Autumn Statement

HC Deb 14 January 1988 vol 125 cc465-553 4.14 pm

The Chancellor of the Exchequer (Mr. Nigel Lawson)

I beg to move, That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 3rd November 1987; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.

Mr. Speaker

I must tell the House that a large number of right hon. and hon. Members wish to take part in the debate—no fewer than eight Privy Councillors. I do not subscribe wholly to the way in which the hon. Member for Cambridgeshire, South-West (Sir A. Grant) put his question to the Leader of the House today, but I would say to the House, and to Privy Councillors, that short speeches should be the order of the day if we are to ensure that more Back Benchers can be called. The Chair has—as yet— no authority to limit speeches to 10 minutes, but if speeches take about that time most of those on the list will be called.

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

Mr. Lawson

The Autumn Statement debate this year is a little later than it has been in previous years. Part of the reason was to allow the Treasury and Civil Service Select Committee, which was established only on 24 November, to prepare its report. I believe that that delay was also for the convenience of the Opposition. I sympathise with the Committee's frustration that it was not constituted sooner and I congratulate my right hon. Friend the Member for Worthing (Mr. Higgins) and his colleagues on producing their report as promptly as they did.

Mr. John Smith (Monklands, East)

The right hon. Gentleman referred to the convenience of the Opposition. In case such ideas gain some currency, let me make it quite clear that we were asked whether we thought it would be a good idea for the Select Committee to report. We assented to that. That is the only way in which it was convenient to us and in that respect it was convenient to the Government and everyone else, so what is the Chancellor's point?

Mr. Lawson

I am glad that the right hon. and learned Gentleman agrees with what I said.

In my Budget statement last March I warned that: the biggest risk to the excellent prospect I have outlined is that of a downturn in the world economy as a whole. There are still serious imbalances afflicting the three major economies—the United States, on the one hand, and Japan and Germany on the other — which, if not handled properly, could lead to a simultaneous downturn in all three. And this in turn could be exaggerated by renewed turmoil in the foreign exchange markets, whose tendency to overshoot is as notorious as it is damaging." — [Official Report, 17 March 1987; Vol. 112, c. 817.] Recent events have brought those concerns very much to the fore, and I therefore propose to devote most of my remarks today to the prospects for the world economy —not least because this may be my last opportunity to do so before this year's Budget statement, which, I can now tell the House, will be on 15 March. The important issue of public expenditure will, therefore, be dealt with by my right hon. Friend the Chief Secretary, when he comes to wind up this debate, if he is fortunate, Mr. Speaker, to catch your eye.

Mr. David Winnick (Walsall, North)

Before he departs from the subject of public expenditure, which apparently is to be dealt with by his colleague, does the Chancellor take on board the sort of feelings that have been expressed up and down the country in the past few months and certainly in the past few weeks, which is that, given the cash crisis in the National Health Service, if there is a choice between more money for the NHS and other essential services or continuing tax cuts, it should be the former that has priority? Does the Chancellor recognise the strength of feeling, even among Conservative voters, on that issue?

Mr. Lawson

When I appeared before the Select Committee on the Treasury and Civil Service—of which the hon. Gentleman is a mernber—I recall that he and I had a discussion on that matter. I do not propose to go into that matter any further today because I want to talk directly about the world economy. My right hon. Friend the Chief Secretary will deal with public expenditure and, in particular, I am sure that he will deal with the NHS in the course of his speech.

Mr. Nicholas Bennett (Pembroke)

Does my right hon. Friend agree that, although the Government have cut income tax, tax yields have risen?

Mr. Lawson

That is quite correct.

Mr. Gerald Bermingham (St. Helens, South)

rose—

Mr. Lawson

I cannot give way again. I recall that, a few moments ago, Mr. Speaker pointed out that a large number of right hon. and hon. Members wish to take part in the debate. I do not believe that it is fair on them if I prolong my remarks by giving way more than a limited amount of times.

I presented my Autumn Statement to the House a bare two weeks after the collapse of the world's stock markets that has come to be known as Black Monday. Apprehension about the prospects for the world economy at that time was at its most acute. It was widely predicted that the equity market collapse would inevitably lead to a major world recession this year.

Two months on, it is easier to put the sharp fall in the stock market in October into some perspective. Although the scale and suddenness of the fall were unprecedented, it has increasingly been seen as in large measure a correction, following the rapid rise in the early part of 1987. In the three main markets—London, New York, and Tokyo—following the sharp falls in October, share prices have not fallen any further since the end of that month, and are at much the same levels as a year ago. The impact on consumer spending — the so-called "wealth effect"—should therefore be limited.

But a shock such as the stock market collapse can readily damage business confidence quite severely. Most of the major countries therefore acted promptly to reduce interest rates, both to deal with the immediate risk of a lack of liquidity and to sustain business confidence. I am sure that, in the circumstances of that time, that was right.

A further reason why business confidence has remained pretty well intact is that all the economic evidence published since October, so far from implying that world recession is imminent, suggests that the world economy prior to the stock market collapse was in fact markedly stronger than had earlier been recognised. So any slowdown there may be this year will be from a pretty vigorous momentum of growth.

It is now clear that activity picked up markedly during the course of 1987. Taking the seven major industrialised countries as a whole, output in the third quarter of the year was more than 3 per cent. higher than a year earlier, with industrial production in October more than 4 per cent. up. In the United States, industrial production in the third quarter of 1987 was 5 per cent. up on a year earlier, and unemployment reached its lowest level since 1979. Japan, the world's second largest economy, which had earlier been a little sluggish, began to move ahead briskly, with industrial production at the latest count some 8 per cent. higher than a year ago. The United Kingdom, as I indicated in the Autumn Statement, looks to have enjoyed 4 per cent. growth over last year as a whole, with again the third quarter stronger than the first two. The Canadian economy, too, is buoyant. It is only the performance of continental Europe, and particularly Germany, which remains disappointing, though even there modest growth is continuing.

Thus, overall, world growth has been proving extremely robust. However, the serious imbalances in the world economy remain.

At the heart of those imbalances lies the huge structural budget deficit in the United States. That is particularly damaging, not just because of the enormous size of the United States economy, but because the Americans, with their low propensity to save, have proved wholly unable to finance the deficit entirely from domestic savings. This means, inevitably, that the United States requires large capital inflows from overseas, with the counterpart, so long as this state of affairs persists, of a large current account deficit.

For years, there were calls for the United States to reduce its budget deficit — except, I have to say, from the Opposition Front Bench, which urged us to emulate it. But not nearly enough progress was made, not least because of the difficulty of reaching any sort of agreement between the Administration and the Congress on how to go about it. Indeed, I was interested to see that President Reagan himself said earlier this week: That deficit is an embarrassment and a shame—most dangerous, perhaps, because it signals the complete breakdown of one of the most basic functions of the United States Government. There has now been some encouraging progress, with the legislation passed just before Christmas to reduce the deficit, relative to the level it would otherwise have been, by $30 billion for 1988 and $45 billion for 1989. But these steps, welcome though they are, will not be sufficient, by themselves, to reduce the deficit to a tolerable level.

It has been clear for some time that the reduction of the other set of imbalances-the current account imbalances —will depend on domestic demand in the United States growing more slowly than that in Japan and Germany for some years to come. One of the prime objectives of the major industrialised countries, meeting together in the Group of Seven, has been to achieve this in an orderly way. The United States action, and the decision of the German authorities to reduce their key discount rate from 3 per cent. to 241/2 per cent., the lowest rate they have had since the war, are helpful steps, and paved the way for the G7 communique issued on 23 December.

That communique also re-emphasised the agreement to co-operate to foster exchange rate stability, following a period of turbulence on the foreign exchanges which had seen a further slide in the dollar.

Wild gyrations in exchange rates can create grave uncertainty and damage business confidence throughout the world. Companies in all countries find it more difficult to plan for the future, and have to spend precious time, money and ingenuity on insuring themselves against exchange rate risks, when they should be concentrating on the real job of improving company performance. That is one of the main reasons why the CBI, for example, has stressed the importance to its members of a stable exchange rate.

It is thus natural that countries should seek to act together to prevent excessive exchange rate volatility. Moreover, history has shown that a readiness by countries to commit themselves to some form of exchange rate stability is the only feasible way of securing wider international co-operation on economic policy.

Mr. Stuart Holland (Vauxhall)

I am most grateful to the Chancellor for giving way. There is a paradox in what he is saying. He is talking about robust economic growth, which he is extrapolating from one quarter's figures for several countries, before the stock market crash. What are his comments on the OECD forecast for a slow-down in European OECD countries to 1.5 per cent. of GDP by 1989? Does he recognise that United States growth will have slowed down from about 3 per cent. a year in 1985 to not much more than 1.5 per cent. in 1989?

While exchange rate stability is an objective in itself, it is the volume effect on demand for United States exports that will be crucial. What action will the Chancellor take, with other Finance Ministers, to get spending going in the global economy, which is the real basis for the recovery of the United States' trade and payments deficit?

Mr. Lawson

Clearly I should not have given way to the hon. Gentleman.

Mr. Holland

Answer the question.

Mr. Lawson

As I have said on a number of occasions, there is likely to be some slowing down of world economic growth this year but it is a slowing down from a considerably higher level than was earlier recognized—the level in 1987. Far from there being any of the dangers that the hon. Member for Vauxhall (Mr. Holland) mentioned, the policies he advocates would simply lead to a resurgence of inflation.

If countries are indeed prepared to accept wholeheartedly the exchange rate commitments to which I was referring before that rather lengthy and inconsequential intervention, they will find themselves obliged to pursue domestic policies which are consistent with their exchange rate objectives. That applies most obviously to monetary policy, though fiscal policy also has a vital supporting role, particularly over the medium term. It is, however, an academic dream, divorced from reality, to imagine that sovereign states will be persuaded into consistent domestic policies simply by a process of careful international analysis and discussion.

Of course, countries may choose at any time to ignore the implications of the exchange rate arrangements they have entered into. Sovereign states cannot, in the end, be required to take particular courses of action. But if they are not prepared to play their part in an agreement with the visible, measurable, objective of broad exchange rate stability, within a framework of low inflation—I stress the necessity of that framework — it is hopelessly unrealistic to imagine that a more general agreement on consistency of fiscal and monetary policy would stand any chance at all of working. Those who suggest otherwise are not living in the real world.

Let me be quite clear. I am not suggesting a return to anything like the rigid exchange rate system that applied under Bretton Woods, which contained the seeds of its own destruction. But I believe that there are clear advantages in a more managed approach designed to prevent the wild gyrations of recent years, particularly in the dollar, and in so doing achieving greater international co-operation in economic policy more generally.

The events of recent years underline the point. It is most unlikely that the heady rise in the dollar during 1984 would have taken place if there had been an exchange rate agreement at the time, and the United States authorities had thus been obliged to give greater weight to the external value of the dollar in the conduct of their monetary and fiscal policy. Had that been so, the imbalances that plague us today, and the protectionist threat that accompanies them, could never have developed to the extent that they have.

Since the United States became converted in 1985 to the desirability of co-operation on exchange rates, we have had the Plaza agreement in September 1985, designed to deal directly with the problem of dollar over-valuation, and over the following 15 months we saw an orderly, but substantial, depreciation. The Louvre accord, signed in February of last year, provided a period of broad stability, intended to allow the major economies to adjust to the massive exchange rate changes that had already taken place.

A number of commentators have seized on the decline in the dollar that has occurred since October to suggest that the Louvre accord was fundamentally flawed, and thus unsustainable, from the outset. I have to say that I disagree. As Paul Volcker observed in a speech in Geneva in November: The argument of some seems to be that the agreement sacrificed appropriate internal economic management to the requirements of a stable exchange rate. That seems to me a misreading of both the nature of the understanding and, more broadly, the need to accord the requirements of exchange rate stability more prominence in economic policy-making. I was pleased to note, too, that the Select Committee said in its report—and I quote: give weight to ensuring reasonable stability of exchange rates which was the original intention of the Louvre agreement. It is of course clear, and this is implicit in both the Plaza and Louvre agreements, that stability of exchange rates cannot be achieved simply by wishing that it were so. Appropriate domestic policies—fiscal and in particular monetary — are required. For a period, the Louvre accord brought the necessary results—stable exchange rates, greatly helped by the fact that interest rates in the United States rose, and those in Japan and Germany edged down.

What brought that period of stability to an end was the perception in the market that the Americans were no longer committed to the Louvre agreement, and were simply concerned to prevent any risk of domestic recession as they saw it. The markets were also aware that, after commendable progress in fiscal 1987, the United States looked unlikely to reduce its budget deficit for fiscal 1988 by anything like the extent agreed at the Louvre.

During November and December, therefore, the dollar appeared to be given little weight in United States policy, with the inevitable result of turmoil on the foreign exchanges, with the dollar falling and expected by many to fall further. Last week, however, the United States authorities demonstrated a renewed commitment to supporting the dollar, with the Federal Reserve bank intervening, in concert with other central banks, to a very much greater extent, and doing so in a deliberately public way. This ending of a brief but damaging phase of so-called benign neglect is a step in the right direction. but it is idle to suppose that official intervention on its own, even when it is co-ordinated internationally and involves full United States participation, amounts to a coherent policy.

But intervention is an important tactical weapon, and it would be foolish not to use it when appropriate. In our own case, it has helped us to achieve a remarkable degree of stability for sterling, particularly against the deutschmark — something that is widely welcomed by British industry—and in the process to build up our foreign exchange reserves to an adequate level.

The desire at the Louvre to allow time for the exchange rate changes to have their effect on trade imbalances is equally important now. The financial markets were perhaps surprisingly slow to wake up to the imbalances in the world economy, but when they did, they showed signs of impatience at the slowness of the adjustment.

In fact, important changes are taking place. Although the published United States trade deficit has shown very little improvement so far the volume figures have moved very substantially: for example, in the year to the third quarter of 1987, exports had risen by 15 per cent., whereas imports were up by only 6 per cent.

As many of us had warned, there was bound to be a lag before these developments fed through to the current account — the well known J-curve. Repeated dollar depreciations, so far from speeding up the adjustment of the current account, can only add to the length of the J-curve. This is particularly the case if, at the same time, domestic activity is not adequately reined back.

Looking forward to the prospects for 1988, it is clear that there remain very real risks in the outlook for the world economy. While there is no immediate prospect of recession, the substantial dollar depreciation could lead to serious inflationary pressures in the United States and there still remains the threat of creeping protectionism, which could at any time escalate into a trade war.

However, the current strength of the world economy, which I illustrated earlier, does give us a breathing space in which to get the world economy on to a more sustainable footing. Some of the necessary steps have already been taken, but more action needs to follow. We must get the right policies in place, and pursue them with patience and determination, because there are bound to be periods of difficulty which we shall have to ride out. Provided we can do that, although there may be some slowdown in world economic growth, I am confident we can avoid the twin dangers of inflation and recession.

Clearly, we in Britain cannot wholly insulate ourselves from developments overseas, and we should not imagine otherwise. But subject to those inevitable uncertainties, it is clear that the British economy is well placed to continue the excellent progress of recent years in spite of the problems faced by many other countries and the turbulence in the financial markets.

Dr. Jeremy Bray (Motherwell, South)

The Chancellor has emphasised the importance of exchange rate stability and the dependence of exchange rates upon the fundamentals, but he has said that it is not realistic to expect different Governments to agree about wider economic matters within their domestic economies. Can he reconcile those three statements?

