committed to fuelling, for electoral reasons, a consumer boom that simply intensifies the damage that we have suffered from that lack of investment. On the other hand, we have a Labour party
944
committed to using that public money not in irresponsible tax cuts but in investment in our economic future—an investment which, if it is not made, will leave us unable to compete and condemn us to a future as a Third world country. I have no doubt that the British people, who are often a little more clever than some Conservative Members assume, will make the right choice and that we shall have a Labour Government after the next general election.
5.40 pm
Mr. Terence Higgins: The hon. Member for Dagenham (Mr. Gould) referred to conjuring tricks, the essential element of which is that the way in which they are done remains a mystery. After his speech, there should be no doubt that there is a considerable air of mystery as to how a Labour Government would ever finance the spending plans that we believe that they have in mind, although the hon. Gentleman did not give us any quantitative analysis of them.
I thank my right hon. Friend the Chief Secretary for his remarks about the report of the Select Committee on the Treasury and Civil Service. General macro-economic analysis is concentrated much more in the debates on the autumn statement and the Budget. Therefore, it seemed appropriate to the Committee that our report on this occasion should deal in rather specific terms with the White Paper, although, as always, no doubt the debate will range wide.
I shall pick up one or two of the points made by my right hon. Friend. It is true that the White Paper has grown enormously from 81 pages in 1969 to 451 pages in the one that we are debating this evening. That reflects the significant change in the way in which the House deals with these matters. In turn, that reflects the change in our financial procedures, because Select Committees as a whole have an opportunity to look into public expenditure in some depth and debate it in the course of the Estimates days that are available. That being so, the White Paper provides a good framework within which the Estimates themselves can be considered.
In that context, I am sure that my right hon. Friend the Chief Secretary will agree that there is some similarity of interest between the Select Committees and the Treasury to the extent that the Select Committees and the House are allowed only to reduce public expenditure and not to increase it. At all events, it is important that we should look carefully at the way in which the White Paper has changed. In particular, on the question of the value of money and what we get in exchange for that expenditure, my right hon. Friend pointed out that we deal now not only with what is being planned to be spent but what we are to get for it. Individual Select Committees monitoring the particular Department with which they are concerned will be able to use this as a reasonable basis.
The way in which the performance indicators have been set out in the White Paper is a great improvement. However, I hope that my right hon. Friend will give careful consideration, when he replies formally to the report, to our suggestion about the changes in the debate on the White Paper. At the moment, there is not much time in the parliamentary timetable for the matters to be examined in detail. It seems a great deal more important that we should have an input from the House in June or July about the future pattern of public expenditure, rather than debating it at this stage, when effectively we are carrying out a post

945
mortem. I hope that my right hon. Friends the Chief Secretary and the Chancellor will carefully consider that point.
The hon. Member for Dagenham spoke about monitoring public expenditure, on which there has been a significant change, because the principle now adopted is that it should be a declining share of gross domestic product—a rather ghastly ratio of general Government expenditure to gross domestic product; jargon expressed by "GDE/GDP". None the less, the table on page 37 shows the way in which that variable fluctuates, and, in the light of what my right hon. Friend the Chief Secretary said, we have to put much more emphasis than before on the planning total if we are to get an idea of the annual basis, and whether the Government are achieving their objectives. I welcome the hon. Gentleman's comments on our other point, that it is important that we should not, in relying on the new ratio, anticipate growth that has not yet taken place before making spending commitments.
I now make two points that are not in the Treasury Committee report, although those who study our proceedings will notice that there is reference to them. The first is overfunding. Over time, the Government have adopted a policy of overfunding the PSBR. I do not want to go into detail on the points made about that, but the Committee was concerned about the way in which the Government appear to be purchasing gilt edged securities and to that extent might be underfunding. Therefore, we noted with interest the answer that my right hon. Friend the Chief Secretary gave the Committee, that the policy is neither to overfund nor to underfund.
What has happened is in some ways interesting. The Government's policy is much closer to what would have been regarded as a true monetarist policy than was their policy in 1979–80. They are managing to create a situation in which the borrowing requirement is substantially lower than it was previously and, to that extent, they should be able to control the money supply at significantly lower interest rates. In 1979–80, there was a large borrowing requirement and high interest rates, which is not what would originally be regarded as monetarist policy.
That being so, the present situation on interest rates is somewhat paradoxical. It is difficult to avoid the impression that they are high simply to maintain the value of international sterling. If that is so, it should be possible to fund the PSBR, which generally now is expected to be much lower than was originally thought, with great ease. If that is so, we have to ask why we cannot reduce our interest rates, because the foreign exchange markets ought to be recognising the improvement on the borrowing requirement that the Government have made, and to that extent sterling ought to be stronger.
These are complex matters, and there is an important relationship between interest rates covering loans of different maturities. None the less, these problems need to be resolved, and I hope that the Committee will be able to return to them when it comes to consider my right hon. Friend the Chancellor's Budget statement. Clearly, there is still concern about what the Governor of the Bank of England has called the overhanging glacier of liquidity, and there are undoubtedly fears about the prospect of a possible Labour Government, although I do not believe that that will happen. None the less, such a possibility may be having an adverse effect on the market. As the moment of the general election approaches, interest rates may be higher than they would otherwise be.
946
In that context, I shall take up the point implicit in the remarks made by the hon. Member for Dagenham. Many of us were surprised at the categorical statement that if my right hon. Friend the Chancellor were to cut taxation in the next Budget the Labour party, if it came to office, would raise taxation to the previous level. Iain Macleod always pointed out that Conservative Governments cut taxes, and Labour Governments raise them. However, such a clear-cut statement from the hon. Gentleman caused some surprise. On reflection, it was rather a clever ploy. Such a categorical statement gives the impression that all that a Labour Government would do is put up taxes to cover any cut that my right hon. Friend might make. However, it is clear from the figures about which we have heard, but which the hon. Gentleman refused point-blank to give, that there would not only be the restoration of any cuts that my right hon. Friend might now make, but massive increases, not just for those on the top rates but more generally.
Mr. Gould: I am provoked to intervene by the right hon. Gentleman's use of the statement by lain Macleod, which has entered the popular mythology and is repeated ad nauseam by Conservative politicans. Will the right hon. Gentleman not concede that, far from cutting taxes for the vast majority of ordinary people, the Government have increased their tax burden, and that of the country as a whole? If one takes into account not only income tax but national insurance contributions and indirect taxes such as VAT, the burden for ordinary families and the country as a whole, as a proportion of income, is now higher than it was in 1979. I am sure that the right hon. Gentleman, with his customary fairness and accuracy, will concede that point.
Mr. Higgins: fain Macleod always talked in the context of the total taxation yield. In that context, I do not accept the hon. Gentleman's point.
An important point is to be made in terms of the general economic situation as we see it now, and that is that we need to maintain a balance between public expenditure on the one hand and tax cuts, and reduced borrowing and interest rates on the other. We effectively have a three-legged stool. A balance needs to be maintained.
I certainly welcome the priorities that have been set forth in the public expenditure White Paper for various items of public expenditure. I hope that my right hon. Friend the Chancellor will be able to cut taxes in the Budget that we eagerly anticipate. Having said that, it is important also that we should do everything that we can to reduce interest rates. My right hon. Friend the Chancellor genuinely has an opportunity to achieve our objectives in all three areas. If he succeeds in doing that, it will be unusual. It is a reflection of the overall economic situation that my right hon. Friend the Chief Secretary set out so well in his speech.
One aspect is constantly raised in my constituency. The Treasury Select Committee has regularly argued that the proceeds of asset sales, including council house sales, should be treated as a means of funding the public sector borrowing requirement rather than reducing public expenditure. That is certainly the case in respect of council house sales. Quite clearly, it is a temporary arrangement. If we are to get the right set of priorities, despite the Government's good housing record, there is a case for

947
considering whether the 20 per cent. limit on the use of such funds by local authorities should be maintained at the present level. There is, as I understand it, nearly a £8 billion overhang at the moment, with the anticipation of another £2·1 billion coming from the sale of council houses and other local authority assets in 1987–88.
Given the fact that housebuilding and restoration has clearly been shown by the housing stock condition inquiry to be badly needed, given that those activities are labour-intensive and that there is some excess capacity in the industry, and given that the import content is low, I hope that this aspect of the matter, although not strictly a budgetary one, might reasonably be considered in a budgetary context. Local authorities — not least Conservative local authorities—which have so enthusiastically adopted the policy of council house sales, none the less consider that it is unfair that they should not be allowed to spend a higher proportion of the proceeds that they have managed to obtain from that source.
I do not for one moment underestimate the points that will be made about borrowing and so on, but the reality is that, because they have not been allowed to spend the money, many local authorities have repaid debts. Nonetheless, if they were allowed again to finance operations of this kind, it would enable them simply to restore the position.
I recognise that my right hon. Friend must look at the matter in an overall context. For the reasons that I have mentioned, perhaps the priorities in the White Paper are not exactly right. Having said that, the White Paper, both in presentation and in content, is a great improvement. The hard work that my right hon. Friend the Chief Secretary has put into it is worthy of congratulation. The overall approach that the Government are adopting is the right one.
5.54 pm
Mr. Ian Wrigglesworth: I shall begin my remarks by examining the overall levels of expenditure that have been forecast in the White Paper; then I shall say something about the make-up of the forecasts before going on to deal with the general economic situation, and in particular the recent PSBR figures.
In the White Paper we see the reason the mini-boom began during the year. Expenditure is £5·8 billion higher than the Government anticipated. Of course, the largest part of that amount — about £4·5 billion — has come from contingency reserves. The remainder has come from increased additional expenditure of £1·3 billion. That figure is made up substantially of higher social security spending brought about by higher unemployment, higher housing benefits and higher supplementary benefit, plus a substantial increase in public sector pay of about £2 billion. That amount includes, of course, the teachers' pay settlement which is a substantial amount of money. This has led to the substantial increase in public spending in the current year. We forecast a £4·75 billion increase in public spending during 1987–88.
Although, on the face of it, that seems to be welcome news for those who use public sector services and, indeed, for those who work in the public sector, we must ask how adequate those sums are in meeting their needs. One of the Treasury Committee advisers has suggested that the increase in the cost of public sector services is considerably
948
higher than the provision of other services outside the public sector. Indeed, it is so substantial that there is likely to be a 6 per cent. increase in addition to the level of price increases in the private sector over the next two years. That implies that, in substantial areas of public expenditure, we shall see a decline in the volume of services, even though expenditure is increasing. Expenditure is expected to increase by about 0·5 per cent. next year, and by about 3 per cent. in 1988–89. If the increase in costs is to be matched, I calculate that, by the end of the period, there must be a clawback of about £6 billion to meet the sort of figures that the Government envisage.
I should be grateful if the Minister will comment on the point that I have raised. It is obviously one of some substance. I should not want necessarily to accept all the advice of the Treasury Committee. If one looks at the inputs into the cost of public sector services, the pay settlements that have been reached and the likely trend in pay increases in the public sector, one will see that, undoubtedly, the cost of public sector services will be higher than the general increase in costs. What does that imply for the volume of services that will be provided over the period of the White Paper?
As for capital expenditure, to which the Chief Secretary to the Treasury referred, I do not draw the same conclusions as he does from the figures in the White Paper. The public expenditure figures have not helped public sector investment very much. According to the definition that is most favourable to the Government, which is to be found on page 16 of volume II of the White Paper, capital spending on assets, together with capital grants to the private sector, are programmed to fall by nearly 10 per cent. in real terms over the next three years, and as a percentage of general Government expenditure it is programmed to fall from 13·3 per cent. to 11·6 per cent. by 1989–90.
The effect on the construction industry is quite marked. Government expenditure on construction will fall from 6·4 per cent. in 1986–87 to 5·9 per cent. over three years as a share of total Government expenditure. If these figures are true, the Government are moving in exactly the wrong direction regarding capital spending on assets and capital grants to the private sector. That is the area of expenditure that could most directly generate jobs. It represents investment in the capital assets of the country. The decline that is outlined in the White Paper is a mistaken policy and we on these Benches would want to reverse it.
Mr. David Howell: The hon. Gentleman is dealing with infrastructure expenditure, and I am wondering why he has not referred to private spending on the infrastructure—for example, on the Dartford tunnel, the Thames crossing or even the Channel tunnel. Are they unacceptable forms of expenditure?
Mr. Wrigglesworth: No, not at all. I should be delighted if those projects went ahead. They are supported by those who sit on these Benches. The more that can be arranged, the better for the whole country, for the private sector and for Government revenues. We have proposed funding of that kind over a long period and we very much welcome it, but today we are debating the figures in this White Paper which represent Government expenditure. I welcome private sector investment of the kind that the right hon. Member for Guildford (Mr. Howell) has outlined, but I am referring to the Government's plans for

949
their own expenditure and the contribution that the Government can make to the construction industry and to the whole economy by putting capital expenditure on the right lines.
Another glaring feature of the White Paper is the continuing rundown of the Department of Trade and Industry's budget. In our view, that confirms the absence of any real strategy for industry. According to the 1986–87 outturn, the Department of Trade and Industry's budget will fall by 47 per cent. in real terms. I accept that in some respects that fall represents a welcome lack of subsidies to areas of the public sector that have received subsidies in the past, but the total includes a further rundown of the regional aid programme. 'That is most regrettable and it is directly contrary to the direction in which it should be moving, since the regions have been hit so hard by the recession.
Regional and general industrial support has already fallen by over £500 million in the last five years to £368 million this year. A further fall of £280 million is projected by 1989–90—a cut in real terms of more than one third. The White Paper reveals the almost complete elimination of assistance for major industries such as aerospace and shipbuilding that are still struggling and that require the support of the public sector if they are to thrive and remain in being as major forces in world markets in years to come.
In addition, export credit guarantees have been drastically scaled down arising from the recovery of claims because of the international debt problems. Smuggled into the White Paper is a further moratorium on regional assistance. That is said by the Government to be due to a
"transitional bulge in regional development grant awards, resulting from the overlap of the two schemes."
To businesses that are waiting for grants and whose cash flows are impaired and that are having to borrow to cover the shortfall, those words are meaningless. We very much regret this substantial cut in the transfer of resources to the regions because they are struggling so hard, with unemployment levels of over 20 per cent. The Government should be addressing that problem. Indeed, apart from addressing it. they should do everything they possibly can not to cut public expenditure but to increase it to help the regions.
As for the general economic position, the Government deserve the congratulations of the House on two substantial achievements. First, they have returned output to the level at which it stood in 1980. After seven years in office, they have returned us to the 1980 level of output.
Mr. Austin Mitchell: But not in manufacturing.
Mr. Wrigglesworth: The hon. Gentleman is right. Output in manufacturing is still 4 per cent. below the position at which it stood when this Government came to office, but at least the Government ought to be congratulated on having returned output to the 1980 level. With a bit of luck, before the next general election they might even return output to its 1979 level.
We must also congratulate the Government on the first-rate public sector borrowing requirement figures. They take us back to the achievement of my right hon. Friend the Member for Glasgow, Hillhead (Mr. Jenkins) when he was Chancellor of the Exchequer in 1969. At last we have returned to the 1969 level. It is a little bit like playing
950
snakes and ladders — sliding down the snake back to "Start." We are supposed to cheer because we have at last got back to "Start" again.
Mr. Mitchell: The right hon. Member for Glasgow, Hillhead (Mr. Jenkins) lost the Labour party the 1970 election.
Mr. Wrigglesworth: I do not know whether that 'will happen this time. However, the Chief Secretary to the Treasury will crow too soon if he thinks that getting back to "Start" on the snakes and ladders board will cheer up the country.
The Financial Secretary to the Treasury (Mr. Norman Lamont): Does the hon. Gentleman think that in 1979 the Labour Government had returned output to the level at which it stood in 1974?
Mr. Wrigglesworth: It behoves us to look at what is happening in the real economy—at what is happening to people's jobs, people's housing and the position of the National Health Service — rather than at the bogus figures that the Government parade before the country. We hear that 1 million new jobs have been created in the last two years—a fantastic figure. But what is the true figure? The true figure is 239,000 full-time job equivalents. There are 1·6 million fewer jobs today than when this Government came to office in 1979. That is the truth of the matter, not the bogus figures that are being paraded before the country.
Mr. Michael Fallon: Is the hon. Gentleman denying that there are 40,000 more people in work today in the northern region than there were in 1983?
Mr. Wrigglesworth: I am asking the hon. Gentleman and his right hon. Friends to look more carefully at the composition of the work force and to recognise that the job of a fitter, for example, who is the head of a household, who was earning a substantial wage before he was made redundant, cannot really be compared with the part-time job in a retail outlet that his wife is now doing. She is earning substantially less pay and is working only part-time. That is what has happened to the economy over the last two years. There has been a substantial increase in the number of part-time female jobs. I welcome the creation of any job, whether it be part-time, female, male or any other category. I welcome any job creation. However, to try to perpetuate the myth that those jobs are the same as those which have been lost since 1979 beggars belief. The facts are known, as the hon. Member for Darlington (Mr. Fallon) will know, in places such as Cleveland, Darlington, Northumberland, Scotland, Wales and the north-west where real jobs have been lost.
Mr. Maples: I am sure that the hon. Gentleman would not want to mislead the House, but he said earlier that output had only just returned to the 1980 level. According to the figures published in Economic Trends over that period, gross domestic product has risen by 14 per cent. and the total output of production industries has risen by 10 per cent.
Mr. Wrigglesworth: I believe that those figures have been published in the past week. I have not seen them, but I will check them very carefully. My point is that it has taken the Government seven years to reach today's position.
The Government have knocked the economy flat on its back and now that it has risen to its knees once again they

951
expect us to cheer. It is very nice that the economy has got back on to its knees again, but we will only cheer when it is fully back on its feet and growing substantially once more from the point at which the Government took over in 1979. When the Government have achieved that, we will join in the cheers. However, the Government cannot expect us to accept this bogus achievement which they continue to put before the House and country.
The Government, if they want real growth in the economy sustained over a period, must change the course of the economic policies that they have pursued. They must confront the whole problem of pay levels which have existed and which exist now. The evidence now suggests that the downturn in pay settlements resulting from lower inflation has halted. The CBI pay survey published on Tuesday shows figures stable at 4·9 per cent. The earnings figure, which has been stable at 7·5 per cent. for the past two years, jumped to 7·75 per cent. last week with higher overtime payments and bonuses resulting from higher economic activity.
The industrial relations research group survey showed a slight turn-up in settlements, from 5 per cent. to 5·2 per cent. Unit labour costs, the fundamental measure of our competitiveness in manufacturing, rose from an annual rate of 3·4 per cent. to 4·2 per cent. in December, faster than productivity growth. The latest Bank of England quarterly report estimates that, in the third quarter of 1986, the increase in unit labour costs in manufacturing for the major overseas economies was stable at about 1·5 per cent. over the figure for the previous year. That is the contrast. The figure is 1·5 per cent. overseas, yet there is a rise from 3·4 per cent. to 4·2 per cent. in this country. As long as our competitiveness is eroded at that rate, we are in serious trouble, the decline will continue and jobs will not be created. The level of unemployment, as the Treasury model shows, will remain around the 3 million figure for years to come.
The Government must take some action more than mere exhortation. However, I suppose that it is hoping for too much to expect them even to acknowledge that there is a problem before the election. However, the consumer boom will continue and our competitiveness will be eroded as long as the Government leave the problem unattended.
Another point to which reference has already been made tonight is that action must be taken to ensure that interest rates are reduced from their present high and damaging levels. The present levels are damaging to individuals through mortgages and any borrowing in which an individual may be indulging. It is also damaging to companies which must face such costs as an increased overhead, and that damages their competitive position in comparison with overseas companies.
The alliance has advocated for a long time—and I hope that in his Budget approach the Chancellor will give further thought to this—joining the European monetary system exchange rate mechanism to give us greater stability in our exchange rate and to ensure that the need for the level of interest rates that we have at present is reduced. Hopefully, with the strength of support from other central banks and through the greater discipline that entry to the EMS would bring, we would have lower interest rates. We hope that interest rates would, on average, be 2 per cent. lower than at present.
952
The most important point, especially in the light of yesterday's PSBR figures, is that the Government should not use any additional funds available in the fiscal adjustment to embark on cuts in the standard rate of income tax. With 3 million people unemployed, such cuts cannot be a priority. If the Chancellor uses the resources available to him in investment and targeting expenditure towards things which will bring down the level of unemployment — the alliance has recounted a series of suggestions in previous alliance Budget statements and we will make similar proposals in a few weeks time — we can succeed in bringing the level of unemployment down substantially. If the political will is not present to achieve that, that will not happen. We have made it clear that we will vote against cuts in the standard rate of tax if the Chancellor chooses to do that with the available resources in his Budget.
It is irresponsible for an Opposition party to determine its fiscal and taxation strategy without seeing the full shape of the Budget and the full state of the economy as outlined in the Budget statement. We will determine what taxation measures we will put before the country once we have seen what the Budget proposes for the country. Perhaps a lower rate of tax would help us to introduce the integrated tax and benefit system which we have proposed to replace the present system. We want to examine all the adjustments which the Chancellor will introduce. He may lower thresholds, change the standard rate and other rates of tax and benefits may be affected. We will want to consider all of those factors and consider how they affect the integrated scheme that we foresee before we determine the levels and rates of taxation that we would support after the Budget.
We do not regard cuts in the standard rate of tax as a priority. The Chancellor's priority should be to create jobs. We do not believe that the expenditure outlined in the Budget for the next three years is a strategy for job creation. All the signs are that the Chancellor's Budget on 17 March will not create jobs either. Clearly, the Government are pursuing an election strategy rather than a strategy for the long-term interests of British industry and the country. The people of this country will recognise that, and that will be shown in the result of the Greenwich by-election—as it will be shown, in due course, in the result of the general election.
6.19 pm
Mr. John Townend: The hon. Member for Stockton, South (Mr. Wrigglesworth) was less than generous in his remarks about the Government's achievements. He will find that gross domestic product has risen by about 12 per cent. since 1979. His final remark suggests that he and I have canvassed different streets in Greenwich.
I have a feeling of sadness when I attend this annual debate. It always seems to be an occasion when another nail is driven into the coffin of the policy of reducing public expenditure, on which the Conservative party came to power in 1979. It was during last year's debate that my right hon. Friend the Chief Secretary to the Treasury accepted for the first time that the objective of reducing public spending in real terms had been abandoned. He said:
"The White Paper shows that for the three years ahead public spending in real terms is expected to remain broadly stable at around this level."

953
The House will recall that on that occasion the Select Committee on the Treasury and Civil Service cast some doubt on the credibility of the Government's spending targets. In column 552 I said:
"I must say that based on past performance I am sceptical."
My right hon. Friend the Chief Secretary strongly countered this argument and stated that the reserves for the next three years were higher than those set out in any previous White Paper. It should be of great concern to the House that the scepticism that many of us expressed last year has been proved correct. The Government's optimism has been misplaced. In the current year they have spent the whole of the sum in reserve and spending is estimated to overrun by a further £1·3 billion.
As usual, local government spending is in the forefront of the overspending. Year after year, it has been one of the principal causes of the Government's failure to meet their spending targets. A major element this year is the provision for the increases in teachers' salaries. On any assessment, the Government have made a most generous offer and the additional spending would be well worth accepting if we could be sure that we would obtain a relative improvement in our children's education. I am extremely sceptical that we shall see the improvement that the nation needs so desperately without taking education out of local government control and establishing a national service and a national curriculum. If we do not opt for that radical solution—it will take a great deal of courage—we shall never winkle out the extreme Left wing in ILEA and in some of the authorities in control of large cities, such as Hull on the border of my constituency, which are ruining our children's education.
Despite all their manful efforts, the Government have been unable to keep local authority spending under control. I can see a further financial crisis on the horizon, for two reasons. First, there are millions of pounds outstanding in uncollected rents for council housing. Secondly, there is the creative accounting of a number of Left-wing boroughs that have spent far in excess of their relevant expenditure guidelines. They have done so by mortgaging their children's future and that of their grandchildren. We cannot get on with the job of reforming local authority finance too quickly. Until everyone in the community contributes to local government finance and has a personal interest in it, there will be no return to financial rectitude in local affairs.
The second major area of overspending is, as usual, expenditure on the Department of Health and Social Security. The greatest single item is supplementary benefit payments, which in the current year are no less than 10.4 per cent. above the estimates. This is clearly an example of grossly inadequate forecasting or of expenditure running out of control.
In evidence to the Select Committee on the Treasury and Civil Service, officials gave two reasons for the overspending. First, there has been an increase in special payments. I am pleased to note that the Government are taking action on that front. Secondly, there has been an increase in board-and-lodging payments. It is not the first year that that has happened. Last year, 1985–86, social security spending overran by £1·7 billion.
I pointed out in the debate last year that some items in the Budget were running out of control. I said:
954
"Now we have yet another explosion, which is worrying me greatly and which will cost my right hon. Friends at The Treasury a great deal of money".—[Official Report, 20 February 1986; Vol. 92, c. 501–54.]
I was referring to the establishment of private old people's homes being subsidised by the DHSS to the extent of about £160 a week. My fears have been borne out and these homes are mushrooming throughout the country. Hotel owners find that it is very profitable to have 100 per cent. occupation of their rooms and a subsidy from the Government. Those with large houses are joining the bandwagon.
A new abuse is arising which has only recently been brought to my attention. Many of those who are running private homes are suggesting to potential residents that before entering them as residents they should dispose of their assets and wealth to their families so that after a few weeks they will be able to claim DHSS payments instead of paying the cost of their board and lodging out of their own resources, which will have been quietly spirited away to their families. This racket must be stopped if we are ever to get a grip on this area of expenditure.
The Government's new target is to reduce public expenditure as a proportion of GDP. Again, I think that the Government are being optimistic. If we make an adjustment for the proceeds of privatisation and for the unwinding of the coal strike, we see that, in the current year, expenditure has risen by 3·6 per cent. in real terms, which is marginally above the estimated growth in GDP. Even more disappointing are the Government's figures on page 19 of the White Paper, which show that general Government expenditure as a percentage of GDP for 1986–87, the current year, is estimated to be 43·25 per cent. That is the same percentage as in 1978–79 when the Conservative party came into power.
The planned expenditure increase next year is £4·7 billion, which is an increase in real terms of 2 per cent. This means that in the Budget this year the Government will probably be unable to achieve one of their principal policy aims, which is to reduce the standard rate of income tax to 25p in the pound. If the Government had been able to adhere to their original plans, it would have been feasible to reduce the standard rate to 25p this year. There is a glimmer of hope in the White Paper, for the Government seem to be determined in 1988–89 to return to financial rectitude. The trend of increased public spending is planned to cease in that year. It is planned that it will stay broadly level in real terms. This is welcome news for those of us who believed in the Government's original policy if the plan can be achieved. Given the Government's performance, we could be excused for having reservations about their ability to adhere to their future spending target.
I am sceptical, for three reasons. First, in the current year, with a considerable reserve, we overspent. Next year, the reserve will be nearly £1 billion less. Secondly, in the current year, inflation has been falling faster than expected. Therefore, it should have been easier to adhere to planned levels of expenditure. It is probable that next year inflation will rise slightly. I think that we have seen signs of that in recent weeks. Thirdly, I think that the Government will experience great difficulty in keeping public sector wage increases down to the level of inflation. The teachers have already been given a generous offer and I understand that the firemen have settled for an increase

955
that is about double the rate of inflation. Public pay will be the key to whether the Government can achieve their targets.
I cannot help but feel that the White Paper is a further retreat by the Treasury. Expenditure on education, the DHSS and local authorities has risen significantly and most other Departments have increased their expenditure to a lesser extent. As a Yorkshire Member, I support the argument of my hon. Friend the Member for Darlington (Mr. Fallon) about public expenditure per capita in Scotland, Wales and Northern Ireland, which is far higher than in the north of England.
Mr. Nicholas Budgen: Or in the west midlands.
Mr. Townend: We have just as many problems in the north as there are in Scotland, Wales and Northern Ireland, if not more. Therefore, I strongly urge my right hon. Friend to start to set the balance right in the next White Paper.
It seems that the steam has run out of our efforts to cut spending. However, I hope that my colleagues on the Treasury Bench will get a second wind after the election—when they are back in power—and persuade their colleagues that the country still wants better value for money and a reduced burden of taxation.
The attack on waste must continue. Before long, we must have the courage to attack the DHSS budget. The Health Service, like local government, is still not under complete financial control. In many areas it is not cost-effective. A major problem that we have not solved is the exploitation of the welfare state through the black economy.
Despite my disappointment at the rise in public spending, it must be said that the Government have been able to absorb these increases because of the success of their economic policies. My right hon. Friends deserve the congratulation of not only the House but the whole country. As with so many British achievements, this achievement is recognised to a greater extent abroad. By reducing taxation, increasing incentives, helping small business, smashing the trade union monopoly power and giving back to management the right to manage, but, above all, by bringing down the level of inflation dramatically, the Government have achieved the longest period of sustained economic growth since the war. Britain's wealth has expanded at a considerable rate. Tax revenues are soaring. That means that, at the same time, we have been able to absorb some £5 billion to £6 billion loss of oil revenue, to reduce public sector borrowing and plan to spend in the next year nearly £5 billion more on health, education and social services. I am sure, in addition, that in the Budget my right hon. Friend the Chancellor will be able to bring public sector borrowing down to an even lower level to help us reduce interest rates and reduce the standard rate of income tax, although I do not expect him to be able to bring it down to 25p in the pound.
Set against such widespread achievements, our failure to reduce spending comes into perspective. At least at the next election, anybody who accuses the Government of cutting expenditure will be guilty of a blatant lie.
6.32 pm
Mr. Willie W. Hamilton: Millions of people outside Parliament will wonder what the hon. Member for Bridlington (Mr. Townend) means when he says that taxes have been cut in the past six or seven years. Everybody who has objectively examined the situation knows that taxation, including direct and indirect taxes and national insurance contributions, have increased substantially since 1979.
I want to turn to the theme that was repeated by the Chief Secretary to the Treasury—value for money. We all want value for money, whether it is public or private money. I want to examine that proposition by reference to one or two problems.
I refer first to housing. The housing crisis that Britain faces is the worst that we have experienced in the past 50 years, perhaps even in the past 70 years. Public sector housing has been cut by two thirds since 1979, since the Government came to power, and total housebuilding—public and private—has declined by more than 100,000 a year. More and more houses in the public and private sectors are rotting through lack of maintenance. It has been estimated by, I think, the National Economic Development Council that we need to spend at least £18 billion just to preserve the existing stock of houses.
Let us consider the housing scenario. We have hundreds of thousands of building workers on the dole—brickies, plumbers, electricians, slaters and plasterers—who are all anxious to work. We have a large and increasing number of homeless families. We talk about the EEC mountains of beef and butter; we have mountains of building materials. The Monthly Digest of Statistics shows that in November 1986—the latest figures available—there were 328 million bricks lying around the country, 6·5 million sq m of plasterboard, 7 million tonnes of slate and 6·5 million tonnes of cement. We have the workers anxious to work and the building materials.
Local councils—the right hon. Member for Worthing (Mr. Higgins), who is the distinguished Chairman of the Treasury and Civil Service Committee referred to this matter—have a cash mountain from the compulsory sale of council houses of nearly £4 billion. That is £75 for every man, woman and child in Britain. The Government refuse to allow local councils to spend that money to employ those building trade workers to use those raw materials to build the houses for the countless hundreds of thousands who are waiting for homes. Is it value for money to leave these resources, whether they are manpower or the raw materials, in the stockyards all over the country? Is it value for money to spend £20 billion a year to keep between 3 million and 4 million people on the dole, including many thousands of building trade workers?
Let me give another example of value for money. The Chief Secretary to the Treasury quoted the reduction in the number of civil servants. That is true. However, the Public Accounts Committee and others have shown that the number of tax inspectors and investigators has been reduced, whereas it has been conclusively proved that, if they were employed, the amount of tax revenue that they could claw back out of the black economy would far outweigh the cost of their salaries. These are the false economies that the Government are pursuing. That point has been made repeatedly by the Public Accounts Committee, trade unions and others, but the Government

