Public Expenditure

HC Deb 18 February 1987 vol 110 cc927-1006

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 (Brigg and Cleethorpes)

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 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 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 (Linlithgow)

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. 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 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 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 (Birmingham, Sparkbrook)

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 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 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 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 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 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 (Dagenham)

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 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 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 (Carshalton and Wallington)

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.

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 intend to increase public spending. We shall make clear exactly how much and for what purposes we shall spend the money.

Mr. Patrick Nicholls (Teignbridge)

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 (Delyn)

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 (Lewisham, West)

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 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, 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 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 (Worthing)

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 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.

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 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 (Stockton, South)

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 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 (Guildford)

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 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 (Great Grimsby)

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 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 (Darlington)

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 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.

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 (Bridlington)

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. 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: 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 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 (Wolverhampton, South-West)

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 (Fife, Central)

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 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 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, 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 (Mid-Norfolk)

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 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 (Dover)

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.

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 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 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 (Linlithgow)

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 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?

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.

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 (Wolverhampton, South-West)

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.

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 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 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 (Great Grimsby)

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.

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.

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 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 (Slough)

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 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 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 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 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 (Guildford)

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 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 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 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 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 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 (Knowsley, North)

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 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 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 (Lewisham, West)

I have some sympathy with some of the problems that the hon. Member for Knowsley, North (Mr. Howarth) has 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 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 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.

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 (Darlington)

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 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 (Slough)

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 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.

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 (Thurrock)

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 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 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.

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. 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 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. 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 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 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 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 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 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

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.

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

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)

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

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).