Mr. Lawson

Yes, indeed. This has been the lesson of history. What I said was that the wider co-operation that has occurred has been a result of the acceptance by the major countries of an external discipline. The gold standard was a good example; it operated successfully for a long time. That is the point which I was seeking to make, and am I sorry that the hon. Gentleman failed to understand it.

Britain's strength is clear to the OECD, which forecasts that in 1988 we shall once again be among the fastest growing of the major industrial nations. It is clear to the many thousands of companies from overseas which are coming to invest in Britain. It is clear to those who run industry—take, for example, the American chairman of British Oxygen, Mr. Richard Giordano, who said last year: In the last half dozen years, Britain has done a pretty good job. If I was a company having to set up in Europe, it is Britain I would choose. And it is clear, of course, to the British people, as they demonstrated in the general election only eight months ago.

In fact, the strength of the economy is clear to everybody except to the Opposition. Their problem is that they are so wedded to living in the past that they cannot accept that the policies we are following, which are precisely the reverse of those they followed when they were in office, can possibly have led to the success we see around US.

When it became clear that growth in 1987 was moving well ahead of the already strong trend of the past five years, the Opposition put it down to a short-lived preelection boom. I am sorry that the hon. Member for Dagenham (Mr. Gould) is not here. Being of New Zealand origin he may, I hope, have gone back to his native land to learn an excellent lesson from the policies being pursued by the Labour Government in New Zealand. They could certainly teach him a lot. Anyhow, last February he spoke of the irresponsible and profligate spending boom which the Chancellor hopes will sweep him to a general election victory".—[Official Report, 18 February 1987; Vol. 110, c. 942.] I am glad that the Opposition accept that we had a sweeping victory. I have to tell the hon. Member for Dagenham and his hon. Friends that growth in the period since the general election has, if anything, been stronger than it was before the election, and further non-oil growth —less rapid than in 1987, but still in excess of anything ever achieved under the Labour Government — seems likely in 1988.

The Opposition put the alleged pre-election boom down to higher consumer spending. Again, they are barking up the wrong tree. Growth in 1987 was stronger than in 1986 precisely because investment growth picked up and exports increased more rapidly than in the previous year, in the aftermath of the oil price collapse.

The Opposition also claimed that this so-called preelection boom would be instantly reversed. In the last Autumn Statement debate, which I looked at just before coming to the Chamber, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) made one of his justly notorious predictions: An election victory would be followed by a massive increase in taxation", he alleged. He went on: There would be more public expenditure cuts." —[Official Report, 17 December 1986; Vol. 107, c. 1253.] He has now had his answer on public expenditure in the clearest possible terms, with the substantial increases announced in the Autumn Statement. Whether he was right or wrong about taxation, of course, remains to be seen, but he will only have to wait now for another two months, until 15 March, for the massive increase in taxation which he so confidently predicted, if indeed there is one.

Meanwhile, having warned of a dangerous boom, the Opposition have now reverted to their normal cry that higher borrowing and lower interest rates—an unlikely combination, if ever there was one—are needed to stave off impending recession.

It was once said that Wall Street had correctly forecast 13 out of the last five recessions. The Opposition have done even better, because they predicted recession in each and every one of the last six years, and in each and every case they have been wrong. The trouble is that all the old beliefs that they have clung to in spite of the accumulating evidence are being finally and definitively disproved. They believe that economic growth depends on ever higher public spending, paid for by higher borrowing and higher taxes, and on easy money. They should look at what happened last year. Public borrowing, even leaving aside privatisation proceeds, looks like turning out at the lowest level since 1970–71. Interest rates, as the Opposition themselves point out, are, if anything, a little above the international average, yet we have seen the strongest period of sustained growth since the war.

For some time the Opposition justified their attachment to higher borrowing by reference to the experience of the United States. The whole House, and certainly my hon. Friends, will recall the right hon. Member the Leader of the Opposition urging the Government to borrow on a massive scale and saying: They cannot even see the lesson of the United States economy when it is staring them in the face". — [Official Report, 31 July 1984; Vol. 65, c. 236.] It is now all too clear who got the wrong lesson. With his unerring instinct for backing a loser, the right hon. Member made the keystone of his party's economic policy what has turned out to be the Americans' undoing—an excessive budget deficit.

Right hon. and hon. Members of the Opposition completely failed to appreciate the real reasons for the rapid creation of new jobs in the United States. They ignored the role played by the low tax burden. They ignored the importance of labour market flexibility and low wage increases, which contribute so much to the fact that unemployment in the United States is lower than in any major country in western Europe. They completely failed to appreciate the importance of deregulation and of the enterprise economy. As usual they got the wrong end of every stick.

The short point is this. A successful economy cannot be created by the Government pumping in money. It depends on the performances of businesses and the individuals at all levels who work in them. That is what led to the outstanding performance in Britain in 1987. That is what has given us an upswing of unprecedented length, strength and steadiness. That is what enables us to look forward to the future with confidence.

The most telling example of the transformation in British industry is to be found in manufacturing. The Opposition, of course, always paint a gloomy picture of British manufacturing as an industry in terminal decline, in contrast with what they allege to have been a golden age under their stewardship. Nothing could be further from the truth, and I will give the figures for 1979.

The plain fact is that manufacturing output fell over Labour's period in office whereas during our whole period of office since 1979 it has risen. But the contrast goes far beyond that, because the underlying strength of British manufacturing industry has been transformed. Britain's manufacturers have increased their profitability for five years in succession, the best performance for a generation.

Does the right hon. and learned Member for Monklands, East (Mr. Smith) wish to intervene? He will have his chance in a moment, anyway.

Mr. John Smith

I thank the right hon. Gentleman for encouraging me to ask the obvious question. He said that he wanted to be judged by output. Can he tell us by how much manufacturing output has increased since 1979, after eight years of Conservative Government?

Mr. Lawson

The point that I am making is such a simple one that even the right hon. and learned Member ought to understand it. It is that during the whole of the Opposition's period of office manufacturing output fell, and during the whole of our period in office it has risen. That is clear to everybody, even the right hon. and learned Gentleman.

In the past, strong growth of the kind we have seen would undoubtedly have quickly fed through into much higher inflation. In fact, although prices in 1987 rose somewhat faster than in 1986, as the one-off benefit of the oil price fall was lost, inflation remained low throughout the year. At the same time unemployment fell rapidly. Today's figures—which I am sure the right hon. and learned Member for Monklands, East will want to welcome as soon as he gets up to speak—show that during 1987 as a whole the number of people out of work fell by more than half a million — the biggest fall on record, with the rate falling far faster than in any other major country over the same period.

In the Autumn Statement, I forecast that growth in 1988 would be 2½ per cent. for the economy as a whole, with the non-oil economy growing at 3 per cent. I shall, of course, be making another forecast in the Budget and I do not intend to make one today. However, on the question of the non-oil economy, which is critical for new jobs, let me just say this. Growth of 3 per cent. for the non-oil economy in 1988, although slower than last year, would be a thoroughly creditable performance. The Labour Government never once achieved 3 per cent. growth, with or without oil. Indeed, it was only achieved once in the whole of the 1970s, yet we have achieved that rate of growth in four out of the last five years.

Keeping the economy on track involves keeping a constant watch on all the indicators of how the economy is developing and then taking action as necessary. I have never hesitated to act in the past when I have judged that there was a risk to our inflation objectives. I can assure the House that I shall not hesitate to do so in future. It is precisely by acting promptly that we have been able to avoid the need for drastic and destabilising lurches in policy. Our track record speaks for itself.

We enter 1988 with the British economy in good shape and the public finances sounder than at any time since the war. That is no coincidence. When we came to office in 1979 we gave the highest priority to restoring the public finances to a sound and sustainable condition. That is one of the rocks on which the new strength of the economy has been built. Thanks to that achievement, we have been able to choose to increase public spending, especially in priority areas, while continuing to reduce overall public spending as a share of gross domestic product. Unlike the Opposition when they were in office, we have been able to sustain our policy year in, year out.

The Opposition, of course, are brimful of ideas for spending ever higher amounts of the taxpayer's money, and no doubt we shall hear more of them today. The plain fact is that, had their policies been implemented, the money simply would not have been there in the first place. It was certainly not there in the 1970s, and it would not have been there in the 1980s either.

The Autumn Statement which we are debating today, my first in this Parliament, embodies the consistent strategy that we have been pursuing since 1979. I commend it to the House.

4.48 pm

Mr. John Smith (Monklands, East)

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: `regrets that the Autumn Statement fails to provide adequate resources for the vital public services and the people who need them, particularly the National Health Service which consequently faces further under-funding next year, and, despite a deteriorating situation in the balance of trade and balance of payments and unsettled international economic relationships, does not propose measures to strengthen manufacturing industry and science and technology, promote vigorous regional development, or significantly reduce unemployment'. I suppose that it is not unusual for this Chancellor of the Exchequer to dodge the main issue in the debate, but we should remind him that the debate is about the Autumn Statement. Although it is interesting to hear his views on the world economy, and although it is important that we should discuss that matter, among other things, one would have expected a Chancellor of the Exchequer who had proposed the Autumn Statement — this is the first opportunity which the House has had formally to debate it—to defend and argue for the propositions contained in this crucial statement of the pattern of public expenditure. However, the Chancellor is fulfilling his promise that he would not say a word about it. He said that he would leave it to his right hon. Friend the Chief Secretary, who, of course, will be the last speaker in the debate, so there will be no opportunity for any hon. Member to hear the Government's views about the Autumn Statement until the wind-up speech. That does not seem to be the action of a Chancellor who is confident of his ability to defend the propositions that he put forward in his Autumn Statement.

Labour Members conceive their role to be slightly different. We shall probe the underlying issues in the Autumn Statement and invite the Government to defend some of the conclusions that emerged from it. However, before I do that, I have to comment on the fact that we have had to endure once again the commonplace of speeches by the Chancellor of the Exchequer that the British economy, under his beneficent stewardship, is in a condition of near perfection. If I exaggerate, it can be only slightly, because the Chancellor never misses an opportunity to say how difficult things are in the rest of the world but how well-managed they are here in the United Kingdom.

I have a purpose in making that statement. To put it mildly, the Chancellor's claim is a matter of dispute. A glance at the balance of trade figures, particularly the prognosis for the balance of payments, which, typically, the Chancellor once again ignored, would soon jolt back to reality anyone who might temporarily have succumbed to the public relations hype which the Government substitute for serious policy discussion and presentation.

To elucidate some of the important issues on the public expenditure front, let me, for the purposes of argument, if for nothing else, assume that the Government are correct in their claims for the economy. Let us assume that the economy is stong and that the nation is prosperous. Let us assume also that, as every economic commentator predicts, the Chancellor will, by 15 March—the ides of March—have £3 billion to £4 billion at his disposal. Some commentators put the amount higher than others, but all agree that that figure is roughly correct. It would be fair for the purposes of argument to proceed on that assumption.

Let us consider public expenditure in that context, particularly spending on the National Health Service. I hope that the House does not need to be reminded of the crisis in our Health Service. The Government's first response to the crisis was to deny that it existed. Day after day, particularly during and after questions to the Prime Minister, from about the time of the Autumn Statement until quite recently, there was an endless barrage of statistics from the Prime Minister. Most people waiting for treatment and their relatives who could not find treatment in our hospitals, particularly in the acute services, found those statistics pretty wildly irrelevant to their problems and to their circumstances. They were irrelevant to the fact that there were empty wards because there were no trained nurses available to staff them. They were irrelevant to children who had to wait for serious heart operations.

The Government's first attempt was to deny that the problem existed. That attempt was increasingly undermined as a position which they could defend, as medical and nursing professions, appalled at the crisis that they knew existed in the service and strongly supported by a public who rely uniquely on the National Health Service for the prevention and cure of illness and disease, the alleviation of avoidable pain and the moderation of disability, made it crystal clear that the Government's presentation of the condition of the National Health Service was in stark contrast to the reality encountered in hospital wards.

Let us take just one manifestation of that concern—the protest by the heads of the three royal medical colleges. They spoke out against what they described as the breakdown of acute hospital services and the almost total collapse of morale in hospitals. Yesterday, they at last met the Secretary of State for Social Services. At long last, after months of the campaign, the Government have admitted that there will be a need to increase the total resources available to the National Health Service. I hope that that means that we shall have an amendment to the proposals in the Autumn Statement. Nothing was said about it by the Chancellor of the Exchequer. We would find the statement made by the Secretary of State for Social Services to the heads of the royal medical colleges a little more convincing if he came to the House of Commons today and explained the financial changes that the Government are prepared to make, following the assurances that they apparently gave to those senior medical figures yesterday. We shall wait with interest to hear the Chief Secretary spell out the increase in resources that the Government propose to make.

Let us accept that we have passed by the argument that there is no need for more resources. Both sides of the House agree that we urgently need more resources for the National Health Service.

Mr. Patrick Thompson (Norwich, North)

rose—

Mr. Smith

I shall give way to the hon. Gentleman in a moment.

This is where we come to the importance of the assumptions about the economy. If the economy is strong, if the nation is prosperous, and if the Government have £3 billion at their disposal, what on earth is to stop them spending it on the National Health Service? We know that it is not a matter of resources not being available. A political choice is being made and the Government are calculating whether to spend the money on tax cuts or on the National Health Service.

Mr. Patrick Thompson

Given the desire for an increase in resources, will the right hon. and learned Gentleman say exactly how many extra resources he would raise by increasing taxation?

Mr. Smith

On a visit to St. Thomas's hospital only a few days ago, the Leader of the Opposition gave a good response to the question asked by the hon. Gentleman. The first step that we recommend should be taken is that the underfunding of the hospital services commented on in the unanimous report of the Select Committee on Social Services—underfunding which existed for four years up to 1986 and which would cost about £1.3 billion, equivalent to about 1 p on income tax, according to the ready reckoner attached to the Autumn Statement —should be made good. That is a clear and specific commitment well within the range of what is available to the Government.

As the hon. Gentleman asked me a straight question and I gave him a straight answer, will he put the same question to the Government? Has he any confidence that he will get as specific and direct an answer as I supplied? I suppose that the hon. Gentleman must have been among the Tory Members canvassed in an opinion poll a few months ago when the question was put to them: would they prefer the money to be spent on the National Health Service or given in tax cuts? A large majority of Conservative Members preferred tax cuts to spending on the National Health Service. I dare say that it might be more difficult to find hon. Members willing to admit that they accepted and defended that conclusion, after the events of the last few weeks, in view of the public concern about the National Health Service.

Mr. Phillip Oppenheim (Amber Valley)

rose—

Mr. Smith

I shall give way to the hon. Gentleman as, almost certainly, he will want tax cuts rather than more spending on the National Health Service.

Mr. Oppenheim

Will the right hon. and learned Gentleman tell the House how much money would be needed to be put into the Health Service to ensure that anyone who could be treated was treated and that no one was kept waiting unnecessarily long for an operation? How much money would be needed to ensure that everyone could be treated, and how would he raise it?