957
just say that they have reduced the number of tax inspectors. That has resulted in the loss of millions of pounds of tax revenue.
I have referred to the cost of unemployment. The Government have presided over the highest unemployment in the history of the United Kingdom. We have never known a period when between 3 million and 4 million people—probably more—have been unemployed, not producing a single penny of wealth, and costing the taxpayer £20 billion a year. Is that value for money?
Let me give an example which is slightly smaller but just as important. We had a debate on the Royal Navy a few days ago. One of the points that was raised was the proposed privatisation of the royal dockyards in Rosyth and Devonport. No other major military power in the world has sought to privatise an asset which is so important to the national interest and particularly the defence interest. The Public Accounts Committee and the Defence Select Committee have said that the dockyards will cost more under privatisation rather than less. The Under-Secretary of State for Defence Procurement, who replied to the Navy debate, cited the exact figure that the Government would save—£320 million over the next 10 years, and more later—on the privatisation of Devonport dockyard. That was a meaningless figure. I do not know where it came from. I wrote to the hon. Gentleman asking how that figure had been arrived at. An assumption must have been made on the number of redundancies in the dockyard during that period. I challenge any Minister to produce a balance sheet to show how that money will be saved. Neither the Public Accounts Committee nor the Select Committee on Defence has supported that claim. On the contrary, they have said that it will cost more. That is the result of the Government's dogmatic approach to the problem.
I give another example—the police and law and order. If there is one item of public expenditure which has roared ahead since 1979 it is expenditure on the police and law and order. The consequence has been more crime—both violent and otherwise—than before in our history. The Government are throwing public money at the police and law and order, but the crime rates are increasing remorselessly. Value for money? I wonder. I have been burgled four times in 18 months. I have had the police there dusting their powder around my house, and never a word from them. There was no question of detection. That is what is happening under the Government.
The Government should not talk about value for money. Conservative Members should go to any university lecturer, any school master or any nursing sister in a hospital and ask them what is happening to public expenditure and value for money. University staff are leaving in droves to go to America and elsewhere because of the treatment received by the universities. This country's future depends more than anything else on the way in which we educate our children in our schools and our young men and women in our universities. Their treatment during the past seven or eight years has been a disgrace.
It is said that, if the Chancellor has the bonanza which we believe he has, there are various ways to use it —hand it out as an election bribe, use it in the interests of the Tory party, use it to invest in services, whether they are schools, universities, roads, railways, transport infrastructure or housing—or hand it to the taxpayers who, in the main, will be those who need it least. We are in good
958
company when we say that it is in the national interest that that cash should be spent on improving the national economy in the short and long term—training, education facilities, housing and the rest.
The Tory Reform Group has written an open letter to the Chancellor of the Exchequer. There may be Conservative Members present who are distinguished presidents or vice-presidents of that organisation. Many Ministers have held those posts, including the Secretary of State for Energy, who I think is now the honorary president. In the letter, the Tory Reform Group argues
"any revenue the Exchequer has to disperse should be concentrated on investment in housing, urban renewal and in our nation's infrastructure in order further to reduce unemployment."
The primary target should be to get the building trade workers employed—take them off the £20 billion a year which is paid in unemployment benefit and get them building houses, factories and the rest. That is what the Tory Reform Group says. Why is the Secretary of State for Energy not here saying, "Hear, hear" to that? The Tory Reform Group's past vice-presidents include several Ministers in the present Government who would all unite with us in saying, "We must get the economy moving. To hell with the election results for the Tory party. The national interest is far more important than the Prime Minister's ego." The right hon. Lady is the greatest disaster that the country has had in living memory. We shall pay the price.
I think that the Financial Secretary to the Treasury is a wet, or he was. He might have dried out since he became a Minister.
Mr. Dalyell: He was.
Mr. Hamilton: The right hon. Gentleman knows very well that if the national interest were the paramount consideration, the resources which the Chancellor will have at his disposal in the Budget would be far better spent on the measures advocated by the Tory Reform Group rather than on proposals with which the Chancellor seeks to bribe the electorate.
Mr. Fallon: Is the hon. Gentleman aware that the same document issued by the Tory Reform Group also asks my right hon. Friend the Chancellor to reduce the burden of taxation on the low paid? Does he accept that about 7 million people earn less than £7,000 a year and that they are looking forward to tax cuts in the Budget?
Mr. Hamilton: If all of the £3 billion or £4 billion which the Chancellor has at his disposal is channelled into those people's pockets, our response will be very different. If the records since 1979 are any guide, I suspect that the bulk of the tax concessions will be to those earning more than £20,000 or £30,000 a year, as has happened in almost every Budget since 1979.
The Financial Secretary may like to challenge that statement. If he would care to stand up and say that it is not true, I should like to get that on the record. The facts are there. We all know that the tax concessions made in almost every Budget since 1979 have been primarily to the much better off.
Mr. Marples: Will the hon. Gentleman give way?
Mr. Hamilton: I promised that I would be quick. I want to put on the record some more of the Tory Reform Group's propositions. According to a newspaper article,

959
"Among other proposals the group recommends that sterling should be a full member of the European Monetary System, there should be industrial derating and tax incentives should be introduced to encourage private investment in infrastructure coupled with increased spending on urban renewal."
The group called for a substantial increase in the child benefit and referred to similar matters.
Between now and the general election, which I think will be in May or June—the Prime Minister will cut and run while the going is good—the major debate will be on whether it is wise, acceptable, just or fair to give substantial election bribes in the hope that people will be gulled into voting for the Prime Minister for a third time or whether that money should be channelled into public investment in the ways advocated by the Tory Reform Group, the CBI, the NEDC and the Labour party—public investment for the nation's long-term public good. Opinion polls show that the vast majority of people realise the terrible plight of their schools, hospitals, housing and everything that makes for a good quality of life and believe that they need massive public investment.
Mr. Richard Ryder: In Devon.
Mr. Hamilton: Not least in Devon. I was going to conclude my speech, but I shall not do so yet. The hon. Gentleman referred to Devon and Cornwall. Those areas regularly return Conservative, Liberal and SDP Members. The consequence of that is the poverty, low pay, deprivation in housing, health and transport that everybody can see in the south-west. I shall be a Member of Parliament in that area after the next election.
In 1979, 22,317 new houses were started in the southwest region, of which only 4,110 were in the public sector and available for renting. That was bad enough, but in 1985, after six or seven years of the Conservative Government which, by and large, the people of that area helped to elect, that figure was cut from 4,110 to a miserable 2,591. That is what the electors in Devon voted for, and that is what they have damn well got. I hope that those figures will be improved on when there is a Labour Government and when I become a Labour Member of Parliament in that area.
My hon. Friend the Member for Dagenham (Mr. Gould) was asked repeatedly by Conservative Members about the precise figures for increased public expenditure. I shall make an offer. I shall give those figures when Conservative Members tell me where the saving of £320 million on Devonport dockyard will come from. That is a fair offer. My hon. Friend said earlier that we shall not give our figures when directed to do so by Conservative Members but when we decide to give them. The electorate can then judge between the relative merits of our proposals and those of Conservative Members.
I fear that the Chancellor will engage in the short-term political gamble of offering massive reductions in direct taxation. If that succeeds in winning the election for the Tories, whenever it comes, we shall all pay for it in massive increases in indirect taxes. Hon. Members and people outside Parliament well remember that, despite the vigorous denials of the Tory party before the election in 1979 about increases in VAT, the first Budget after 1979 saw a massive increase in VAT from 8 per cent. to 15 per cent., with consequences for inflation. The British people will not forget that, and we shall see that they do not forget
960
it when the election comes. They are intelligent enough to understand what is at stake in the next election, and I do not fear the consequences.
6.53 pm
Mr. Peter Rees: I rise with a sense of inadequacy because I am not a member of the Tory Reform Group and am not in a position to rebut many of the points that were made by the hon. Member for Fife, Central (Mr. Hamilton). I should also admit that unlike, apparently, himself, I am not privy to the Chancellor's plans for the Budget. Therefore, I do not propose to speculate about that because presumably in a month's time, with the permission of the Chair, we shall all have the chance to discuss fact rather than fiction.
I confine my remarks to the main themes of the debate. I should like to pick up immediately a telling point about the timing of this debate that was made in the last Session by the Select Committee on the Treasury and Civil Service, of which my right hon. Friend the Member for Worthing (Mr. Higgins) is Chairman. It is disappointing to those of us who are in the Chamber this evening and who are concerned about, if not dedicated to, public expenditure that so few hon. Members attend these debates. That may be due to what they see as the aridity of the subject. However, they are wrong.
I share common ground with my right hon. Friend the Member for Worthing in saying that that may be due to the timing of the debate, which almost invariably occurs in what I would describe as the low season, in the run-up to the Budget. The Committee suggested that the debate should take place in May or June. I understand its thinking. I imagine that, in that way, the Committee hopes that the debate will make a contribution to the forthcoming public expenditure round rather than being a post mortem.
From personal experience, I doubt whether a debate on such a subject or, with respect to the Select Committee, on the Committee's report would make a contribution to the determination of the aggregate figure, which is dependent on a range of factors that are probably only authoritatively known by the Chancellor at that stage. It is time that the bids that are put forward by individual Departments must be submitted by May or June. But the hard interdepartmental fighting takes place in September and October. Such is the pace of events in public life that I doubt whether anything that is said in this Chamber in May or June will seem very relevant at the time of the bilaterals or the star chamber, if that interesting instrument is still in existence.
Like my right hon. Friend the Member for Worthing, I regard the timing of the debate as important. I consider that a day should be set aside in the Budget debate so that, in tandem with our debate on the Budget proposals, we can discuss the public expenditure proposals put forward in the White Paper. After all, the labours of the Chief Secretary, his successes and, dare I say it, his setbacks, underlie or precede the proposals that the Chancellor of the Exchequer commends to the House. It is salutary that we should see that what we, as a House, approve or disapprove in relation to public expenditure is only the other side of the same coin as the fiscal measures that we consider at Budget time. It is right that hon. Members and the country should see that those two aspects of public policy are part of the same question.

961
This debate is of critical importance, although it might not seem that way from the number of right hon. and hon. Members who are present in the Chamber. Public expenditure is the discipline within which all Governments must operate. I hope that at least two right hon. Members who have served in the distinguished office of the First Lord of the Treasury will concede that nemesis swiftly follows and strikes down those Administrations that do not observe that discipline.
In this public expenditure White Paper, my right hon. Friend the Chief Secretary commends to the House his proposals to increase the public expenditure for 1987–88 by £4·7 billion over the figures proposed in last year's public expenditure White Paper. For the following year of 1988–89, he is proposing that they should be increased by £5·4 billion and for 1989–90 he proposes an overall figure of £161·5 billion. Of course, that figure was not in the previous White Paper. He justifies this on the basis that it will show expenditure as a stable or even a declining percentage of the GDP. Indeed, it is right for him, and for me since I have laboured in this field, too, to emphasise that this has been a constant theme of Conservative Administrations since 1979.
Some have a more rigorous view of such problems. I listened with sympathy and care to the speech of my hon. Friend the Member for Bridlington (Mr. Townend), and I must admit to my right hon. and hon. Friends on the Treasury Bench that I align myself with my hon. Friend on this matter. 1, too, would prefer the more austere simplicity of the test that was applied in earlier years. However, we can console ourselves with the fact that the increases proposed by my right hon. Friend are probably supportable, given the infinitely stronger economic base which Britain enjoys. It would be a sterile exercise to bandy statistics with Labour Members, but they can be adduced by my right hon. Friend the Financial Secretary when he replies to the debate.
I confess to a nostalgic regard for the test that I tried to apply to such matters—that public expenditure should be maintained broadly stable in real terms. I am the first to admit that I never quite achieved that figure. Nor did my predecessors achieve it, but at least we tried—
Mr. Budgen: My right hon. and learned Friend was not so humble at the time, was he?
Mr. Rees: t try to include a decent measure of humility in my speeches, unlike my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), Mr. Deputy Speaker, who is no doubt eager to catch your eye.
The formulation which the Government commend to the House should still the parrot cries that have almost passed into the mythology of public life that the Government have been responsible for cuts, cuts, cuts. I am sorry to have to say this in the absence of the hon. Member for Dagenham (Mr. Gould), for whom and for whose contributions I usually have a warm regard, because he can present a well-argued and well-researched case. I am sure that the hon. Member for Thurrock (Dr. McDonald) will deal with the point when she replies, if she considers it of any interest. Today, the hon. Gentleman was below his normal form.
I hope that the formulation will still the parrot cries and enable the debate to move to a more rational basis. I have no doubt that my right hon. Friend the Chief Secretary will admit that no aggregate cuts have been achieved by
962
this Administration—a cause of infinite regret, but there it is. If we can arrest the myth, it will deprive those who have, all too often, used it as an excuse for some shoddy performance in the public sector. I hope that those who are prone to lapse into such a tone of debate will reflect that the quality and effectiveness of public expenditure is almost as important as the quantum. I congratulate my right hon. Friend on increasing the output and performance measures to the staggering total of 1,800. It is always charming to see small Departments, such as Arts and Libraries, trying to apply the same rigorous criteria to their efforts as do the greater Departments of State.
The discipline of a steady or declining percentage of GDP has two disadvantages: first, that the Administration must make some assumptions about the level of GDP; and, secondly, counter-cyclical expenditure becomes more difficult—if that is thought to be a worthy objective.
The disagreement between me and my right hon. and hon. Friends is only slight, because we all believe that Governments should proclaim a clear, easily understood discipline by which their expenditure proposals throughout the year cart be tested. As has been demonstrated so often in the past, financial policies must be clear and consistently followed. There should no no wild fluctuations from year to year, often in the shadow of the International Monetary Fund. If my hon. Friend the Member for Eastbourne (Mr. Gow) were here, I should be tempted to read once again the letters to and from Dr. Witteveen—an area which my hon. Friend has made his own.
I congratulate my right hon. Friend the Chief Secretary on the remarkable job that he has done. Those who have not scrutinised the matter at fairly close quarters do not appreciate the burden which the Chief Secretary carries and the serious difficulties that must be faced. May I give two instances to the House? Social security is the largest programme that we must consider in the public expenditure White Paper. It is a huge, demand-led programme that is often, if not always, overshot, difficult to forecast and almost impossible to control. The excesses must be offset by economies in a limited number of cash-limited programmes. In passing, I should observe that it is a pity that more economies have not proved possible in the reform of the social security programme, admirable though that reform may be. It has still proved impossible to devise a more readily enforced discipline.
Local authority expenditure is another sensitive area. I say to those hon. Members who constantly commend the flights of fancy of local authorities that the excesses must be offset, and that it is difficult to forecast and control those excesses. That raises an almost constitutional question: what autonomy can central Government concede to local government in a unitary state? What can they concede when central Government accept, perhaps unwisely, the responsibility for the management of the economy? There will no time for it tonight, but I hope that we can return to the matter when the reform of the rating system, not just in Scotland, is debated.
That leads me to reflect on the work of the Treasury and Civil Service Select Committee. Although I dissented from one of its conclusions, I congratulate it on a workmanlike job. Sometimes the Committee concentrates a little too much on the technical detail, but perhaps that is inevitable when party considerations may prevent a consensus on major issues. Perhaps Select Committees should be bold and should recognise that there will always

963
be minority dissenting reports. But we can see that a system which works well in Washington is less easy to operate in the different circumstances of Westminster.
Again genuflecting to my hon. Friend the Member for Wolverhampton, South-West, I hope with becoming diffidence, I suggest that the Select Committee might devote itself to a more detailed examination of past performance in this area. It could consider the reasons for overshoots, reflect on economies that might have been made and suggest corrections that could have been attempted.
There are lessons to be learned for the Government and indeed for the whole political process from the apparently dry record of public expenditure. The pressures from special interest groups mount year by year. The cries for more and more public expenditure in particular spheres, sometimes for good and sometimes for specious reasons, grow more insistent. Only the sturdy figure of the Chief Secretary, assisted by the Treasury and, I hope, by the Select Committee, stands between those pressures and financial nemesis. The success this year, therefore, of the Chief Secretary, which is recorded in the public expenditure White Paper which we are debating, deserves our congratulations and our support.
7.10 pm
Mr. Tam Dalyell: It is a pleasure to follow the right hon. and learned Member for Dover (Mr. Rees). Over a series of Finance Bills he was a most helpful and courteous Chief Secretary to the Treasury. I was attracted by his mechanical idea of having at least one day's debate during the Budget on the public expenditure White Paper.
Both Ministers on the Front Bench are Scots. I say very gently to them that I wonder whether they would make the same speeches if they represented industrial Scotland. The proposed cut in the community programme nationally is 3,000 places. The proposed cut for Scotland is 500 places. I understand from Mr. Allan Payne that the programme in West Lothian, Cowl, which is a great success, is likely to be cut by 325 places. All I can say is that the Ministers are my fellow countrymen and that industrial Scotland really has problems.
I shall stick to one subject, the science budget. It is not my habit to regurgitate in the House speeches that I have heard at big lunches, but I shall break that rule because there was a special speech from Sir George Porter, which many hon. Members heard, at the lunch of the Parliamentary and Scientific Committee. For the purposes of greater accuracy, Sir George gave me a copy of his speech. I want to make five quotations. First, he said:
"For over 400 years we, in this country, have been very good at science, we probably have a higher level of discovery and application than any other country. Yet today the morale among scientists and engineers, especially the younger ones, is at a very low ebb. There is an increasing brain-drain of our best scientists and technologists to other countries, and, within this country, away from subjects like physics and chemistry and mathematics to something more remunerative and better appreciated, like accountancy. The situation is critical and very near to being irreversible."
Does the Treasury agree? I emphasise that this is Sir George Porter's view and not that simply of an Opposition Member.
Secondly, the president of the Royal Society said:
"Britain's industrial performance and competitiveness have been deteriorating for many years and we are now
964
among the poorest of developed Western nations. There are those who argue from this that there is no correlation between scientific activity and industrial success. A very senior Treasury official put it to me bluntly, saying that there was too much science, it was `like the butter mountain', what we needed was better administrators and managers … he just stopped short of advocating more colonial civil servants."
There was a ripple at that round the Savoy. Sir George continued:
"I would have assumed that he must be joking if it were not for the fact that his words accord so well with the actions of his department. For example, in its evidence to the House of Lords Select Committee, the Treasury gave its view as follows: 'The national source of science and technology is less important than the ability to assimilate and apply scientific and technological ideas whatever their origin'."
What will be the attitude to the Sherfield-Gregson committee, that very important Select Committee in the House of Lords? I understand that we may not be told tonight but I hope that it will be considered constructively. So, I suspect, does the Minister of State, Treasury, who was responsible for the matter in a previous incarnation; I know that he cares deeply about these subjects.
Thirdly, Sir George Porter said:
"In 1983, the last year for which I have complete OECD figures, expenditure on industrial R and D in the UK was much lower than in Germany and Japan and was declining at 1·4 per cent. per annum compared with a rise of 3 per cent. in Germany (and France) and 10 per cent. in Japan."
I have picked this passage out on purpose because I am not making a partisan speech.
"Here we cannot blame the Government because British firms received a much higher proportion of their R and D funds from government, 30 per cent. here, compared with 16 per cent. in Germany and 2 per cent. in Japan. Yet German firms invested twice as much on R and D as the UK, and Japan four times as much. Furthermore our investment is falling, theirs is rising. No wonder we find it difficult to build bridges between our basic research and research in industry: all too often when the bridge is crossed there is nobody on the other side."
I picked that out particularly because Sir George was being fair to the Government. I want to be fair to the Government but I ask this question: how about the financing of pure research which is a problem?
Fourthly, Sir George said:
"More applied research, more engineers, more scientific entrepreneurs are urgently needed to provide the new industrial revolution which will put our country back into the first league. We all support this view. Basic science is a necessary but not a sufficient condition for prosperity.
But it is wrong to advocate that scientists doing basic research should mend their ways and concentrate their minds on short term research and development. We must stop telling our research workers that they are doing the wrong thing and agonising about whether their research is basic or applied. There are only two kinds of good research, applied and not yet applied."
The number of alpha submissions that are not being accepted is about 25 per cent.; possibly the really worthwhile ones that are being refused are up to 15 per cent. Does that not worry Ministers and the Government?
My final quotation from Sir George Porter's speech is:
"I am not qualified to say what methods government can use to encourage more industrial R and D, but for all companies to declare their R and D expenditure would be a good start. When a company with successful long-term research unsurpassed in the world, like Pilkingtons, nearly succumbs to predators in a battle with primitive short-range weapons there is something dangerously wrong with our policy."
Does the Treasury have any sympathy for Sir George Porter's view that public companies ought to make public their R and D expenditure?

965
My view, which is impressionistic and which I cannot support by fact, is that one of the troubles is that the cost of the equipment is going up at an exponential rate. The advent of chips has made equipment exponentially more expensive. More things are possible and there are more things to do.
Michael Kenward's leader in the New Scientist of 19 February is a bit tougher than Sir George. It says:
"There is palpable fury in the latest report from the Advisory Board for the Research Councils (ABRC) to the Secretary of State for Education and Science. Doom and gloom are mild words to describe their prognosis for science in Britain. And yet these are no radical roustabouts from the loony left or the rabid right. These people are the pillars of the scientific establishment: they say that the foundations beneath them are crumbling.
The members of the ABRC are frustrated because they believe that they have made a reasonable and reasoned case for the continued support of the research councils and British science. They restate their arguments in their advice to Kenneth Baker, the Secretary of State for Education and Science:"—
the report will be known to Ministers—
"`Whatever analyses based on average rates of inflation purport to show, the real buying power of the science budget has declined and is continuing to decline. The country's investment in its science base is falling further behind the investment made by other OECD countries …'
'… demands on the UK science base are growing. There are social and medical demands, for example, the AIDS emergency'."
If I may return briefly to what I said about AIDS in my earlier intervention, I understand that an extra £7 million has been made available. I am against blank cheques, but we are faced with an absolutely horrific problem of historic proportions—it is similar to the bubonic plague. In this one case, surely it would be possible for the Government to give the Medical Research Council the money for which it has asked for research on viruses. We are not talking about hundreds of millions of pounds but we are asking for enough to pay for fundamental research on any sensible, good idea on the viruses because it is common knowledge that, without that research, we will not get a vaccine that might at least arrest if not cure the disease.
I am attracted by the proposal put forward by Professor Mitchell of SERC when he presented a paper to the Royal Society in November on inter-university campus research on exceedingly expensive work. It would be silly, given the Science budget, to give every and any scientist necessarily as much money as he asked for. There is an obligation on people like me to say how money will be saved or spent within reasonable proportions. I urge the Treasury Ministers to consider Professor Mitchell's paper, which outlined the advantages of inter-university campuses. If that proposal were carried out at a local level, Heriot-Watt university's work on semi-conductors could also include work from the universities of Edinburgh, Glasgow and Aberdeen.
I understand that the European independent review of CERN—Conseil Europêen pour la Recherche Nuclêaire —will take place in June 1987 and that the Government will make a decision by December 1987. That decision will be reached before the next debate on public expenditure. For pity's sake I hope that we will not in any way renege on our international subscriptions because that would be not only a blow to particle physics but also a considerable blow to the country's prestige in the international scientific community.
966
My special plea is that we should not cut the expenditure on the BBC's overseas services. Those services are of immense value to this country and those of us who have travelled abroad are aware of the high regard in which they are held overseas. The Government are scrimping, because the amount of money involved is riot great. I know that Ministers are rather contemptuous of special pleading and I am careful to avoid such pleading, but I believe that there is a strong argument to allow the BBC's overseas services to continue their excellent work, and Government funding must continue.
7.23 pm
Mr. Nicholas Budgen: The hon. Member for Linlithgow (Mr. Dalyell) has always been a doughty advocate of extra spending on the science community and I am sure that the matters he has raised will be taken into account when, as my right hon. and learned Friend the Member for Dover (Mr. Rees) explained, the budget for that area is considered later in the year.
I would like to touch upon what I believe to be the most immediate considerations going through the mind of my right hon. Friend the Chancellor. It is obvious that he intends and is capable of making substantial cuts in income tax. He must also be considering the balance between cuts in income tax and reductions in the public sector borrowing requirement. No doubt my right hon. and hon. Friends have urged upon the Chancellor the popularity and immediacy of cuts in income tax.
I believe that there is an advantage in cutting PSBR. I am not arguing that such a cut would necessarily and immediately lead to a cut in interest rates but it may well be a factor that would press down upon interest rates. Therefore, it may lead, subject to the view of the markets, to a lowering of interest rates. At any rate, a reduction in PSBR would make the control of the money supply easier, although I appreciate that that is no longer fashionable. If the Chancellor is more concerned about holding up the value of sterling, I believe that a cut in PSBR would also help to do that.
Let us assume for a moment that a substantial reduction in PSBR led to a reduction in interest rates. In recent days we have read in the newspapers that a 1 per cent. reduction in base rates would reduce the retail prices index by half a per cent. I have not seen any calculations put forward by Treasury Ministers to substantiate that, nor have I seen any calculations that disprove that. It is clear that a reduction in base rates would have a substantial effect on the retail prices index. I am not arguing about whether the retail prices index is a good indicator of either present of future inflation, but it does have other important effects.
First, the retail prices index has a substantial effect upon the Government's negotiating position when they are negotiating public sector wages. My hon. Friend the Member for Bridlington (Mr. Townend) pointed out that the substantial concessions that have been made to the teachers and the way in which public sector unions often negotiate on the basis of a fixed standard of comparison between one sector and another will make it more difficult for the Treasury to hold the line against other public sector workers. As 27 per cent. of the taxpayers' pay bill is represented by public expenditure, anything that strengthens the hand of the Treasury in dealing with public sector unions must be considered a great advantage.