Mr. Smith

It is a matter of great fascination to me that serious questions about funding the National Health Service are addressed to the Opposition and not to the Government. Even on the Conservative side of the House there is no belief in the sincerity of the Government's commitment to the National Health Service. Of course, enormous amounts of money could be spent on the National Health Service and Government after Government have said that they would always spend all the money that they would always want to spend on it, but we need to spend significantly more than the present Government are spending. A few months ago they told us that it did not need to be spent. They have been moved from that position by the outcry from the medical profession and the public. They have moved, but they have not yet moved financially. We have only about another £100 million on top of the several hundred million pounds of planned extra expenditure in the Autumn Statement and we have some way to go to obtain a better provision for the Health Service. But we now know that we shall be given the answer on 15 March when the Chancellor, who has £3 billion at his disposal, decides to spend the money either on the Health Service or on tax cuts. We shall then know clearly the Government's political priorities.

Part of the trouble about the Government's approach to public expenditure as a whole, and the NHS n particular, is that Ministers and Conservative Members have a less direct and personal contact with the public services than have the public whom they serve. We know that that is so in the case of the Health Service. When the Secretary of State for Social Services has to go into hospital, he goes into a private hospital. Many Conservative Members make use of the private education sector. But let them never forget that the vast majority of British people depend on public services for the standard of living and the quality of life that they enjoy.

It is disturbing that we are seeing the emergence of more rumblings from the Right wing of the Conservative party about changes in the NHS. I noticed in the press today that the hon. Member for Wokingham (Mr. Redwood), who is regarded as some sort of significant intellectual figure on the Conservative Back Benches and in whom the Prime Minister until quite recently reposed the special trust of employing him in her special advisory unit, has issued another pamphlet about reforming, as he calls it, the NHS —he is quite prolific in giving his views—in which he calls the Health Service a monster. Indeed, he goes further and calls it an untamable monster. He recommends various new devices for privatising the Health Service.

That is so far away from the ordinary person's perception of the value of the Health Service that I would not bother with it were it not for the fact that such Right-wing extravaganzas, particularly in the area of privatisation, become official Government policy a few years later. We have learnt at our peril to pay attention to them when they first appear. But on that, as on all other matters to do with public services, the underlying philosophy of the Government is that public expenditure is somehow intrinsically not worthwhile but private expenditure is. Anyone with any common sense knows perfectly well that, whether expenditure is in the public or private sector, it should be evaluated according to the economic or social good which it can achieve.

I am not foolish enough to argue that all public expenditure is good in itself. I deplore—I do not know whether I will take Conservative Members with me—the amount of money that we spend on social security as a result of the unemployment that has been caused by the Conservative party. That is a heavy burden on the shoulders of the British taxpayer. I am not sure— here I am sure that I take my hon. Friends with me in their entirety — that expenditure on Trident is the best example of public expenditure. Nor, I hope, would all Conservative Members argue that all private expenditure is necessarily good, although some have more chance than others to do that. A sensible person would take the view that we should look at the proposed public expenditure to see whether it achieves good economic and social purposes. Under this Government, some credit is always to be taken if either the total of public expenditure or the proportion of public expenditure as part of the national account is falling.

We do not take that view, because to do so implies that there is something undesirable about the public expenditure involved. In the case of the NHS, we have already had to point that out to the Government. It has taken some time to establish—I hope that we have done so—some change of priorities by the Government. But the idea is spread that the fact that the NHS is publicly organised somehow means that it will be less efficiently organised than it would be if it were organised on a private basis. I see Conservative Members nodding, which means that they would prefer the NHS to become a private system on the view that it would somehow be better administered.

I simply do not understand how Conservative Members can hold that view when they look at the private medical system in the United States. Not only are 36 million Americans not covered by the health care in that country, but the cost of administration and bureaucracy arc breaking the back of the system. We know that our NHS has to allocate about 2.6 per cent. of its budget to administration. I am sure that everybody would want to reduce that figure as much as possible, because every pound that is released from administration can be spent on care. There should be no argument or dispute about that. We want an efficient and well-directed Health Service. But the proportion spent on insurance, on collection, on arbitration of disputes and on bureaucratic organisation of the private health service in the United States is 5.3 per cent.—twice the cost of the NHS. So we argue that the NHS is not only social justice, but efficiency in action for the British people. That is why it is deeply rooted in their affections and interests. That is why the Government will have to retreat in the face of the outcry against the way in which they have handled it.

A similar approach runs through the whole of the Government's view on public expenditure. We see it not just in social expenditure but in public expenditure that is used to support the economy. I am thinking in particular of spending on science and technology, research and development, regional economic development, education and training. All need public expenditure, and that public expenditure is valuable capital investment in the British people and the future of our economy.

Let us look at the statement made earlier this week by the Secretary of State for Trade and Industry on the scrapping of regional development grant. In the usual way in which the Government go about their business we were told that that really does not mean much because in place of the automatic grant on which industry can rely at the moment in deciding whether to go to the north, south, west or east of the country, there is to be regional selective assistance. It is said that Ministers have made provision to spend as much by way of regional selective assistance as by way of regional development grant. We are invited to draw the conclusion that there has been no change in the objective of the policy, just a change in the means of achieving it.

There was what I can describe only as marked scepticism on the Opposition Benches at that presentation of the Government's policy. I doubt whether regional selective assistance will come remotely near the amount of money spent on regional development grants. The Government's fundamental purpose is to reduce the impact of regional economic policy, and certainly to reduce its cost. I see no signs of indignation on the faces of Ministers at that charge.

I think that I know how that will be achieved. It is typical of the Government's modus operandi to say that something has become selective and to manage matters so that the money will be reduced. Once something becomes selective, Ministers can refuse more applications than they grant. Then they will claim that expenditure has gone down because there has been less demand leading it forward.

We were given an interesting insight into the Government's approach by the way in which the Department of Trade and Industry administered the innovation and hi-tech investment grant. It was revealed in a memorandum circulated by Mr. Anthony Kesten, a senior official in the Department, and it came into the hands of one of my hon. Friends. It instructs officials on how to deal with applications for grants and says: As you may be aware, Ministers have decided that, as part of their continuing review of DTI support, they want a more critical view to be taken by officials of possible support for single company R and D. It goes on to describe various schemes covered by the memorandum and then comes the interesting part: Ministers have said that, while companies should not be firmly discouraged from making applications, no attempt should be made to seek them out. It goes on to list various ways in which companies can fail to be encouraged: I should emphasise that Ministers do not see the new requirements as marking any change in policy and it is essential that, in their day to day contacts with companies, case officers do not suggest otherwise. The published guidelines remain and officials must not say that they have been diverted from them, but there must be fewer applications and it is the duty of officials to make sure that that happens. The document continues by saying that when officials visit companies they should not reveal that there has been any change in policy. In case there is any doubt about whether this is meant to bite and applications are meant to fall as a result, a phrase in the last part of the document says: Offers that have been made prior to today are not affected by this instruction. So this is an instruction from Ministers to officials in the Department to make a change of policy but not to reveal it to those who are affected by it, and to make sure that fewer applications are granted. I can think of no more appropriate demonstration of the disreputable and deceitful techniques adopted by the Government than that revealed by this memorandum produced by the Ministry. It would be useful if some Minister told us about it at some stage.

The Chief Secretary to the Treasury (Mr. John Major)

If the right hon. and learned Gentleman believes the memorandum was such a secret, perhaps he could explain why this was announced in the DTI White Paper.

Mr. Smith

The scheme has now been completely abolished in the DTI White Paper, so we shall not need to bother with it. As the right hon. Gentleman knows, the existence of the memorandum was revealed before the White Paper was published. The shadow Chief Secretary did us a public service by giving the memorandum to the newspapers before the Government published their White Paper, so the Chief Secretary's excuse will not do.

Does the Chief Secretary think that it is right for Ministers to give instructions to officials to pretend that a policy has not changed when it has? The fact that the Chief Secretary, perhaps prudently, remains in his place shows that he would find defending what I have described impossible in a decent and sensible Government. But it is, I am afraid, typical of what goes on.

The Government approach public expenditure from a fundamentally erroneous standpoint, both in terms of value and economic analysis. The truth is that well-directed and targeted public expenditure has a crucial role to play in providing good social services and achieving a successful economic policy. If we do not invest in science and technology, research and development and training, we cannot provide a base for long-term sustained growth, particularly for industries at the leading edge of technology, which are especially at risk now. The Government must know, because almost everyone in British industry knows, that the technological base of British industry is dangerously fragile. In case the Chancellor believes that that is merely an invention of the Opposition—he seems to think that every criticism of the Government comes from some deluded imagination on the Opposition Benches — let me quote to him the Financial Times leader for 13 January. Today is 14 January, so I am pretty up to date and cannot be accused of lack of topicality: British industry is still beset by many problems; productivity is between a half and a third lower than that of its competitors; private sector spending on R and D and training is low; few companies can claim to be world leaders in their sectors; the regional spread of industry is exceptionally uneven, with head offices, jobs and purchasing power concentrated in the south-east". I do not wish to criticise British industry merely for the sake of it, but many people would regard that as an accurate statement of some of the problems facing British industry. What it says about technology and, even more so, about unbalanced regional development is certainly true.

Of course, the Prime Minister and other members of the Government constantly pretend that there is no north-south division in the country, but everyone else knows that there is. We know that we have unbalanced economic development. There is a danger that, to prevent overheating in the south, the brakes will be clamped on the economy and the north will find itself in even more difficulty because it has never even got going.

The misallocation of resources —especially of social resources— that results from this unbalanced economic development is large. It is having a dastardly effect on the regions. On any analysis of the British economic situation we discover that, as the Financial Times leader said, the reality is startlingly different from the complacent picture sketched by the Chancellor. If we read his own Autumn Statement carefully we discover that it predicts that growth will fall, inflation increase and the balance of payments deficit deteriorate.

The Chancellor does us no service by minimising the dangers that face the economy. Many of them arise from the short-term policies of recent years — stimulating a consumer boom for electoral considerations, for instance — which have generated an unsustainable economic growth and aggravated our balance of trade and balance of payments problems.

It is also true, as I think the Chancellor is willing to recognise, that some of our dangers stem from the dangerous disequilibrium in the world economy. He referred at some length to the international position. We recollect that after the events of Black Monday he promised us a meeting of G7 within a short time. He said that as soon as there was an accord with the United States there would be a meeting of the G7 Ministers. That was repeated throughout December but there was no meeting; the so-called telephone accord was scrambled together on 23 December—just before Christmas. It did not appear to have much useful effect in the markets. It does not look as if there will be a meeting of the G7 Ministers in January, either. It looks as if there will be no meeting at all.

It is difficult to believe, given the serious problems facing the world economy, that it is not imperative that the leading industrial nations get together to hammer out common policies to tackle these common problems.

We have three acute inter-linking problems—the enormous imbalance in world trade, the management of currency values and the international debt problem. In recent days there has been an intervention by the central banks — the Chancellor referred to it—to thwart the speculators who prey on movements in currencies. However, I am bound to observe that, while I am glad that that appears to have had some success, it might have been wiser, before the end of the year, to make sure that the United States was prepared to defend its currency before our reserves were swollen by dollars at what Treasury officials conceded to the Select Committee was a probable loss of 10 per cent. due to the dollar's subsequent fall.

What action have the Governments of the G7 countries taken to deal with the trade imbalances? They may be operating through their central banks to exert some influence on the exchange rates. Incidentally, the Chancellor has travelled a long way from the days when he said that exchange rates, like interest rates, were matters for the market. That was all we heard from 1979 to 1981. He talks about consistency of policy—what a change to move from the markets deciding these matters to managed floating. What on earth is managed floating if not a roundabout system of intervention? It is a way in which a person who did not previously believe in intervention comes to say that he is now in favour of it. The Chancellor cannot say that he wants managed currencies, because he wants to retain an element of floating, so now we have a hybrid called managed floating — the Chancellor's contribution to the international economic dialogue. It is a little imprecise, as one would expect from the author of the phrase. It is not clear how it will work or whether anyone agrees with it, but it is the Chancellor's contribution. I suppose that we should welcome any signs of his repentance and of his having at least moved away from the rather arid free-market, non-interventionist doctrines that he preached to the House, in the name of consistency, from 1979 to the early 1980s.

We must concert the economic policies of the major countries that are in difficulties. It is all very well for the Chancellor to wring his hands and say that it is an academic dream to think that countries will be able to concert their domestic economic policies—that was what he said in his speech. It is also an academic dream to think that free markets can solve all the relationships between countries. As far as I can see, that is a much more academic, and certainly a much more dreamlike, way of approaching the situation than attempting, by persuasion, diplomacy and patient efforts, to encourage other countries to bring their policies more in line with each other or, at least, to run them in such a way that they do not conflict with the common interest of economic stability.

If the United States unwinds its trade deficit too quickly —the Chancellor referred only to the budget deficit; he did not deal with the trade deficit—the danger is that there will be trouble, not only for the system, but more especially for those who trade with the United States. If we are to avoid the recessionary perils and the downturn in world economic activity that might lie in store, we need an expansion in the economies of Western Europe and Japan. It is true that there has been some expansion in Japan. However, it appears that, if anything, West Germany is moving in a more restrictive direction, if recent statements by the Finance Minister and the Chancellor of the Federal Republic are to be fulfilled.

Our Chancellor may say that others are not behaving as they should. He was happy to berate the United States in his Mansion house speech and did so a little today. Criticism has been directed heavily against that quarter, but West Germany is now appearing as a co-defendant in the Chancellor of the Exchequer's dock.

I cannot help but observe that the United States large trade deficit was the basis of a great deal of the British exports, without which our trade balance would look even worse than it does today. Therefore, it would be more fitting if the Chancellor gave at least a nod in that direction when he feels that he must criticise the United States so vigorously.

Are we not told by the Government, who find it difficult to persuade other countries to concert their policies, that Britain has a new importance in the world and that unlike previous years, when, it is said, we were not regarded as an important country, we now walk the world's stage with a new-found self-confidence which is based on the Government's vigorous economic policies? If that is so, why does nobody else in the world appear to listen to the Chancellor?

The Chancellor could usefully spend some time with his colleagues, the Finance Ministers of the other G7 countries, in preparing a joint approach to tackle those problems. They should work hard at what is perhaps the difficult work of concerting their policies and they should start as soon as possible. They should not, of course, put the international debt problem to one side. Although there has been some movement regarding Mexico, little international attention has been paid to the problem.

I am prepared to be generous to the Chancellor and accept that his proposals for the sub-Saharan situation should be welcomed. Indeed, they are certainly supported by Opposition Members. However, he has not persuaded anyone else about them and has certainly not yet persuaded the United States. The international debt problem must be tackled with much more vigour by the leading industrial countries and must be given a much higher place of importance on the international agenda.

Mr. Tim Yeo (Suffolk, South)

The right hon. and learned Gentleman has tried to have some cheap fun at the Government's expense over the description of managed floating. Will he be specific on one point and add to his welcome for managed floating a welcome for the present exchange rates that that policy has achieved? If not, will he tell us precisely at what exchange rate his party thinks that the Government should now aim?

Mr. Smith

I do not think that it was cheap to comment on the Chancellor of the Exchequer's and the Government's development of thinking since 1979. That seems essential background for understanding some of the things that he said today. I would take the hon. Gentleman's criticism a little more seriously if he could point out any inaccuracies in what I have said. However, I have described accurately the way in which we have moved from non-intervention to intervention in an elliptical manner.

The exchange rate at any particular time is a matter of judgment. One must especially take into account the effect on industry in this country. I fear that the Chancellor is excessively nervous about interest rates because he is not confident about inflation in this country. That is why he turned down the CBI's request to reduce interest rates. I am flattered that the hon. Member for Suffolk, South (Mr. Yeo) should be so anxious to find out the detail of the policy from the Opposition. That is a welcome development. Conservative Members are finding it hard to obtain answers from Ministers, so I encourage them to ask for answers from the Opposition.

I should like to turn —[Interruption.] Well, the experts on turning are on the Conservative, not the Opposition, Benches. The hon. Member for Tatton (Mr. Hamilton) is as yet unconverted. He is still a primitive monetarist, which is why he is not on the Treasury Bench. He would have to change his position to move to the Treasury Bench.

To achieve some change in international policy the Government would need to see our position more clearly. The trouble is that they are suffocated by a cloak of self-satisfied complacency and self-congratulation, which prevents the development of an alternative policy to the present chaotic state of affairs.

That sense of complacency obscures an appreciation of the real problems and dangers that lie ahead in the British economy. The Chancellor knows perfectly well that inflation is likely to increase. Indeed, the Autumn Statement predicts that it will increase, which is why he is so nervous about interest rates. He knows that productivity growth is likely to slacken and that it is unlikely to be sustained by the sort of supply-side policies of support for science and technology, research and development, investment in manufacturing industry and so on, for which the Labour party argues but which will not be followed by the Conservative party.

The Chancellor knows that an economic boom that is founded on a massive extension of consumer credit is built on shaky foundations. He knows that all predictions about world growth head downwards. Indeed, they were heading downwards even before Black Monday and are likely to be revised downwards even further as expectations diminish. In that situation— [Interruption.] I am facing the facts that are set out for us by the Organisation for Economic Co-operation and Development, the EEC and the World Bank and, indeed, by all who comment on the international economic situation. I advise Conservative Members that it is extremely instructive to read OECD publications to discover what it says about the British economy and to compare that with what the British Government say and, even more, with what the British press says about the British economy. One would hardly think that one was looking at the same set of circumstances.

A wise Chancellor would face the problem squarely and adapt his policies to meet it. Let me give the Chancellor some advice—[ Interruption.] I am not arguing for the Government being consistent; I am trying to change their policies. My whole purpose in life is to modify the Government's policies. I welcome the changes of heart, but wish that they were more sincere and better developed. Indeed, I am hoping for greater things. I shall be living almost entirely on hope in that respect during the next year or two.

We know that there are difficulties and it is foolish to avoid considering them. I should like to give the Chancellor one or two pieces of advice, especially about inflation. He should now announce the abandonment of the foolish privatisation of the electricity and water supply industries. I have an unconfident hope that he might have learnt something from the privatisation of the Government's share of British Petroleum. It does not seem a triumph to have managed the transfer of the predominant share in Britain's greatest company from British national ownership to Kuwaiti national ownership. Had that been advertised as the likely outcome of the operation, there might have been fewer brass bands on display and fewer commandos scaling City office fronts on the day of the issue. Indeed, it might have been more appropriate to have had a courtesy detachment of the Kuwaiti national guard at BP's front door.

However, despite the warnings of that experience, the Government appear to wish to press on with privatisation. If the Chancellor is serious about controlling inflation, I say to him, "Please avoid imposing that extra 15 per cent. on the cost of electricity in two years to fatten up the books for privatisation; relieve British industry and British consumers of an extra £500 million which does not need to be put on their backs." All he needs to do that is to swallow his pride and to change his policy.

As the Chancellor considers his Budget in the next week or two, I hope he will heed the advice that has apparently been given to him by his own advisers, which is that to proceed with tax cuts would be highly irresponsible in Britain's present circumstances.

I will quote from the Daily Telegraph—it is hardly irresponsible if it is in that newspaper. I believe that the Chancellor once contributed to the City page of that newspaper or one of its sister journals. On 24 December 1987 it was reported: A row has broken out between the Chancellor, Mr. Lawson, and his senior Treasury advisers over the wisdom of cutting taxes in the next Budget against the rapid deterioration in Britain's overseas payments position … Sir Terry Burns, chief economic adviser at the Treasury, is understood to be leading the revolt against a tax-cutting Budget. We all wish him luck.

Apart from being a wrong decision on priorities in relation to public expenditure, tax cuts would feed straight through into increased consumer expenditure, particularly in the more prosperous areas, and increase overheating of parts of the economy, exaggerating regional imbalances and, above all, adding a further twist to the increasing balance of payments deficit. If the resources were used instead in prudent and well-directed increases in public expenditure, we could achieve an improvement in services, real help for our struggling regions and better foundations for long-lasting industrial success and avoid an aggravation of our most serious economic problem, which is the balance of payments.

The Chancellor constantly ignores the balance of trade and the balance of payments difficulties, but they will be the most serious constraints on the management of the British economy in the difficult years that lie ahead. I believe that it would profit the Chancellor and the Government much more to take these challenges, problems and difficulties more seriously. I ask the Chancellor to tell the House and the nation how the Government propose that we should overcome them. But to do that would mean abandoning their outlook and some of their prejudices. They would have to change some of their objectives. I hope that that will come about, although I am not confident about it. The Autumn Statement gives us no evidence that it will.

We know from our campaign on the Health Service that, however reluctantly, we have moved the Government. I can assure them that on this cause and some others we will fight and fight again to save the services that we love.

Several Hon. Members

rose—

Mr. Deputy Speaker (Mr. Harold Walker)

Order. May I repeat Mr. Speaker's plea for brief speeches.

5.36 pm

Mr. John Biffen (Shropshire, North)

The debate on the Autumn Statement is traditionally a wide-ranging economic debate, as we were reminded by my right hon. Friend the Chancellor when he used it as an occasion to consider the world economy. We know that my right hon. Friend the Chief Secretary to the Treasury will be winding up on the contentious issues of public spending, and I should like to direct these remarks mainly to him.

Before I do so, may I say this about the economy more generally. We are holding the debate against a background of a quite remarkably successful record of economic management, which has persisted through several characteristic acts of Government. The Chancellor has been twitted for having adjusted his policies in recent times. All I can say is that wise and prudent control of economic affairs requires that degree of flexibility. Above all, it means a commitment to an underlying theme, which we have inherited and executed since 1979 to bring about greater monetary stability and expansion of ownership, and broadly speaking to create for this country a social market economy that could perform for us what has been performed for our continental neighbours in other circumstances. Much of what we have achieved is a testimony to that degree of resolution.

I should like to make two points to the House. I hope that I shall not detain hon. Members beyond the time indicated by you, Mr. Deputy Speaker. The first of them relates to the search for more effective qualitative and quantitative control of public spending, and the second relates to the social and political priorities revealed by the spending plans of the Autumn Statement. A search for more refined control of public spending has all the elements of the quest for the holy grail. It has preoccupied and detained politicians for generation after generation Little short of 30 years ago we had what was, I suppose, a seminal contribution from the Plowden report on public expenditure. I suspect that that has been largely forgotten in subsequent comments, reports and inquests, and indeed in the setting up of institutions; a more recent one, perhaps the most colourful of them, is the "Star Chamber". It:is appropriate here that I should pay tribute to Lord Whitelaw, for no man could have presided over such an institution with such genial effectiveness.

But at the end of the day, there is no doubt whatever that the execution of public spending, the determining of its totality, and the identification of priorities are matters that require political will, skill and authority; for it is that, and the interplay of those factors, which is finally effective.

Although I was much rewarded by reading the report of the Treasury and Civil Service Select Committee, when it said: Our predecessors in 1984 said that they had been increasingly concerned 'that the mechanism for determining public expenditure priorities, which produces the results in the Autumn Statement, is not working as well as it should'", I have to tell it that that has all the virginal innocence of the Social Democratic and Liberal policy document. We shall always live without that delicate reality of having found a truly objective way in which public expenditure is interpreted. No, it is a political process.

One of the values of our debate this afternoon is that it is a process in which the House of Commons can join. We have the Autumn Statement figures; but we are not here just to underwrite them and say that they are a set of judgments that have been carried out by the Executive which command our deferential respect. Politics is not like that. It is a continuing process. Only a few weeks ago, £100 million came forward for the Health Service. That expenditure was determined in the context of a proper and continuing debate, in which this Chamber plays a part.

With that reflection, I would like to make a few further remarks about our health spending. Already, this debate is being given a more reflective nature, and that is to be welcomed. My hon. Friend the Member for Wokingham (Mr. Redwood), who has been referred to already this afternoon, has produced a pamphlet pointing out some of the changes that would be appropriate in our approach to providing health services for the nation. It is not simply a question of adding money to the existing structures. That is the short term and immediate challenge, but there is a wider discipline which, unless we recognise and acknowledge it, invalidates calls merely for more money in present circumstances.

I should like to say to my right hon. and hon. Friends, and indeed to the House generally, that it is 40 years since Aneurin Bevan obtained his political immortality with his National Health Service legislation. Any discussion on this topic will always be inspired by the principles that preoccupied his life. But, 40 years on, this is an occasion not just for a memorial service, but for real consideration of factors that begin to affect the whole funding of National Health Service provision in this country.

I should like to put before the House five immediate considerations that I should like to detain some body—perhaps not as ambitious as a Royal Commission, but some study group within Government that would be the precursor for producing a discussion document upon which policy changes could proceed.

First, we have to ask ourselves whether the great increase in personal disposable income has affected the original argument about the extent to which one could look to an element of state managed insurance, as opposed to direct Treasury funding. Secondly, we have to assess and anticipate the demands made upon the service by the changing age structure of our society. Thirdly, the resource implications of changing medical technology have to be further assessed. That factor is of accelerating importance. Then we have to consider the relevance of the present random application of charges. The power to make charges was a very early strain upon the political circumstances of the service. Indeed, it helped in the resignation of Aneurin Bevan. What we have learnt since then is that they have become very much an integral part, albeit modest, of the application of the National Health Service.

Mr. Eric Heifer (Liverpool, Walton)

Will the right hon. Gentleman give way?

Mr. Biffen

No, I am trying to proceed within the times imposed. I am sorry, because I enjoy debate.

Then there is the undoubted growth of private medical insurance. It is something that we can trace and it is inspired very substantially by group membership of employees, whether trade union members or not; it is very much an employee-dominated expansion.

So let us consider those five principles and make a calm and reflective judgment about what is possibly a more appropriate system of funding for the future than the one we now have. Thereafter, we are likely to be able to say what institutional changes, if any, are needed. I do not believe that we approach this problem correctly by identifying, all too often, an institutional change—part of the guilt transfer mechanism, blaming area health authorities and so on. It is the other way round: until we get funding more appropriately settled, we cannot hope to get our institutional arrangements correct.

If I apologise to the hon. Member for Liverpool, Walton (Mr. Heffer), I will at least throw this crumb of conciliation to Opposition Members. I am always looking for sustenance from my own mild prejudices. I have been able to find it in "A Fabian Submission" only this week, prepared by David Lipsey and approved by the executive committee of the Fabian Society: In welfare provision, we need to accommodate a substantial role for the voluntary sector, as well as state and local provision". I am prepared to accept that as the broad principle on which to try to operate, so that we can see the prospect of National Health reform, if not in this Parliament, certainly soon thereafter.

There is no way in which we can escape the fact that the untrammelled operation of the National Health Service gives rise to intolerable expenditure. Already we are accustomed to think that defence spending cannot be left to the admirals or the generals. In these areas of high technology, the potential for limitless expenditure is quite daunting. The House has recognised that, of course, in the National Health Service. In the last Parliament we spent a good deal of time and emotional energy trying to devise a system—

Mr. Heffer

Will the right hon. Gentleman give way.

Mr. Biffen

No, I am sorry, I will not give way.

— trying to devise a system of setting a control over pharmaceutical prescriptions so that there was a fair balance between the pharmaceutical companies and the consuming public, as reflected in the prescribing habits of the medical profession. Although clinical freedom is a vital concept in the operation of the health services, it has to be set alongside cost considerations no less than in other parts of our expenditure.

I have sought to show that I do not take a very simple approach to the question of medical and health expenditures, that of merely looking at our present expenditures and saying that they are inadequate. We must operate against a prospect of reform for the future. But for the immediate future, there is no way that the public will be convinced that bed closures, ward closures or hospital closures are consistent with an adequate Health Service, even if the number of operations and the amount of expenditure are at record levels. In the short term, there is no alternative to a further enhancement of expenditure upon the Health Service.

We read that my right hon. Friend the Secretary of State for Health and Social Services has seen the heads of three royal colleges and that they are reasonably assured by their discussions. They say that he told them that he would go back and discuss health spending with his colleagues. He will not be discussing with the Minister of Agriculture; he will be discussing his dilemma and his challenge with my right hon. Friend the Chancellor of the Exchequer. It is absolutely essential, for the short-term relief of the situation that now exists in the Health Service, and if we are to have any political initiative to conduct the wider reforms which are essential, to have a clear transfer of further moneys over and above what is contained in the Autumn Statement.

It is not the task of hon. Members to engage in detailed judgments, and I do not intend to do so at all, but I say to my right hon. Friend that whatever sum is chosen is hound to be related to the total resources that he has available for tax changes and tax reductions. I hope that at least the equivalent of between 1p and 2p of tax change on the direct rate will be available for the Health Service; that is the kind of change necessary to re-secure an initiative in this situation.

There is no question whatever that a reformed and vital Health Service and social services are not an overhead, not an incubus upon the productive economy, but a natural partnership for an economy based upon the social market principles which have sustained this party and this economy so well.

5.46 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The House will have heard with great interest the doctrine put forward by the right hon. Member for Shropshire, North (Mr. Biffen) on the position of the Health Service. Although we would certainly disagree on a number of details, there can be no question of the importance attached to it in this debate by my right hon. and learned Friend the Member for Monk lands, East (Mr. Smith) as well as by the right hon. Member for Shropshire, North. They have illustrated its importance both for the future of the Government and for the way in which the Government regard their public expenditure.

We must hope for changes from the Chancellor of the Exchequer because one thing is clear—he is a great learner. He has learnt a great deal in the past eight years during which he has been involved in the management of this country's economy, as Financial Secretary to the Treasury, later in the Department of Energy and more recently as Chancellor, and the House should recognise it and pay some sort of tribute to him for it as well. We must remember that when he started his work on behalf of the Government in financial and economic matters he believed that the markets were able to decide these matters with a degree of perfection which he has now come to understand is not available to it.

As we all know—although there is no point in going into these matters in great detail at this remove in time — he believed in the sanctity of M3 and the monetarist position, and he believed too that these great lessons that had been taught by what he considered to be the mismanagement of the 1970s would be put right in the 1980s. Now he understands that markets, although they may finally decide a number of issues, are, as he put it himself, frequently in a position to overshoot, and that those who look for fundamental causes in the making of their decisions in markets are not likely to do very well in their market operations. The proper success of market operations lies all too frequently in determining the behaviour of other market operators rather than determining the fundamental causes themselves. That is the weakness of markets, and the Chancellor now understands the weakness of markets and the way in which they can fluctuate around any particular norm.

He took those kinds of lessons to the Plaza agreement and used them in the context of the Louvre accord, and they were valuable in helping him understand the way in which Finance Ministers can co-operate to a limited extent in bringing about a level of the pound, of the dollar, of the deutschmark, of the yen that is in line with long-term prospects.