967
If there was a reduction in interest rates there would be other, wider advantages. I believe that the sector of the economy that would gain most advantage by lower interest rates is the construction industry. I am sorry that the hon. Member for Fife, Central (Mr. Hamilton) is no longer in the Chamber, since he made some good points about the construction industry. It is true that the construction industry in the south-east is very prosperous and some may argue that it is overheated. The hon. Gentleman acknowledged that in other areas there are carpenters and bricklayers and bricks and all the other materials that could sustain a considerable increase in construction work if it were possible to find the capital for such work.
Another sector of the economy that seems likely to expand is the self-employment sector—it is the sector most likely to expand without stimulation from the taxpayer. There is no doubt that when entrepreneurs set up in self-employed work of any sort it is difficult and expensive to borrow money from the banks. The person in that position must pay a great deal over the base rate in comparison to bigger, established companies. He must make arrangements to repay the money more quickly and must give more security than that given by some other creditworthy borrowers. Therefore, to him a reduction in interest rates is very important and may make the difference between remaining unemployed and setting out on the difficult task of self-employment.
The alternative to the free market encouragement of the self-employed are state sponsored schemes such as the community programme. It is important to note the way in which the community programme is now expanding. I do not know, Mr. Deputy Speaker, whether you have had an opportunity to look at the first volume of the 1986 White Paper. On page 11, paragraph 32, it shows that the community programme is now aimed to reach nearly 250,000 jobs by June 1986 compared with 130,000 only a year earlier. That is a massive and expensive expansion of state activity. If one looks at page 9 table 1.4 of the same document one sees the extent to which direct support of employment has expanded. It has moved from £2·9 billion in 1983–84 to a planned £4 billion in 1988–89. That is an expensive and fast growing area of expenditure. If one can hold stable that area of expenditure by making it more possible for people to move into self-employment, that is good for them and for the taxpayer.
Even if I do not carry the House with me on that point, there are grave limits to the expansion of the community programme. Everybody knows, as they go round the country, there is scarcely a graveyard that has not been tidied and scarcely a vicar who has not had his garden tidied.
Mr. Austin Mitchell: The monetarist graveyard.
Mr. Budgen: In my experience, not all vicars are monetarists and most of them seem to be pleased to have their graveyards tidied, their gardens improved and the play areas of their schools slabbed down. Joking apart, there must be a limit, not just a limit of useful jobs. The Government have been successful in persuading the trade union movement to accept the community programme. As the programme runs out of graveyards and activities which would not normally be carried out by unionised labour and moves on to other activities which are at present
968
thought to be the preserve of unionised labour, it will run the risk of losing, if not the support, the acquiescence of the trade unions. Most of all, it is an expensive programme and it is not one which is as satisfactory as seeing the same people in self-employment and serving the needs of the market.
I should like to say a few words about the agricultural sector. This is the first time I have ever said anything in the House about agriculture and it is no part of my business, representing an urban constituency, to represent the views of the farmer. However, as an over-borrowed farmer myself, I observe a little of what is going on in the farming community.
The hon. Member for Fife, Central demonstrated to me adequately the way in which a Labour Government find it extremely difficult to resist the claims of nurses and teachers. In the same way a Tory Government find it difficult to resist the claims of the farmers. Perhaps I reflected on that most of all as I listened to my right hon. Friend the Minister of Agriculture, Fisheries and Food announcing his extra £25 million last year for the farming community the day before the annual general meeting of the National Farmers' Union. I reflected at the same time on the way in which the former Secretary of State for Education and Science, my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), argued with the teachers about every single penny. He certainly would not have handed over £25 million the day before a critical resolution against him at a teachers' union. I do not wish to cast moral blame upon the Labour party for, from time to time, being a push-over for the teachers and nurses, nor do I wish, naturally, to say anything snide or critical about my own party. However, as we approach a general election there will be a sad tendency on the part of the Tory party to look for ways in which it might support the farmers yet further.
Page 9 of the same volume shows interestingly the plan for 1988–89. It is planned that trade and industry in that year shall be supported by the taxpayer to the total of £1 billion. If it be that there is a proper role for the taxpayer in supporting trade and industry, it is interesting to compare the amount of support the farming industry generally gets with the devastation of the industrial areas of the west midlands or the north. In that same column it shows that domestic expenditure on farming is £2·3 billion. Just above that one sees the suggested contribution to the EEC of another £1 billion, of which two thirds goes to support agricultural prices. That small sector of the economy is, the House may think, adequately supported already. However, the only section of the agriculture community currently in serious trouble are those farmers who are over-borrowed and who bought land at the recently grossly inflated prices because the land represented the capitalisation of the subsidy and support.
The farmers who are over-borrowed can best be helped by slightly lower interest rates. What is not required is a further subvention to agriculture. If the House disagrees, I should say that I inquired yesterday as to what was happening about milk quotas in my part of Staffordshire. A year ago, quota, which as the House knows is a saleable commodity, was being sold at 13p per litre. It is now being sold at 27p per litre. That is because the farmers who are not over-borrowed and who have the land and cattle and can afford to find the ready cash to buy quota are doing very well thank you. It is true that next door to the farmer

969
who is buying quota at 27p—100 per cent higher than a year ago—is somebody who is over-borrowed and being threatened by the bank.
We do not require imaginative schemes of set-aside which could become enormously expensive. One sees from page 11 of this document that the net purchases of cereals into intervention are expected to be 1·9 million tonnes, leaving stocks of 5·6 million tonnes. It is quite obvious from that that a set-aside programe which deals with overproduction, even of cereals, could become an enormously growing mushroom of expenditure.
The proposals by my right hon. Friend the Minister of Agriculture, Fisheries and Food for further support and the making of a tax shelter for the forestry industry could be extremely expensive. If the Tory party finds it electorally necessary to give some extra support to the farming industry, it will be best done through lower interest rates. That is preferable to the introduction of further schemes of subsidy and support which will make the situation for agriculture worse by holding up the price of land and making entry to the industry more difficult for those who have new capital to invest in land.
There are strong and persuasive arguments for bearing down upon interest rates within all the proper monetarist disciplines. That is important and should be at least as important in the Chancellor's mind as an immediate reduction in tax rates.
7.42 pm
Mr. Austin Mitchell: I listened with great interest to the speech of the hon. Member for Wolverhampton, South-West (Mr. Budgen). I always listen to his speeches with interest because he shares with his predecessor the characteristic of remorseless logic. His conclusions always follow from his premises. Therefore, it is surprising to find that he is able to support a Government with policies that he has just criticised, because those policies do not follow from the hon. Gentleman's premises. I doubt though whether his premises were correct. They were like his references because he referred to the White Paper and the page references were wrong. The outcome of his proposal was that the Government should continue to bear down on interest rates. They have been doing that for eight years but that policy has never given birth to lower interest rates and a little bit more bearing down will not give the birth that the hon. Gentleman and I so anxiously desire.
The expenditure plans represent one of two things. One is a reconciliation with reality. For eight years the Government have been trying to defy such reconciliation by pretending that they could cut public spending and that has caused incalculable damage to the economy. The Government have been pressing cuts at a time when, with the depressed state of the real economy, the correct Keynesian way would be to increase public spending in order to stimulate the economy out of the depression that the Government have helped to create. Even President Reagan, the last surviving Keynesian, was aware of that, and the expansion of the deficit financing that he started in August 1982 has generated 8 million jobs in the United States. With a similar expansion the Government could have created 2 million jobs but because of their obsession with cutting public spending they deprived themselves of the ability to serve the cause of the people that they have put out of work.
970
The expenditure plans are either a reconciliation with reality, because the Government now recognise that they cannot do the job, or an augury of the approaching election. The Government have set out to pretty-up the half-cocked economy that they are running to make it look better. That is essentially a cosmetic operation and to carry it out they are projecting public spending increases and talking about bringing down interest rates. In the Budget we shall surely see tax cuts. Those things are being set out like cheese in a trap in the hope of luring the electors into returning a Tory Government for another term.
The public expenditure plans are either a reconciliation with that reality or a recognition of the approaching election, but they may well be both. They are certainly a measure of death-bed repentance, because the figures in the expenditure programme represent a change in Government policy. The Select Committee on the Treasury and Civil Service detected that change in its report on the autumn financial statement. This time our report is a bit more cautious because of the Chancellor's angry reaction to our mild criticisms and our mild assertions that there had been a change of policy. He attacked the advisers, the logic, everybody connected with the Committee and me for having contributed the conclusion. That made us anxious not to provoke him this time and we are very moderate in our conclusion.
The change in policy is still there because the Government have gone through three phases in their approach to public spending. The first phase was one of cuts. To pretend that they could cut taxes the Government wanted to cut public spending and we had a series of follies in that phase of desperately cutting public spending. We had follies such as the increase in the charges for overseas students, the economic harm done to our universities by the cuts in university spending, and tragedies such as the decimation of the housing programme, especially the housing programmes of local authorities. We also had tragedies like the undermining of investment.
All those things were done for a wrong and unattainable purpose. The Government were inflicting real harm on the economy and at the same time were weakening that economy, because a Government who cut spending also cut their revenue. That is because the amount that Government spend is recycled and comes back in taxation and stimulates the economy. They were harming the real economy by a programme of desperate, unnecessary cuts. They were approaching the issue the wrong way because the need was to expand production and get the economy growing so that it could carry the heavier burden of public spending that the people want and that is the hallmark of a civilised, advanced society.
The Government were approaching it the other way by cutting public spending and harming the economy instead of expanding it. That was the first stupid phase. The second phase was more mildly stupid because that phase was one of keeping public spending level in real terms. That phase inflicted more harm on the economy and still did not produce the promised result because the one thing the Government neglected to consider was the harm that their public spending cuts inflicted on the economy. Those cuts gave rise to an increase in unemployment arid therefore to a massive increase in social security spending to support the unemployed generated by the depression that the Government inflicted on the real economy in the first place.

971
Some years ago, the House of Lords calculated that each person out of work costs £6,000. That is made up of revenue lost, benefit payments and uncontributed activity. The real costs of unemployment are massive and were responsible for an increase in public spending. In the Treasury and Civil Service Committee report, we criticise the estimates of social security spending and say how inadequate they were over the year. We know that the new system of estimating social security expenditure has produced results which are actually further out than those produced using the old, inadequate system. That is largely because the Government have never grasped the reality that, if they put people out of work they will increase spending and move themselves further away from their declared ambition of cutting public spending. The only way to do that is to expand the real economy.
In this White Paper the Government have moved into phase 3. They are admitting failure and saying that public spending should rise with the GNP. They are again ignoring the fact that the improvement in the annual growth rate during their whole period of office —because they usually calculate the figures from 1982 to make them look better—has been 1·2 per cent. That is the most pathetic growth rate in British history since the war and is the slowest growth rate achieved by any Government. That is the record of this Government. Even now, in this new phase of death-bed repentance, the Government cannot resist fiddling the figures. This is a Government of figure-fiddling. They are fiddling the unemployment figures. As we heard earlier today in the Chief Secretary's speech, they attempted to fiddle the figures of the Labour party's spending. The Chief Secretary fiddles the Government spending figures down but the Labour party's spending up. In either case the process of fiddling is exactly the same. That is clearly visible in the Government's expenditure plans.
In the section of the Government's expenditure plans devoted to local authorities, projections are increased. The Government are no longer trying the unrealistic technique of saying, "This is what local authorities should spend. This is what they will spend." Now the Government are allowing some increase in local authority spending. At the same time they are still getting it both ways, because it is stated in the plans:
"The Government does not accept that local authorities need to spend as much as the plans provide."
That statement says that the Government will provide local authorities with more money, but will criticise them at the same time because they do not need to spend it. That is typical of the trick logic that the Government go in for. Although what the Government think they will spend has been increased, it has not been increased in line with the real increase in local authority spending over the period since 1978–79. That is an increase of 1·8 per cent. a year.
The projections that the Government make in their expenditure plans are below the real rate of increase that the historical record demonstrates. Therefore, the projections are unlikely to be achieved unless the Government bring in more draconian controls on local
972
authorities. The Government have been engaged in a continuous war with local government ever since they came into office. They have attempted to strangle local government and to remove their independence. Either the Government introduce more draconian controls on local authorities or we shall see cuts in local authority spending programmes. One or the other must follow from the provisos in the expenditure plans, as remorselessly as the logic of the hon. Member for Wolverhampton, South-West. That is a fiddling of the figures.
A further fiddling of the figures is the 20 per cent. of housing receipts from council house sales which local authorities are allowed to spend in the year in which those receipts accrue. That is a proportion that bears no relation to any reality. Our questioning of the Minister and officials before the Treasury and Civil Service Committee produced no rational basis for that 20 per cent. figure. What is the basis for saying that local authorities can spend only 20 per cent.? Why not allow them to spend more? Why not say, "Here is a problem of real housing need, with a deteriorating local authority stock, and a desperate position arising in some areas where we need to spend on housing renovation"? We need to spend on new building. The costs of putting people in bed and breakfast accommodation are enormous. Those costs could be completely removed by more local authority spending on housing. According to the DHSS, it costs £13,150 a year to keep a family with two children in bed and breakfast accommodation. The total costs to the public purse, if the local authority borrowed the money to build a house, would only be £7,600 in the first year of building that house. It costs £13,150 to put such a family in bed and breakfast accommodation and £7,600 during the first year to put them in a council house. That is a total illogicality.
Spend the money on housing. Free the local authorities to spend what is after all their own money in the way that they wish, and stimulate the building industry. That should be the logic. Instead, the totally fallacious proportion of 20 per cent. of housing receipts from council house sales, which no Minister or official could provide any logic for, has been established. Perhaps that figure was suggested because it was half the Chancellor's age, plus an allowance for the number of hairs that fell out during the previous week. Perhaps it has some mystical significance. I do not know. It was never explained to the members of the Treasury and Civil Service Committee. I see no justification for it—
Mr. John Watts: I am sure that the hon. Gentleman has read the notes supplied by the Treasury to the Committee. He will find that the rationale is explained clearly in those notes. The Government set and plan the gross level of capital expenditure. The prescribed proportion of capital receipts which can be applied is determined to arrive at that gross level of provision and to leave sufficient leeway for capital allocations to be made to those authorities that do not have capital receipts, so that the patterns of expenditure can follow more closely the needs of authorities to spend, rather than their ability merely to generate receipts. I should have thought that the hon. Gentleman would have supported a scheme that allowed spending priorities to be recognised and not merely the ability of rich Tory outer London boroughs to generate enormous receipts from the sale of their council houses.
Mr. Mitchell: I am grateful to the hon. Gentleman for demonstrating exactly what I was saying. The way in which he read that out showed that there was no logic for the 20 per cent. level being fixed. That level applies across all authorities. It bears no logic to the specific

973
circumstances of each one, or to the position in the building industry or in the economy generally in any particular year. That proportion has remained unchanged. Initially it was plucked out of the air. Because the Government have highly trained, Oxford and Cambridge and public school-educated civil servants to find excuses for the failure of their policies, they can now justify it, but it has no logical justification. The same arguments that the hon. Gentleman has just given us would have applied to 25 per cent., or 30 per cent. There is no conceivable reason why that figure has been fixed when it would be far simpler, given the needs of the building industry and the housing crisis that is building up, to set them freer at any rate, if not totally free.
There is a fourth fiddle on investment in the Government's expenditure plans. In the late 1970s that was already down by a third. We have become a shabbier, shoddier country because of the failure of public investment, yet, whatever the Chief Secretary said, the plans are for a continuing fall. What emerges from the Government's expenditure plans is a continuing fall of 3 per cent. per annum in real terms. If realised, the plans will mean a capital formation decline of 17 per cent. down on the already depressed level that existed at the end of the 1970s. The construction industry is in an even worse position. In 1986–87 it will be 15 per cent. below the level of 1978–79. It will decline by a further 7 per cent. by the end of the decade. That is what is in store for construction in the plans in the White Paper.
The old stupid position of trying to cut public spending, thereby amplifying a much bigger cut in investment, operates again, even in the projections for the future in the White Paper. That has happened despite the fact that the CBI, the TUC and all the reports that we have received from NEDO say that money desperately needs to be spent on infrastructure to stimulate the economy in a fashion which does not suck in imports and which is a beneficial economic stimulus. We need to spend on infrastructure. The Government propose to cut spending. That seems to be the approach in the White Paper. We are seeing the Government throwing an opportunity away. We should seize that opportunity to increase spending. The Chancellor by his policies, partly by the spending cuts and also by the general economic management during the whole period with which he has been associated with the Treasury, inflicted enormous damage on the real economy of this country.
There has been a 30 per cent. decline in manufacturing employment over that period. In areas of Yorkshire and Humberside, which I represent, there has been a 35 per cent. decline in manufacturing. That is the record. There is now a process—slight and inadequate I am afraid—of recovery going on. Why is it going on? It is going on because the Chancellor has been forced willy-nilly by circumstances, and without avowing it, into adopting large chunks of the Labour party's 1983 manifesto.
That manifesto was criticised as impractical, but let us look at the record. It said that there should be a substantial devaluation of sterling, which was overvalued and thereby inflicting great harm on the real economy and manufacturing. We suggested a 30 per cent. devaluation in 1983. Sterling is now 30 per cent down on the level of 1982. The Government have adopted the Labour party manifesto. Improvements will follow, although sterling has still some way to fall. It is still 20 per cent. overvalued against the deutschmark and our manufacturing exports
974
are still 25 per cent. up as against manufactured imports. The devaluation forced on the Government, willy-nilly because of oil, the fall in the dollar and the state of the real economy, a devaluation resisted every step of the way by increased interest rates, will be beneficial.
We secondly proposed in the 1983 manifesto to increase public expenditure. We gave an illustrative figure of £15 billion for the public sector borrowing requirement. This year, the PSBR plus privatisation is a £15 billion public sector financial deficit, which is what we suggested in 1983.
Thirdly, we suggested increasing spending on job schemes and public sector employment. Now, because the election is approaching, as the hon. Member for Wolverhampton, South-West pointed out, although he gave the wrong page reference, there has been a huge increase in job schemes and the community programme, calculated to bring the unemployment figure below 3 million by the time of the election. We advocated that in 1983 and it has been done.
Fourthly, we suggested scrapping monetary targets, and the Chancellor is now doing that because he cannot meet them.
Those four basic proposals in the Labour party manifesto have been implemented by the Government. Although they are too little, too late and although the Chancellor has resisted them every step of the way because he did not want to carry them out, they were right, and improvements have followed. It is possible to argue that the economy is riding the J-curve rather than heading for a remorseless balance of payments crisis. If that is true, as I think that it is, it is clear that here is an opportunity to expand and to seize the advantages that come our way because the Chancellor has at last been forced to abandon overvaluation.
However, on the Chancellor's premises, retribution will follow after the election if a Conservative Government return. He has always resisted these beneficial developments. Therefore, it follows that he will want to strengthen sterling after the election by putting up interest rates even more, and that he will try to deal with the problem of inflation, which is increasing, and for which he has no other strategy, by deflating the economy. It follows that he will have to tackle the problem of financing unemployment by increasing taxation. Increasing VAT will be forced on him by the EEC.
All those consequences follow from the Chancellor's premises, but they need not follow if we set out to exploit the opportunity that lies ahead of us and that we could exploit by stimulating the economy and deliberately bringing down interest rates. The Chancellor has been against that and given us lots of excuses. First it was that when he got the public sector borrowing requirement down, interest rates would come down, but that did not work. Then his excuse was that our interest rates were high because American interest rates were high, but now ours are the highest in the world. American interest rates are lower, but ours have not come down. Let us get interest rates and sterling value down. We can then expand the economy, content that the stimulus will not cause us to rush overseas to buy more imports, but will stimulate manufacturing and investment here.
That is the opportunity that only the kind of programme put forward by the Labour party, which is an expansionary programme and not the half-baked fiddling with the figures presented by the Government, can seize. This is a historic opportunity. In the 1990s, we shall be

975
heading for a national tragedy, given what has been done to manufacturing industry and the fact that the value of oil, which alone has allowed us to survive and maintain our standard of living, will be chipped away. We have an opportunity to expand and face that problem, but the Government will not seize it. Only our proposals, by bringing down interest rates, encouraging investment and stimulating demand in all the ways available to Government, will do this. We do not want a credit explosion, which will lead to asset inflation of 1972, 1973 and 1974 dimensions. Stimulating demand through public sector spending and putting people back to work, especially by building houses, is the only way to proceed. It is a tragedy that, while in 1979 in Yorkshire and Humberside there were 17,800 housing starts, in 1985 there were only 12,300. At a time when there are 400,000 building workers out of work, that is a folly. As a further step, we need to increase regional incentives to attract development out of London.
It is ridiculous that there is such a house price explosion in London that this week a broom cupboard has been sold for £36,500. Anybody who buys a broom cupboard for that price is as daft as a brush anyway. That is the price of a seven-bedroomed house in Grimsby. It is ludicrous that people cannot afford to transfer south because they cannot afford the housing. Through regional incentives, we should be taking industry to where people, the unemployed and the social capital are, but the expenditure plan proposes cuts in regional spending.
Spending by the Department of Trade and Industry has been cut massively, and much of what it had went to the regions. Regional support is generally industrial support. As predicted by these figures, that will be cut by 31 per cent. in real terms. Regional support has been halved since 1983. The Government are now estimating that it will be cut again by another half next year. At £200 million, that is a 52 per cent. cut in regional support programmes. It means that for every £4 that the Labour party spent on regional incentives in 1979, this Government will be spending £1. That is at a time when the gap between north and south is widening and there is a desperate need to encourage industry to go to the people, and particularly, one would hope, to areas with high unemployment such as Grimsby, the north-east, Yorkshire, the north-west and so on. What such areas can do to attract industry has been greatly undermined as the north-south gap widens. That is not a formula for seizing opportunities. If expansion will overheat the economy, it will do so less rapidly if we can attract industry north and develop new manufacturing there.
As a last priority, we need to expand real training, not just schemes to get people off the register, but training to confer real skills so that we do not run into the skill shortages and skill bottlenecks into which the British economy has run all too often in the past. All that needs to be done to put our people back to work and to give the country some pride so that it can face the world and compete on equal terms with powerful exporting economies. All that we have done over the past eight years is inflict harm on our manufacturing base and make it less able to compete.
All this needs to be done to make society better because we are steadily becoming a more shabby, shoddy, nasty and declining society. Our roads are in potholes, our
976
National Health Service inadequate and our education creaking. Our universities are declining from the centres of excellence that they once were as they lose brains to higher paid posts overseas. That is not the sort of future that any hon. Member would want for the country, but it is the type of future that we shall have unless we improve on the priorities of the public expenditure programme, seize the opportunity for growth that lies ahead of us, and say to the Government, "Enough. You have tried to fiddle the figures for too long to try to show that decline was prosperity and development." It is time to stop the figure-fiddling and to give way to a party that will turn the situation around.
8.9 pm
Mr. David Howell: I shall refer to some of the points made in the lengthy speech by the hon. Member for Great Grimsby (Mr. Mitchell), but first I shall make a passing reference to the speech made by the hon. Member for Dagenham (Mr. Gould), who led the debate for the Opposition. I must confess that I rather enjoyed some parts of the speech by the hon. Member for Dagenham. It was a light speech. Indeed, it was a souffle speech. It hardly touched upon the policy issues. Of course, we have heard that the speeches made by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) were judged in some quarters—I think also by some of his hon. Friends — as a little like heavy pudding. There has been an extraordinary contrast between the diet of the hon. Member for Sparkbrook and what we were served up this afternoon. The matter has now gone the other way to ludicrous extremes. If it tells us nothing about Labour's policies, it tells us a great deal about what is going on in the inner circles of the Labour party.
There are two amendments on the Order Paper, one of which has been called, and the other one—to which I hope it will not be out of order to make a glancing reference—is in the names of various members of the SDP and the Liberal party. As I understand it, that amendment calls for a number of things, but ends by saying that it does not like tax cuts and wants to do other things. The official Opposition amendment takes a different line. They say—this theme has come through in a number of speeches, both inside and outside the House, from the Government's critics—that the present phase of expansion will be short-lived, is artificial, is concerned with vote winning, is unsustainable and will end in a major balance of payments crisis, and, indeed, that any tax cuts in the Budget will make matters worse.
It is interesting that the official Opposition critique of the Government's economic policy has changed. For a long time, as the hon. Member for Great Grimsby will remember, the Keynesian economic establishment and the more moderate elements on the Labour Front Bench were critical of Government policy. They said that there could be no recovery under the policies of the Conservative Government. Now the answers have changed. So, like the Irish in the 19th century, they changed the question. Now they say, "There is a recovery, because we cannot shut our eyes to the fact that it is all around us" — the hon. Member for Great Grimsby referred to some aspects of it — "but it will not last, it cannot be sustained and, therefore, we are headed for the familiar pattern of

977
overheating, rising inflation and a balance of payments crisis." In other words, the Opposition say that nothing in the British economy has altered.
I shall refer to the proposition about the sustainability of the present phase and its ingredients. It is by that proposition that we can judge the viability of the Government's public expenditure plans and the wisdom of choosing from tax cuts, public expenditure or reduced borrowing to help try to influence interest rates. The first point to be noted in answer to critics who say that it will all end in disaster, that it is temporary and artificial, is that the boom is not deficit-financed. It is not, as some economists say, comparable with the Barber boom or the Maudling boom, in which substantial and growing Government deficits were visible. Perhaps—here I move on to rather delicate ground; the hon. Member for Stockton, South (Mr. Wrigglesworth) referred to this—the nearest comparison is the situation that existed in 1969 when the then Chancellor of the Exchequer, the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), brought forward a pattern of Budget strategy that led towards a balanced Budget.
The trend towards a balanced Budget set by my right hon. Friends will not lead to the same electoral result as happened in 1970. As a matter of fact, if it had not been for the Budget presented by the right hon. Member for Hillhead, the Labour defeat would have been much worse. In that sense, it was a positive electoral result. In many ways, the situation is more comparable with the right hon. Gentleman's style than with the talk of pre-election booms and so on that we hear from Opposition Members. The boom is not deficit-financed. On the contrary, we see the prospect of substantial undershooting of the PSBR.
Mr. Austin Mitchell rose—
Mr. Howell: I shall give way in a moment. I should like to finish this point.
I would welcome a package—that is probably what we shall get — that has room for tax cuts, for the increases in public expenditure that were referred to in the autumn statement, and for some undershooting to help to contribute to an atmosphere in which we may get interest rates down, although they are largely internationally determined.
Mr. Mitchell: The right hon. Gentleman made an interesting point, but he did not tackle the question whether the recovery springs from the policies that began in 1979. The policies have changed. Indeed, the manifestation of the change is the fact that the hon. Gentleman is no longer on the Government Front Bench. The central change is that the rise in the exchange rate has been reversed. It has gone down 30 per cent., and that must have a stimulating effect, particularly for manufacturing.
Mr. Howell: Of course, competitive exchange rates may or may not have a stimulating effect. They can provide an opportunity but they do not guarantee success, as the hon. Gentleman knows. I shall refer later to the ingredients and the roots of the present expansion.
So the first point, I repeat, is that the boom is not deficit-financed. It is not one of the pre-election booms that roll off the tongues of some critics. Secondly, I do not believe that the boom is consumption-led, as some hon. Members have suggested. It is true that revenue from VAT is rising, and this is creating a good revenue cushion for
978
my right hon. Friend. But revenue from corporation tax also is rising rapidly. That revenue is derived from rising profits, on which taxes are paid. If hon. Members say that this is to do with the candy floss end of the economy, they should examine some of the figures relating to the changing texture and content of imports. If hon. Members examine the latest figures, they will see that capital goods imports are rising, whereas finished manufactures and consumer goods have been running at a reasonably flat level.
Capital goods imports, raw materials and the basic ingredients of an investment-led recovery are beginning to show up in the import figures. I advise those who dismiss this as another consumer-led boom riding on the back of an enormous credit expansion to look at the details. They will possibly revise their judgment about what is driving the present expansion phase forward. It is important to get that point clear.
Another of the points made by the hon. Member for Dagenham — the right hon. Member for Sparkbrook makes this point ad nauseam—is that the present stage is not only consumer-led but is sucking in imports, and that, if there are further personal tax cuts, they will add to the level of consumption and suck in more imports. This appears to be one of the Opposition's arguments against having tax cuts in the Budget. That is a misplaced judgment and a piece of absurd defeatism.
Why should it be assumed that, if there is increased demand in the British economy—there is no guarantee that tax cuts will necessarily all go to demand; some might be saved — it will lead to more jobs in Cologne or Tokyo, as the right hon. Member for Sparkbrook said? That is a miserable, defeatist attitude. It is typical of Opposition Members' attitudes with which we have had to deal. There is no reason why one should not begin to see an economy which has had the supply side changes that ours has had, being capable of responding. It is. I am not the only person who believes that it is. I suspect that my right hon. and hon. Friends also believe it.
The Bank of England published a good passage on this subject in its quarterly bulletin. The Bank of England is not noted for adopting a very optimistic attitude towards the capacity of the British economy to expand, but on page 21 of its February quarterly bulletin it said:
"The strength of exports, and the recent rise in imports of capital and intermediate goods and raw materials, suggest that domestic output will respond to the buoyant growth of domestic demand."
That is austere banker's language for saying that the supply side capacity of the economy is now very flexible and well developed and that if there is an expansion of demand, because of tax cuts, there is every possibility that that demand will be met not by sucking in imports—a trite phrase that has been borrowed from so-called independent forecasters by Opposition Members — but by the British economy. The British economy is now capable of responding to that demand. That is another reason why the artificial boom thesis is very shallow. Those who utter it have not examined the facts.
Thirdly, unlike past very rapid expansion phases, I do not believe that this one is balance of payments constrained. I have already mentioned the changing nature of the import pattern. The export scene is also looking quite healthy and there is an enormous growth in interest, profits and dividends from overseas. As my right hon. Friend the Chief Secretary to the Treasury said with great

979
vigour and accuracy this afternoon, that is all set to produce a vast, continuing and rising inflow that will help substantially to offset the trade deficit.
It is very interesting to watch this unfold, because a great many economists failed completely to notice that this would happen. The reason that some of them failed to notice that it would happen was that they were carried away by the persuasive political myth, much peddled by the Opposition, that North sea oil receipts had been wasted. Therefore, economists who were inclined to believe that myth had their eyes turned away from the fact that in reality gigantic overseas investment has taken place, which has put this country into the position where it is the second biggest creditor nation on earth after Japan. It has provided us with a huge annuity — an inflow of income that will last long after all the oil has gone and that will increase in size.
This is not just paper money that evaporates; it leads to demand for new products and new jobs in Britain. That, too, is beginning to have an effect inside the British economy and it makes the pattern of growth far more sustainable than those which, in the past, ended in balance of payments crises. Again, therefore, the trite prediction that this is an artificial boom that will end in a balance of payments crisis is unfounded. It cannot be sustained by that kind of argument.
I am not even convinced by the other assertion that we have heard again and again from Opposition Members, that this is all to do with the south-east and the rich south. If hon. Members examine the flow of orders that is following this remarkable phase of expansion, they will see that the order books are beginning to fill up at last—I am delighted that they are—in the midlands, the northeast and the north-west. They will also notice—again unlike previous expansion phases—that instead of the productivity increases of a few years ago fading away, they have, if anything, accelerated. We are now looking at staggering figures of productivity in this expansion phase which put us in the same league as the Japanese and German miracle economies — indeed, which put us, according to the latest figures, above the Japanese and German levels of productivity. I put those points to Opposition Members who dismiss the present expansion phase as temporary and unsustainable. It is important for them to understand that that is not so.
This phase of expansion does not come from artificial manoeuvres or from the use of "demand bellows" by my right hon. and hon. Friends in Whitehall. On the contrary, they are engaged in a shrinkage of Government borrowing to some of the lowest levels, in proportion to gross domestic product, in the Western world. It does not come from that source at all; it comes from the supply side reforms that have been pushed into this economy, in the teeth of bitter criticism and with much struggle and difficulty, in the last seven years.
Those supply side changes are evident now, in derestriction and deregulation, much better industrial relations and greater readiness to invest. They are beginning to bear fruit. They show that the British economy is capable of taking advantage of its competitive sterling exchange rate without it ending in soaring costs, renewed inflation and the loss of competitiveness, just
980
when we thought that we had gained it. For that reason, the case for additional tax cuts to reinforce this process is very strong.
There are of course many other reasons for tax cuts as well. Opposition spokesmen say that they are against tax cuts. I am completely baffled by that statement. In one breath they say, with some justification, that the overall burden of taxation, if measured in this way or that, may have risen, yet in the next breath they say that they want tax cuts to be reversed and that taxes ought to be higher still. Why do they not understand that a man on 75 per cent. of average earnings, with two children and earning about £160 a week, pays 34 per cent. of that £160 a week—a very tight budget for a family with two children—straight back in tax, national insurance and other forms of taxation? Why do they not take pity on the hardship that that kind of arithmetic causes? Why does not the Social Democratic party take pity on the kind of hardship that is caused by those figures? Is it not concerned about the hardship that is caused by high taxes on low incomes? It baffles me that again and again Members on the Opposition Benches dismiss the idea of tax cuts and that they have put into the amendment to the motion the statement that they want tax increases. If they are concerned about hardship—
Mr. Wrigglesworth: Will the right hon. Gentleman give way?
Mr. Howell: Perhaps the hon. Gentleman will allow me to finish what I have to say.
Quite apart from the other points that I have made about the prudence and wisdom of further tax cuts for supply side reasons, I think that Opposition Members should rethink their position before they happily vote against the tax cuts that I hope my right hon. Friend the Chancellor of the Exchequer will announce in his Budget.
Mr. Wrigglesworth: Will the right hon. Gentleman draw a clear distinction between what the Labour Opposition and the alliance Opposition are saying? We share his anxiety about the burden of taxation on the people to whom he referred. We propose to take care of that by the integration of the taxation and benefit systems.
Mr. Howell: I find it extraordinarily difficult—and I am not the only one — to understand what either the Social Democratic party or the Labour party is saying and to draw a distinction between the two, when I have found out. All I can go by at the moment is the motion in the name of the right hon. Member for Plymouth, Devonport (Dr. Owen) and others. It
"deplores the priority which the Government is giving to cuts in the standard rate of tax."
That cut in the standard rate of tax would be of great benefit to millions of people on very low incomes. If the Social Democratic party is not concerned with those people, or if it has some other help in mind, it should make its position clear. At the moment, it is against lifting the burden of high tax on low incomes, and that is very puzzling.
The nature of this recovery, it seems to me, is neither temporary nor unsustainable. When Opposition Members argue—reassuringly for us—that when the Tories win the next election something will have to be done, they fail to understand the nature and the long-term, underlying supply side qualities that underpin this steady, sober growth. It is not spectacular but I believe that it is fully