The realisation of the importance of these matters and the learning process, however, are not at an end. The one thing that the Chancellor of the Exchequer needs to learn is the importance of manufacturing industry. As our oil exports — the oil industry is one of the factors that distort our trading economy—become less and less important and we are able to obtain fewer resources from oil, the role of manufacturing industry will become still more important. I welcome the greater attention that the Chancellor is giving to the manufacturing industry. Nowadays he frequently mentions improvements in manufacturing industry. The past year's improvements have been improvements on a very poor level indeed, as is evidenced by our experience in our constituencies, but they are improvements nevertheless. We can only hope that we shall make up some of the ground lost over the past eight years.

Perhaps I should draw attention to the report of the Treasury and Civil Service Committee and pay tribute to the Committee—as I usually try to and as we all should —for producing its report quickly and in difficult circumstances. Although the Committee's conclusions are not unanimous, the analysis is especially useful to us. The list of specialist advisers is also impressive. In my experience—indeed, in the experience of all those who have served on the Select Committee — advisers are prepared to undertake work at inconvenient times for very inadequate reward. The Select Committee can still select the finest advice available and that is cause for congratulation. We have people outside the Government machine who are prepared to give advice comparable to the advice that the Chancellor received in quality, although not in detail. I note sadly the absence of an agreed report. I know that the report clearly sets out the different views, but these can often be obtained from a variety of academic, economic and journalistic sources. It is most valuable when a Select Committee puts aside its partial affections and tries to put suggestions to the House to overcome some of the differences that exist and put matters in a different context. A Select Committe is the only body that can do that and, if it does not, it is failing in an important objective.

The Chancellor spent most of his time — not unwisely, although I would have preferred to hear something more on public expenditure — drawing attention to the importance of the world economic situation. We must all believe that for the next 12 to 18 months that situation will be uncertain at best. In his evidence to the Select Committee, replying to question No. 124 on 9 December, the Chancellor said: In the first place I see no sign at the present time of the world going into recession. All the recent figures that we have had so far do admittedly relate to the period before the stock market collapsed. I detected a little more pessimism in his comments this afternoon. The Chancellor said that he saw no sign of tine world going into recession. We hope that he is right, although it all depends on what one means by recession. There will certainly be a slowing down of world growth and a reduction in United States activity. In the short-term it is likely that oil will produce less revenue and, more important, that its beneficial effects on our balance of payments compared with those of oil-importing countries will be weaker.

It is clearly accepted that in the short-term, and at the time of the Budget, the Chancellor will have money to spend. He will have perhaps £3 billion and perhaps as much as £4 billion or even £5 billion. He wants to use that money to lower the standard rate of income tax to 25 per cent. and the higher rate to 50 per cent. He would dearly like to end capital gains tax, which, following its emasculation, raises only about £1.3 billion—not good value for the amount of work involved. I would dearly like it to be increased but I realise that it is unlikely that we shall increase revenue from capital gains under this Government. The Chancellor would like to reduce part of the cost of mortgage tax relief, which stands as a fiscal rebuke to his failure to achieve the greater tax neutrality that he has at heart. The abolition of capital gains tax and the reduction in the cost of mortgage relief are not likely to feature in the Budget resolutions. What comfort the Chancellor has stems from the hope that the incidence of mortgage tax relief may be reduced due to reductions in income tax.

I query the Chancellor's proposed use of the resources available. At present, we have a well-planned consumer boom. No one can doubt the tactical experience and expertise that the Chancellor has brought to bear in these matters. He planned the boom for the election and it has not quite got out of hand yet, which, in itself, is an achievement that has not often been equalled. Nevertheless, an increase in consumer expenditure is planned in 1988. It is expected that GDP will increase by 2.5 per cent. and consumer expenditure by 4 per cent. The expected increase in manufactured imports, which is already being realised, is a consequence of that.

The major budgetary question this year is how to spend the money from a reduced public sector borrowing requirement. Faced with the possibility of a world recession—at best a downturn in world activity and a consumer boom at home—it would be folly to couple that with tax handouts that would increase consumption further and thus increase manufactured imports and worsen our balance of payments. It would be far better to use that money now in the interests of the long-term future of manufacturing industry and to improve the serious economy, which we shall need to support us in any difficult times ahead—and there may be difficult times ahead. This is not the time to be spending money in consumer booms following the election consumer boom. As my right hon. and learned Friend the Member for Monklands, East said, investment in education, training and health can all be useful. What we should not do is to spend the money in a way that will only lead to a further import boom in an attempt to meet the Chancellor's requirements of tax rates of 25 per cent. and 50 per cent.

I should also draw attention to the White Paper "DTI — the department for Enterprise". I understand Ministers' desire to direct expenditure on industry into the most worthwhile projects. Ministers have always felt that they need greater control of the money that they have available—in regulations and statutory instruments to set out the ways in which the money available can be spent. They frequently find that the money does not go for the purposes for which they wish it to go. They try to target it and ask, "How can we ensure that this money goes for this purpose?". That is an understandable and often worthwhile desire. However, it is easy to assume that one can move from that to giving civil servants the discretion to decide who should have how much and for which purpose. It is easy to assume that Whitehall knows best and that the civil servants handing out money to supplicants from Ashton-under-Lyne will be far-seeing officials who can size up a chemical project or assess the value of an expanding furniture manufacturer. All that I know is that such civil servants are limited in number and there are not all that many to be found in the Department of Trade and Industry. I do not question the ability or dedication of civil servants; I only wish that the Government would say the same more widely. However, we do not breed such people in any numbers.

I would wish particularly for more movement in and out of Whitehall to provide a greater degree of cross-fertilisation, but there is little sign of that as yet. We need to know and understand the civil servants with whom we are dealing and the responsibilities and vast sums of money that we are giving them to see the dangers that may arise. We need to face reality and realise that a knowledgeable embattled supplicant will often find himself face to face with an eloquent but under-informed official who will be making decisions that may be momentous for the life of the company seeking assistance.

The House will know that the Public Accounts Committee is anxious that civil servants are not placed in a position where the temptations of fraud and corruption are likely to occur. We are conscious that the combination of a dissatisfied civil servant on the one hand and a company in difficulty on the other is a real threat to the probity of the Government service, of which we are rightly proud. Once standards decline they are immensely difficult to reinstate, as many other less fortunate countries have found. We could well arrive at a position where discretion incurs not only the dangers of poor investment but the perils of corrupt decisions.

There used to be advantages in the regional employment grant. Indeed, there were advantages with the investment grant, and I was a great upholder of its value. One advantage was not that large beneficial investments were made that otherwise would not have been made—although that undoubtedly operated on the margin and we must not underestimate the importance of that — but that money went into manufacturing industry to modernise it. Now we are reducing the amount of money given and are relying on the expertise of Whitehall.

I look forward to the Chancellor of the Exchequer continuing his passage through these matters and coming to understand even further the importance of manufacturing industry in the long term. As I said, there could be uncertainties ahead. The sure way forward is to use that money for long-term investment. That is the lesson that I hope the Chancellor will be absorbing over the next two months.

6.1 pm

Sir Peter Hordern (Horsham)

My right hon. Friend the Chancellor of the Exchequer rightly referred to the strength of the economy. I commend him for the successive improvements in the economic strength of our country over the past few years.

It is not suggested or proposed in the Autumn Statement that the same rate of advance that we have enjoyed over the past year or two will be seen again. As the House knows, the forecast is for a slower rate of growth and an increasing deterioration in our balance of trade. I accept that it is still a small proportion of our GDP, but nevertheless the relative deficit in our balance of trade is certain to increase.

One matter that concerns me is confidence. Last October we observed a sharp fall in the stock market. My right hon. Friend the Chancellor was right to address himself to that problem and be as bullish as he could about our future prospects. In this mood of international cooperation, it is doubly important that careful use be made of language when criticising our allies. I raised this matter in a speech just before Christmas. I could not then, and cannot now, see any point in criticising President Reagan so volubly as happened in my right hon. Friend's Mansion House speech. What was the point of it? If it were because the President and Congress were not aware of the difficulties arising from America's internal deficit, I would be amazed. It is not as though my right hon. Friend was ignorant of the fact that America's constitution made it difficult for the President and Congress unanimously to agree on what should be done. I regret that criticism, because it affected confidence then, and that effect still persists.

It is important to understand the options that exist for the United States, because that is where the problem lies. The problem concerns the United States' internal and external deficit. My right hon. Friend and others have frequently told the Americans that they must put their house in order and to do so by various uncomfortable measures. We should recognise that one of the ways in which America can improve its position is by allowing, for however temporary a period, a continuing fall in the value of the dollar in relation to other currencies.

With regard to the effect of the fall in the value of the dollar in relation to other currencies, only 9 per cent. of America's GDP is involved in imports. It is much less of a sacrifice for the United States to allow a fall in the value of the dollar relative to other currencies. Furthermore, it is bound to be beneficial to its manufacturing industry to have less competition from Japanese companies and other industrial imports. A substantial proportion of its imports are dollar imports.

I remember a book by Mr. Servan-Schreiber in which he complained about the level of United States' investment in France. Now that there is a large American deficit, substantial sums of money are being invested in the United States. The criticism then was that the American dollar was all-powerful: but now the dollar is criticised for being far too weak. There must be some consistency in these matters and we must understand that an attack on the Americans and the way in which they pursue their affairs will damage confidence. With regard to markets, the question of confidence is very important.

I wish I could share my right hon. Friend's confidence about working with other countries to prop up the dollar and keep the deutschmark and yen in their proper place. The movements are so great and the pressures so large that only if the natural course of events is allowed to take place and money allowed to flow freely where investors wish it to go will the position right itself. The dollar trade deficit must eventually be met by willing investors. It is unlikely to do so if investors think that the dollar is being propped up at the wrong price by a combination of central banks. They will wait until the crisis is over and the dollar finds its own level. There is a new special drawing rights agreement between the United States and Japan to keep interest rates low, which I am sure is beneficial. On any ordinary investment view, dollar assets, particularly manufacturing assets, are cheap compared with Japan.

It may be that the dollar still has further to fall, but the time will come when investment in the dollar will prove to be most productive. It is evident that British firms think so because British investment in United States' firms has more than doubled over the past year and reached a figure of $30 billion. The dollar will find its own level, whatever the central banks may do and despite the agreement to make what have proved so far to be expensive purchases at the wrong price.

I recollect a period — the sight of the right hon. Member for Blaenau Gwent (Mr. Foot) reminds me of this —when the Labour Government talked with glee about catching the speculators. I remember talk about the gnomes of Zurich and making their pips squeak—or it may have been the right hon. Member for Leeds, East (Mr. Healey) talking about Conservatives. It was said that the speculators would be caught by the actions of the central banks and that that would solve the problem. I hear the same sort of language now, and it fills me with dismay. I regret to say that that was not the solution to the problem.

What are we proposing that the Americans should do in an election year? This is the course of action that we are proposing they should take. First, they should cut public expenditure; secondly, they should raise taxes; thirdly, they should raise interest rates; or any combination of those. As my right hon. Friend said, the United States domestic economy has not been adequately reined back. The President has a saying: "If you want to try anything out, try it out on the folks in Peoria." If the folks in Peoria were told that the British Chancellor of the Exchequer is telling them in an election year that they should reduce their public expenditure and raise taxes or interest rates, I think they would probably ask him to pass that one across them again. The options for the Americans are rather different and they may be rather more uncomfortable for us than for them if they allow the dollar to fall somewhat, as it may. The dollar price means more to us than to the United States.

We have a monetary policy—I find it difficult to understand these days, and that is not through want of trying—and we have an exchange rate policy which aligns us neatly with the deutschmark. In the absence of EMS—I am in favour of us being allowed to join the EMS—at least we are aligned to the deutschmark. What would be the effect of a reduced dollar deficit and an increase in United States exports, which is what we are urging the Americans to do? We cannot imagine that a reduction in the United States deficit will happen without some pain to other countries. We must look at the likely consequences of that. Of our £8.5 billion-worth of imports from the United States, £7.1 billion were in manufactured goods. That represents only 10 per cent. of our imports, but when one thinks of the amount of American exports to the European Community, which represents well over 20 per cent., and of the fact that 50 per cent. of our exports go to the European Community, one sees that any substantial improvement in the United States level of exports is bound to be felt by the European Community.

When we are talking to and lecturing the Americans, we should recognise that the effect may not be entirely pleasant for the European Community, and certainly not for us, because, as the House knows, we are forecasting a higher trade deficit during this year. We are also forecasting the most rapid rate of growth in the Community, so we may find a progressive deterioration in the balance of trade, as has been suggested in the Autumn Statement. To the extent that the United States position improves, more strain is bound to be felt within the European Community.

On the stock market collapse, it appears that, during the past five or six years, when the economy has been performing well, it has been helped along by the avid appetite of the United States for imports. We and other countries have benefited greatly from that avidity, but it will no longer be there, which will cause a strain on world trade. We know the difficulties with Japan and negotiations in West Germany. I remind the House of what happened in the stock market collapse in 1929. In 1930, there was a creditable recovery in share prices, but then there was a pressure for trade restraint on every side, which started with the Smout-Hawley Act and went to tariff restraint by Italy and France, and by 1932 we had our own tariff wall through the Ottawa agreement.

The same pressures will start again, not directly with tariff restraint but with voluntary export restraint, which now covers about 50 per cent. of all world trade. I suggest that this is the time to negotiate with other countries to ensure that we open up our markets to the United States and allow the progressive liberalism of world trade. If we were to find the pace of world economic growth slowing down, which is quite likely to be the case, it is up to those who expect to find an improvement in the United States trading position to open their markets correspondingly, and the greatest responsibility for that rests on the European Community. It appears to me that this could be done most effectively by revising the common agricultural policy as early as possible.

I recognise what the Government are doing, but to lecture the Americans when we have the nerve to pile up surpluses amounting to £13 a week for every family in the country, and forbidding the free movement of other agricultural produce into the European Community, is nonsense. We must be very careful during the next few months to see that what happened in the early 1930s on restraint of trade does not happen again. It will require a good deal of leadership and steady nerves. If we are to be certain that the stock market collapse does not lead to a recession, we must open up our markets. The European Community must play its part, and so must we, not by buying dollars at the wrong price but by opening our markets in Europe; in other words, to bring in the old world to redress the balance of the new.

The crisis is not over yet. I would like to think that it is, but I do not believe it is. We need the skill and patience which the founders of the European Community showed in gaining the unity of Europe. We need to show skill, patience and perseverance in dismantling the barriers for the movement of goods and services throughout the world. The task needs leadership, which we and our partners in Europe are uniquely qualified to give, and I hope we give it.

6.16 pm

Mr. A. J. Beith (Berwick-upon-Tweed)

The House enjoyed the commentary of the hon. Member for Horsham (Sir P. Hordern). I agree with his conclusion. I am sorry that the Chancellor is leaving, because I wanted to give him some information. I have been conducting some market research on an issue that I know concerns him. If he is thinking of extending VAT in the Budget, he will get as critical a response as did my right hon. Friend the Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) from my hon. Friends and me. I suggest that he should not contemplate it for a moment.

Having left the Chancellor with the fruits of my labours of the past couple of days, I wish to say that the hon. Member for Horsham took a curious view in criticising the Chancellor for what he said about the American economy. It may be as well to rein in the Chancellor a little for his desire to lecture the rest of the world. Perhaps he took his example from the Prime Minister and presumed upon the Prime Minister's influence with the American President, but there is another side to the scenario which the hon. Gentleman painted.

If the lack of confidence in the United States continues, the dollar continues to slide and Wall Street — I mean those who use Wall Street as a means to invest their money — continues to doubt the willingness of the American Administration to cope with its economic difficulties, the end product is recession of a kind which will end up in this country.

The hon. Gentleman is right to point out that we shall pay a price for the correction in the American economy, but we cannot stand back and say, "We do not mind what you do; we do not care what happens in the American economy". Still less can we fail to show some sympathy for those in the United States who are trying to get more sensible economic management. One of the President's mottos is, "Defence is not a budget issue; you spend what you need". Attractive as that may be as a concept, it plays havoc with control of public expenditure and demonstrates that everything cannot be blamed on Congress because some of that spending was generated by the President.

The economy has undergone a significant recovery and there have been some worthwhile achievements. The House should recognise the good things in the Chancellor's more recent economic management, as well as the good luck he has had. We must recognise that millions of people have a different perception of this. Many of them remember the industrial destruction which preceded the current growth and from which the current growth is measured. Many of them were the victims of it —those who lost their jobs in that industrial destruction and those whose hopes were destroyed. Then there are those who are the victims of unemployment or low wages, who do not see any of the rich benefits and pickings that are to be found in many parts of the country, and those who are in regions where the feeling of economic prosperity is not present or is confined to a few prosperous pockets.

It is very easy to view the present economic conditions with equanimity and, indeed, some enthusiasm from Westminster, but it looks very different in other parts of the country. That is why the Government's public expenditure proposals are of considerable interest, even if that interest has been overshadowed by this week's proposals on regional aid in the Secretary of State for Trade and Industry's White Paper. This is not really the occasion to debate that; we shall have an opportunity to do so in a week or so. However, it has caused great concern and anxiety that, in reality, regional expenditure will go down, because many requests for selective aid will be refused. The loss of automaticity will be seen as a marvellous opportunity for a reduction in public expenditure on regional aid, and it is impossible to conceive of the system resisting such an opportunity when it is presented.

The right hon. Member for Shropshire, North (Mr. Biffen) spoke very forcefully, and with widespread support, about the Health Service as one of the key expenditure issues that we must face. He was right to insist that there is a political judgment to be made — a political recognition that the people of this country have such a high regard for their Health Service and that they are prepared to make sacrifices to see it maintained at a reasonable level. The present degree of decline in the Health Service evokes real anger right across political opinion. Anxiety is not confined to those who support Opposition parties; it is strongly in evidence among those who voted for the Government.

Several factors advanced by the right hon. Gentleman as relevant to the current debate are indeed important. We must have a debate on the financing of the Health Service. It is not enough to imply that the problems would go away if we increased funding significantly. The right hon. Gentleman put forward a bold claim for, in effect, expenditure of £3 billion on the Health Service. However, even if that were carried out, we cannot pretend that there would be no people waiting for operations and no waiting lists in particular specialties or parts of the country.

We can get rid of some of the waiting lists. However, it is inherent in the nature of the Health Service that difficult choices are posed, and the more that medicine advances, the more difficult those choices become. In the past, politicians have failed to face up to them; they have preferred to let them be coped with within the medical system —and, in particular, to leave them to doctors—on the understandable ground that there are merits in clinical freedom. The fact remains, however, that, given the present capacity of medical technology, decisions made purely by doctors cannot answer the public's demands for access to high-technology medicine, and that system cannot cope with the sort of judgment that may need to be made about the relative priorities given to preventive and high-technology medicine. The difficult choices must be made by politicians, and there must be debate about them.

However, the capacity of the Health Service to cope with that debate and, indeed, with the issue of better management simply is not there if it is suffering severe restraint. Such restraint is now taking place. Although the Government can point to real increases in Health Service expenditure, the number of people in an aging population needing the Health Service is larger, and the development of medical technology is another factor. In the present climate, better management of the Health Service cannot be achieved: indeed, the present climate has given efficient management a bad name. Any health authority that tries to organise its resources effectively is up against a climate in which so many other things are happening, for purely financial reasons, that it has difficulty in justifying any decision that it may make.

No worthwhile debate or development can take place unless the Health Service is better funded, and that applies particularly to NHS pay problems. Health authorities have had to cope with insufficient funding for nationally agreed pay increases, and the Treasury and Civil Service Select Committee has pointed to the difficulty that arises when those pay increases are only ever dealt with from within the Department's own budget, and never compared as a potential expenditure with spending in other Departments.

We must have some way of discussing from time to time whether an increase in the funding of, for instance, the roads programme is more important than an increase in nurses' pay. The social and political judgments that have led to attempts to deal with chronic low pay in the Health Service must surely have implications beyond the existing budgets of that service. The Select Committee was right to point that out in its report, and I commend it for doing so —I was not present at the meeting at which that passage was put in.

The Government must respond to what is being said about the Health Service. That is the key message that the Chancellor must receive from the public expenditure part of the debate. However, this is also an opportunity to review what has happened since the Chancellor made his Autumn Statement. I have some sympathy with him, because forecasting what would happen to the economy just after Black Monday was a bit like forecasting what would happen to our parties' merger prospects at about breakfast time yesterday: it was not exactly a promising time at which to make prophecies.

Some of us said at the time of the statement that the Chancellor would have to revise or reconsider his assessments, especially because he was so optimistic about the international response that he was expecting. He was pretty bullish about what would be done by the Americans, the Germans and the Japanese. The hon. Member for Horsham spoke about the dangers of the previous avid American purchasers of goods manufactured in Britain ceasing to be part of the picture if measures are taken in the American economy. The counterpart of that is that we want avid Japanese buyers for British goods. We want to see an expansion in Japanese domestic demand, and we welcome the efforts that the Foreign Secretary has been making to challenge the Japanese Government on such matters as trade barriers.

The Chancellor has not said much today to revise the extraordinarily optimistic assumptions that he made then. Is he not concerned by the dangers of an overstrengthening of the pound against the deutschmark? He has not said much about that today either. Is there not also a real danger of spiralling world recession, with collapsing commodity prices feeding through to serious problems for Third world countries, which are already beset by the debt problems to which the Chancellor has made some effort to propose solutions? There has been support for his initiatives from both sides of the House, especially for those relating to Africa, but the problems are getting worse, and the measures that he was advocating a couple of months ago will not be adequate to deal with them.

In the light of the events of the past few months, the questions about the overall management of the economy that the Chancellor must consider relate to his aspirations for tax cuts, and the opportunities opened up to him by a public sector borrowing rate that is at historically and internationally low levels. While the economy is relatively healthy, it might be a wiser option to combine some investment in key services—the Health Service is one of them, but there are others, such as housing and home improvement — with taking steps against recession at home. At the same time, the Chancellor should seek the international co-operation without which we cannot reduce the risks of recession being imported from abroad. Clearly, it is more important than ever for Governments to be prepared to act internationally, but there is also a national dimension.

The Chancellor would do well to heed the warnings of the Centre for Economic Policy Research, which said in a report this month: continued failure to correct the underlying problems courts the risk of a slide into recession throughout most of the world. The record of the last couple of months on international co-operation is pretty inadequate. Europe's future is threatened by prospects of slow growth and high unemployment, and the Chancellor's apparent satisfaction with the amount achieved so far is simply not borne out of any objective reading of what has been happening. If the demand from the United States economy declines, Europe must replace that lost demand, either from within itself or from the few other potential sources of purchasing power, such as Japan. That cannot be done without considerable international effort and co-operation.

Many people in this country have worked very hard to win such improvements as have been made in the economy. Those improvements are not won primarily by people sitting in Westminster or in No. 11 Downing Street; they are won by industrialists and by workers on the shop floor. Much of the price has been paid by people who are not at work, because they have no jobs, and have been the victims of the restructuring of industry.

Many people have much at stake in this country and abroad in those Third world countries where international help is needed. Considerable effort must be made to ensure that the events that took place on Wall Street and during the stock market collapse are not simply the beginning of a long saga, which would mean that the very confidence referred to by the Chancellor would not be induced and that, in the coming years, the suffering to which I have referred would be magnified.

6.29 pm

Mr. Terence L. Higgins (Worthing)

I greatly appreciate the kind remarks that have been made about the report of the Treasury and Civil Service Select Committee. The delay in setting up that Committee was immensely frustrating because it happened at a time when we were passing through perhaps the most turbulent set of events in international monetary affairs that we have witnessed for many years. None the less, I hope that the report that was produced, under considerable pressure, has been useful to the House.

You have asked, Mr. Speaker, that we should be brief and, therefore, I wish to restrict my remarks to two issues. First, I shall deal with the mechanism for determining public expenditure priorities and, secondly, I shall say something about exchange rate policy, which was the main item in the Chancellor's speech.

We are in the middle of a period of discussion on public expenditure. We have had the Autumn Statement and now we are having the debate. I gather that we shall soon have the public expenditure White Paper, which will spell out the detail. The Select Committee will, of course, then wish to take evidence on that White Paper and make its report. We shall have further debate on the White Paper after that. In that time I hope that I can persuade my right hon. Friend the Chief Secretary to the Treasury that we need to look carefully at the mechanism for determining public expenditure priorities. My right hon. Friend the Member for Shropshire, North (Mr. Biffen) was absolutely right to say that the determination of those priorities must be based on a series of political decisions. That is inevitable, but it does not mean that we should not try to make the mechanism for reaching those decisions as efficient as possible.

The present situation consists of bilateral discussions between the Treasury and the spending Departments and, if necessary, recourse to the Star Chamber. That is followed by a quick Cabinet endorsement of the outcome with a great sigh of relief. That is not an effective way of determining priorities because there is no proper overall review of them.

The Select Committee has drawn attention to the problem that occurs when a Department makes a claim for more resources that is large either in relation to its total expenditure—which may be small in some cases—or in absolute terms. Over the years, we have had problems of that nature. Some years ago there was a problem concerning Sir Keith Joseph and the student grants. There was great controversy over a trivial sum of money when the Treasury insisted that savings should come from within the same Department. I believe that that attitude is the root cause of many of our problems. We had a similar difficulty at the Foreign Office when it had to find savings that had difficult implications for the BBC's overseas services. The Health Service is a classic example of the problem.

The Committee has pointed out that there was a large demand to meet the increases in nurses' pay. The decision was taken that savings would be found within the DHSS. It is true that a large chunk of the increase for the nurses' pay came from the reserve, but none the less savings have to be made within the health Department. That is the cause of many of our problems. From a constituency level we are aware that the increase in nurses' pay was not fully funded and that there was no scope for finding savings elsewhere, with the result that wards were closed. Such action represents an inefficient way of operating because the overheads run on just the same. I believe that the right approach would have been to seek the necessary savings across the board from other Departments and not simply from the DHSS.

I wish to comment on the statistics that have been bandied about on this issue. I do not believe that it is right to say that there has been an increase, in real terms, when allowing for inflation. We all know that the relative price effects of nurses' pay, pharmaceuticals and so on are significantly larger than the rate of inflation.

Mention is also made of expenditure on the Health Service in relation to GNP. I believe that the Select Committee took a balanced view on that issue. We drew attention to the substantial, unprecedented increase in NHS resources that has taken place. We pointed out that, as a percentage of GNP, resources had increased from 5.37 per cent. in 1979 to 6.12 per cent. in 1986. That is true of the past, but let us consider the plans for the future.

The right comparison is NHS expenditure adjusted by the Government's forecasts of inflation and the GNP forecast, which includes the inflation effect. If we make that comparison, we discover—I refer the House to the table that the Committee published—that the proposed increases in Health Service expenditure are significantly smaller, reducing to 1.2 per cent. of GNP. In other words, Health Service expenditure is not going up in line with GNP. I do not believe that the House would accept such an assessment of priorities.

Therefore, it is tremendously important that if there is a large increase in the resources demanded by a Department, consideration should be given to a broader approach to where those savings can be found. I accept, however, that such savings should first be sought within the Department. I accept that my proposed approach would not be easy, because the whole process would be opened up. The Chief Secretary would have to trot round from Department to Department saying, "I am sorry, but there has been a big increase in nurses' pay and you will have to cough up something." I accept that that would not be easy, but the present arrangement has run us into difficulties and will continue to do so. I do not believe that I am being naive and I believe there is a lesson to be learnt.

The Chancellor spent much of his time on intervention. Clearly—as my right hon. Friend said in evidence to the Select Committee—there has been a change of policy. Previously, the policy was to intervene only to smooth fluctuations in currency movements. That is different from saying that we will seek to maintain a level of rates in the face of what the markets would otherwise produce. In this regard the Louvre agreement was not sufficiently explicit. The present Committee and its predecessor noted that fact, and it is clear that the agreement has not operated in the way in which the Chancellor of the Exchequer had hoped.

On page XII of the Committee's report we point out that the amount of intervention, in broad terms—the periods are not precisely the same—by the United States monetary authorities totalled $5 billion whereas the intervention by the other major participants totalled $95 billion. Therefore, the United States contribution to support its currency has been small in comparison to what everyone else has put in. We point out in our report that the resources available to the United States to sustain intervention operations are inadequate. The Chancellor has also pointed out that there was a weakening of resolve by the United States.

We are intervening in the currency markets to support the United States dollar, yet the United States Government are vacillating. That country is not a major participant in the operation and its resources to fund such an operation are inadequate. Intervention is an extremely dangerous operation on which to embark and it has serious cost implications for Britain.

The Select Committee and the Chancellor agree that there is a case for seeking underlying stability. I do not believe that such stability can be achieved as a result of intervention, because that means adopting a speculative position against considerable market forces.

Finally, I wish to pick up a point made by the right hon. and learned Member for Monklands, East (Mr. Smith). He does not understand the market philosophy. It is quite different to intervene in the way that I described, when the market has sought to establish a position and one is trying to change it. The market is determined by supply and demand, and intervention may affect the demand. If one wants to establish stability on a more permanent basis, one must seek to influence the underlying forces and powers that influence the market. In that respect my right hon. Friend the Chancellor is right. It has to be done by differential interest rates or by fiscal policy, or by a combination of the two.

Therefore, while I understand the need for cooperation, and pay tribute to the way in which my right hon. Friend has worked hard in that area, I do not think that it is the right approach to say that there is no hope of getting agreement on interest rates and fiscal policy unless there is agreement on intervention. For reasons that I have already mentioned, I consider that intervention is a temporary palliative. It is not the approach that is needed to establish more permanent stability.

The Chancellor was right to adopt an approach that sought co-operation, but the policy of intervention is dangerous; it may turn out to be expensive and does not deal with the underlying problems. In the light of what he said this afternoon, I urge my right hon. Friend to concentrate on the problem of co-ordination in a broader and deeper sense—on interest rates and fiscal policy, rather than on intervention. I do not think that it has been effective; it was a change of policy which was not advisable.

Mr. Bowen Wells (Hertford and Stortford)

Does my right hon. Friend agree that the reason why the United States was not willing to intervene in the market to the extent which was initially agreed was that the coordination policy of which my right hon. Friend spoke was not in order at that time? Germany and Japan were unwilling to expand their markets sufficiently to enable the United States to resist a further fall in the dollar.