981
sustainable. It will pave the way for a lower tax economy generally, for a reduction in interest rates and for the financing of our public and private services and of the infrastructure—both from public and private resources—in a thoroughly responsible way.
I hope that the Opposition will have second thoughts about their economic analysis. They draw heavily on independent forecasters, so-called, in the City, whose credentials suggest to me that their independence is somewhat coloured by their politics. I advise the Opposition not to rely so much upon independent forecasters and to rethink their position on tax cuts. I do not think that they will, but perhaps we shall hear more about that later.
We are seeing now the sustained expansion of a non-inflationary kind for which we have fought for years. It gives my right hon. Friend the Chancellor of the Exchequer massive opportunities of the kind that no Chancellor since the war has had to put this economy back on its feet, to end the era of defeatism, of Britain being the sick man of Europe, and to make us one of the leading contributors to the world economy and recovery.
8.29 pm
Mr. George Howarth: I shall concentrate my remarks on the housing aspects of the public expenditure plans and to begin by considering the stated objectives of housing expenditure in the plans. There are three objectives which, in broad terms, are not unreasonable. However, when we consider them against the reality, they go no way to meeting the problems.
The first objective is given as the choice for decent housing through the spread of home ownership. There is nothing objectionable about that and the Opposition support home ownership. However, the problem faced by many of my constituents, especially those who are unemployed, is that even in an expanded private sector where new housing stocks were created in the private sector, the unemployed would not be able to get a mortgage and take advantage of that availability. While we accept that home ownership is desirable, it is not an objective open to many of the unemployed people in my constituency.
The second objective which the plans concede in a somewhat mealy-mouthed way is the role for the public sector. They contain an analysis of the amounts of expenditure involved.
Thirdly, the plans consider the urban housing renewal unit, or Estate Action as it is now called, and some of the special schemes involving the private sector that will take place through the Housing Corporation.
I shall concentrate on these objectives and how they relate to the reality of people's lives and the potential that exists within the construction industry. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) made a good analysis of how problems in the construction industry and housing can be brought together to stimulate economic growth.
There are plans for increases in the rented sector of some £390 million—at least, that is how it is shown in the programmes. However, in terms of housing investment programmes—which are critically important in my area because there is such a large council house stock and most of the people in need believe that the council house rented sector is the way to resolve their need—that means a
982
reduction in expenditure of about £99 million, and in real terms that is a drop of 11 per cent. That is very serious and affects my constituents.
There has been talk about the use of capital receipts. However, many local authorities have virtually exhausted any capital receipts that may have been available. Whether these authorities should have complete access to such capital receipts as exist is another argument. However, the Government cannot use the argument that capital receipts exist in every case. A large amount of national capital receipts may be available but these receipts are not necessarily available to the local authorities that need them. That position is serious and a cause of grave concern.
Local authorities that are virtually without capital receipts, such as that in my constituency, have to try to cope with demands for expenditure on housing for major and serious repairs and for new family housing for rent, and with the growing demands and needs for special accommodation for the elderly—a growing proportion of the population nationally and in my constituency. However, these authorities have no capital allocations or capital receipts with which to meet even part of those demands.
while I accept that some of the new schemes in connection with the Housing Corporation are interesting and ought to be explored and adopted, and that there have been some small increases, the great demands and the potential of the housing association movement — and, one of my particular interests, the housing co-operative movement — are not being harnessed to deal with housing problems. However, I must pay tribute in that regard to the amount of money put into such housing. I am interested in the new challenge funding. The Ravenscroft newbuild co-operative is applying to use that new, different kind of funding which involves the private sector in a newbuild scheme and I hope that it succeeds. However, even if it does succeed, there are many groups and people in housing need in my constituency who cannot possibly use that route and whose needs and problems will not be resolved.
In housing terms, we are faced with plans which do not come near meeting the housing needs. Nor do they help to harness the economic growth potential that undoubtedly exists in the construction industry. If we can harness and direct expenditure in that direction, there will be direct results and spin-offs throughout the economy and a multiplying effect. That can be a real stimulus to the economy, but the opportunity is being missed.
We are also confronted nationally—and I have given examples from my constituency—with examples of how the housing problems are not being met in any reasonable way. The Government's plans reveal an escalation of a growing housing problem which is now reaching crisis proportions.
I turn now to some of the problems that we face nationally. All hon. Members must be aware from their constituency experience of the growing problems with waiting lists. At every advice centre and surgery that I hold, I am confronted by people in desperate housing need, but no end to their problems is in sight. The local authority must deal with priorities which are even greater than theirs. Those problems must be dealt with in areas such as mine. It is simply not good enough to claim that the private sector and owner—occupation will resolve the problems when, for example, I am confronted with

983
between 9,000 and 10,000 unemployed people and their families. The private sector and owner-occupation options are not open to them. They face severe overcrowding and they often live in flats with young children and no gardens.
Another of the national problems at present is that of severe overcrowding. In some families, children of opposite sexes are forced to share bedrooms because of the lack of space. When I became involved in politics 20 years ago, I thought that we would have eradicated that problem by now. However, that problem occurs daily throughout the country.
There is little or no scope in the plans to meet the needs of people who, although cured, are forced to remain in psychiatric units because there is no housing available for them if they leave such units. It is estimated that about 835,000 people are in hospital wards simply because there is no suitable housing for them.
The Government's plans offer little hope of meeting the needs of the homeless. It is all very well to quote statistics about the number of vacant council houses. We know that sometimes the management of empty stock could be improved. However, the truth is that there will always be a proportion of the housing stock standing empty because of the movements of people in the area and the need for improvements to those properties. However, there are still 100,000 people homeless and no light at the end of the tunnel for them. There have been many debates which have raised important points about the growing use of bed and breakfast accommodation for the homeless.
The authority in my constituency is faced with an aging housing stock in the public sector, yet no capital receipts or allocations are available to meet the problems caused by the need for serious repairs. In many instances there is a need for new roofs and window frames, for example. It is estimated that about £20,000 million will be needed to clear the national backlog of repairs, and I do not believe that anything will happen on that scale. There is a problem in the private sector, for it is estimated that about 77 per cent. of all unfit dwellings are to be found within it. I have some examples in my constituency. The Government's plans will do nothing to resolve that problem.
The next Labour Government should have an objective of 1 million new homes so that something can be done to meet demand. That would cost about £28,500 million. We need resources directed to the repair of substandard and seriously defective housing, which would cost about £27,500 million. We need resources to repair the public sector housing stock, and that would require the expenditure of about £20,000 million. Finally, we need the local authorities, the housing association movement, housing co-operative groups and the construction industry to be given the assurance that what they are ready, willing and able to do will happen because the necessary public resources will be provided.
The cost of the programme that I have outlined would be about £1,500 for every man, woman and child in the country. That seems a small price for resolving a housing crisis. Unfortunately, the Government's plans show no prospect of anything being done in the near future.
8.41 pm
Mr. John Maples: I have some sympathy with some of the problems that the hon. Member for Knowsley, North (Mr. Howarth) has
984
described. I, too, represent an inner city area in which there are housing difficulties. I think that there are other solutions to the problem apart from building more council houses, but it is an area of policy that perhaps needs more thought.
I wish to concentrate on the main theme of the debate. One of the characteristics of all economic debates is the constant attempt of Opposition Members to pretend that the economy is in terminal decline, that no one has any employment and that all companies are losing money and markets. We have a serious unemployment problem, but large sectors of the economy are extremely successful. My right hon. Friend the Chancellor of the Exchequer is to be congratulated on his record of sustained growth. We are now entering the seventh year of economic growth with sustained relatively low inflation despite that growth.
My right hon. Friend the Chancellor of the Exchequer was able in his autumn statement to offer substantial increases in public expenditure and the economic debate that is taking place outside the House is directed to how whatever fiscal surpluses there are should be used. Should they be used to reduce the public sector borrowing requirement or to produce tax cuts, for example? That is not a picture of an economy in terminal decline. Instead, it is one that reflects substantial successes. It is to the constant chagrin of the Opposition that that is the ground on which the economic debate is taking place. As I have said, discussion is centred on the purpose for which fiscal surpluses should be used. Should they be used to increase public spending, to reduce the PSBR or to enable tax cuts to be introduced? I expect that the result will be a mixture of two or three of the options. None of us knows now the size of the surplus that my right hon. Friend will have at his disposal.
If my right hon. Friend finds that the fiscal surplus allows him to introduce income tax reductions, I hope that he will concentrate on reducing the standard rate and not on raising thresholds. The argument whether we should reduce rates or raise thresholds in those terms has been conclusively won, in my opinion, by those who share my view that the cutting of the standard rate is the most important objective. The raising of thresholds does not take people out of income tax. That may happen temporarily, but within a short time they will receive a pay rise that puts them into income tax again. The raising of thresholds has become irrelevant to the poverty and unemployment traps. It is irrelevant to the poverty trap because the proposed social security changes will be based on net take-home pay. It is irrelevant to the unemployment trap because that relates to average tax rates and not marginal ones. For all these reasons, it makes much more sense, if we are to have income tax reductions, to have them directed to the basic rate.
The argument against that approach is that it does not help the low paid as much as the raising of tax thresholds. That is true, but we should concentrate on helping the low paid and not give more general help to the entire wage-earning population. If tax thresholds are raised, everyone benefits as the effect extends across the board. A simple approach — it is one that my right hon. Friend the Chancellor of the Exchequer has pursued in various Budgets—is to reduce or remove bands of employees' national insurance contributions. That concentrates help on the low paid and does not go to everyone else, and it can be done relatively cheaply. The 5 per cent. and 7 per cent. employees' national insurance contributions could be

985
abolished at a net cost of about £500 million. That would mean that those on less than £5,000 a year would pay no national insurance contributions.
It is worth thinking of what that means. Someone on £5,000 a year would have an extra £350 a year in his pocket. If we were to achieve that result by the thresholds approach, we would have to raise them by about £1,200, or about 35 per cent. That would be prohibitively expensive because it would apply across the board.
The two main themes of our economic policy should be the reduction of interest rates and the reduction of unemployment. The unemployment scene seems to be radically different from that of two years ago, when I started to take a serious interest in the subject with my hon. Friend the Member for Carshalton and Wallington (Mr. Forman). The House will recall that we published a short pamphlet. On looking back, I feel that much of what appeared in the pamphlet still makes a great deal of sense.
As I have said, the unemployment scene has changed radically. A substantial part of Britain is in a boom but there are pockets within that part — some are more substantial than others — where there is serious depression. It is not the simple matter of a north and south divide. The south-east generally is a prosperous part of the country, but there are parts of central London that are extremely deprived, which have massive unemployment and many serious problems. On the other side of the coin, there are parts of the north where there are just as many Mercedes and BMWs per 100 yd as there are in the southeast. The problem is much more complex than a north-south divide. There are specific areas in which there are serious problems.
Whatever help or treatment we provide should be focused on the unemployment problem in specific areas with great problems. We should not try to do something nationwide that would diminish the effect of whatever policy we pursued in the areas with the greatest problems.
It would seem that there are two specific ways in which we can try to alleviate unemployment, and they should be targeted on the areas that are especially deprived. One approach is the further reduction of employers' national insurance contributions to reduce the cost to employers of employment. The other approach is the extension of job subsidy schemes, of which there are two or three examples in the Government's package of employment policies. An average male manual worker is paid about £8,500 a year and the cost to the Exchequer if he becomes unemployed is about £7,500 a year. It would seem that it is worth focusing on areas within regions where there are high levels of unemployment to try to ease the cost to employers of creating jobs in the private sector.
The really run down inner city areas need something rather more specific than what I have suggested so far. The urban programme as a whole — we have urban development corporations, urban land grants and urban regeneration grants — is a serious and well targeted attempt to help them, and I welcome the increased budgets this year. If we add together the budgets of the urban programme, the derelict land grant and the urban development corporations the total is about £580 million, an increase of about one-eighth since last year. I welcome that increase, but if there is room for fiscal manoeuvre in the Budget and it is of the order of some of the figures that are being speculated upon, I hope that some of it will be used to increase specific programmes that are directed to improving decaying and run down inner city areas. That
986
will create jobs in the short term while the work is taking place, and in the longer term it will lead to the economic regeneration of the areas. The other main theme of economic policy should be to achieve a reduction in interest rates. By any standard, we have high interest rates. The bank rate is about 11 per cent. The rate on dollars is 6·5 per cent., on deutschmarks and the yen it is just over 4 per cent., and even on the French franc it is only 8·5 per cent. By international standards, and in real terms, our interest rates are high.
We must ask why we are out of line with the rest of the important developed economies. I have a theory, which I have propounded often in speeches in the House, which gains some agreement from a great many people, but seems to fall on deaf ears in. the Treasury. I do not know whether my right hon. Friend will have time to deal with it when he winds up the debate. Interest rates are high not because other countries' interest rates are high or because of attempts to prop up the pound, but because credit is growing fast. The banks and financial institutions have become the engines of credit growth. By the liberalisation of financial markets, they have actively and aggressively gone out and sold loans to people. They have sold credit—that is their product—and they have done so in a way that has caused it to grow at an artificially high rate. They have had to fund that by bidding up the interest rates on deposits. That is borne out by the fact that so much of the expansion of lending has gone to property development companies and to individuals and consumers rather than to industry. The figures for one of the major banks over the past five years show that its lending to manufacturing industry has risen by 33 per cent., to property companies by 170 per cent. and to individual consumers by over 200 per cent. Those figures bear out my argument.
High interest rates have a serious and a deleterious effect on manufacturing industry's ability to invest and on its costs. They are one of the fundamental reasons, if riot the main reason, why sterling is under pressure on foreign exchange markets. The markets are concerned about the huge overhang of liquidity and are worried that it might result in inflation. Financial factors feed off themselves—the pound is weak because credit is growing too fast, so we have to raise interest rates and keep interest rates high to protect the pound. It: is a vicious circle that must be broken. To break it, there must be some restriction on credit and credit growth. The danger is that it might damage the consumer boom. If my right hon. Friend the Chancellor has room to cut income tax perhaps he could get the best of both worlds by restraining credit growth to help interest rates but sustain the consumer boom through cuts in income tax.
One of the other ways that my right hon. Friend the Chancellor might help with interest rates is by using some of his fiscal adjustment to reduce the public sector borrowing requirement. Of itself, that will not reduce interest rates, but it will go some way towards compensating what is seen in financial markets as a laxity in fiscal and monetary policy, and a not entirely 100 per cent. belief that the Government will hit their public expenditure targets. If one could inject a little confidence there, and it were combined with some restriction on credit growth, we might see a fairly substantial and meaningful reduction in interest rates to the levels in our competitor countries. Those are sensible ways in which my right hon. Friend the Chancellor might use the money available to him.

987
My right hon. Friend the Chief Secretary to the Treasury has brought to the House a remarkable success story on the economy. It is to his credit that the debate is being conducted in terms of what we will do with the extra money that is available. It gives him a range of options. If he were to apply some of the extra money in the ways that I have suggested, we could sustain the growth in consumer spending, but at the same time bring down interest rates and help alleviate unemployment. I hope that he will choose to do some of those things.
8.55 pm
Mr. Michael Fallon: I shall be brief and put three points. I hope that my hon. Friend the Member for Slough (Mr. Watts) will be able to catch your eye, Mr. Deputy Speaker.
Public spending should be fairly distributed. The greatest of all distortions in public spending is the inequity in treatment between England, Northern Ireland, Scotland and Wales. On the last territorial analysis, the differences in 1985–86 were that in Northern Ireland public spending was 52·5 per cent. higher per head than in England. In Scotland it was 27·2 per cent. higher and in Wales 10 per cent. higher.
With regard to Northern Ireland, there are obvious security costs. Those security costs should not divert our attention from other aspects of the Northern Ireland programme. Spending on industry, trade and employment in Northern Ireland is 340 per cent. higher per head than in England. Spending on housing in Northern Ireland is 357 per cent. higher per head than in England. I should like to hear from my right hon. Friend the Financial Secretary some prospect that that non-security expenditure in Northern Ireland will be reduced over the years. The difference in Wales is only 10 per cent. That 10 per cent. over all the public expenditure programmes conceals larger differences—noticeably a subsidy which is some 73 per cent. higher on industry and employment in Wales than in England.
Scotland is by far the worst example of all. Scotland, unlike Wales and Northern Ireland, is by no means one of the poorer regions of the United Kingdom. Indeed, on some measurement of GDP it is one of the wealthiest regions outside the south-east of England. Public spending is 27 per cent. higher per head in Scotland than it is in England. Let us put that in slightly more practical terms. I began life in Dundee. I now represent the constituency of Darlington. For every £4 spent on health in Darlington, £5 is spent in Dundee. For every £5 spent on industry and employment in Darlington, some £9·50 is spent in Dundee. For every £5 spent on housing in the north-east, nearly £10 is spent on housing in Scotland. Moreover, the gap between Scottish and English spending has widened under the Government rather than narrowed.
That kind of distortion is unjustified and discriminates directly against the English regions. We must ask ourselves why the Treasury tolerates a system that is so manifestly unfair. If it is not the territorial block formula—the Chief Secretary to the Treasury does not think that it is—the only other explanation is the political lobbying of the respective Secretaries of State for those three territories. If that is true, the one thing that the Government were elected to achieve was a reduction in the
988
extent to which the allocation of public expenditure was organised on the basis of political entitlement, and to redress it to a distribution on the basis of genuine need.
I want to put to my right hon. Friend the Financial Secretary three specific points on territorial spending. The first concerns assessment of need. Since the system has been in operation we have not had any realistic assessment of need. If geographical or historical circumstances—for example, in Scotland—justify additional spending, let us have that justification out in the open. If the Scottish Office and the Treasury cannot agree on a system of measuring genuine need, perhaps some independent body —the Cabinet Office, for instance—could assess those differences.
Secondly, there is the overprovision which has built up since 1980 in the Scottish budget in particular but in the Northern Ireland budget. I estimate that, over the six or seven years that the formula has been running, the overprovision has been nearly £1 billion. I should like to know the Treasury's estimate.
Thirdly, if the territorial block formula is not at fault—my right hon. Friend the Chief Secretary tells me in a letter of 5 January
"The formula arrangements have their intended effect of keeping the trend of territorial block expenditure in line with that of comparable English expenditure"—
why has my right hon. and learned Friend the Secretary of State for Scotland voluntarily yielded the operation of the formula on local authority expenditure? If he is able to do that, why is the Treasury not able to press him on suspending the operation of the formula in other aspects such as housing and employment support'?
It seems to be common ground that far too many of our defence establishments are based in the south and west rather than the north-east and north-west. Such establishments, whether they are depots, research establishments or defence bases, carry huge spending implications for the local economy in which they are sited. I should like that system to be re-examined to ascertain whether some of those bases and depots could be moved nearer the northern flank of NATO, which we are pledged to defend, to boost the economy of the north-west and the north-east in the same way as they have injected spending power into the west and the south.
On housing, I notice that some £314,000 is spent on the national mobility scheme. Some 22,000 applications by council tenants for rehousing under that scheme have been made in other parts of the country, but the scheme was able to find alternative accommodation for only 7,000. If we are spending £314,000, each successful placement costs us only some £60 per head. I should like more resources to be switched within the housing budgets to make a reality of that national mobility scheme.
9 pm
Mr. John Watts: I wish to return to the question which the hon. Member for Dagenham (Mr. Gould) dodged throughout his speech. I fail to see how he could move an amendment which claims that the apparent relaxation of spending limits falls far short of what is needed without being prepared to say what in his estimation is needed in the way of additional expenditure. The hon. Gentleman refuted the carefully costed list of Labour spending promises which was prepared by my right hon. Friend the Chief Secretary, but he was not prepared to say in detail which of the 32 items totalling

989
more than £28 billion were not now part of the Labour party's programme. We understand from the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) that the only commitment is to the so-called anti-poverty and job creation programmes, but most of the other items in the list seem not to be contained within those two programmes.
I do not have the time to read out all 32 items or to give chapter and verse for the sources of those promises, although that information is available and has been supplied to the Labour Front Bench. I should like to take some examples, in the hope that the hon. Member for Thurrock (Dr. McDonald) will tell me at least in respect of those specifics whether they are part of the Labour party's promises to the electorate.
There is the pledge to increase overseas aid to 0·7 per cent. of GNP, at a cost of £1·46 billion — a promise given by the right hon. Member for Sparkbrook in his speech to the Overseas Development Institute on 9 June 1986. Is that part of Labour's spending programme? There is the promise of the hon. Member for Oldham, West (Mr. Meacher), in an article in Tribune in February 1986, to raise child benefit to £14 a week, at a cost of £3·25 billion. Is that part of Labour's programme? The right hon. Member for Manchester, Gorton (Mr. Kaufman), in Hansard 27 March 1985, promised free television licences for old-age pensioners at a cost of £320 million. Is that Labour policy?
The right hon. Member for Spark brook, in Hansard 20 March 1985, proposed that pensions should be increased by £5 a week for the single pensioner and £8 a week for a couple, at a cost of £1·65 billion. Does that form part of his committed programme? On 2 April 1986, in the Daily Mirror, the hon. Member for Oldham, West promised to double the Christmas bonus to old-age pensioners, at a cost of £110 million. Will the hon. Member for Thurrock tell me whether that is part of Labour's programme? There is also the winter premium of £5 a week for all needy pensioners and widows, which the hon. Member for Oldham, West said on 6 March 1986 would cost £180 million.
I could continue that list if I had more time at my disposal. None of those items appears to be in the so-called job creation or poverty programmes to which the right hon. Member for Sparkbrook is committed. Unless the hon. Member for Thurrock can advise me that the Labour party is still committed to those promises, I can draw no conclusion, nor can my constituents, other than that those promises have been made carelessly and cynically in an attempt to buy votes in a general election that the Labour party has great cause to fear. It makes promises that would cost £35 billion and would add more than 30p to the standard rate of income tax but pretends that it has a modest plan that would require the mere doubling of the PSBR and only another £3·5 billion in taxation. There is a yawning credibility gap between the cost of the promises that the Labour party scatters around like confetti and the costs to which it is prepared to own up.
As the public expenditure White Paper and the recent PSBR figures suggest, we can have our cake and eat it. We can have higher spending and I suspect that when the Budget comes we can have lower taxes as well. However, we must bake the cake first, because we cannot eat it before we have baked it. A fundamental flaw in the economics of the Labour party has always been that it desires to spend money before the wealth has been created.
990
The policies of my right hon. Friend the Chancellor of the Exchequer have given us six years of sustained economic growth. That growth permits well-targeted increases in public expenditure, scope for cuts in direct taxation and also for a reduction in borrowing.
By contrast, the Labour party is the bad news party that makes pessimism a profession. Opposition Members are always waiting for bad news. Their story changes; it used to be that inflation would rocket after the 1983 general election. They then said that there would be a crisis in the balance of payments—we are told that it is just around the corner. Now the Labour party says that there will be a further explosion in VAT.
The Labour party will be disappointed on 17 March when my right hon. Friend the Chancellor opens his Budget because it will be good news for Britain, but bad news for the Labour party. However, the worst news of all that is coming the Labour party's way will he when it faces its third defeat in a row at the general election.
9.7 pm
Dr. Oonagh McDonald: Yesterday, the Treasury announced the figures for the PSBR. The 10-month figure stood at the amazing figure of £400 million. I checked back over previous years and found that it was quite unprecedented. However, when I checked the 10-month figures and the 11-month figures for previous years — the 11-month figure is, of course, announced with the Budget—and with the outturn, I found that there is always a discrepancy between the 10-month figure, the 11-month figure and the figure for the full 12 months. In other words, for all their talk about the PSBR the Treasury and the Government have never got that figure right.
When one considers that figure a little more closely, one sees that part of the reason why it is so low now is that the sale of state assets has been set against the figure for borrowing. However, that is one off and will not necessarily happen in future years. It certainly will not happen under a Labour Government and if a Tory Government get in again next time, they will have to hunt around for things to sell.
The other reason why that figure has turned out as it has is the buoyant tax revenue from income tax and company tax. However, that is only partly due to profitability. It is also due to the fact that companies have now run out of their tax allowances and have started to pay tax. We should not expect that figure to be as buoyant in the future.
This year's receipts from VAT increased by more than £3 billion over last year's figures. It is no wonder that the Government are looking at VAT as an attractive source of revenue if we should have the misfortune to have another Tory Government. I noticed that, in his answer to my hon. Friend the Member for Dagenham (Mr. Gould), the Chief Secretary chose his words with great care. He could not be described as denying that another Tory Government would not increase VAT.
The increase in VAT take comes from an increase in consumer spending, which was up by 5 per cent. last year. Whatever some Conservative Members say, it is fuelled by the increase in consumer debt, which rose by another 14 per cent. in 1986, making the total outstanding amount of consumer credit at the end of 1986 the staggering figure of £30 billion. The hon. Member for Lewisham, West (Mr. Maples), in his interesting contribution to the debate, said

991
that banks and other financial institutions have increased consumer credit. But that has not happened by accident. The liberalisation that he mentioned is not accidental;, it is deliberate Government policy.
We may see further increases this year when the building societies also extend consumer credit. Perhaps understandably, some of them, notably the Halifax, are becoming anxious about the extent of consumer credit and consumer debt and their impact on households. In an interesting study published today, the Halifax building society said that the number of its borrowers who were more than 12 months in arrears had increased from 400 to 1,800 during the past five years.
The increase in consumer credit has led to endless anxiety and, in some cases, to tragedy in many households as people take on debt that they cannot afford and then cannot pay it back. Many personal tragedies occur and many loan sharks are waiting to trap the unwise and the unwary who have taken on far too much debt. But the Government do not care about the impact of the growth of consumer credit on households. They do not care about the tragedies and anxieties to which it gives rise. All that they are worried about is the pre-election consumer boom. No effort is made to control credit or to control the activities of the loan sharks who batten on to the unfortunate.
The growth in consumer credit has led to a rapid growth in imports, which were up 6 per cent. last year. As Conservative Members said, not all of it was represented by consumer goods. Nevertheless, retail sales, which are running at more than 25 per cent. above the level in 1979, are being fed by imported goods. Our so-called market-oriented economy is still producing fewer consumer goods than it did in 1979. British industry has not adapted as we would have wished to meet the growth in consumer demand. Of course, the Government do not care about that. The VAT comes flooding in and the trade deficit is shrugged aside. There was a small trade deficit overall last year, but a huge deficit of £8·7 billion in manufactured goods. This year, the Treasury expects a deficit of £1·5 billion. The Government hope that we did not notice their forecast in the 1986 Budget statement of a surplus of £1·5 billion, even taking the fall in oil prices into account. That surplus has suddenly turned into a deficit.
The Treasury estimate of what the deficit will be at the end of 1987 is not shared by many economic forecasters, with 18 forecasters putting the expected deficit at the end of 1987 at £5 billion. The Labour party has been accused of pessimism and of spreading gloom and doom, but it is also being said by independent forecasters, many of whom would be insulted to be considered our supporters. They are merely taking a cold, hard look at what the Government are doing. The growth in consumer credit and in VAT may not continue. The Government may find that the growth in the revenue from corporation tax which they have experienced this year may not continue in 1987, for the reasons I have already mentioned.
Let us consider the position that faces the Government as they come up to the Budget and let us examine the Government's plans — which will not, however, be fulfilled after the election. The Government have a real chance to take a long-term view of the economy. The Chancellor has said that some people should take a long-term view. In his new year interview with the Financial
992
Times, he condemned short-termism out of hand. He condemned the reluctance of industry to put more money into research and development or to invest enough to keep up in the technology race.
The Chancellor's policies, particularly the extremely high interest rates that are far beyond those of our competitors, have made it difficult for industry to plan long-term. That means that the Chancellor's complaint lacks substance. He has the opportunity to take a longterm view of the needs of the people and of the needs of the economy, but it is clear that he intends not to take a long-term view at all. He will be found to be the most guilty of short-termism.
All the Chancellor is interested in is cobbling together a Budget that he thinks will enable his party to win the next election. He is not prepared to think beyond election day. He is not prepared to take the long-term interests of the people or of the needs of the economy into account. Instead, he will hunt for the best set of election bribes that he can find. The British public are more intelligent than to be taken in by his election bribes. He will put the emphasis on tax cuts and decry yet again public expenditure. He will decry the possible increase in public expenditure for 1987 and later, knowing full well that at least 65 per cent. of extra public spending finds its way back into the public purse, having en route met people's needs and helped to create more jobs.
Given the bonanza in Government revenue which the Treasury so proudly announced yesterday, how can the Chancellor justify not finding more than a measly £10 for a tiny handful of pensioners to help them pay the heating bills that even now are arriving through their letter boxes for the desperately cold January? How can the Chancellor expect to be regarded as a civilised human being and refuse, despite those unexpected billions of extra revenue, to do something for pensioners who face huge heating bills? Why does he not consider our proposal to give a winter heating supplement to pensioners on supplementary benefit at a cost of £150 million? That is less than the £165 million which he spent on promoting shares in British Gas.
Given the options before the Chancellor, how can he possibly justify an increase of 80p a week for single pensioners, which will no doubt be announced in the Budget, instead of giving them a decent increase, especially in view of the Government's action over the past eight years in cheating pensioners by breaking the link between earnings and pensions, which has cost single pensioners £7 a week and married couples £11 a week?
The White Paper shows that spending has increased by £4·7 billion in 1987–88—I shall return to that later. That increased spending is designed to save jobs—the jobs of 117 Conservative Members. Those jobs will turn out to be expensive. Fortunately, the electorate will have the veto on that expenditure and the Government will discover that that expenditure will not save those jobs.
It is interesting to note that the pattern of spending in the White Paper rises in 1987–88, but if the Tories get back into office, spending is at a standstill for 1988–89. Therefore, there are no plans to increase Government spending in real terms. I agree with Christopher Johnson who said, in his memorandum to the Select Committee, that there will be a
"battening down of hatches after the election"—
an election that the Tories hope they will win.