Mr. Higgins

That may well be so. However, the crucial point is that, even if the intervention had been coordinated, it may not have succeeded if the underlying factors had not been dealt with.

I hope that my right hon. Friend the Chief Secretary will give attention to my point about public expenditure, and that we can pursue those issues in the Select Committee. I hope that my right hon. Friend the Chancellor will continue with a policy that, although hazardous in some respects for the United Kingdom, because of international imbalances, has been vastly preferable to earlier economic policies.

6.42 pm

Mr. Michael Foot (Blaenau Gwent)

During this debate, and at the time of the Autumn Statement, there has been talk of a national recovery and indeed, in some cases, of an economic miracle. In this debate I wish to present the contrasting situation in my constituency and in many parts of Britain. No economic miracle has yet appeared in those areas and no economic recovery which could be dignified with those terms. We still have a level of economic activity far below what it was in 1979, and a level of unemployment higher than it was in 19'79. Therefore, it is an insult to talk in those terms and represents a distortion of what is really happening in Britain.

If the economy is being run with such success, why are we confronted day after day, case after case, with fresh evidence of the squalor, the shoddiness, the injustices and the dangerous undermining of well-tried institutions that are most essential to preserve civilised society in Britain?

I know that many right hon. and hon. Members wish to speak in the debate, but I should like to refer briefly to some of those examples, the most notable of which is the National Health Service, which already has been mentioned in the debate by Opposition Members and others. The presidents of the royal colleges showed that they knew better than the Prime Minister what was happening in the National Health Service.

The right hon. Member for Shropshire, North (Mr. Biffen) made some extremely pointed and important remarks on that subject. However, I should like to give him one warning. The right hon. Gentleman quoted from a particular pamphlet. It was once said of Bernard Shaw that he was a good man who had fallen among Fabians. I hope that the same fate does not befall the right hon. Gentleman, who quoted from a Fabian pamphlet as if it was an authoritative statement on the subject, and I hope that he will think again.

Most of the problems with the National Health Service are not novel. The same problems and calculations existed in 1948 when Aneurin Bevan established the National Health Service. I remember it better than any other hon. Member because I am the only hon. Member here who was present during those controversies. The controversies were about how one would unloose an infinity of demand. Had Bevan listened to those arguments, heeded them, accepted them — they came from so many quarters, from Conservatives, Liberal Benches and Labour Benches — the National Health Service would never have been founded in 1948. We have a Health Service because he said that we must represent the claims of that service above any other area of social services, and because he presented them with such daring, comprehension, understanding and compassion the Treasury was prepared to listen.

The problems are not easily solved now, but the sort of figure that the right hon. Member for Shropshire, North mentioned should be presented to the Cabinet today. Perhaps one of the reasons why the right hon. Gentleman was removed from the Cabinet is that the Prime Minister feared that he would present that argument. I hope that some other members of the Cabinet will do that, but I doubt that they will present it as persuasively as the right hon. Gentleman could present it. If they do not, they will be overwhelmed, because the demand throughout the country is growing strongly all the time. The Government will have to yield. The fact is that £200 million is insufficient. The Government will have to yield much more at the time of the Budget, and the sooner they do that, and the better grace with which they do it, the better it will be for the health of the National Health Service and of the nation.

The National Health Service is not the only example where the screw has been turned. According to the figures, there has been an expansion in the total amounts allocated, but elsewhere — I speak for a constituency where we feel the consequences of those measures—the Government have imposed cuts which are taking effect now. But the Government still dare to talk about a national recovery. During the next few months some of the special cuts that they have inflicted on social security will be brought into operation. They will be applied through discussions such as those that took place yesterday in the House about child benefit.

Other provisions will be applied to cut what many hon. Members believed had been established as the best social services to deal with family problems. Conservative Members have said during the past few days that the demand for family allowance was an all-party demand at the end of 1945. Child benefit was a great improvement on the family allowance. It was consolidated by the last Labour Government on a more ambitious scale so that child benefit was paid to the mother without any means test, and sustained at its original value. All those principles are being undermined by the Government. That is a very serious matter. It will have serious consequences, particularly in areas such as mine where people are dependent on these provisions. The vast increase in homelessness in many big cities and in other places is another example. So what is meant by all the talk of a national recovery?

Then there is what the Government have done to so many other institutions, including universities. Surely at a time of technical advance the Robbins principle of a university education for every boy and girl, man and woman, who can take advantage of it should be carried out. That was one of the finest principles that came out of the second world war. It was accepted by us all. I would have thought that it was a civilised principle of the first order. The Government have done nothing more disgusting than to abrogate that principle. There is great competition in that sphere. It is dreadful that people who themselves have apparently had a first-class education should introduce measures that will deny a similar education to other people who are just as capable of benefiting from it. [Interruption.] Let those who wish to deny what I say talk to the leaders of the universities and people at universities who have been protesting against the policies operated by the Government over many months. There is talk of the Government withdrawing some of the offensive clauses from the Education Reform Bill. I hope that they will do so.

Another part of the Government's programme which affects people directly is the extraordinary White Paper published on Tuesday by Lord Young and his Department. Huge sums of taxpayers' money are being used to publicise the document as though it had been accepted by the House. When one reads the document, one realises how taxpayers' money has been misused to publicise Lord Young and his Department. The explanation I offer to the House is that the document was not prepared originally to be presented by Lord Young's Department but would have been presented by him if he had been appointed chairman of the Conservative party. He seems to have decided that, as he had drawn up the document, he might as well get the taxpayers to pay for it.

If hon. Members think that I am exaggerating, let them look at page 2, where it is explained that 1979 was supposedly the turning point of the century in our economic life. Lord Young is not so modest as to think it was a turning point just in the postwar period, but in the century. In glorifying his achievements and his prospects Lord Young does not even mention that North sea oil has made some contribution to the economy over the past few years. That is not even mentioned in the document, which supposedly describes the whole economic position of the country.

The same Lord Young comes forward with proposals for changes in regional policy. I am not saying that the previous policy was perfect; of course, it was not. Many cuts imposed under that policy hit areas such as mine. That is why we pleaded with the Government to listen to what we had to say before they introduced a new regional policy.

The idea of having discretionary grants as a substitute for guarantees for different industries is dangerous; it is a principle that is difficult to work sensibly. It is not only we in the Labour party who say that. Three ex-Ministers from the Department of Trade and Industry asked questions about it yesterday—the right hon. and learned Member for Richmond, Yorks (Mr. Brittan), the right hon. Member for Chingford (Mr. Tebbit) and the right hon. Member for Henley (Mr. Heseltine). I have to be careful about applying zoological terms to the right hon. Member for Chingford—if I do, I may get complaints from the Animal Welfare Trust—but when three worms turn on the same afternoon, asking the Minister to look properly at the proposed change, the Government ought to take note.

We are deeply concerned about the Government's proposals in the area I represent. The changes will apply not just to areas which have been badly hit but to considerable parts of Wales, Scotland and the north-east. There should have been much more discussion about how to have a more effective regional policy.

One obvious way which we had worked out and which was being applied in 1978 was special development assistance for the areas which were hardest hit, the areas threatened not just with a 2 or 3 per cent. increase in unemployment but with a doubling of unemployment. Unemployment went up to the then appalling figure of 12 per cent. in areas affected by the steel crisis. But over the next three or four years, under the wonderful recovery programme of the Conservative Government, unemployment went up to over 20 per cent. What we sought to provide under the Labour Government's regional policy was special development assistance over and above the general development area assistance. It worked. There were plans for getting new industry into my area. Other areas too had special development area status. It enabled us to get on with the job of rebuilding, as local authorities and industries are eager to do now. We are determined to rebuild industry. We wish the Government had listened to what we had to say about how a sensible regional policy should be worked out.

Even at this late hour, if only Lord Young can set aside his propaganda leaflets, cannot we have a proper discussion? Most of the affected areas are represented by Labour Members and by Labour local authorities that are passionately eager to join in the task of rebuilding. The idea that local authorities are hostile to trying to get on with this major task is ludicrous. To get more jobs is the number one priority of many local authorities. But, partly because of their insane hatred, detestation or suspicion of local authorities, the Government have not been prepared to join in such activities. I hope the Government will consider that afresh.

That is just another example of how fraudulent is the claim that we have had a national recovery. Whatever else there may have been, it is certainly not a national recovery. Until it is national, the Chancellor of the Exchequer should be more reticent in the claim that he makes for himself and his achievements.

The hon. Member for Horsham (Sir P. Hordern), with his usual delicacy, properly rebuked the Chancellor for lecturing the Americans. If, at the beginning of the Reagan regime, the Americans had pursued similar policies to those pursued by our Government in 1979, 1980 and 1981 there would not have been a recovery in the United States or throughout the world. The world would have been plunged into an even deeper slump perhaps than in 1929. There would not have been a recovery here. The Chancellor thinks that he governs these things, but he is just the fly on the wheel. He thinks that he makes the wheel go round. What happens in the United States economy is far more important than anything he does. Therefore he should have been a bit more careful about looking back.

Some people prophesied what was going to happen in the American economy. Professor Beckerman, an old fashioned Keynsian—which means that he is absolutely up to date; he has got the policies which the Chancellor is looking for for next month — said way back, as anyone can check, before President Reagan came to office, that of course he would prefer a Democrat to be elected, but the incoming American Administration would not carry through a full monetarist policy, as they were claiming they would. Because tax cuts were popular and public expenditure was not popular, they would carry through, not by intention but by accident, a Keynsia n policy of reflation no matter what it might be called.

That is what they did for five or six years, and when the American economy recovered we managed to clutch the coat tails in the last four years. That is what really happened, so it does not become the Chancellor to make a holus-bolus criticism of what Americans may be doing now. The situation may be different, but the idea that economic problems which we have not solved can be solved by encouraging the Americans to go in for a full-scale cut in their deficit is absurd. All that will happen is that there will be the kind of slump that there would have been if the Americans had embarked on that policy six or seven years ago.

This does not mean that I agree with the American policy. I think that they could spend their money much more sensibly. If only they would divert a huge amount of that public expenditure, as they could, from armaments into these other fields, it would be much better for all of us. So I certainly think that we should encourage that. But the suggestion that all economic wisdom rests with the Treasury Bench and the Chancellor of the Exchequer and that all that is necessary is for the Americans to copy what the present Government have been doing is absurd. First of all, they would have to explain which of their policies they wished the Americans to copy—the one that they tried with such appalling results in their first period of office or those that they are following now, although they are trying to conceal the fact that they have come round that far.

I know that several Tory Members are trying to entice them further along that road of sanity and I do not wish to interfere with that process because I think that it could be beneficial for the country as a whole. Some of the benefits of such a policy might eventually get through to the great areas that some of us represent that have seen the tragic failure of the Government to understand what is happening. But Government Members do not come to those areas; they do not know the areas and they do not see what is happening in our places. So we have got to tell them.

In the meantime, I hope that we can stop the Chancellor of the Exchequer preaching to others when he has himself found the right gospel only in the last few weeks. I hope that he will change his habits in a way that may be helpful to us all instead of causing the kind of injury that might follow the sort of prescriptions that he has been giving in the last few years.

7.2 pm

Dr. Charles Goodson-Wickes (Wimbledon)

I am honoured to have been called to address the House for the first time. It is a special privilege to be allowed to do so in the debate on the Autumn Statement, which has been delayed nearly as long as this speech.

Sitting under the Strangers Gallery tonight is the Conservative Member for Blaydon between the years 1931 and 1935—not, I hope, the last Tory representative for that area. He has been my friend and political mentor for many years. He tells me that in his day one informed the Whips when it was convenient for one to attend the House. The position seems to have been reversed over the years.

I know that the whole House will join me in wishing my predecessor, Michael Havers, now in another place as Lord Havers of St. Edmondsbury, an early return to robust health. It is widely recognised that during his exceptionally long service as Attorney-General he had a formidable workload the success of which remained largely unrecognised owing to its sensitive nature. The burden clearly took its toll upon his health. I am confident that the House will agree that The Times got it right when it described him recently as one of the straight men of politics —as noble a tribute as any to which any hon. Member could aspire. To achieve the highest office of precedence as Lord Chancellor, with all its constitutional, legal and procedural duties, only to have to lay down the burden shortly thereafter must have been a bitter blow. In wishing him well, I take the opportunity to thank him for his wise counsel. It is a privilege to follow his 17 years of service as Member of Parliament for Wimbledon.

I wish to depart slightly from the usual convention by mentioning also Michael Havers' own predecessor, Sir Cyril Black. A number of hon. Members will remember his service in the House from 1950, when he gained the seat, for 20 years thereafter. He continues to offer unparalleled and unselfish service to the area with which he has so long been associated. I cannot speak too highly of his accumulated wisdom, which he has been kind enough to share with me. To follow two such distinguished Members, both of whom served Wimbledon so well in their different ways, will present a challenge which I address with understandable misgivings.

The constituency of Wimbledon forms the western part of the London borough of Merton and, although in the popular mind it is associated with the village of Wimbledon, it extends very much further, with an agreeable diversity of people and interests. Let nobody think that it is a unformly affluent area free of social and other problems. On the eastern side of the railway, which bisects the constituency, there are areas of relative deprivation as one moves towards the boundary, which runs along the course of the river Wandle.

Merton has a distinguished and interesting history dating from an Iron Age settlement. Henry VI was crowned at Merton priory and, by marriage, the royal connection continues, as the Princess of Wales' father, also in another place, is the lord of the manor of Wimbledon. His forefathers inherited Wimbledon house by descent from Sarah, Duchess of Marlborough. It was one of Lord Spencer's predecessors who found himself in dispute with the inhabitants of Wimbledon in 1864. He proposed to enclose the common and subsequent protests led to an Act of Parliament vesting it in a specially constituted body of conservators.

Another parliamentary predecessor of mine, Sir Henry Peek, played an active part in preserving the area for "public enjoyment". The present system continues and I can tell the House that no hard feelings persist. However, the unique status of the common and the method of its funding are likely to produce difficulties in relation to the restructuring of local government finance. But I shall be raising that point with my right hon. Friend the Secretary of State for the Environment on a more suitable occasion.

Wimbledon common has been the site, as well as the subject, of dispute on many occasions in the past. Pitt the younger, while Prime Minister, engaged in duelling on the common, luckily without serious results, before the practice ended in the mid-19th century. The common was, from the time of the Restoration, the site of military reviews and manoeuvres and both the royal tournament and Bisley trace their origins to those events.

The most famous of Wimbledon's inhabitants, however, was a sailor, Lord Nelson, who lived at Merton place in the present south Wimbledon, in his famous menage a trois with Sir William and Lady Hamilton. It was from this house that he left to meet his death at the battle of Trafalgar.

Three other distinguished men of Wimbledon were William Wilberforce, a pioneering Tory who did so much to bring about the abolition of slavery, Baden-Powell, who wrote his "Scouting for Boys" there, and John Innes of horticultural fame, who, in Merton park, founded one of the first garden suburbs.

Merton has a long history of learning and the 13th century statute of the same name was repealed only in 1923. Excellent schools of many types flourish in the borough, as my right hon. Friend the Chief Secretary to the Treasury can testify from his personal knowledge. The influence of various religious bodies is a marked power for good in the constituency, as is the medical work carried out at the Atkinson Morley's and Nelson hospitals.