993
The Government pretend to increase spending in various areas. They propose to spend most of that increase on, first, social security, which the Treasury Select Committee rightly pointed out is the one figure that the Government have persistently got wrong — every year they have got that estimate wrong. Secondly, they are proposing to increase spending on salaries in the public sector. The Chancellor weeps crocodile tears over that, but if a gun is at his head he is willing to make that spending.
In the next three years, spending within the National Health Service is expected to rise by 9 per cent. That is nothing like enough to keep up with medical advances, especially in medical technology, the growth in the number of elderly and the very old and the increase in salaries. The Government have said what wonderful work they are doing for the Health Service, but if the Health Service were to meet the needs of the Government plans it would need an increase in spending of 16 per cent. rather than 9 per cent.
The spending plans in the White Paper contain some interesting elements. There is a clear implication that there will be an increase in prescription charges. Yet that increase too will not take place in 1987, but if the Government get back into office, that increase will occur in 1988–89. It is yet another way in which those who receive tax cuts in the forthcoming Budget will find themselves paying for them. With regard to prescription charges it will be the sick, the poor and especially the long-term sick who will pay through the nose for other people's tax cuts.
When we consider housing expenditure, we appreciate the Alice-in-Wonderland world of the White Paper. Tucked away in the second volume on public expenditure is the claim:
"in most parts of the country there is now an adequate supply of housing overall."
What an absurd and ridiculous claim. My hon. Friend the Member for Knowsley. North (Mr. Howarth) spelled out the urgent need for housing repairs and the lengthening waiting lists for council housing in his constituency. He said that more than 1 million people were on the council housing waiting list and that there was an outstanding repair bill of £19 billion.
There is a shortfall of more than 1 million houses when we consider the number of households requiring separate accommodation that is fit for human habitation. In the face of that, the Government believe that there is adequate housing in the country and the Government's proposed increased expenditure on housing is all of £350 million. That is nothing like enough to meet the bill for repairs or the provision of council houses. Of course we expect the public sector to make its provision of housing but the public sector alone cannot meet all the housing needs. Like most Opposition Members, time after time in my advice surgery I meet young couples who would give their eye teeth for a council flat. They will not get one because, as in so many other parts of the country, no new council housing has been built and the council houses that have been sold — I do not oppose that — have not been replaced by additional stock. [HON. MEMBERS: "Oh".] Hon. Members know that perfectly well, except when they fall back into their fantasy Alice-in-Wonderland world.
In education, the increased expenditure is more cosmetic than real. It is true that there is increased expenditure for 1987, but the Government exaggerated the size of the increase by comparing their plans for 1987–88 with what they planned to spend in the current year.
994
Therefore, the figure in the White Paper is yet another fiddle, not that we have come to expect anything else from the present Government. Fiddling figures and conjuring tricks seem to be a major pastime. However, what should have been a pastime has now been substituted for real work, particularly on the part of the Chief Secretary who likes to indulge himself—[Interruption.] Of course there is increased spending on teachers' salaries and other salaries in the education sector. Quite right, too.
In my constituency we are having the greatest difficulty obtaining primary school teachers. Many primary school classes in my constituency have been without one consistent teacher throughout the whole year. That deprives working-class children in my constituency of a decent opportunity to learn how to read and do arithmetic properly. That is the sort of basic standard that I want to see. The Government continually talk about basic standards in education but they will not provide decent pay for classroom teachers, sufficient books or equipment or decent classrooms. The Chancellor does not know what he is talking about. I doubt whether he has been in a classroom recently. It is only with that sort of equipment, with sufficient books and with properly trained and sufficient teachers that we can expect to reach decent standards of education.
Almost all the increased expenditure on education planned by the Government is to go on salaries. They should be spending more on making the basic provisions that I have outlined. The £4·7 billion increase in the White Paper amounts to very little in terms of improving the quality of services in those fundamental areas which people expect.
I shall now turn to regional spending. The Chancellor knows so little about his own expenditure plans that he thought that expenditure on regional development grants had been increased. That is what he said in a debate. Instead of which, it is being cut by £200 million in the coming year. If one looks at the previous amount, one .will see that the provision for regional expenditure has not been increased at all. My hon. Friend the Member for Dunfermline, East (Mr. Brown), our regional affairs spokesman, has shown, spelled out and explained to the Prime Minister, since the Chancellor seems to be incapable of understanding it, the fact that regional development grants have been cut, making the north-south divide even worse. It is quite plain that the Tories look upon certain areas as political no-go areas. They have written off Scotland and the north of England because they know that they will not win there and they have cut the money that is necessary to deal with the horrendous unemployment problems in the north. They feel that such money is wasted.
In their 1987 Budget, the Government seem to have a leeway of £3 billion or £4 billion. That means that resources are available. The PSBR figures which the Government happily announced yesterday seem to show that. When they looked at those figures, some of the Chief Secretary's hon. Friends wanted him to use the extra resources to meet human needs. They wanted them used to provide houses, to improve health and education and to provide desperately needed resources to build up the infrastructure. They wanted him to invest in people and in the future. We want that as well.
The Government have no basis for their attack on our spending plans, which are clearly and specifically directed at the objectives of combating poverty and dealing with

995
unemployment. The Chief Secretary would rather use those resources for a cynical pre-election bribe. His aim is short-term — the utterly selfish one of saving his own job. Where is the long-term thinking there that he demands from others? It is nowhere in sight. Only the Labour party provides the long-term thinking, the planning and the resources necessary to put right the damage of the last eight years.
9.31 pm
The Financial Secretary to the Treasury (Mr. Norman Lamont): This debate has shown that the White Paper bears on nearly every aspect of policy. I hope that the House will forgive me if I do not cover the whole field. Instead, I shall focus on three aspects of our plans. First, I shall deal with our policy for the total of public expenditure in the short and medium term and, secondly, with the distribution of priorities within the overall planning total. Thirdly, in order to reinforce what my right hon. Friend the Chief Secretary said about better value for money in those programmes, I shall speak about that.
Before dealing with those matters, I shall respond to some of the points raised in the debate, especially the points made by the hon. Member for Linlithgow (Mr Dalyell). He quoted some remarks made at a luncheon the other day by Sir George Porter. I found myself in sympathy with some of those remarks. We certainly take the Sherfield-Gregson Select Committee report extremely seriously and shall reply in considerable detail to the points that it made. The hon. Gentleman asked about other matters. I cannot reply to him now about CERN but I shall write to him about that.
The hon. Gentleman also asked about general spending on civil research and development. We have shown our commitment to that because the science budget for 1987–88 is in real terms 10 per cent. higher than it was in 1978–79. As he acknowledged in the remarks that he quoted, our support for civil research and development compares well with that in other advanced countries.
The hon. Gentleman asked about research money for the programme about AIDS. He acknowledged what has already been announced and said that the Medical Research Council should be given everything for which it asks. I think I am right in saying that it has been given everything that it has asked for. We take this matter extremely seriously and, of course, any further requests by the Medical Research Council will be seriously considered. The hon. Gentleman described the matter in terms which were wholly appropriate to its seriousness.
As regards the third point that the hon. Gentleman made about pay rises and research staff, pay settlements for the research councils have not been reached this year, although, like other authorities, they will be expected to make pay awards within the programmes for which we have budgeted.
Mr. Dalyell: If they do this it means that the research councils will have to cut back on their research programmes to pay the wages to which they are committed.
Mr. Lamont: That does not automatically follow. As the hon. Member for Stockton, South (Mr. Wrigglesworth) said, that dilemma always applies in the public sector and always applies to public sector pay.
996
There must always be a discipline within each authority. They have to find their own wages. We cannot just underwrite a given level of wages.
My right hon. Friend the Member for Worthing (Mr. Higgins) raised the question of the timing of this debate. He suggested that, following the Select Committee's recommendation, it would be better if the debate had been arranged for May or June. I am sure that my right hon. Friend the Chief Secretary will consider what he said. I know that my right hon. Friend the Member for Worthing has made that point before. I shall make some of the points for having a debate at this time, although obviously my right hon. Friend the Chief Secretary will consider what has been said. As my right hon. Friend the Member for Worthing knows, we have a two-stage process, the autumn statement, which the Committee examined in November, when most of the macro-economic issues will be covered, and the White Paper that is published in January when the details of programmes are spelled out. Although the two occasions are different, they are part of the same process.
The advantage of a debate in February is that it can be expected to concentrate on public expenditure issues. A debate in May, when so much of the attention of the House is still on the Budget, may not concentrate public expenditure issues in the same way.
We set out clearly our long-term approach to public spending in our 1979 manifesto. We said that public spending was taking an excessive share of national income and that it should decline progressively. That was the objective that we were elected to work towards. Some hon. Members have suggested that the White Paper reveals a change of tactics on public spending, but our policy has been consistent and it is successful. The only reversal of policy is one for which we willingly take credit, that is reversing the remorseless upward trend of the public spending share of national output. That occurred not this year, but four years ago.
Mr. Gould: Would the Minister care to take up the offer which other Conservative Members did not? Will he now endorse the remarks of the then Chancellor who is now the Foreign Secretary to the effect that when he took over the Chancellorship public spending was at the heart of our economic problems? What has changed since then and how has he changed that problem?
Mr. Lamont: Public spending is at the heart of economic management, and it was at the heart of our economic problems. It is precisely because we have brought public spending under control that we have achieved the growth and the buoyancy of revenue that Labour Members are so keen to spend. The hon. Gentleman asks what has changed. I shall tell him what has changed. During the 1970s public spending was increasing by an average of 3 per cent. a year in real terms. In our first Parliament we reduced that to 2·25 per cent., despite the difficulties of the international recession. Since 1982–83, the rate of increase has come down again to 1·75 per cent. and for the next three years we plan that it should grow by an average of around 1 per cent.
Our prudence on public spending is only one side of the story. The other side is the success of our economic policies that have created the conditions for sustained non-inflationary growth. Under the Labour Government the United Kingdom was bottom of the European

997
Community growth league. Money GDP was growing fast enough, by about 19 per cent. a year, but, of that, 17 per cent. was frittered away in high inflation.
Since 1983, the United Kingdom has been at the top of the EEC growth league. We have had six successive years of uninterrupted growth. That is the longest period of uninterrupted growth that this country has had for many many years, whatever the Opposition may say. This growth is broadly based. Consumption has been rising by 3 per cent. a year, with investment rising by 4 per cent. a year, twice as fast as the EEC average. In the recovery from 1975 under Labour, consumption grew twice as fast as investment.
Some of my hon. Friends, and the hon. Member for Thurrock (Dr. McDonald), have expressed the view that the totals outlined in the White Paper will be overrun. I accept that they represent a demanding objective, but the taxpayer has every right to expect demanding objectives. Holding to the plans in this White Paper will require continued efforts to get better value for money, but as the Audit Commission on local government has brought out far too clearly, there is plenty of scope in the public sector, in local authorities in particular, for massive improvements. With the Contingency Reserve not as high as last year but higher than the year before, we have every chance of hitting our targets. Furthermore, contrary to what the hon. Member for Thurrock said, our record is extremely good. Over the past five years, the increase over targets has averaged only 0·8 per cent., and that is after taking account of the miners' strike.
We are determined to continue to reduce expenditure as a proportion of national output. That will not be easy. The price of control is willingness to take hard decisions, but the growth in output that we have achieved and will continue to achieve enables us, within our overall objectives, to permit a controlled and modest rise in expenditure in real terms. The increases that my right hon. Friend the Chancellor announced in his autumn statement were modest, and were affordable precisely because the Government for so long have struggled hard to bring public spending under control. It is because we have been prudent and cautious in the past that we are able to afford those increases.
Labour Members did not know how to react to that announcement. They did not know whether it was too much or too little. On the whole, they concluded that it was a mean but cynical pre-election boom. As my right hon. Friend the Member for Guildford (Mr. Howell) said, the Opposition have changed tack. They used to argue that under the Government recovery was impossible. Now, they are saying that it is going too fast and will not last. As my right hon. Friend said, the growth that we are seeing at the moment is not deficit-financed, and for that reason is sustainable and not a pre-election boom.
The alliance parties were conspicuous in the debate by their absence. We had very much hoped to hear from the hon. Member for Stockton, South (Mr. Wrigglesworth) something of the alliance's public expenditure plans, and what its priorities are. It is extremely difficult to find out anything about its intentions. I recall what Mrs. Shirley Williams, a former Member for the House, said the other day about her party. It was:
"The danger is that our party at this stage of its development may find itself meaning all things to all people."
That is precisely what it is. When I saw its publication the other day entitled "The Time Has Come", I thought how
998
appropriate it was that it chose the first line of a stanza from a poem by Lewis Carroll, the last line of which is full of references to porcine quadrupeds in the air. I do not know whether it has anything to do with the way that the right hon. Member for Glasgow, Hillhead (Mr. Jenkins) loves oysters.
We did not hear anything from the alliance about its priorities in public spending. They are usually a little bit more beyond what the Government are spending. The hon. Member for Stockton, South complained that total output was hardly up. He seems to have become confused between total output and manufacturing output and does not seem to be aware that total output has recovered strongly and is 11·5 per cent. above the 1979 base.
The hon. Gentleman referred also to regional policy. As my right hon. Friend the Chancellor said earlier, under the White Paper, regional policy is increased by about £36 million on the previous survey. Of course, we make no apology for the fact that, under the new style regional development grants, we are looking for economies in regional policy, and quite rightly too. In the past, regional policy has involved plenty of waste. Taxpayers' money went on capital-intensive projects that created few jobs in the regions. Indeed, table 3.5.2 of the White Paper shows that the new RDGs that are being phased in are already effective in creating jobs. They are expected to create over 41,000 jobs in 1986–87, and selective assistance created nearly 21,000 jobs last year.
I am confident that it makes complete sense for our regional policy to be much more targeted towards the creation of jobs. It makes no sense for taxpayers' money to be flung at investment projects, regardless of employment. Indeed, that was the purpose of regional policy—to rectify the imbalance in employment between different regions.
The hon. Member for Stockton, South also suggested that we should see more investment in infrastructure. But the Government's record on infrastructure is good. Under the Government, capital spending has been maintained. Under the Labour Government, which the hon. Gentleman was prepared to support, total capital spending fell by about 23 per cent. between 1973–74 and 1978–79. Capital spending in the National Health Service fell by 31 per cent. under the Government that the hon. Gentleman supported. Under the present Government it has increased by about 31 per cent. Under Labour, expenditure on roads fell by 34 per cent. Under the present Government, it has increased by about 12 per cent.
The White Paper makes it perfectly clear that the Government have a good record on capital expenditure, and we intend that that should continue. Opposition Members have made it clear that they do not regard the public spending that is put forward in this White Paper as adequate. They always favour a boost to public spending. For them it is an article of faith. No level of public spending would ever satisfy their aspirations. They now suggest one policy—a direction of public expenditure—that many members of the public, if they were ever allowed to learn about it, would find alarming, extraordinary and wholly inappropriate. Opposition Members plan to direct a large part of their extra funding through local authorities.
It would be one thing for Opposition Members to increase spending and their jobs package through local authorities, but it is quite another thing to do it when they plan simultaneously to end controls on local authority

999
spending, end rate-capping, and end controls on current spending. They propose these things at the very time when there is concern about the efficiency of local authorities, as mentioned in the recent Audit Commission report on eight inner London authorities. That report contrasted the spending policies of eight Labour inner London authorities with eight other authorities facing equally difficult social problems. It concluded:
"There was considerable profligacy. Expenditure was double that in similarly deprived areas. There were scandalous creative accounting techniques — over £700 million worth. There was mismanagement in housing. Staffing and other costs were 70 per cent. higher than might reasonably be expected and arrears nearing three times good practice levels."
The report provided firm evidence of enormous waste in the authorities and tremendous scope for improvements in efficiency. What was the reaction of Opposition Members? They reacted in exactly the same way as the Greeks did to the bearer of bad news. They decided immediately to call for a re-examination of the terms of reference of the Audit Commission.
How can we have any confidence in the Labour party's plans for local government when it responds like that to the Audit Commission's report? Even in well-run local authorities the last thing that we need are enterprise boards to be set up by them to compete with private sector businesses. There is no doubt that local authorities would undercut every private sector business, while making them pay skyscraper rates to meet the losses that their own enterprise boards would incur.
The Opposition say that the quickest way to get people back to work is to create new jobs in local government. But that is already happening in many Labour-controlled local authorities. According to the Audit Commission, the eight London authorities have twice as many staff as the most deprived metropolitan district outside London. Islington—one of the authorities to which my right hon. Friend the Chief Secretary to the Treasury referred today—is about to create, according to press reports, 4,000 jobs at a cost of £50 million. That is nearly £13,000 a job. We shall soon reach the position where we have to publish special public sector borrowing requirement figures for Islington on its own.
Of course I accept that most local authorities are run by moderate and sensible people who are anxious to provide a service for their constituents and to be accountable to them. Opposition Members have themselves attacked these zealots in certain local authorities. Although authorities of that kind may be in a minority, they control areas in which very large numbers of people live. They are effective political operators who control substantial resources that are being mismanaged, to the detriment of the electors. Those authorities are showing poor performance, extremism and profligacy. Opposition Members have said that they want their jobs package to be channelled through those self-same local authorities that demonstrate irresponsibility and mismanagement of their resources. They will have to show some prospect of obtaining better value for money if a vote for Labour is not to be a vote for waste and extremism.
The hon. Member for Dagenham (Mr. Gould) is faced with the impossible task of persuading the British people that the attitude of the Labour party to public expenditure is responsible and can be afforded. It was the former Chief
1000
Secretary to the Treasury, Lord Barnett, who warned his own party, the Labour party, against unrealistic promises. He said:
"It might be said that the first months of the Labour Government were characterized by our spending money which, in the event, we did not have."
Mr. Gould: I cannot help but notice that the Minister has run out of material and that he is finding it difficult to spin out the time. I wonder whether I can help him? This is a friendly gesture to help him to use up his time. Could he comment on tonight's news that Leyland Trucks has been sold off to a foreign company? Is this part of the Government's general plans for selling off assets, and is it yet another instance of a major part of our manufacturing capacity being sold off to foreign competitors?
Mr. Lamont: I am in no danger of running out of material and I have some questions to put to the hon. Gentleman, too. I can neither confirm nor deny anything. I have not seen what has been reported on television. However, a statement on Rover will be made to the House, when appropriate, at the earliest possible moment.
Opposition Members have made it clear today that they do not like the Government to refer to their plans, yet they reserve the right to criticise our plans and to say that the White Paper is inadequate. They criticise what they exaggerate as spending cuts. The Opposition constantly urge us to spend even more sums of money, yet at the same time they deny to the Government the right to challenge them about their spending plans.
The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) complained that my right hon. Friend the Chief Secretary to the Treasury had wrongly estimated his programme at £28 billion. The right hon. Gentleman said that the real figure is only about £10 billion and that the programme is made up of two elements: first, the £3·5 billion poverty package to be financed by taxing what he terms "the rich" and, secondly, the £6 billion jobs package to be financed by borrowing. That may be the first-year cost. However, the first-year cost must be borne again in years two, three and four. If the Opposition are proposing a jobs package, those jobs presumably are not just for year one, but for years two, three and four. Even if £10 billion is to be added to the existing PSBR, that must be added to the proceeds on privatisation of £5 million a year which Opposition Members are pledged to forgo.
Even a £10 billion addition to the public sector borrowing requirement would be a significant step along the road which always leads the Opposition to the IMF. If the poverty package and the jobs package are the full extent of their plans, what are we to make of the other pledges made by Labour spokesmen?
Is the Labour party no longer committed to overseas aid? The right hon. Member for Sparkbrook made that pledge about overseas aid only last June. Does it mean that Labour's pledge to increase spending by 3 per cent. in real terms has already been abandoned? Does it mean that Labour would not increase spending on education—a pledge that was made in "Investing in People"? I give the Opposition this opportunity. Will the right hon. Member for Sparkbrook tell us which of the numerous pledges in "Investing in People" will be abandoned?
Opposition Members talk about free TV licences for pensioners. That is not contained in the Opposition's first-year package. However, Opposition Members are content to come to the House and vote for such a measure on a

1001
Friday and vote for the Government to implement it now. Opposition Members cannot have it both ways. It is not good enough to claim that the only programme that counts is the first-year programme yet at the same time fail to disown the pledges made by Labour spokesmen as they travel around the country.
The Leader of the Opposition gave the game away in the "Panorama" programme when he was asked about those pledges. He said that the pledges were simply
"the mooted ideas, descriptions in lectures and an assortment of speeches of what could be conceivable, of what might be desirable."
Is that how we should interpret the pledges in "Investing in People"? Is that how we should interpret the pledge to provide an educational allowance so that all young people over 16 can undertake full-time education and training? Is that how we should interpret Labour's commitment to a complete ban on lead in petrol? Is that how we should interpret Labour party conference pledges on social security which were passed by an overwhelming majority last October? Is that how we should interpret Labour's commitment to reduce prescription charges immediately and phase them out eventually?
The House and the country are entitled to answers to those questions. The Labour party cannot have it both ways. Opposition Members cannot claim that these points are not in Labour's programme and repeat those pledges again and again. I return to the comments made by Lord Barnett when he said that the days had long passed when he naively thought that it would be easy to persuade his Labour colleagues that two and two made four.
Opposition Members have always been worried about parading their programme. At one stage they said that it should be put to an independent audit, yet when we offered to take them up on that, they withdrew the offer. We can have no confidence in the ability of the Leader of the Opposition to cost his pledges when he cannot even get it right on "Panorama". The 26·9 per cent. rate of inflation to which he referred occurred under the former Labour Government and not under a Conservative Government, as he claimed.
The economy is doing well. It has achieved growth because we have controlled spending, inflation and borrowing. It is because we have had that discipline that we are now in a strong position. For that reason I invite the House to support the sensible priorities and proven policies that are outlined in the White Paper.
Question put, That the amendment be made:—
The House divided: Ayes 192, Noes 339.

Division No. 95]

[10 pm

AYES

Abse, Leo

Blair, Anthony

Adams, Allen (Paisley N)

Boyes, Roland

Alton, David

Brown, Gordon (D'f'mline E)

Anderson, Donald

Brown, Hugh D. (Provan)

Archer, Rt Hon Peter

Brown, N. (N'c'tle-u-Tyne E)

Ashdown, Paddy

Brown, R. (N'c'tle-u-Tyne N)

Ashley, Rt Hon Jack

Brown, Ron (E'burgh, Leith)

Ashton, Joe

Bruce, Malcolm

Atkinson, N. (Tottenham)

Buchan, Norman

Banks, Tony (Newham NW)

Callaghan, Jim (Heyw'd & M)

Barron, Kevin

Campbell, Ian

Beckett, Mrs Margaret

Campbell-Savours, Dale

Beith, A. J.

Canavan, Dennis

Bell, Stuart

Carlile, Alexander (Montg'y)

Benn, Rt Hon Tony

Carter-Jones, Lewis

Bennett, A. (Dent'n & Red'sh)

Cartwright, John

Bermingham, Gerald

Clark, Dr David (S Shields)

Bidwell, Sydney

Clarke, Thomas

1002

Clay, Robert

McDonald, Dr Oonagh

Clelland, David Gordon

MacKenzie, Rt Hon Gregor

Cocks, Rt Hon M. (Bristol S)

McNamara, Kevin

Cohen, Harry

McTaggart, Robert

Coleman, Donald

McWilliam, John

Conlan, Bernard

Madden, Max

Cook, Robin F. (Livingston)

Marek, Dr John

Corbett, Robin

Martin, Michael

Corbyn, Jeremy

Mason, Rt Hon Roy

Cox, Thomas (Tooting)

Maxton, John

Craigen, J. M.

Maynard, Miss Joan

Crowther, Stan

Meacher, Michael

Cunliffe, Lawrence

Meadowcroft, Michael

Cunningham, Dr John

Michie, William

Dalyell, Tam

Mikardo, Ian

Davies, Rt Hon Denzil (L'lli)

Millan, Rt Hon Bruce

Davies, Ronald (Caerphilly)

Miller, Dr M. S. (E Kilbride)

Davis, Terry (B'ham, H'ge H'l)

Mitchell, Austin (G't Grimsby)

Deakins, Eric

Morris, Rt Hon A. (W'shawe)

Dewar, Donald

Morris, Rt Hon J. (Aberavon)

Dixon, Donald

Nellist, David

Dormand, Jack

Oakes, Rt Hon Gordon

Dubs, Alfred

O'Neill, Martin

Duffy, A. E. P.

Owen, Rt Hon Dr David

Dunwoody, Hon Mrs G.

Park, George

Eadie, Alex

Patchett, Terry

Eastham, Ken

Pavitt, Laurie

Fatchett, Derek

Pendry, Tom

Faulds, Andrew

Pike, Peter

Field, Frank (Birkenhead)

Powell, Raymond (Ogmore)

Fields, T. (L'pool Broad Gn)

Prescott, John

Fisher, Mark

Radice, Giles

Flannery, Martin

Randall, Stuart

Foot, Rt Hon Michael

Redmond, Martin

Forrester, John

Rees, Rt Hon M. (Leeds S)

Foster, Derek

Richardson, Ms Jo

Foulkes, George

Robertson, George

Fraser, J. (Norwood)

Robinson, G. (Coventry NW)

Freeson, Rt Hon Reginald

Rogers, Allan

Freud, Clement

Ross, Ernest (Dundee W)

Garrett, W. E.

Rowlands, Ted

Godman, Dr Norman

Sedgemore, Brian

Golding, Mrs Llin

Sheerman, Barry

Gould, Bryan

Sheldon, Rt Hon R.

Hamilton, W. W. (Fife Central)

Shore, Rt Hon Peter

Hancock, Michael

Short, Ms Clare (Ladywood)

Hardy, Peter

Short, Mrs R.(W'hampt'n NE)

Harrison, Rt Hon Walter

Silkin, Rt Hon J.

Hart, Rt Hon Dame Judith

Skinner, Dennis

Hattersley, Rt Hon Roy

Smith, C.(Isl'ton S & F'bury)

Haynes, Frank

Smith, Rt Hon J. (M'ds E)

Healey, Rt Hon Denis

Snape, Peter

Heffer, Eric S.

Soley, Clive

Hogg, N. (C'nauld & Kilsyth)

Spearing, Nigel

Home Robertson, John

Steel, Rt Hon David

Howarth, George (Knowsley, N)

Stewart, Rt Hon D. (W Isles)

Howell, Rt Hon D. (S'heath)

Stott, Roger

Hoyle, Douglas

Strang, Gavin

Hughes, Robert (Aberdeen N)

Straw, Jack

Hughes, Roy (Newport East)

Thomas, Dr R. (Carmarthen)

Hughes, Sean (Knowsley S)

Thompson, J. (Wansbeck)

Hughes, Simon (Southwark)

Thorne, Neil (Ilford S)

Janner, Hon Greville

Tinn, James

John, Brynmor

Torney, Tom

Johnston, Sir Russell

Wainwright, R.

Jones, Barry (Alyn & Deeside)

Wallace, James

Kaufman, Rt Hon Gerald

Warden, Gareth (Gower)

Kennedy, Charles

Wareing, Robert

Kinnock, Rt Hon Neil

Welsh, Michael

Kirkwood, Archy

White, James

Lambie, David

Wigley, Dafydd

Lamond, James

Williams, Rt Hon A.

Leadbitter, Ted

Wilson, Gordon

Leighton, Ronald

Winnick, David

Lewis, Terence (Worsley)

Wrigglesworth, Ian

Litherland, Robert

Young, David (Bolton SE)

Livsey, Richard

Lloyd, Tony (Stretford)

Tellers for the Ayes:

Loyden, Edward

Mr. James Hamilton and

McCartney, Hugh

Mr. Allen McKay.

1003

NOES

Adley, Robert

Emery, Sir Peter

Aitken, Jonathan

Evennett, David

Alexander, Richard

Eyre, Sir Reginald

Alison, Rt Hon Michael

Fallon, Michael

Amess, David

Farr, Sir John

Ancram, Michael

Favell, Anthony

Arnold, Tom

Fenner, Dame Peggy

Ashby, David

Finsberg, Sir Geoffrey

Aspinwall, Jack

Fletcher, Sir Alexander

Atkins, Rt Hon Sir H.

Forman, Nigel

Atkins, Robert (South Ribble)

Forsyth, Michael (Stirling)

Atkinson, David (B'm'th E)

Forth, Eric

Baker, Rt Hon K. (Mole Vall'y)

Fowler, Rt Hon Norman

Baker, Nicholas (Dorset N)

Fox, Sir Marcus

Baldry, Tony

Franks, Cecil

Banks, Robert (Harrogate)

Fraser, Peter (Angus East)

Batiste, Spencer

Freeman, Roger

Beaumont-Dark, Anthony

Galley, Roy

Bellingham, Henry

Gardiner, George (Reigate)

Bendall, Vivian

Gardner, Sir Edward (Fylde)

Benyon, William

Gilmour, Rt Hon Sir Ian

Best, Keith

Glyn, Dr Alan

Biffen, Rt Hon John

Goodhart, Sir Philip

Biggs-Davison, Sir John

Goodlad, Alastair

Blackburn, John

Gorst, John

Blaker, Rt Hon Sir Peter

Gow, Ian

Body, Sir Richard

Gower, Sir Raymond

Bonsor, Sir Nicholas

Grant, Sir Anthony

Bottomley, Peter

Greenway, Harry

Bottomley, Mrs Virginia

Gregory, Conal

Bowden, A. (Brighton K'to'n)

Griffiths, Sir Eldon

Bowden, Gerald (Dulwich)

Griffiths, Peter (Portsm'th N)

Boyson, Dr Rhodes

Grist, Ian

Braine, Rt Hon Sir Bernard

Ground, Patrick

Brandon-Bravo, Martin

Gummer, Rt Hon John S

Bright, Graham

Hamilton, Hon A. (Epsom)

Brinton, Tim

Hamilton, Neil (Tatton)

Brooke, Hon Peter

Hampson, Dr Keith

Brown, M. (Brigg & Cl'thpes)

Hanley, Jeremy

Browne, John

Hannam,John

Bruinvels, Peter

Hargreaves, Kenneth

Bryan, Sir Paul

Harvey, Robert

Buchanan-Smith, Rt Hon A.

Haselhurst, Alan

Buck, Sir Antony

Hawkins, C. (High Peak)

Budgen, Nick

Hawkins, Sir Paul (N'folk SW)

Bulmer, Esmond

Hawksley, Warren

Burt, Alistair

Hayes, J.

Butler, Rt Hon Sir Adam

Hayhoe, Rt Hon Sir Barney

Butterfill, John

Hayward, Robert

Carlisle, John (Luton N)

Heathcoat-Amory, David

Carlisle, Kenneth (Lincoln)

Heddle, John

Carlisle, Rt Hon M. (W'ton S)

Henderson, Barry

Carttiss, Michael

Heseltine, Rt Hon Michael

Cash, William

Hickmet, Richard

Channon, Rt Hon Paul

Higgins, Rt Hon Terence L.

Chapman, Sydney

Hill, James

Chope, Christopher

Hind, Kenneth

Clark, Hon A. (Plym'th S'n)

Hirst, Michael

Clark, Sir W. (Croydon S)

Hogg, Hon Douglas (Gr'th'm)

Clarke, Rt Hon K. (Rushcliffe)

Holland, Sir Philip (Gedling)

Cockeram, Eric

Holt, Richard

Colvin, Michael

Hordern, Sir Peter

Conway, Derek

Howard, Michael

Coombs, Simon

Howarth, Alan (Stratf'd-on-A)

Cope, John

Howarth, Gerald (Cannock)

Cormack, Patrick

Howell, Rt Hon D. (G'ldford)

Corrie, John

Howell, Ralph (Norfolk, N)

Couchman, James

Hubbard-Miles, Peter

Cranborne, Viscount

Hunt, David (Wirral W)

Critchley, Julian

Hunt, John (Ravensbourne)

Crouch, David

Hunter, Andrew

Currie, Mrs Edwina

Hurd, Rt Hon Douglas

Dickens, Geoffrey

Irving, Charles

Dorrell, Stephen

Jenkin, Rt Hon Patrick

du Cann, Rt Hon Sir Edward

Jessel, Toby

Durant, Tony

Johnson Smith, Sir Geoffrey

Dykes, Hugh

Jones, Gwilym (Cardiff N)

Edwards, Rt Hon N. (P'broke)

Jones, Robert (Herts W)

Eggar, Tim

Joseph, Rt Hon Sir Keith

1004

Kellett-Bowman, Mrs Elaine

Powell, William (Corby)

Kershaw, Sir Anthony

Powley, John

Key, Robert

Prentice, Rt Hon Reg

King, Rt Hon Tom

Price, Sir David

Knight, Greg (Derby N)

Prior, Rt Hon James

Knight, Dame Jill (Edgbaston)

Proctor, K. Harvey

Knox, David

Raffan, Keith

Lamont, Rt Hon Norman

Raison, Rt Hon Timothy

Lang, Ian

Rathbone, Tim

Latham, Michael

Rees, Rt Hon Peter (Dover)

Lawler, Geoffrey

Renton, Tim

Lawrence, Ivan

Rhys Williams, Sir Brandon

Lawson, Rt Hon Nigel

Ridley, Rt Hon Nicholas

Lee, John (Pendle)

Ridsdale, Sir Julian

Leigh, Edward (Gainsbor'gh)

Rifkind, Rt Hon Malcolm

Lennox-Boyd, Hon Mark

Rippon, Rt Hon Geoffrey

Lester, Jim

Roberts, Wyn (Conwy)

Lewis, Sir Kenneth (Stamf'd)

Robinson, Mark (N'port W)

Lightbown, David

Roe, Mrs Marion

Lilley, Peter

Rossi, Sir Hugh

Lloyd, Peter (Fareham)

Rowe, Andrew

Lord, Michael

Rumbold, Mrs Angela

Luce, Rt Hon Richard

Ryder, Richard

Lyell, Nicholas

Sackville, Hon Thomas

McCrindle, Robert

Sainsbury, Hon Timothy

McCurley, Mrs Anna

St. John-Stevas, Rt Hon N.

Macfarlane, Neil

Sayeed, Jonathan

MacGregor, Rt Hon John

Scott, Nicholas

MacKay, Andrew (Berkshire)

Shaw, Giles (Pudsey)

MacKay, John (Argyll & Bute)

Shaw, Sir Michael (Scarb')

Maclean, David John

Shelton, William (Streatham)

McLoughlin, Patrick

Shepherd, Colin (Hereford)

McNair-Wilson, M. (N'bury)

Shepherd, Richard (Aldridge)

McNair-Wilson, P. (New F'st)

Shersby, Michael

Madel, David

Silvester, Fred

Major, John

Sims, Roger

Malins, Humfrey

Skeet, Sir Trevor

Maples, John

Smith, Sir Dudley (Warwick)

Marland, Paul

Smith, Tim (Beaconsfield)

Mates, Michael

Soames, Hon Nicholas

Mather, Sir Carol

Speller, Tony

Mawhinney, Dr Brian

Spencer, Derek

Maxwell-Hyslop, Robin

Spicer, Jim (Dorset W)

Mayhew, Sir Patrick

Spicer, Michael (S Worcs)

Merchant, Piers

Squire, Robin

Meyer, Sir Anthony

Stanbrook, Ivor

Mills, Iain (Meriden)

Stanley, Rt Hon John

Mills, Sir Peter (West Devon)

Steen, Anthony

Miscampbell, Norman

Stern, Michael

Monro, Sir Hector

Stevens, Lewis (Nuneaton)

Montgomery, Sir Fergus

Stewart, Allan (Eastwood)

Moore, Rt Hon John

Stewart, Andrew (Sherwood)

Morris, M. (N'hampton S)

Stewart, Ian (Hertf'dshire N)

Morrison, Hon C. (Devizes)

Stokes, John

Morrison, Hon P. (Chester)

Stradling Thomas, Sir John

Moynihan, Hon C.

Sumberg, David

Murphy, Christopher

Tapsell, Sir Peter

Neale, Gerrard

Taylor, John (Solihull)

Needham, Richard

Taylor, Teddy (S'end E)

Nelson, Anthony

Tebbit, Rt Hon Norman

Neubert, Michael

Temple-Morris, Peter

Newton, Tony

Terlezki, Stefan

Nicholls, Patrick

Thatcher, Rt Hon Mrs M.

Norris, Steven

Thomas, Rt Hon Peter

Onslow, Cranley

Thompson, Donald (Calder V)

Oppenheim, Rt Hon Mrs S.

Thompson, Patrick (N'ich N)

Osborn, Sir John

Thornton, Malcolm

Ottaway, Richard

Thurnham, Peter

Page, Sir John (Harrow W)

Townend, John (Bridlington)

Page, Richard (Herts SW)

Townsend, Cyril D. (B'heath)

Parkinson, Rt Hon Cecil

Tracey, Richard

Patten, Christopher (Bath)

Trippier, David

Patten, J. (Oxf W & Abgdn)

Twinn, Dr Ian

Pattie, Rt Hon Geoffrey

van Straubenzee, Sir W.

Pawsey, James

Vaughan, Sir Gerard

Peacock, Mrs Elizabeth

Waddington, Rt Hon David

Percival, Rt Hon Sir Ian

Wakeham, Rt Hon John

Pollock, Alexander

Waldegrave, Hon William

Porter, Barry

Walden, George

Portillo, Michael

Walker, Bill (T'side N)

1005

Walker, Rt Hon P. (W'cester)

Wells, Sir John (Maidstone)

Wall, Sir Patrick

Wheeler, John

Waller, Gary

Whitfield, John

Walters, Dennis

Whitney, Raymond

Ward, John

Wiggin, Jerry

Wardle, C. (Bexhill)

Wilkinson, John

Warren, Kenneth

Winterton, Mrs Ann

Watson, John

Winterton, Nicholas

Watts, John

Woodcock, Michael

Wells, Bowen (Hertford)

Yeo, Tim

1006

Young, Sir George (Acton)

Mr. Robert Boscawen and

Mr. Tristan Garel-Jones.

Tellers for the Noes:

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 1987–88 to 1989–90 (Cm. 56—I and II).

Rate Rebate (Scotland)
10.14 pm
The Parliamentary Under-Secretary of State for Scotland (Mr. Michael Ancram): I beg to move,
That the Revaluation Rate Rebate (Scotland) Order 1986, dated 17th December 1986, a copy of which was laid before this House on 19th December, be approved.
With the leave of the House, I think that it would be for the convenience of the House if we were to debate at the same time the second motion,
That the Rate Support Grant (Scotland) Order 1987, dated 2nd February 1987, a copy of which was laid before this House on 4th February, be approved.
As hon. Members will realise, the rate support grant order is a replacement order for that originally tabled in December 1986, and subsequently withdrawn. This is the main rate support grant order for 1987–88, and, when it was originally tabled, the teachers' pay dispute was still unresolved. Happily, a settlement of that dispute has now been reached. Therefore, it is appropriate to release and distribute the additional grant that was promised, as the Government's share of that settlement. It is clearly convenient for local authorities to know precisely where they stand on this as soon as possible, and we thought that it would also be for the convenience of the House to wrap the whole matter up in the single Order. The Rate Support Grant (Scotland) Order repeats the provisions of the earlier draft order but also includes the extra grant for teachers' pay for 1986–87 and for 1987–88.
The Revaluation Rate Rebate, (Scotland) Order 1986 continues revaluation rate rebates to give a third year of relief to those most affected by revaluation.
I do not propose to detain the House with a long statement of general policy, but the background to our policy on local authority expenditure is relevant. In 1978–79, immediately before we took office, the volume of local authority expenditure increased by 6·6 per cent. It was not simply a question of inflation, but of significant expansion in services, in addition to the effects of a high rate of inflation at that time. No responsible Government could have stood aside in the face of that trend. Indeed, the previous Labour Government certainly did not, when the late Mr. Anthony Crosland told local authorities in 1976 "the party's over". — [Interruption.] Opposition Members do not like to be reminded that there was a time when they were in office and when they were responsible about local authority expenditure. It might be better for Scotland if they were returned to a sense of responsibility about such matters.
The effect on the wider economy of such a substantial increase in public expenditure — if it were to have continued—would have been insupportable. The effect on the narrower local economies of vastly increasing rating burdens on domestic payers and on business and commerce, would equally have been disastrous. Thus, one of our major objectives since that time has been to restrain local authority expenditure, in the interests of the local ratepayers, and also with the wider objective of reducing public expenditure generally, as a proportion of gross domestic product.
Some authorities have co-operated well in bringing expenditure under control. However, others, particularly some that account for a large proportion of local authority
1008
current expenditure in Scotland, have not. The overall volume of local authority expenditure continued to increase in every year up to and including 1984–85. The House is familiar with the steps we have had to take to exercise pressure on local authorities in this respect, through reductions in rate support grant and, in some cases, in the rates of individual authorities. That pressure, and a recognition of the broader underlying reasons for the Government's policy, has begun to bear fruit, and in 1986–87 authorities budgeted for a slightly lower volume of expenditure than they had in 1978–79. No fewer than 40 out of the 65 Scottish authorities budgeted at, or below, their expenditure guidelines.
This evidence of greater realism by local authorities is welcome news for all of us, especially ratepayers. The greater responsiveness of local authorities has allowed the Government to respond positively with the substantial increases in expenditure provision and aggregate Exchequer grant for 1987–88, which were announced last summer and which are reflected in tonight's order. My right hon. and learned Friend the Secretary of State announced on 23 July last year that expenditure provision for 1987–88 would be £3,277 million, and aggregate Exchequer grant £2,160 million. The total provision, distributed to local authorities in the form of their expenditure guidelines, represented a substantial increase of £285 million over that for the previous year, and was 3·75 per cent. over the local authorities' own budgets for 1986–87, taking account of adjustments to those budgets for the interim teachers' pay award implemented in April 1986. This provision was adequate to maintain the 1986–87 volume of expenditure into 1987–88, on the basis of the Government's inflation assumptions. The aggregate Exchequer grant was increased by £151 million over the 1986–87 figure, to a level adequate to maintain grant, again on the basis of the assumptions we were able to make in July 1986, at the existing percentage.
Expenditure provision and grant were increased in December by £1·96 million to reflect the transfer of financial responsibility for Leith nautical college, the Orkney internal ferry services and the transfer of list D schools. There is also a further increase for 1987–88 of £60 million in provision and £30 million in grant to meet the costs in that year of the final teachers' pay settlement.
Although I welcome the fact that 1986–87 budgets were for the first time, in volume terms, below spending in 1978–79, it remains the case that some authorities are spending too much.
Mr. George Foulkes: What does the Minister mean by "too much"?
Mr. Ancram: The simplest answer is that they were spending over the guidelines given to them by the Government and, on that basis, the Government consider that they are spending too much.
Mr. Foulkes: Will the Minister give way?
Mr. Ancram: No. I have given way to the hon. Gentleman. This is a short debate and I shall not give way again. The hon. Gentleman can make his own speech if he is lucky enough to catch your eye, Mr. Deputy Speaker.
Mr. Foulkes rose—
Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. The Minister has said that he is not giving way again.
Mr. Ancram: A number of authorities have, therefore, once again incurred heavy grant penalties, and selective action was taken under section 5 of the Local Government (Scotland) Act 1966 to reduce Edinburgh district council's rate. Those authorities which have incurred grant penalties stand to have the grant returned to them if their final outturn expenditure for the year has been reduced. I hope that the authorities concerned will have adjusted their budgets accordingly. The important point for us tonight, however, is that there is no excuse for overspending in relation to guidelines in the coming financial year 1987–88. The generous provision for that year should make it possible for all authorities to budget within guidelines, and their ratepayers will be looking to them to do precisely this. I give notice tonight that, especially in the light of the generous guidelines that have been issued, we will take a very serious view of budget plans for overspending next year, and substantial grant penalties will again be imposed where necessary. Equally, careful consideration will be given to selective action in individual cases, if that seems justified.
The Government's concern for adequate provision is reflected in individual services. In education, we have made available for the first time a special unallocated margin of £50 million for distribution to education authorities. This recognises the reality of their high spending in relation to assessed need, and provides room for the new educational developments that are in prospect—for example, the introduction of standard grade.
It is estimated that about £295 million out of aggregate Exchequer grant will be paid in grants for specific services. The remainder will be rate support grants. In 1985–86, domestic rate relief was increased from the equivalent of 1p to 8p to mitigate the effects of revaluation on the domestic sector. This high relief was reduced for 1986–87 to 7p in the pound. We have decided that it should be maintained at 7p for 1987–88. The cost of this relief is £91 million. The ratio of resources element to needs element for 1986–87 was 1:8. I have proposed to maintain that ratio for 1987–88, giving a resources element of £197 million.
The rest of aggregate Exchequer grant, and by far the largest part of it, forms the needs element. The client group method of needs assessment continues to be the basis of needs element distribution.
Mr. James Wallace: I am sure that the Minister is aware that the amounts given to the two local authorities in my constituency do not come close to the needs element. As the orders under consideration also provide for some relief for businesses in the amount given back because of revaluation, will he accept that the Government came much closer to giving Orkney and Shetland islands councils the full amount to which they are entitled under the client group method? That would be of more significance in helping businesses in Orkney and Shetland than the amount given under the orders before
US.
Mr. Ancram: Before the transfers for teachers's pay there is an increase in the needs element for 1987–88 of 6·2 per cent., which is above the rate of inflation for both the Orkney islands and the Shetland islands. I would have thought that the hon. Gentleman would agree that that was generous.
However, as in past years it has seemed prudent to limit the impact of sudden changes in the grant entitlements of
1010
individual authorities by setting maxima for grant gains and losses. No authority has been given less grant than in the equivalent order for 1986–87 and grant increases are subject to a maximum of 12 per cent. Last year we received representations from a number of authorities, mainly small rural districts, which were worried that full implementation of the client group method would mean their losing all entitlement to needs element. The hon. Member for Glasgow, Garscadden (Mr. Dewar) will remember pressing us on this point in the debate on an earlier rate support grant order, on 24 January 1985, and I am sure he will welcome the steps I am now taking, for a second year, to meet his concern on behalf of those districts.
Mr. Wallace rose—
Mr. Ancram: I have already given way to the hon. Gentleman. This is a short debate and I wish to get on because other hon. Members will want to take part.
In response to the concern of the hon. Member for Glasgow, Garscadden, a minimum grant entitlement of £11 per head was set. We have decided to increase that to £11·50 a head, roughly in line with inflation. As in previous years Orkney and Shetland have been treated as special cases because of their high rating resources.
Mr. Wallace: Will the Minister say how much it would benefit domestic, commercial and industrial ratepayers in Orkney and Shetland if the full amount were paid under the client group method? What would it mean in pence per pound on the rates?
Mr. Ancram: The hon. Gentleman knows that there have been special arrangements for Orkney and Shetland precisely because they have high rating resources related to the development of the oil industry. He knows full well that the benefits of that in terms of rate poundages in those two areas have been considerable in comparison to the Scottish mainland. They have been given the average grant increase over what they received in the present year.
During our debate last year the hon. Member for Cunninghame, South (Mr. Lambie) asked what interest rates had been assumed in the calculation. I hope that I may save him the trouble of making a speech tonight if I tell him that the interest rate assumed was 10·4 per cent. Any variation from that, whether up or down, will be matched by a change in the total of rate support grants.
I mentioned earlier that there were three additions to be made to the figures that I announced in July to reflect transfers of responsibility. The final instalment of the list D transfer is £100,000 and this has been distributed according to pupil numbers. Orkney's grant has been increased by £1,070,000 for the transfer of Orkney internal ferry services. Leith nautical college is to be transferred to Lothian region from 1 August 1987. The part year effect of this transfer is £790,000. This has been apportioned using the estimated regional breakdown of students. The extra £30 million in grant for teachers' pay has been distributed among the regional and islands authorities proportionally to their needs assessments for teaching staff costs, including the so-called circular 991 teachers. All of these detailed apportionments have been discussed and agreed with COSLA. Details of the needs element entitlements of authorities after these adjustments are given in the final column of the table in appendix E to the report.

1011
The order also contains adjustments for back years and I should like to explain those briefly. For 1986–87 there was to have been a reduction in rate support grants of £7·9 million because interest rates are now estimated at 10·6 per cent. rather than the 11 per cent. used in the main order. This has now been offset by an increase of £8 million for teachers' pay. Grant penalties for 1986–87 will be revised once provisional outturn expenditure returns are available. I hope that those returns will show a reduction in overspending so that grant penalties can be returned to authorities to the benefit of their ratepayers. Budgets for 1985–86 showed a planned overspend of £91 million and that led to penalties of £127 million. Provisional outturns showed a £43 million fall in overspending and penalties were reduced by £69 million. I am glad to say that final outturns for 1985–86 show a further reduction in overspend from £47·2 million at provisional outturn to £43·2 million and a further £7·4 million of grant is accordingly being returned.
I am sure that hon. Members find these long, complicated rate support grant orders as arduous as I do. They will be relieved to know that next year's main rate support grant order will be the last of its kind. For 1989–90 and subsequent years the Abolition of Domestic Rates Bill will replace them with revenue support grant orders. I promise the House that those will be both shorter and simpler.
The Revaluation Rate Rebate (Scotland) Order 1986 is by comparison a straightforward document. The 1985 revaluation increased the rateable values of some domestic and commercial subjects by much more than the average change. The Government introduced special relief under the Rating (Revaluation Rebates) (Scotland) Act 1985 for domestic and commercial ratepayers whose rateable values increased more than threefold. In the first year that relief was paid at 100 per cent. of the cost of having an increase in rateable value of more than threefold. This year relief is being paid at 75 per cent. The order provides for 50 per cent. relief in 1987–88. The relief is, as before, subject to a maximum and this is to be £5,000 for any one property. The cost of the relief will be about £15 million compared with £20 million this year and £26 million last year.
Finally, hon. Members will expect me to say something about the early indications now emanating from local authorities of their proposed rates increases for 1987–88. We hear tales of a 35 per cent. increase from one authority, and several others not far behind. We will not be in a position to comment authoritatively on those reports until local authorities have notified us of their budgets. That does not normally happen until March. We then need to study carefully the planned levels of expenditure. What I will say now is that in general in the light of the generous settlement that I have described this evening — notification of which has been available to local authorities for some considerable time — there is no excuse for that kind of behaviour by local authorities.
Mr. John Home Robertson rose—
Mr. Jim Craigen rose—
Mr. Ancram: I give way to the hon. Member for Glasgow, Maryhill (Mr. Craigen).
Mr. Craigen: Given the rate support order that the Minister is introducing tonight, what level of increase in rate poundage does the Scottish Office estimate?
Mr. Ancram: When my right hon. and learned Friend the Secretary of State announced the aggregate Exchequer grant he made clear that he believed that on the basis of that grant and the basis on the provision, Scottish local authorities would not need to increase their rates. Obviously an element of increase will result from the settlement of the teachers' pay dispute, but that increase is reckoned to be marginal—about 1 p in the pound.
With regard to the rate support grant order, provided that local authorities do what the Government require through guidelines and penalties there will be no rate increases in Scotland as a whole.
On the matter of rate increases, we will, as I have said, need to examine the full detail of budgets, once they are submitted. But let me emphasise that the responsibility for substantial rate increases, where these are imposed, will rest firmly with the local authority concerned, and ratepayers in Scotland should not be fooled or misled about that. Lothian is a particular case in point, where press reports indicate a rate increase of around 17p or 18p—an increase of 35 per cent. We are already hearing from Lothian spokesmen that this increase is inevitable and inexorable and is to be blamed on Government. I suspect that that is what the hon. Member for East Lothian (Mr. Home Robertson) is trying to tell me.
Mr. Home Robertson: The Minister is supposed to be a Lothian spokesman as well, although I sometimes wonder. Will he explain why he virtually rigged the rate support grant formula deliberately to penalise his constituents and mine in Lothian region? Will he acknowledge the fact that of the suggested rate increase, 30 per cent. is totally outwith the control of the regional council?
Mr. Ancram: I shall come to that shortly — [Interruption.] I intend to answer the question. I wonder whether the hon. Member for East Lothian has found out whether the Convention of Scottish Local Authorities would support him in his view about the way in which the distribution formula operates. It has been evident that Lothian has taken a view that is inconsistent with that taken by other local authorities in Scotland, precisely because the formula this year has operated marginally against the position in Lothian but to the benefit of other authorities in Scotland. The hon. Gentleman will have to ask himself and his hon. Friends on the Opposition Front Bench whether they believe that the formula, which is agreed with COSLA, should be changed in the way in which he seems to be suggesting.
This touches on the second point made by the hon. Member for East Lothian; we have looked at the figures in Lothian. I discovered that the effect of the teachers' pay settlement will add about 1·7p to Lothian's poundage in the coming year and that the effect of the rate support grant settlement, in which, as the hon. Member for East Lothian said, Lothian's assessed needs were in some respects reduced, will add about 1·1 p to the rates of Lothian ratepayers. That is the total extent of the Government's responsibility for what Lothian is now proposing—an increase of less than 3p out of the total reported increase of around 18p. All I can say is that

1013
Lothian ratepayers will be well able to draw their own conclusions as to who is responsible for the rest of the increase.
These orders provide a firm financial basis for local authorities next year. Expenditure provision for next year has been set at local authority budgets plus inflation. The increase in aggregate Exchequer grant is double the rate of inflation. The Government have done their part to keep rate increases down next year, and I hope that the local authorities will do theirs.
I commend both these orders to the House.
10.37 pm
Mr. Donald Dewar: The hon. Member for Edinburgh, South (Mr. Ancram) has a remarkable ability to reduce any audience to a combination of irritated disenchantment and, I am afraid, galloping apathy. He has managed to induce a state of enthusiasm among his own supporters and my hon. Friends which I suspect is rather akin to the atmosphere at Hampden Park at the final whistle tonight. I found only one thing that he said the least bit encouraging and I ought to concede that. If he manages to survive in his present job for any length of time and does introduce the poll tax, the fact that it will shorten his speeches is the only persuasive argument that I have heard for that measure.
I believe in making a concession when a concession is justified and worth making and, of course, the rate support grant settlement is better this year than it has been in some recent years and we would not want to hide that from the House. Indeed, I think that COSLA and individual local authorities would be prepared to concede that. It would be wrong to say otherwise. However, it is still profoundly unsatisfactory when viewed against the backcloth of what has been happening to local government finance in recent years. I am glad that the Minister made the point that, whatever may have happened to aggrevate current expenditure and aggreage Exchequer grant, the truth is that if one takes a global view, aggregate current expenditure is only some 3·75 per cent. over budget in 1986–87.
In a horrid aside the Minister suggested that in a sense that was satisfactory and would fully cover local authority costs. All the figures, and the experience and projections given to me suggest that the amount will be inadequate and that there will be a further shortfall. Perhaps it will not be on the scale of recent years, but it will still be a worsening of a situation that is profoundly discouraging and that has done substantial and serious damage to the level of service provided by local government in Scotland.
We are looking at a long history of fiscal pillage by the Government of local authority expenditure. The only fair and sensible way to look at this is in volume terms, and if one does that one sees that the whole punitive expedition, the atmosphere of crisis that has undoubtedly been engendered and the wrecking of almost any sort of reasonable relationship between local and central Government have meant that in volume terms local government expenditure is still significantly below what it was in 1978–79.
We have seen mounting pressure upon the services provided for people. They have had to pay more and more, largely because of the grant reductions that have so marked the policy of the hon. Gentleman and his hon. Friends. Not only are people being asked to pay more to compensate for the Treasury cuts, but local authorities are
1014
being asked consistently, year after year, to take on additional statutory duties and to fund them from a budget which in real terms is sharply declining.
I have one prospective item to add to that list, because, as the Minister and my long suffering hon. Friends who served on the Committee well know, the poll tax will introduce substantial extra administrative charges. A figure in excess of £20 million is mentioned in the financial memorandum to the Bill. That will deepen the difficulties that are undoubtedly faced by local government.
The Minister will know that there is little comfort in the figures for the coming year. In education, for example, current levels of spending will have to be cut by just over 5 per cent. to bring them into line with the provision that the Minister proposes for 1987–88. In social work, the figure is perhaps less dramatic, but it is still 2·3 per cent. on the calculations that have been offered to me. Across the board it is about 4·2 per cent.
If we are to fall into line with this so-called reasonable provision that the Minister paraded in the last 20 minutes or so, we will be faced with substantial cuts in present levels of expenditure. That is the information given to me, and I am not in a mood to mislead the House. I have conceded that the figures are not as bad as in previous years, but they are still open to that inescapable interpretation.
That is the overall picture, but of course there are real problems for some authorities. There has been some stability in the block expenditure. For example, there has been an increase in the needs element of about 6·2 per cent. after limitation for both district councils and regions, but for individual authorities the variations within the totals are very large. The Minister knows that. In the regions, the increase in the needs elements varies from 7·8 per cent. to 1·6 per cent. For district concils, the percentage is much more dramatic, varying from no increase to one dramatic increase of 60 per cent. or just over 60 per cent.
Over the years, the Minister has made a great virtue of agreeing with COSLA. I accept that there has been agreement about the client group approach and its introduction, but we are still in a rather strange and artificial world. As the Minister knows, about 29 district councils would not, on the client group approach, have had an increase at all this year, but they have got the £11·50 per capita fee which the Minister introduced. I think this amounts to about £22 million in total. The effects are sometimes arbitrary and, as the Minister has conceded in the case of Lothian, some authorities will undoubtedly be left with a considerable grievance and considerable problems.
The needs grant, at about £1·4 billion, dwarfs other parts of the package. I say in passing, because I do riot wish to dwell upon it, that I found the Minister's casually announced decision about the help for those who suffered particularly badly in the revaluation remarkably callous when remembered against the background of the razzmatazz and the unveiling of the great financial package by the right hon. Member for Ayr (Mr. Younger) at the Conservative party's conference two or perhaps three years ago.
Hon. Members may remember that we were told with great eclat that the help would be a £50 million package. It was discovered on examination that the £50 million, because of the extraordinarily narrowly drawn terms of reference of the scheme, was never going to be spent. So that help was confined to that part of the rate poundage

1015
and that part of the increase above 300 per cent. The figure came to about £26 million or £27 million. That was the extent of the Government's generosity to those who they felt had been so wronged.
We then had a 100 per cent. relief for that small proportion of rateable value. That was then reduced to 75 per cent. Now it is reduced to 50 per cent. Obviously the Government's charity has run out very rapidly as they come to the political judgment that they can get away with retreating from the rather minimal amount of help that they were prepared to give.
Mr. Michael Forsyth: I am sure that the whole House shares the hon. Gentleman's sympathy with the position of people who have suffered from revaluation, but will he confirm that the Labour party's policy is one of having regular revaluations for the domestic ratepayer without any support whatsoever?
Mr. Dewar: I am sure that the hon. Gentleman, who may be wrong-headed but is not foolish, at least in a narrow technical sense, will accept that one of the problems of the revaluation was that the normal date had been allowed to slip, so the period was especially long and the adjustments therefore especially painful. I am glad that he is still worried and concerned about his constituents who may be caught in that position. I hope that his concern will run to voting with us tonight in protest against the way in which the help has been cut back.
We have had threats from the Minister. I recognise that he is entitled to cut a figure while he can at the Dispatch Box because time is running out. Nevertheless, he has threatened fire and brimstone for a large number of authorities or for any authority that he regards as having spent excessively unreasonably. There was a little bit of skirmishing and a little bit of skirting around the problems facing the Lothian region. The Minister did some calculations. He said that he thought that only 3p of the present rate increase could be laid at his door. That was a reference to the fact that the needs element for Lothian, if I remember rightly, has gone up by only 1·6 per cent. Not even the optimism of the Minister could present that as an adequate compensation for inflation costs.
I, too, am not in a position to talk authoritatively, as he puts it, about the Lothian budget which has not, I understand, been finalised, but I say to the Minister in a preliminary sense that any idea that the problems of the Lothian region are only marginally the fault of the Conservative party is taking rather a narrow view of that organisation. While undoubtedly a large number of the problems are a direct result of the policies that were followed by the Conservative Administration who were in office immediately before Labour won power—
Mr. Ancram: They brought the rates down.
Mr. Dewar: Ah, they brought the rates down, the Minister says, as if that were some particular talisman. However, he is right. They brought the rates down, but they did it by the sort of fiscal manoeuvring, the sort of accountancy that I would have thought would have brought a round condemnation from the Minister. Perhaps we shall get that. I am told that they raided the last of the reserves for £13·75 million. That is revenue that
1016
cannot be replaced from the same source and will therefore have to be found by the ratepayer. They knew what they were doing.
Under that Administration, in that last election year, for the first time ever, the transport deficit of £5·3 million was not funded but was allowed to be carried forward to the next year and, therefore, must be funded in this year's budget. There was also the £14·7 million deficit from the clawback. There is a figure of some £31 million for inflation, about which £12 million was for the teachers' pay settlement.
Knowing the Minister's vindictive approach, there may be, although I hope that there will not be, opportunities to debate this in more detail later on if he goes for a section 5 order, or tries some selective clawback. If that happens, we shall deal with the matter in some detail. It is clear that there was an element of opportunism and expediency about the way in which the last Conservative budget for Lothian region was put together, which inevitably invited a price when more responsible people had to look at the situation and pick up the bills in the coming year.
Mr. Foulkes: Is my hon. Friend aware that the convenor of the Lothian region, who was responsible for that fiscal fiddle, is now the principal political adviser to the Secretary of State for Scotland?
Mr. Dewar: I was not aware of that. Perhaps the Secretary of State would like to confirm or deny it. It is a matter of passing interest. Rumour had reached me that the Secretary of State had been turned down by the gentleman in question. I do not know whether that is true—it may be just tittle-tattle. It would raise him in my estimation, but that is a matter between the Secretary of State and Councillor Meek.
The vast majority of the problems faced fall into the categories to which I have referred. No doubt we shall have arguments later as to whether it is legitimate to spend a small proportion of the increase in the rate poundage on such matters as free bus passes for pensioners or an additional 400 home helps. It is not the black and white picture that the Minister sought to paint.
The extraordinary situation in Lothian, is that the guidelines have gone up substantially, perhaps even generously, but now stand £32 million above the needs assessment. Even if Lothian were to spend exactly to the Government's guidelines, that would involve it in a rates increase of about 20 per cent. That shows what a topsy-turvy artificial world of local government finance the Minister is constructing. In 1987–88, it looks as if there will be an excess over guidelines of 9 per cent. in Lothian, but Councillor Brian Meek's Conservative administration had an excess of 6·6 per cent. and the Minister did not mount the same attack on it.
I recognise that these are highly technical, and no doubt for some hon. Members, unimportant matters, but they are fundamental to the service needs in Scotland and the way that we run our society and make choices in essential matters such as health care and education. This is not just a political game. The mark of the Minister's administration has been the way in which he has hunted local government, ruthlessly criticised it and brought a partisan approach to it that I regret.
The Minister knows that today I have been commenting on some letters that he sent, on 27 January, to Councillor Brian Meek and Councillor Jean

1017
Armstrong, who are the Conservative group leaders on the Strathclyde and Lothian councils.[Interruption] I hear my hon. Friend the Member for Cumbernauld and Kilsyth (Mr. Hogg) express surprise that anyone can call himself a group leader on the Strathclyde council. It is a marginal distinction—one among few.
Some of the things that the Minister has been saying in his correspondence show the attitude that he has been taking. For example, he said:
"Lothian says that it cannot avoid a huge rates increase because the Government is giving too much money to Strathclyde while the latter whines in the opposite direction."
The Minister should not, in his official capacity, be accusing local authorities of "whining", or, as he does later in the letter, of "moaning'. He should not be ascribing to them points of view that I am assured by both councils have never been espoused or put forward. It does nothing for the dignity of his office, or that of the Scottish Information Office, which was asked to distribute this in the form of a press release. I have drawn that matter to the attention of the Comptroller and Auditor General. [Interruption.] I thought that it was worth doing, given the rather irritable way in which the Minister combs through local government affairs, looking for things about which he can cavil and complain. That type of partisan, political campaigning should not be done, at least under the colours of the Scottish Office.
We firmly believe that we should protect local services. Councils should be allowed to get on with the job. The people who live in the areas that we represent deserve decent education services, decent social services, and decent housing services. They are threatened by the parsimony, inefficiency and malice with which the Government have conducted their local government policy over the past few years.
10.56 pm
Mr. Allan Stewart: There is a certain ritualistic air about the annual rate support grant debates. At least the hon. Member for Glasgow, Garscadden (Mr. Dewar) gave us a good laugh with his reference to the Comptroller and Auditor General. My hon. Friend the Minister sought to forestall one regular feature of debates such as this when he said that he hoped that his answer on interest rates would mean that the hon. Member for Cunninghame, South (Mr. Lambie) would not feel the need to speak. I hope that that aspiration is not realised. One of the admirable features of these debates is the ringing tone in which the hon. Member for Cunninghame, South denounces the rate support grant, whether it is under a Conservative Government or a Labour Government.
The hon. Member for Garscadden was a little short of ammunition. Indeed, from the Labour party's point of view, this rate support grant settlement, is a little difficult to attack. Current expenditure provision has been increased by 9·5 per cent. and the aggregate Exchequer grant by 7·5 per cent. That is double the rate of inflation. The hon. Gentleman scraped the barrel when he spent some time alleging that, next year, because of the introduction of the community charge, local authorities will somehow face great increases in expenditure against a total expenditure of £3·4 billion.
What was interesting about the speech by the hon. Member for Garscadden was what he did not say in answer to my hon. Friend the Member for Stirling (Mr.
1018
Forsyth), who asked him about the Labour party's policy on revaluation. For the information of the hon. Member for Garscadden, the hon. Member for Glasgow, Cathcart (Mr. Maxton), as I understood his speeches in Committee, made the Labour party's policy quite clear. There will be a domestic rate revaluation in Scotland in 1990 if, by any mischance, the Labour party is returned to office at the next election. I hope that that point will be confirmed if Opposition Members on the Labour Front Bench speak during the debate.
I congratulate my hon. Friend the Under-Secretary of State on listening to the objective representations from me and many others about the minimum grant entitlement. I was delighted that my right hon. and learned Friend the Secretary of State has continued the minimum grant entitlement and increased it to £11·50 per head. There were representations from Labour Members also about this matter. It was outrageous for COSLA to attack the minimum grant entitlement, as indeed did its leadership representing the great battalions of Glasgow and elsewhere. It is a perfectly reasonable measure for my right hon. and learned Friend to take. It helps not only Eastwood but smaller councils such as Inverness, Badenoch and Strathspey, Roxburgh and Berwickshire, as well as Labour councils such as East Kilbride. I hope that the Labour party will make it clear whether it supports what the Government have done in relation to the minimum entitlement.
My hon. Friend said that, of course, it will be some time before we know what the local authorities' rate decisions are for next year. I am happy to be able to tell him tonight that the recommendation that will go before Eastwood district council will be for an unchanged rate in 1987–88. That is because of financial prudence, modest and sensible real growth and a well considered rate support grant settlement.
I wish that I could say the same about Strathclyde. However, it appears that despite an increase in its needs element of 9·1 per cent. under this settlement, Strathclyde intends to impose a rate increase of 20 per cent. The leader of the council has admitted in public that this will cost jobs, particularly jobs in small businesses, in Strathclyde. A rate increase of that magnitude is unjustified and outrageous. The finance convenor of Strathclyde said at a consultation meeting with non-domestic ratepayers that the opposition to that rate increase was paralysed. Yes, the opposition is paralysed by the enormity of a 20 per cent. rates increase by Strathclyde.
Why is such a huge rate increase being proposed? I put it to my right hon. and learned Friend the Secretary of State for Scotland that there are three reasons for it. First, it is a straight "payola" through the urban programme. A very large number of urban programme projects is being taken on by Strathclyde. There are a few well justified urban programme projects—for example, the Dunterlie children's centre in my constituency—but many others cannot be justified.
Secondly, Strathclyde is increasing the rates by that amount because there is a general election in the offing and it hopes that the Government will take some of the flak.
Thirdly, I hope that my right hon. and learned Friend will consider very carefully the fact that Strathclyde and other regional councils are increasing the base line for non-domestic rates ahead of the implementation of the Abolition of Domestic Rates etc. (Scotland) Bill. When

1019
that Bill has been passed, the increase in rates for non-domestic ratepayers will be held by central Government to the rate of inflation. The rate proposal is wholly unjustified and outrageous.
I congratulate my hon. Friend the Under-Secretary of State for Scotland on the way in which he introduced the two orders and I urge him to be very tough, if necessary, about the proposals of certain regional councils.
11.2 pm
Sir Russell Johnston: These rate support grant debates are rather repetitive occasions. As always, the Minister opened with an oration that bore some comparison to a magician casting a spell, to judge by the increasingly glazed expressions on the faces of all hon. Members. The length of the debate is not related to its complexity, and it is difficult to deal with the subject extensively.
The Minister said that everything would be much simpler next year. Perhaps he meant that personally—that next year he will not have to wrestle with all these complex matters because they will be in the hands of others. Even if they fall into the hands of others, I am doubtful whether everything will be all that much more simple. Experience thus far has shown that nobody has been able to make things much simpler.
In the short time that is available to me, I shall make a few points and ask some questions. First, the Minister said that there should be no rate increases next year. To take as an example the Highland region, about which I know a little, the rate will be 56p in the pound. If the rate support grant had remained at its real 1979–80 level, the rate would be 33p — [HON. MEMBERS: "Pence."] Yes. [Interruption.] The hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) has a very—
Mr. Deputy Speaker: Order. We cannot have private conversations.
Sir Russell Johnston: I was simply referring, Mr. Deputy Speaker, to the hon. Member for Carrick, Cumnock and Doon Valley, who interrupted me in a somewhat vulgar fashion. I was trying to respond to that vulgarity with dignity.
If the RSG had remained at its 1983–84 level, this year's rate would have been 44p in the pound. My point is that although the Minister says that there should be no rate increases, the reality is, as the hon. Member for Glasgow, Garscadden (Mr. Dewar) put it most effectively when he referred to "fiscal pillage"—an expression with which I would agree—as the Minister is aware, that there has been a steady reduction in Government support, and that has resulted in a reduction in the quality and the extent of service.
The increases from 1986–87 and 1987–88 average out at about 12·4 per cent. overall, but the variations within the regions are considerable. The figures range from 23 per cent. in Strathclyde to 6·38 per cent. in the Highlands with variations in between of 9·4 per cent. in the Borders and 8–7 per cent. in the Grampian region.
Secondly, it would appear that the new formula may be operating against the rural areas. I wonder whether that is a reflection on COSLA's urban dominance or whether it is Government policy. I am not arguing against the considerable increases in Strathclyde and Lothian, but I
1020
wonder whether since, as the Minister and the hon. Member for Garscadden have explained, the teachers' settlement is a significant part of the demand on the RSG increase the allocations to the more rural areas are not insufficient.Thirdly I want to repeat a simple point that has already been made well by the hon. Member for Garscadden. There is no doubt whatever that the pattern of more and more central control is embodied once more in the orders.
I want the Minister to answer two particular points. As the Minister knows, there is special provision for road gritting and clearance. We are in the middle of a rather cold winter which, although it has not been too bad so far, might get worse. As I understand it, there is a triggering mechanism which is not unlike the triggering mechanism for the cold weather allowance. The mechanism for road gritting is triggered from the meteorlogical measuring points on the coast. As there is an obligation on regional authorities to maintain certain roads clear, irrespective of the population in the area, I do not believe that that is a very good system.
If my next point is not directly relevant, either you, Mr. Deputy Speaker or the Minister will tell me so, but I am certain that all hon. Members would be interested to know whether the Minister has made any progress against the background of the RSG orders in settling the problem of the rating of sports clubs in Scotland. That problem continues to have an adverse effect on some very desirable enterprises.
This debate maintains a pattern. Rate support grant rose prior to the election in 1979, it rose again prior to the 1983 election and it is rising yet again. Clearly, any increase is welcome, but the pattern makes me somewhat cynical.
11.10 pm
Mr. Michael Forsyth: I welcome the orders, because they will provide some protection for the hard-pressed ratepayer. There is compensation for those who have suffered the effects of revaluation. It is extraordinary to hear Opposition Members complaining about the tediousness of these debates when they all support the continuation of the rating system.
Mr. David Lambie: That is not true.
Mr. Forsyth: The hon. Gentleman is an honourable exception. Apart from referring to himself he might have been referring to members of the so-called alliance, who have continued to seek to persuade the Scottish people that they are against the rating system and in favour of something else. They have so far proved singularly unable to produce any workable system despite the many hours that have been spent in this place discussing the issue.
Labour-controlled councils throughout Scotland have continued to pursue their narrow ideology, against ratepayers' interests. They have acted against the interests of those whom they are supposed to represent while complaining about the effect on services of the orders. These Labour-controlled councils have shown that their true allegiance is to the promotion of Socialism and the Labour party rather than representing the interests of local people.
The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) was astute enough to speak of the

1021
importance of road gritting and the problems that are faced in providing that service at this time of year. In his crusades in favour of local democracy, the hon. Gentleman should take account of the effect of the Labour party dominating an authority such as the Central regional council, which covers my constituency. The comrades decided after a mild December that they would no longer grit minor roads on the ground that they had run out of money because the Government had cut their resources. The same comrades found £40,000 to pay for a women's committee. They argued that they had run out of money and could not grit the roads on the first occasion when there was a call on the budget. It was only after howls of protest had been made that they reinstated the previous policy.
That which is happening in local government is happening in the Chamber this evening. We are seeing the posturing of the Labour party. Labour Members are pretending to represent the interests of the old and those who are trapped in their homes because of winter conditions and ungritted roads, but the reality is that they are playing politics. Given power in local government in Scotland, their preference is to cut sensitive services and to blame the Government for having to do so to make a political point. When it comes to sacrificing the people to bash the Government, Labour Members are all too ready to do so. They would take the same view if ever we were unfortunate enough to find them in power.
Mr. Home Robertson: The hon. Gentleman is talking about local authorities making political points. Does he accept that a political point was made by the people of Lothian region last year, for example, when they voted overwhelmingly for the Labour party and elected a Labour council, which is seeking to carry out its mandate and is being pilloried by the Government for doing so?
Mr. Forsyth: I would take more account of lectures on accountability and democracy from the hon. Gentleman if he had not wiled away many hours in Committee explaining to us why he is against the system that would allow those who have the ability to consume local government services to make a contribution towards the cost of providing them.
Mr. Bill Walker: Does my hon. Friend agree that it is incredible that Labour authorities that have complained that they are short of funds can arrange conferences costing thousands of pounds on issues such as apartheid in South Africa, which has little, if anything, to do with local government? I understand that there is to be a conference in Glasgow tomorrow, and thousands of pounds will be spent sending delegates to it.
Mr. Forsyth: My hon. Friend is right. I am constantly amazed by the local authority in my constituency, which can find the funds to provide chauffeur-driven cars to ferry the relatives of councillors to their meetings or to do their shopping — apparently this is in the interests of local democracy as it makes it easier for individuals to become involved in local government—while complaining that it is unable to effect simple repairs to my constituents' houses.
The single thread that runs through the Opposition's complaints year after year is that somehow there is a connection between the quality of services and the amount
1022
that is spent. The examples south of the border, where more progressive councils have introduced efficiency audits and put services out to competitive tender—
Mr. Foulkes: Tell us by how much you have lined your pockets with privatisation.
Mr. Deputy Speaker: Order. The hon. Gentleman must not make accusations against me.
Mr. Forsyth: The hon. Gentleman—
Mr. Foulkes: On a point of order, Mr. Deputy Speaker. May I, unreservedly, make it clear that I did not impute in any way anything against you? I was pointing out that the hon. Member for Stirling (Mr. Forsyth) had lined his pockets with privatisation.
Mr. Forsyth: You are honoured, Mr. Deputy Speaker, if you have been excluded from the insults rained by the hon. Gentleman on this day alone on everyone from the President of the United States to the Secretary of State for Scotland. I am happy to join that company.
The single flaw to which I was trying to allude, which permeates these points made by the Opposition, is the belief that the level of expenditure in services is equated with quality. If local authorities that are controlled by the Labour party were to look to efficiency audits and to putting services out to competitive tender and were able to get value for money, they might have some credibility—
Mr. Foulkes: Look for the beam in the hon. Gentleman's eye.
Mr. Forsyth: The hon. 'Gentleman keeps intervening because he does not want to hear. The Labour party has become the party of protest in Scotland. It is the party which is long on slogans and short on solutions. I would say to the hon. Gentleman who continues to interrupt from a sedentary position, that the people of Scotland should recognise that the Labour party is now the reactionary party which stands four square behind the rating system, which wishes to have regular revaluations, and to remove all controls on expenditure by local authorities and which would return us to the days of high-spending local government with high rates, destroying businesses and jobs. For the Labour party to say that it is the champion of local democracy, when it is committed to policies which would destroy jobs and local government, is an outrage.
I hope that behind all the accusations against the Government, and behind all the complaints about the rate support grant, the people of Scotland will realise what the Labour party is about — paying off its bosses in the trade union movement and using ratepayers' cash to do so.
11.14 pm
Mr. David Lambie: I did not intend to intervene in the debate because last week I spoke on the Housing Support Grant (Scotland) Order. Usually, the Rate Support Grant (Scotland) Order and the Housing Support Grant (Scotland) Order are taken on the same night. Usually, the same speech does for both. Having been challenged by the hon. Member for Eastwood (Mr. Stewart), who hoped that I would not miss out this year, especially as it is a general election year, I thought that I would accept his challenge.

1023
I hope that this is the last Rate Support Grant (Scotland) Order that I shall need to vote against. Within three months of a general election, which I hope will result in a Labour Government introducing—
Mr. Michael Hirst: Would the hon. Gentleman care to put his own £5 on that?
Mr. Lambie: The Gentleman is one of the hon. Members who will not be here after the next election. Instead of challenging people, the hon. Gentleman should be in Bearsden looking after the people who have suffered from the flooding. He should not waste his time writing a speech about another matter.
I hope that, after the election, when we have a Labour Government, we shall have a Scottish Parliament which will deal with local affairs and take control over local government. I hope that the Labour Government will reorganise local government and set up a one-tier authority system. I hope also—I have to convince my Front-Bench colleagues of the rightness of this—that we shall then abolish the rating system and introduce 100 per cent. Government grants. Local democracy will depend on local people, through their elected representatives, determining how that 100 per cent. grant is spent.
We shall be able to do that because Scotland is a small country. There would seldom be differences between the political complexions of the local councils and the Scottish Government in Edinburgh. The Scottish people are Labour. We would have Labour local authorities in most of the region and a Labour Government dealing with local affairs. There would not be conflict.
Mr. Deputy Speaker: Order. I have allowed the hon. Member considerable latitude, but he should return to the orders.
Mr. Lambie: It is strange that Front-Benchers can speak about the abolition of the rating system, but when the hon. Member for Cunninghame, South speaks about his system, you rule me out of order, Mr. Deputy Speaker. I was making a point about the conflict that exists between Labour-controlled authorities in Scotland and a Tory Government in the United Kingdom who are not representative of the Scottish people and do not speak for them. That is why we are here tonight.
My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) said that these orders were not as bad as those in previous years. That is understandable, because, within three months of a general election, it would be stupid for the Government to antagonise the Scottish people more than they have. Since 1979–80, rate support grant as a proportion of relevant expenditure fell from 70 per cent. to 56 per cent. last year. I have not heard from the Labour Front Bench or from the Government what the percentage is this year. After a reduction from 70 per cent. to 56 per cent., one cannot go any further, especially within three months of a general election, without antagonising the ratepayers of Scotland. I do not accept that the Government have changed their mind or that they are beginning to help local authorities. This change in attitude is because of the forthcoming general election.
This is a black night for the Scottish people. This is another attack on the Scottish ratepayers through rate support grant. Tonight, the Scottish football team has lost
1024
the match against the Republic of Ireland by one goal to nil. It looks as though we are out of the European cup. We need not only a change of Government in Scotland but a change in the management of the Scottish Football Association. Both the Government and the Scottish Football Association are disasters for the Scottish people.
I was very disappointed that the hon. Member for Eastwood criticised the Strathclyde region for diverting a lot of money into the urban aid programme. He made it clear that he was thanking Strathclyde region for taking over the main urban aid project in his constituency.
Mr. Allan Stewart: One.
Mr. Lambie: The main one. Every Strathclyde Member made representations not only to the Government but to Strathclyde region for extra urban aid money for projects in their constituencies. I am grateful to Strathclyde region for taking over the main urban aid project in my constituency—the Redburn centre in Irvine. Every third man in the area is unemployed. If we cannot get money from the Conservative Government, I am grateful that Strathclyde region found the necessary money through the rates to keep the various urban aid programmes going. The hon. Member for Eastwood should apologise to the House and congratulate Strathclyde region for giving him the money to keep his own project going.
Mr. Allan Stewart: I am most grateful to the hon. Gentleman. However, he should recognise that, although I certainly said that one project in my constituency is worthwhile, I am totally opposed to the unemployed workers' centre in Barrhead, which is a straight Labour party payola.
Mr. Lambie: The hon. Gentleman cannot have it both ways. He cannot congratulate the Labour-controlled Strathclyde region on giving money to one project and then say that is it is wrong for it to give money to a similar project in another town.
Mr. Stewart: It is not similar.
Mr. Lambie: Sometimes one may think that our debates have no influence on Government policy. However, I cannot complain about my own Cunninghame district council because it will not impose any increase in rates this year and will have a stand-still budget. I am taking the credit for that. I have continually challenged Ministers until they have come to realise the problems facing the district council and they have given the council extra money so that it can balance its books this year. However, the greatest increases in rates for the ratepayers in my constituency are the regional rates in Strathclyde, which will increase by 19 per cent. this year.
I appeal to the Minister to recognise that Strathclyde is one of the most deprived regions in Europe. Because of pressure from Members of Parliament and from local people, the local council has been forced to try to maintain vital local government services. At the same time it has been subjected to substantial reductions in the rates through the rate support grant by the Government since 1979.
The Minister stated that the increases proposed by Strathclyde were not justified. However, he did not mention that one of the most important elements in those increases was the fact that the council is trying to recoup the penalty and the clawback that was imposed on it because it did not keep to the guidelines last year.

1025
The Minister appears to be in a reasonable mood tonight. Therefore, I appeal to him to agree to wipe the slate clean on last year's penalty and give Strathclyde the opportunity to start afresh. If the Minister does that, Strathclyde will have the opportunity to reconsider its budget. However, while he continues to be vindictive towards Strathclyde for maintaining the services that every Member of Parliament, councillor and ratepayer demands, he cannot expect Strathclyde to go against the majority of opinion in the region. I appeal to the Minister to allow Strathclyde to reconsider its budget without having to finance the clawback that the Government imposed because of its overspending last year, when it did not meet the guidelines.
I have great pleasure tonight in maintaining the tradition that I have upheld since entering Parliament of voting against rate support grant orders. Attacks have always been made against local authorities in the House. These orders continue that. Therefore, I hope that we shall get a Government in Scotland to deal with Scottish affairs so that the farce of the Tories in England determining how we, in Scotland, spend our money will end, and the Scottish people will spend their own money according to their priorities.
11.29 pm
Mr. Jim Craigen: This is not a generous rate support grant settlement, but we have seen worse in previous years. The Minister seemed to suggest that he is adopting a more relaxed view which, as my hon. Friend the Member for Cunninghame, South (Mr. Lambie) observed, is understandable in the run-up to a general election. How realistic, I wondered, was his reply that he expects a standstill in rate poundage plus 1 p to accommodate some extras? Why was there a delay in the discussions with COSLA over the settlement on approved expenditure? The order, moreover, seems to have been introduced a bit later than is normal.
As education represents about half of the estimated rated expenditure, will the Minister tell us a little more about the cost of the teachers' settlement, the brunt of which will he borne by education authorities? Given the Government's wish almost totally to control the settlement of pay and conditions in education, I am surprised that they did not try to take education outwith the rating system altogether and make it a direct charge on central Government, perhaps by introducing a new educational support grant. Bearing in mind the proposed community charge, and this order for 1987, will the Minister give us some details about the final cost of the teachers' pay settlement?
Are the Government being realistic about the inbuilt figures for prices and pay? We are already seeing evidence that the Government's only achievement — reducing inflation—is starting to slip from their grasp. The retail price index, which will be adjusted next month with a new system of weightings, will continue in an upward trend towards the summer. Has proper account been taken of inflation and the pay settlements that may be expected in the local government sector? The Paymaster-General has been making ominous noises about the break-up of collective bargaining as we know it, which would have serious implications for local authority staff. I do not expect the Minister to answer the point tonight, but I hope
1026
that he can comment on the pay settlement, which represents a large proportion of local authority expenditure.
The Minister mentioned all the things that the Government have done over the years. Why has there been an 11 per cent. drop in real terms since the Conservative Government came to office in the rate support grant per head of population in Scotland? I quote from figures given to me by the Minister in a recent parliamentary answer to my request for details of the rate support grant per head of population in 1979–80 and in the year for which the most recent figures are available. The Government intend to move towards a new system of revenue support grant based on a per capita approach to the disbursement of rate support grant, so perhaps the Minister can deal with the point tonight.
What does the Minister have in mind for the unallocated margin of £73·6 million? He referred earlier to some unallocated expenditure in the education budget. Why has he chosen the figure that is in the order?
The Minister anticipated the speech of my hon. Friend the Member for Cunninghame, South by saying that it was assumed that loan charges would be 10·4 per cent. Is that realistic? We are in the run-up to a Budget and a general election. The Chancellor would like to reduce interest rates. Certainly that would help those who have to pay mortgages, but it is often forgotten that it has a considerable impact on the expenditure of local authorities. No doubt the Minister will tell me that an order can be introduced later to take account of the change. I have noted that, when interest rates go up, it is some time before the variation order is produced, but when they go down the Government are very quick to take advantage of the shortfall.
On the rate revaluation rebate order, will the Minister tell us how much it will cost to administer the scheme? When the scheme was announced with a great hullabaloo at the Perth conference of the Scottish Tories, we were to get £50 million. Nearly half that figure was taken back by the Chancellor because it could not be taken up under the scheme as drafted. Will it cost more to administer the scheme this year even though less money will be claimed under it because of the changes that the Government are making in the variation order?
It does not seem that the document is as straightforward, as the Minister said. The order may be repetitious, as the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) suggested, although we have to watch the orders that come up year after year because it is amazing how the Government manage to distort the picture. The hon. Gentleman, who managed to set a box of matches alight at Holyrood palace, according to an article in The House Magazine, has to be watched. Although year after year these orders look the same, their make-up depends on the Minister and the political approach of the Government of the day. I hope the Minister will answer all these question.
10.37 pm
Mr. Ancram: The hon. Member for Glasgow, Maryhill (Mr. Craigen) is, I think, the only hon. Member who has asked specific questions. I hope to be able to answer at least some of them.
I was puzzled by the hon. Gentleman's suggestion that there had been some delay in our discussions with COSLA and in laying the order. There was no delay in our

1027
discussions with COSLA which took place on the usual timetable. There was a delay in laying the order, as I explained in my original remarks, because we decieded to wait until the teachers' settlement results could be fed into it. I think it was for the convenience of the House and of local authorities that there should be one order dealing with the rate support grant package for this year. Following many times when the hon. Gentleman asked for the figures to be produced earlier, the announcement of the aggregate Exchequer grant was made in July, which is earlier than usual, so I was puzzled by that question.
The hon. Gentleman asked for the additional cost of the main settlement over and above the interim cost of the April 1986 settlement. The cost was £14 million in 1986–87 and £60 million in 1987–88. There is no disagreement from COSLA on these figures. It was on the basis of these that additional provision was made—the £30 million in rate support grant which is in the order which we are discussing and also £8 million to deal with the costs for the current financial year.
The hon. Member also mentioned the unallocated margin to which I referred earlier. We set aside £50 million for education over and above the provision necessary to meet national standards in an undoubtedly important service. That £50 million has been distributed to education authorities in addition to their guidelines, calculated in the normal way. All education authorities, except one, have guidelines above assessed need next year — that one authority has a guideline 8·9 per cent. above its present budget. I believe that authorities have been given ample provision for education in this year. The hon. Gentleman asked about interest rates and he is correct, interest rates are taken into account after an order is laid and adjustments can be made at a later date. In the order that we are discussing tonight adjustment has been made for previous years for precisely that reason.
Turning to the general debate, I believe that my hon. Friend the Member for Stirling (Mr. Forsyth) put his finger on an important point that is often forgotten when we discuss local authority expenditure — the fact that there are areas within local expenditure where savings can still be made by greater efficiency, avoiding duplication and, where necessary, ensuring that a most efficient service is obtained by putting those services out to tender. I have tried to persuade Scottish local authorities to do that for a long time. It is important that we remember that aspect when we discuss local government expenditure.
The hon. Member for Glasgow, Garscadden (Mr. Dewar) made a predictable speech. It was rather longer than mine—
Mr. Dewar: It was five minutes shorter.
Mr. Ancram: I apologise. Certainly it was much shorter on information. The hon. Gentleman made the usual remarks about cuts in rate support grant. I do not know whether he noticed an answer given in the Official Report to his hon. Friend the Member for Dagenham (Mr. Gould) on 15 December 1986. It set out the changes in real terms in the needs element between 1978–79 and 1987–88. Those changes were discussed in real terms, which is the world in which everybody has to live. If the hon. Gentleman studies that answer he will discover that the needs element in rate support grant went down in real terms by 0·1 per cent. over that period.
1028
The hon. Member for Garscadden uses the phrase "volume terms" because he believes that it is better for his argument. He made an extraordinary assertion, if I heard him right, that local government spending was still below the 1978–79 levels. If he had listened to my earlier remarks, he would have heard me say that at last, after seven years, we have got local government spending, in real terms, below 1978–79 level. During that period we had tried to reduce that level by the various methods available to us. It was precisely because we achieved that objective that,
this year, we were able to take a more relaxed view in terms of both the provision and the rate support grant that was made available.
My hon. Friend the Member for Eastwood (Mr. Stewart) mentioned the minimum grant and welcomed the fact that it had been made available again in this year's order. He took credit for that and I certainly pay tribute to him for the representations that he made. However, the real credit must go to the hon. Member for Garscadden, who in 1985, made pleas on behalf of the councils of North-East Fife, Nithsdale, Ettrick and Lauderdale, Banff and Buchan, Eastwood, Angus and Gordon. He made a great deal of the fact that he felt that they were suffering and said:
"Their needs element has come down from £130 million to £94·5 million."—
that is the district councils.
"This substantial cut has led to a substantial crisis for many smaller district councils. They will suffer massive reductions in rate support grant settlement."
He went on to say to the then Secretary of State:
"he must think again about what he is doing to many district councils and local authorities generally."—[Official Report, 24 January 1985; Vol. 71, c. 1179.]
My right hon. and learned Friend and I have listened to the hon. Gentleman. It is strange for the hon. Gentleman to complain about the distribution under this rate support grant order in the light of his previous remarks.
Question put:—
The House divided: Ayes 168, Noes 96.

Division No. 96]

[11.44 pm

AYES

Alexander, Richard

Carttiss, Michael

Amess, David

Cash, William

Ancram, Michael

Chope, Christopher

Arnold, Tom

Clarke, Rt Hon K. (Rushcliffe)

Ashby, David

Colvin, Michael

Atkinson, David (B'm'th E)

Coombs, Simon

Baker, Nicholas (Dorset N)

Cope, John

Baldry, Tony

Corrie, John

Batiste, Spencer

Couchman, James

Bellingham, Henry

Cranborne, Viscount

Benyon, William

Currie, Mrs Edwina

Best, Keith

Dorrell, Stephen

Blackburn, John

Durant, Tony

Blaker, Rt Hon Sir Peter

Dykes, Hugh

Bonsor, Sir Nicholas

Eggar, Tim

Boscawen, Hon Robert

Evennett, David

Bottomley, Peter

Fallon, Michael

Bowden, Gerald (Dulwich)

Farr, Sir John

Bright, Graham

Favell, Anthony

Brinton, Tim

Fletcher, Sir Alexander

Brooke, Hon Peter

Forsyth, Michael (Stirling)

Brown, M. (Brigg & Cl'thpes)

Forth, Eric

Browne, John

Fox, Sir Marcus

Bruinvels, Peter

Franks, Cecil

Buck, Sir Antony

Fraser, Peter (Angus East)

Burt, Alistair

Freeman, Roger

Butler, Rt Hon Sir Adam

Galley, Roy

Butterfill, John

Garel-Jones, Tristan

Carlisle, John (Luton N)

Goodlad, Alastair

Carlisle, Rt Hon M. (W'ton S)

Gow, Ian

1029

Gregory, Conal

Robinson, Mark (N'port W)

Griffiths, Peter (Portsm'th N)

Roe, Mrs Marion

Ground, Patrick

Rowe, Andrew

Hamilton, Hon A. (Epsom)

Ryder, Richard

Hamilton, Neil (Tatton)

Sackville, Hon Thomas

Hampson, Dr Keith

Sainsbury, Hon Timothy

Hanley, Jeremy

Sayeed, Jonathan

Hannam, John

Shaw, Sir Michael (Scarb')

Hargreaves, Kenneth

Shelton, William (Streatham)

Harvey, Robert

Shepherd, Colin (Hereford)

Hawksley, Warren

Shersby, Michael

Hayes, J.

Silvester, Fred

Hayward, Robert

Sims, Roger

Heathcoat-Amory, David

Skeet, Sir Trevor

Heddle, John

Smith, Tim (Beaconsfield)

Henderson, Barry

Speller, Tony

Hickmet, Richard

Spencer, Derek

Hind, Kenneth

Spicer, Jim (Dorset W)

Hirst, Michael

Spicer, Michael (S Worcs)

Hogg, Hon Douglas (Gr'th'm)

Stanbrook, Ivor

Holland, Sir Philip (Gedling)

Steen, Anthony

Holt, Richard

Stern, Michael

Howard, Michael

Stevens, Lewis (Nuneaton)

Howarth, Alan (Stratf'd-on-A)

Stewart, Allan (Eastwood)

Howarth, Gerald (Cannock)

Stewart, Andrew (Sherwood)

Hubbard-Miles, Peter

Stewart, Ian (Hertf'dshire N)

Hunt, David (Wirral W)

Stradling Thomas, Sir John

Hunt, John (Ravensbourne)

Taylor, John (Solihull)

Jones, Gwilym (Cardiff N)

Temple-Morris, Peter

Jones, Robert (Herts W)

Terlezki, Stefan

Knight, Greg (Derby N)

Thomas, Rt Hon Peter

Knight, Dame Jill (Edgbaston)

Thompson, Donald (Calder V)

Lamont, Rt Hon Norman

Thompson, Patrick (N'ich N)

Lang, Ian

Thornton, Malcolm

Lawler, Geoffrey

Thurnham, Peter

Lennox-Boyd, Hon Mark

Townend, John (Bridlington)

Lloyd, Peter (Fareham)

Twinn, Dr Ian

Lord, Michael

Waddington, Rt Hon David

McCurley, Mrs Anna

Walden, George

MacKay, John (Argyll & Bute)

Waller, Gary

McLoughlin, Patrick

Ward, John

Mather, Sir Carol

Warren, Kenneth

Merchant, Piers

Watson, John

Montgomery, Sir Fergus

Watts, John

Morris, M. (N'hampton S)

Wells, Bowen (Hertford)

Moynihan, Hon C.

Wells, Sir John (Maidstone)

Neale, Gerrard

Wheeler, John

Nicholls, Patrick

Wiggin, Jerry

Osborn, Sir John

Wilkinson, John

Pawsey, James

Winterton, Mrs Ann

Pollock, Alexander

Winterton, Nicholas

Portillo, Michael

Yeo, Tim

Proctor, K. Harvey

Rhys Williams, Sir Brandon

Tellers for the Ayes:

Rifkind, Rt Hon Malcolm

Mr. Michael Neubert and

Roberts, Wyn (Conwy)

Mr. David Lightbown.

NOES

Ashdown, Paddy

Brown, Ron (E'burgh, Leith)

Ashton, Joe

Bruce, Malcolm

Atkinson, N. (Tottenham)

Buchan, Norman

Barron, Kevin

Callaghan, Jim (Heyw'd & M)

Beckett, Mrs Margaret

Canavan, Dennis

Beith, A. J.

Carlile, Alexander (Montg'y)

Bermingham, Gerald

Clark, Dr David (S Shields)

Blair, Anthony

Clarke, Thomas

Boyes, Roland

Clay, Robert

Brown, Gordon (D'f'mline E)

Clelland, David Gordon

Brown, Hugh D. (Provan)

Cocks, Rt Hon M. (Bristol S)

Brown, N. (N'c'tle-u-Tyne E)

Cook, Robin F. (Livingston)

1030

Corbyn, Jeremy

Lloyd, Tony (Stretford)

Craigen, J. M.

Loyden, Edward

Cunliffe, Lawrence

McKay, Allen (Penistone)

Dalyell, Tam

MacKenzie, Rt Hon Gregor

Davies, Ronald (Caerphilly)

McWilliam, John

Davis, Terry (B'ham, H'ge H'l)

Madden, Max

Deakins, Eric

Marek, Dr John

Dewar, Donald

Martin, Michael

Dixon, Donald

Maxton, John

Dormand, Jack

Michie, William

Dubs, Alfred

Millan, Rt Hon Bruce

Duffy, A. E. P.

Nellist, David

Eadie, Alex

Oakes, Rt Hon Gordon

Eastham, Ken

O'Neill, Martin

Fatchett, Derek

Patchett, Terry

Field, Frank (Birkenhead)

Pendry, Tom

Fields, T. (L'pool Broad Gn)

Pike, Peter

Fisher, Mark

Powell, Raymond (Ogmore)

Foster, Derek

Redmond, Martin

Foulkes, George

Robertson, George

Godman, Dr Norman

Ross, Ernest (Dundee W)

Golding, Mrs Llin

Skinner, Dennis

Hamilton, James (M'well N)

Smith, Rt Hon J. (M'ds E)

Hamilton, W. W. (Fife Central)

Soley, Clive

Hardy, Peter

Spearing, Nigel

Hart, Rt Hon Dame Judith

Steel, Rt Hon David

Haynes, Frank

Stott, Roger

Hogg, N. (C'nauld & Kilsyth)

Strang, Gavin

Home Robertson, John

Thompson, J. (Wansbeck)

Howarth, George (Knowsley, N)

Wallace, James

Hughes, Robert (Aberdeen N)

Welsh, Michael

Hughes, Sean (Knowsley S)

Wilson, Gordon

Hughes, Simon (Southwark)

Winnick, David

Johnston, Sir Russell

Young, David (Bolton SE)

Kirkwood, Archy

Lambie, David

Tellers for the Noes:

Lamond, James

Mr. Allen Adams and

Lewis, Terence (Worsley)

Mr. Chris Smith.

Question accordingly agreed to.
Resolved,
That the Revaluation Rate Rebate (Scotland) Order 1986, dated 17th December 1986, a copy of which was laid before this House on 19th December, be approved.

Rate Rebate (Scotland)

  RATE SUPPORT GRANT (SCOTLAND)
  Resolved,
  That the Rate Support Grant (Scotland) Order 1987, dated 2nd February 1987, a copy of which was laid before this House on 4th February, be approved.—[Mr. Ancram.]

Orders of the Day

  MINORS' CONTRACTS BILL [LORDS]
  Order for Second Reading read.
  Motion made, and Question put forthwith, pursuant to Standing Order No. 90(6) (Second reading committees).
  That the Bill be now read a Second time.
  Question agreed to.
  Bill accordingly read a Second time, and committed to a Standing Committee pursuant to Standing Order No. 61 (Committal of bills).

Scottish New Towns
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lennox-Boyd.]
11.56 pm
Mr. Robin Cook: I am grateful for this opportunity to raise on the Adjournment of the House the housing capital allocations for Scottish new towns. The timing could not be better. As the Parliamentary Under-Secretary of State for Scotland will be aware, he required the Scottish new towns to submit to him revised capital estimates by 31 January. I assume that this debate takes place as he is starting to mull over the revised capital estimates that have been submitted to him.
That brings me logically to the only detailed question that I will put to the House on statistics. That is the question that I put to the hon. Gentleman earlier so he might have the maximum time to reflect upon it. However, it would be interesting for us to know what the total bid has been from the five Scottish new towns. I personally very much suspect that the total bid from those five development corporations will well exceed the £30 million per annum that the Minister has allocated among all five of them. It may well exceed that figure because the Scottish Office has put the new towns in an impossible position. That position stems from the Minister's decision to lift the moratorium on housebuilding in the new towns. That moratorium, as my hon. Friends the Members for Cumbernauld and Kilsyth (Mr. Hogg) and for Cunninghame, South (Mr. Lambie), who are present, will know, generated a rapid housing shortage in the new towns.
In the new towns there is an expanding young population. The members of that population perfectly predictably get married and look for houses which they cannot find in the new towns. I will not dwell on that problem because the Minister was courteous enough to see a delegation last October when we explained the problem to him. Subsequently he resolved to lift the moratorium on housebuilding for general needs.
That decision was most welcome because it showed a recognition on the Minister's part of the fact that there was a real housing need in those new towns. At the time he proposed that the new towns should aim to construct 1,400 houses over the next three years. Among all five Scottish new towns that target of 1,400 is not so impressive, but it is a welcome first step.
However, there is no point in authorising those 1,400 houses unless the Minister also authorises the money with which to build them. That brings us to the capital allocations to the new towns.
Before I come to the figures, it is worth noting that the housing capital allocation to the Scottish new towns is something of a misnomer because, hitherto, the Scottish Office has got away with a cheap system of housing capital allocation to the new towns whereby those allocations are almost wholly funded out of the sale of the houses in the new towns. Next year the total allocation will be £24·2 million. That will be met, to the tune of £20·4 million, from the revenue from sales of houses in the new towns.
Although it is called an allocation, in effect for the most part it is permission from the Scottish Office for new towns to spend the money raised by selling their houses. If, however, the new towns are to build those 1,400 new
1032
houses, it will be necessary for that allocation to rise substantially above what the new towns can expect from the sale of existing houses.
The Minister has not yet recognised that need. In the figures that he released last December, he allocated an additional £3 million expenditure for the forthcoming financial year, but that comes nowhere near releasing the resources that are needed for new build. What is the solution that he proposes? It is contained in his letter to the new towns, in which it is said:
"Ministers have taken a broad assumption that corporations will peg their aggregate rehabilitation expenditure at around £10milion in each of the next three years."
That word "peg" conceals a substantial cut, nor will it be possible for new towns to "peg" that expenditure to £10 million spread evenly over three years, because in the nature of things, most of the new towns already have rehabilitation programmes committed for the next year. They will then have to spend substantially more than £10 million in the forthcoming year, and the assumption among them — the Minister will correct this if it is wrong —is that if they spend substantially more than £10 million in the first of the three years, they will have to spend substantially less in the subsequent two years.
The consequences of this are dramatic. Livingston has submitted a revised capital estimate on the assumption that it should cut its rehabilitation programme to free resources to build houses. The figures show that the rehabilitation expenditure of Livingston development corporation will fall from £3·5 million in the current financial year to £670,000 in 1989–90. That is to say that its rehabilitation programme will fall to less than one fifth of its present value within a three-year period. The consequences of that dramatic cut will be dire.
Too many of the houses in the new towns were built in the 1960s. My hon. Friends will have had similar experiences with such houses in their constituencies. I know that my hon. Friend the Member for Glasgow, Cathcart (Mr. Maxton), whom I am pleased to see in his place, will have visited many similar types of houses in the course of his Front Bench duties. In the new towns, we have that legacy of houses put up in the 1960s, when system housing predominated. We now have the familiar problems of such housing.
Livingston still has 800 flats with flat roofs, which have turned out to be marvellous devices for catching the rainwater. I have a constituent who has had his flat roof repaired 14 times but still has rain coming in through the roof. In fairness to the development corporation, I point out that it admits that there is no final solution to the problem other than the creation of pitched roofs.
Livingston also has a large number of houses that I hope are unique to it, known as the Jesperson type of housing. These were designed by a pure genius who so constructed the flats that each has a balcony, with a drying area to the rear, which stands on top of the roof of the lounge of the flat below. The problems that flow from this are easily grasped by anyone other than the architect.
The development corporation has an ambitious and comprehensive programme to rehabilitate and convert these system-built houses. The programme has been in full swing in a number of streets and has been successful. It has resulted in much more attractive housing, and it is popular with the tenants. That programme will effectively halt on the figures that the development corporation now has to contemplate as a result of the December letter.

1033
In effect, the new towns are being asked to build new houses by halting the renovation of existing houses. That proposal is wrong on two counts. It is wrong first because it is irrational. The origin of the Minister's decision to lift the moratorium on housebuilding reflected the fact that there is real housing need in the new towns. That need can also be met by rehabilitating our existing housing stock. We have in Livingston, and I am sure that my hon. Friends have such a situation as well, houses that stand empty because they require substantial rehabilitation. There are 80 Bison flats standing empty because they are far too wet to let, and cannot be let unless there is substantial rehabilitation of the external cladding.
It is irrational to say that that rehabilitation programme must halt in order to release resources for new buildings when the resources will allow only the construction of a much smaller number of new houses.
Secondly, the decision is wrong because it is unfair. In effect, it is being said that tenants who live in houses that at present suffer from the problems of the system-built designs of the 1960s must expect to make the sacrifice to free resources for new buildings, and that families living in cold and wet houses must put up with it in order that we can build houses for those who have no homes at all and need new houses.
That is not a choice that the new towns should face. If the Minister forces that choice on the new town development corporations, he will turn his decision to lift the moratorium into a nightmare. I regret that. I welcomed the decision to lift the moratorium. It was a step in the right direction. It showed that the Minister recognised the need for new houses and that to meet the housing shortage in new towns we required additional homes for our people.
I ask the Minister to recognise that new towns cannot possibly meet the need for additional houses without extra resources. I urge him, as he considers the revised capital estimates that have been submitted to him by the Scottish new towns, to reflect on the total sums that they have asked for and recognise that he will need to put more resources on the table so that they can do the job that he has asked them to carry out.
Mr. David Lambie: I am grateful for the opportunity to speak on the Adjournment debate and to support the general argument put forward by my hon. Friend the Member for Livingston (Mr. Cook). Like my hon. Friend, I was grateful when Irvine new town in my constituency was given permission to build 60 new houses over the next three years. That will certainly go a long way to solve the problem of increasing waiting lists, especially for second generation families.
There was a big announcement recently in Irvine about the Finnish Paper Company, Caledonian Paper, coming to Irvine and providing 1,000 to 1,500 jobs over the construction period of the paper mill, and 900 permanent jobs upon its completion. Irvine Development Corporation needs more money to allow it to build not 60 houses but perhaps double that number to accommodate the people who will come into the area to take part in the Finnish Paper Mill's exciting project.
Because Irvine development corporation now has permission to build 60 houses a year over the next three years, and with the arrival of the paper mill, private developers are moving in and building more private houses. We are developing an education problem as well as a housing problem.
1034
In dealing with the financing of the new towns, will the Minister provide the money for Irvine development corporation to build a new primary school in the Girdle Toll area? This year, young pupils aged between four and six years will not be able to find a place in the existing local school and will have to be bussed to other schools within the area. Will the Minister allow Irvine development corporation the finances to build the school this year and to recoup the money over later years from Strathclyde regional council? If he does that, he will solve the problem and create a much happier new town.
12.9 am
The Parliamentary Under-Secretary of State for Scotland (Mr. Ian Lang): I am grateful to the hon. Member for Livingston (Mr. Cook) for giving us the opportunity to discuss the housing responsibilities of the Scottish new town development corporations. The new towns' achievements in housing have tended to be somewhat overshadowed by their outstandingly successful record in industrial promotion. I hope that this debate will help to gain recognition for the corporations' record on housing, to clarify their current housing policies and priorities and to confirm the importance that the Government attach to the corporations' continued exercise of their housing responsibilities.
At the beginning of his speech the hon. Gentleman asked me specifically — and I am grateful to him for giving me time to reflect upon his question—about the new total bid from the five development corporations. Among all the figures that I have with me in the Chamber, I regret that I do not have that one. However, the new towns with which I have had recent contact, including the Irvine development corporation, have expressed their appreciation both of the lifting of the moratorum—I am grateful for what the hon. Gentleman said about that—and of the capital allocations that we have announced.
The policies that the Government have encouraged the corporations to adopt are expressly designed to facilitate the growth of viable and balanced communities. Wider opportunities for home ownership are, in our view fundamental to that objective. The level of home ownership in the new towns has traditionally been low, by Scottish standards. Over the past six years we have sought to redress that imbalance by introducing the tenants' right to buy and by allowing corporations voluntarily to sell houses to tenants who may not qualify under the 1980 legislation.
The corporations have long recognised that increased home ownership will help the towns to reach a balanced maturity, and they have engaged in house sales with vigour and enthusiasm. Home ownership in Livingston has doubled in the past six years, although I have to add that at 26 per cent. there is still room for further growth. I do not believe that the hon. Member for Livingston has clone justice to the corporation's record on sales, nor to its significance in enabling new investment to be created., a point to which I shall return.
We also believe that corporations' housing activities should reflect the fact that the days of public housebuilding for overspill are past. The demand for new housing should, in our view, now be met in the main by the private sector. In line with this, over the past four years we have approved various initiatives by the corporations designed to increase the development of housing land by private builders and to encourage the provision of low-cost

1035
housing within private schemes. We gave the housebuilding industry a clear opportunity to consolidate its presence in the new towns by temporarily restricting the building of houses for general rental needs by the corporations. During my recent visit to Irvine new town I saw clear evidence of the success of this policy. That should help to meet the point raised by the hon. Gentleman in connection with the arrival of the Kymmene Stromberg paper mill.
I said that the private sector should be the main agent for newbuild. However, it should not be the only agent. The private sector cannot be expected to meet the complete range of housing needs of the new towns. By shifting the prime responsibility for the new general needs build on to the private sector, we have freed public resources for a range of special needs that the corporations are best fitted to meet, and for the improvement of the existing rental stock.
During the past six years the corporations have been free to make proposals for specially adapted and amenity housing, and we have allowed the new towns to bring forward substantial expenditure for the rehabilitation of their rental housing—a point to which I shall return, since it was rasied by the hon. Gentleman.
We have also been willing to reinterpret special needs in the context of the new towns. Last year my Department reassessed the case for a limited resumption of public sector housebuilding for general needs. I considered the corporations' views and listened to the representations of the local authorities concerned. I listened also to the representations of hon. Members, including those of the hon. Members for Livingston and for Cunninghame, South (Mr. Lambie), and I examined demographic evidence indicating substantial future growth in new town households arising from the second generation.
I concluded that the housing needs of young couples and single people formed a distinctive category of special needs in the new towns and that the corporations should be equipped to help to satisfy these needs in order to maintain the population balance of their communities. Therefore we decided to ease the restrictions on new housebuilding for rent by the corporations. Corporations are new free to exercise their own judgment in determining their housing priorities as between newbuild and improvement. The outcome of our review illustrates again our concern to frame and adjust housing policies to achieve the overall objective of creating viable communities.
Our policies are succeeding. The proportion of owner-occupied houses in the new towns has risen from 21 per cent. in 1980 to 36 per cent. now, compared with the Scottish average of around 41 per cent. In three new towns—Glenrothes, East Kilbride and Cumbernauld — the level is now at or above the national average. Over 20,000 new-town houses have now been sold to their tenants. This is some 30 per cent. of the corporations' housing stock. Early in 1986, we gave corporation tenants an improved opportunity to purchase their homes by permitting the corporations to sell houses on terms corresponding to those later embodied in the Housing (Scotland) Act. Sales of houses are continuing at record levels.
With regard to new private housebuilding, output and activity rates have risen dramatically. Corporations have introduced a wide range of incentives to stimulate the private development of housing land including accelerated
1036
site disposal programmes and disposals to firms specialising in lower cost housing. The combined effect of those measures has been a substantial increase in annual completions from just over 500 houses in 1982–83 to over 870 in 1985–86. Private sector completions are estimated to top 1,200 in the current financial year. Over the past three years the housebuilding industry has substantially expanded and consolidated its presence in the new towns. The towns' credibility as locations for private housing investment has strengthened immeasurably.
The corporations' record in housing improvement is equally impressive. Over the past six years. the corporations have in aggregate spent some £76 million on the repair and rehabilitation of their rental stock. In Livingston in the same period, £16·5 million has been spent on the improvement of the corporation's rental housing. Across all five towns, hundreds of houses have been brought up to today's standards in terms of plumbing, heating, insulation, roofing and external appearance. Seventy-six million pounds of repairs and modernisation is a substantial investment, by any standard. I want to explain in more detail how this programme was financed, since this bears directly on the issues raised by the hon. Member for Livingston.
Housing capital expenditure by the new town development corporations is financed by loans from the National Loans Fund—that is, external borrowing—and by net receipts from house sales — that is, internal revenue. A gross programme of new housing investment for the towns is fixed annually, taking account of the corporations' commitments and priority works. In determining how this gross programme is to be financed, account is taken of corporations' own forecasts of receipts from house sales. The more new investment can be internally financed, the less drain there is on the National Loans Fund and, hence, on the public sector borrowing requirement. In any one year, the difference between the aggregate receipts target and the approved gross programme represents the amount to be financed by external borrowing.
Our policy has been to allow corporations to retain any receipts in excess of the annual target and to apply those to extra new investment over and above the gross programme. There is, therefore, a direct incentive to corporations to maximise their receipts. Over the past five years, corporations have consistently out-performed their sales targets. In each of the years 1981–82 to 1985–86, corporations were permitted to retain the excess receipts and to apply them to new works of their choice. Some £45 million has been available to corporations in this way, extending the scope of gross programmes very substantially.
Corporations have therefore been able to bring forward substantial expenditure on repair and modernisation. Spending on rehabilitation has proceeded at a higher rate than originally provided for in the Government's plans. That is not a criticism; it is a statement of fact. By anticipating expenditure that would otherwise have fallen in later years, the corporations have significantly reduced the amount of rehabilitation work that remains to be done.
I am not suggesting that corporations' housing stock presents no further major problems. Of course some problems of design remain to be tackled and the need to repair worn-out facilities will remain, but the rapid pace at which work of this kind has already been carried out leaves less to be done in future. In discussing with my

1037
Department their cases for a resumption of new general needs housebuilding, the corporations recognised that choices within limited resources have to be made and that, if the moratorium were lifted, their priorities for the future would shift increasingly towards new build and that it might be necessary for modernisation work to proceed at a somewhat slower pace. But — and I stress this — it would he for the corporations to determine their investment priorities for 1987–88 and for later years. It is they who decide the relative need for improvement as against newbuild and they, within their overall allocations, will decide what resources will be applied to which purpose.
Mr. Robin Cook: Is the Minister saying that if the combined bids from the five Scottish new towns carry rehabilitation expenditure well above the £10 million figure that he recommended in his letter, he would be willing to sanction that form of expenditure on rehabilitation rather than newbuilds?
Mr. Lang: I think that that is a hypothetical question. The pressure has been for new build rather than rehabilitation. Given the substantial expenditure that has already taken place on rehabilitation, I do not think that the hon. Gentleman has presented a likely hypothesis. I should be willing to consider any such submission, of course.
I turn to the corporations' housing programmes for the next three years. When, last December, we announced the easing of the restrictions on new build, we made it clear that we intended to allocate extra resources to the development corporations to enable them to finance a new build programme. We said that £6 million more would be made available to new towns in 1987–88 for gross new housing investment than was allocated on a comparable basis in 1986–87. We said also that corporations would be permitted to plan ahead on the basis that, overall resources for housing investment permitting, they might expect to receive in aggregate a further increase of about £8 million on the gross programme, phased over the following two years.
The gross programme for 1987–88 stands at £24·2 million. Of that we expect the corporations themselves to finance some £20·4 million of investment, by applying receipts from house sales. The figure of £20·4 million takes account of the corporations' own forecasts and our assessment of the boost to sales given by the Housing (Scotland) Act 1986. In the current year, corporations are set again to break the aggregate receipts target of £18·3 million, and should achieve over £26 million in receipts. In the light of the corporations' current achievements, I am satisfied that the self-financing target for next year is both realistic and attainable.
The hon. Member for Livingston does not appear to endorse the principle of maximising the self-financing of new investment. I find this a curious position. My view is that if, as a result of tenants exercising their statutory right to buy, corporations achieve receipts with which to undertake fresh investment at no cost to public funds, this is to be desired. The investment is no less real because it is funded by the corporations. That programme that we have set for 1987–88 assumes a real increase in new investment over the last year. To the extent that this additional investment can be internally financed from
1038
house sales, this is in our view an entirely appropriate coupling of the corporations' role as willing sellers and as investors.
As for the level of receipts that we have forecast as accruing in later years, I have already explained that the target of £20·4 million for next year is entirely reasonable as against this year's probable achievement of over £26 million. As to later years, we acknowledge that future levels of sales cannot be predicted with complete certainty. We are therefore building in a measure of flexibility by assuming provisional receipts targets for 1988–89 and 1989–90 that are lower on average than the corporations have achieved in any year since 1982. If hon. Members representing the new towns reflect on this and recall from the Government's statement on 5 December 1986 that we have allowed corporations to plan on the basis of a gross programme of around £32 million by 1989–90, they will appreciate that we are planning for a substantial net contribution to the new towns' housing programme by the end of the decade. By that time, on present plans, our contribution to new town housing investment should increase by up to £18 million, depending on the overall resources available. This is a major supplement to the existing programme and it reflects our appreciation of the demands for rental housing which the corporations expect to face over the coming years.
The provisional allocations for 1987–88 were based on corporations' own reports on their committed and priority projects. In the case of Livingston, the gross allocation of £5·7 million covers a priority special needs development as well as commitments of nearly £4 million on major rehabilitation schemes, including those in Knightsridge 4 and Craigshill, which were approved by my Department last year. As the hon. Member for Livingston is aware, the corporation made no bid for resources for general needs housing in 1987–88. I am surprised that he does not appear to share the corporation's own appreciation of the extent to which its priorities in rehabilitation have been taken into account in setting the gross allocation. I should point out also that the receipts target set for the corporation for next year is lower than the corporation achieved in 1983 and 1984. The corporation itself appears to consider this not unreasonable.
The picture that emerges from the corporations' own forward programmes is not one of corporations starved of resources to meet housing needs. I freely admit that where corporations have appeared able in some measure to finance an increased programme from increased receipts we have allowed for this. In the case of Cumbernauld, East Kilbride and Glenrothes, we believe it reasonable to expect these corporations to finance their gross investment programmes for 1987–88 out of their own resources based on sales targets that are substantially lower than they have achieved each year since 1982. But that does not diminish the volume or value of new work that will be undertaken.
The Government have made provision for a new towns' gross housing capital programme that in three years' time will have increased by 65 per cent. We have done this in direct response to the case made by the corporations for a resumption of general needs housebuilding. We have made conservative assumptions about the extent to which this programme can be financed by reinvestment of sales receipts. On present plans net Government funding will he £18 million higher in three years' time than at present. We believe that the increased investment could provide up to 1,400 extra houses for rent by 1990—that is meeting 78

1039
per cent. of the rental housing needs identified by the corporations in their submissions to me. Within the forecast gross programmes, corporations will still be able to spend at least £10 million a year on improvements to their existing rental stock. If receipts should exceed forecasts, corporations will have freedom to spend the
1040
additional income on new investment according to their own priorities. These facts confirm that the Government's record on new town housing is sounc. Our policies work and there is and will continue to be adequate financial backing for them.
Question put and agreed to.
Adjourned accordingly at twenty-five minutes past Twelve o'clock.