The constituency is mainly residential with a well-balanced community. The tradition for commerce and light industry, dating from the snuff mills and the fabric works, established by William Morris, persists and flourishes. Several new companies, many with a high technology element, are moving into the district, joining such old companies as leather curriers.

The name of Wimbledon is universally associated with lawn tennis and, in recent times, it has acquired the additional distinction of first division football. Many other sports from golf to greyhound racing are enjoyed and there are also other admirable cultural and leisure opportunities.

I address the House at a time when the funding and functioning of the welfare state has been called increasingly into question. One of the privileges shared by all hon. Members is the opportunity to see at first hand the immense amount of voluntary activity, often unrecognised, carried out in the service of others. Basic human instinct to help those most vulnerable in society is reflected in this voluntary work and in the financial contributions from so many. I like the term "community self-help", analogous with the concept of individual self-help. There is nothing novel about that. After all, many of our great hospitals and educational establishments started life as charitable institutions.

Although it would be naive to suggest that the private sector and voluntarily raised finance could solve the present difficulties, they nevertheless have their part to play. I see no ideological bar to such funds supplementing the welfare state and hope that there would be universal support for that. A move in this direction would go some way towards satisfying the recent call made by the presidents of three of the royal medical colleges for additional and alternative funding in the National Health Service". I noted with interest the arguments of my right hon. Friend the Member for Shropshire, North (Mr. Biffen) in that context.

I speak from some small experience, having been involved with a charity set up in my father's name, which has my right hon. Friend the Member for Castle Point (Sir B. Braine) as president. Among other things, we have provided funds for beds and living accommodation for the families of critically ill children to stay in National Health Service hospitals at times of anxiety. Only this week, we have contributed to the renovation of an underused building at Bart's. That hospital, where I trained, was founded over 850 years ago and it seems illogical that an organisation such as the National Health Service, established barely 40 years ago, should be expected to cope unaided with today's unlimited demands.

If charities, which now have an annual turnover in excess of £10 billion a year, are to play their full part in our society, two requirements must be satisfied—first, the incentives for giving should be increased and, secondly, the funds gathered should be used as efficiently as possible.

On the first point, I must congratulate the Government on their success over the past eight years in creating a climate favourable to charities. The 1986 measures have been described as the best charity Budget that we have ever had. The extension of tax relief to companies for one-off gifts was a major step forward. These are early days yet for the payroll giving scheme for individuals, but many employers, including central Government Departments, have set up the appropriate machinery. However, a new publicity boost is needed from the Government to increase general awareness of the scheme and to spur on charities and their agencies to take advantage of it. Provided that the administrative burden is not too great, income tax relief for individuals on single gifts might also be arranged in due course.

My second point is to urge the implementation of last year's Woodfield report. The inadequacies which it identified in the supervision of charities must be remedied. The question of registration should be tackled to go beyond the endorsement or otherwise of submitted statements of charitable aims. A very small number of cases of abuse taint the image of charities in general. Unfortunately, there are cases of bodies claiming tax relief for non-charitable purposes, fraud or tax avoidance. A requirement for charities to submit annual accounts must be sensible and these should also be made available to the public.

Although I am aware of the practical objections raised on both sides of the House, I also urge the Chancellor to reconsider possible sanctions to discourage the accumulation of funds. Such accumulations may be perfectly proper, but there have been cases of idleness on the part of trustees and there is always a potential danger in the practice which I have heard described as "money looking for trouble to happen".

It seems ludicrous that the Charity Commission, which has done such valuable work, has inadequate resources, both financially and professionally, to inspect annual accounts and to investigate possible wrongdoing. I am sure that my right hon. Friend would share my reluctance to advocate increased Government expenditure on this matter and perhaps much work, historically done without charge by the commission, could be contracted out, with better use being made of existing resources. The introduction of a modest registration fee, possibly renewable annually, would not be unreasonable. That would be in the interests of good administration and the production of revenue.

As the Inland Revenue has the power to disclose prima facie abuse to the commission, staff must obviously be redeployed to adjust to modern-day circumstances. Although a modernised Charity Commission might well pay for itself by preventing unjust fiscal claims, that argument would not in isolation carry weight with the Treasury.

Such enlightened Government measures would greatly increase the scope for co-operation between the public, private and voluntary sectors for the good of the population as a whole. I hope to play some small, but effective, part in furthering this end.

7.18 pm

Mr. Giles Radice (Durham, North)

The House will have enjoyed the speech of the hon. Member for Wimbledon (Dr. Goodson-Wickes) and the way he spoke about his predecessor who was a highly respected Member of the House. It will have enjoyed what he had to say about his constituency and it will also have noted the expertise with which he spoke about charities. No doubt we shall hear much from him in the future. However, there is just one issue which I wish to take up with him. Speaking as a Member for the north-east, I can assure him that there will not be another Tory Member of Parliament for Blaydon.

As we pointed out in the Treasury and Civil Service Committee report, the Budget judgments for this year will be made against a highly disturbed and turbulent international background. Indeed, they are the most turbulent since 1979–80, the years of the second oil shock. We can all agree that it is extremely difficult to predict the consequences of the sharp fall in the stock market in the last two weeks of October. For one thing, markets all over the world continue to be extremely unsettled, but we heard nothing about that from the Chancellor. We should have done.

Also, the response of the policy-makers in the main industrial economies has been extremely hesitant arid uncertain. The coming of the American presidential election has already had an impact on the United States, but it is not only the United States which has been slow to act. Other countries have also been adopting a highly cautious approach, particularly the West German Government, who seem to be very unclear about what action they should be taking. Yet West Germany has an obvious responsibility as a major trading nation, with a balance of payments surplus equivalent to 4 per cent. of its GNP.

The empty G7 statement just before Christmas was a sign of the confusion and uncertainty in the seven major industrial countries about what to do next. However, despite the difficulties about long-term predictions, the House should note that the latest report from the Organisation for Economic Co-operation and Development has already forecast that, as a consequence of the October crash, international economic activity will be significantly weakened. It also says that unemployment in OECD countries will begin to rise again.

The OECD report is particularly concerned about the impact on industrial and consumer confidence which could lead to a downturn in both investment and spending with the inevitable consequences for growth and employment — very much a classic Keynesian picture. Significantly, it warns policy-makers about the risk of a world recession. I should have thought that the Chancellor would at least have had the courtesy to mention that warning from a body of which the United Kingdom is a member. It is a risk which the Chancellor typically dismisses far too lightly.

With all the turbulence and uncertainty around, there might be a case for expressing some sympathy for the Chancellor as he prepares for the Budget if he were not so insufferably complacent, confident and cocky about the prospects for the British economy, and, more especially, about his own performance as Chancellor of the Exchequer.

It is true, and it is a good thing, that in 1987 our growth rate, at 4 per cent., has been faster than most of the rest of Europe. It is also welcome news that unemployment has been falling over the past 18 months, albeit assisted by changes in the way that the unemployed are registered. However, the forecast for growth in the Autumn Statement is only for 2.5 per cent. in 1988 and there are some signs that much of that growth will be bunched in the early part of the year. Lower growth, whatever the Autumn Statement says, is likely to mean higher unemployment. I note that the OECD report predicts that the pace of growth in the United Kingdom may not be sufficient to prevent the rate of unemployment from rising again. That is a very different message from the Chancellor's this afternoon.

The Chancellor's dilemma is that, if unemployment is to continue to fall significantly, and if regional differences are to be reduced, we shall need growth rates somewhat above 3 per cent. over the next three years. Yet the growing balance of payments and trade deficit is a factor that must make any Chancellor cautious about increased rates of expansion. That is a genuine dilemma that the Chancellor must face. Yet he makes these things far more difficult, not only for himself but for the British economy, by three aspects of his economic policy.

First, the Chancellor has made it clear that he is firmly committed to further income tax cuts in his Budget. Yet income tax cuts are, as all the models show, the least effective way in which to boost employment. They would almost certainly suck in more imports at a time when our balance of payments deficit is predicted to deteriorate.

Then there is the Government's posture on public spending and their highly cautious stance on the PSBR — more cautious in the Autumn Statement than was predicted. That stance means that infrastructure projects, regional policies, and key social programmes such as health and education will all be deprived of necessary funds. The Chancellor forgets the important point that well-targeted public spending is a safer way, in terms of our balance of payments, bringing down unemployment and keeping growth going.

There is a third problem. As the Americans understand well, the obvious way to tackle a balance of payments deficit and to assist manufacturing is by devaluation. Indeed, the 1986 British devaluation provided substantial assistance to our economy. However, since then, the pound has increased in value by over 10 per cent. Yet the Chancellor's policy is to tie the pound firmly to the EMS, particularly to the deutschmark. In doing so, he clearly rules out any further devaluation in the near future. In that context, he should note the point made by the Prime Minister in an interview in the Financial Times in November, when she warned that gearing the pound to the deutschmark was likely to be deflationary. There is clearly a difference between the Prime Minister and the Chancellor on that point.

Mr. Quentin Davies (Stamford and Spalding)

In his remarks, does the hon. Gentleman take any account of the extreme difficulty that we have had recently in preventing the pound from appreciating above three deutschmarks? How on earth can we contemplate pursuing a devaluation for parity at present, even if we wished to do so, without simply appalling monetary consequences?

Mr. Radice

That point has already been answered: we must bring interest rates down. Our interest rates, as the Chancellor pointed out to the Select Committee, are higher than most of those of our main competitors by two to three points and there is no reason why they should not be lower.

However, I draw some comfort from how much the Chancellor's policies have changed since 1979, which has been mentioned by several of my hon. Friends. After all, the Chancellor was the inventor of the medium-term financial strategy. However, monetary controls were virtually abandoned in October 1985. He used to castigate the Labour Government for their irresponsibility, yet over the past 18 months he has manufactured a good old consumer boom, fuelled by a remarkable drop in the savings ratio—I think from 7 per cent. to 5 per cent.—disguised fiscal relaxation and earnings rising faster than inflation.

It is not an Opposition invention to say that it is a good old consumer boom. The Chancellor himself told the Select Committee that the present rate of growth was unsustainable and above our historic levels. It was that for a good reason — the Chancellor was making his contribution to the Conservative party winning the general election.

Even on public spending, there has been a shift. First, hon. Members may remember that the objective was to reduce public expenditure in volume terms. Then it was to hold public spending constant in real terms. Now it is to reduce public spending as a proportion of GDP. Those are marginal changes, but they are changes in the right direction. There is also the famous change on the exchange rate policy. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) noted that the Chancellor used to say that exchange rates should be left to the market, but he now believes in managed floating and international intervention, although, as the right hon. Member for Worthing (Mr. Higgins) pointed out, he does not do that very effectively.

The former hard-line monetarist, the man who really invented the Government's strategy back in 1979, is becoming increasingly pragmatic. Like my right hon. and learned Friend, I welcome the Chancellor's conversion. I welcome his changes and over the next few weeks and months, and for however long he remains Chancellor—I understand that he wants to be Foreign Secretary—we all look forward to further changes in a more sensible direction.

7.29 pm

Mr. Leon Brittan (Richmond, Yorks)

My first and pleasant task is to congratulate my hon. Friend the Member for Wimbledon (Dr. Goodson-Wickes) on his maiden speech. He began with an elegant and apposite tribute to our former colleague, Lord Havers. I am sure that we would all wish to be associated with everything he said and, in particular, with the good wishes for his return to health. We were then given a conducted tour of Wimbledon which left even those of us who thought we knew the place infinitely better informed than we had been before. Finally, my hon. Friend made a perceptive and constructive speech about the relationship between the welfare state and the voluntary sector, and put forward a number of important suggestions which, I am sure, merit consideration. In all, if I may borrow a phrase from his constituency, he served an ace and we look forward to many more.

Looking at the Autumn Statement so long after its publication, we inevitably feel that it has a slightly antique flavour about it. But it is none the less remarkable for all that, because it is an account of strong but soundly based growth with the prospects for substantial further growth and falls in unemployment—and, by implication, more tax cuts. The decisions announced in it are, of course, the public spending ones arrived at after a period of intense haggling, which anyone who has been Chief Secretary looks back on with a mixture of nostalgia and relief that those days are over.

Although the hon. Member for Durham, North (Mr. Radice) seemed not to give sufficient weight to this fact in the earlier part of his remarks, the Autumn Statement shows an increase in spending for 1988–89 and 1989–90 of £2.6 billion and £5.6 billion respectively compared with the figures announced last year. The growth in Government expenditure in real terms, excluding privatisation proceeds, is expected to be 1.25 per cent. a year over four years Those who might have anxieties about the implication of such an increase in public spending, after a period when the stated aim had been to hold expenditure roughly flat, are reassured in the Autumn Statement by the argument that public expenditure will at least continue to fall as a proportion of the nation's income over the next three years. When one takes into account the fact that, last year, the plans for this year were increased by £4.75 billion, the further increases in spending amount to significant relaxations in the public expenditure objectives of the Government.

Nevertheless, in the context of a rapidly expanding economy, my own view is that the Government's present proposals are still consistent with a generally sound financial posture. However, it is against that background that we must consider the implications of the Autumn Statement and subsequent developments for future policy — in particular, for the forthcoming Budget. The Autumn Statement forecasts growth of 2.5 per cent. this year and £1 billion of PSBR for the current financial year, and assumes a similar PSBR for next year, although the actual PSBR is to be set in the Budget.

Looking forward rather than backward, the key question seems to me to be: have recent events at home or abroad, and possible developments in prospect, changed the situation in a way that should influence the Chancellor's judgment? I think they have. I agree wholeheartedly with the conclusion of the Governor of the Bank of England that the need for caution is now paramount. I add that caution makes good sense politically, too. We were, after all, re-elected only a few months ago and we have a whole Parliament in which to achieve our tax objectives.

We have always acted on the principle in the past that we would implement those objectives as and when we could afford to do so. I am sure that we would be wise to continue to follow that principle. By all means let us do what we can safely do this year, but in a year of international turbulence, the domestic consequences of which are still not clear, financial prudence should, above all else, be our watchword. Much can change in the next few weeks, but for the moment the objective of a negative PSBR would seem the right one to set.

This conclusion flows from considering both the world scene and the domestic economy. The international position needs to be examined first, because it is there that the uncertainties are greatest. What happens in the United States is crucial. There have been excruciatingly painful efforts in the United States to reduce the budget deficit, ending up with a cut at the lowest level needed to persuade the markets that the United States is even remotely serious about tackling its problems. Since then, some forecasts have emanated from the United States suggesting that spending will actually be greater than envisaged and that the cut in the deficit will be correspondingly low. It is clear that there is not the slightest intention of the increase in interest rates that is needed to go along with the cut in the budget deficit. It is not surprising that that should be so in an election year, but it is an important fact in the total equation.

Worst of all, in terms of confidence in the markets, is the continued insouciance shown by the United States administration, with the President, but a few days ago, saying that the trade deficit is a sign of the strength of the United States' economy.

Mr. Austin Mitchell (Great. Grimsby)

That is what the Minister said.

Mr. Brittan

It is not surprising that it has needed herculean efforts on the part of the world's central banks, at great cost, to keep the dollar even at its present level. Nor is it surprising that the financial community has considerable doubts about whether those efforts can be successful in anything other than the short term, in the absence of an appropriate policy to deal with the underlying problems.

When I was at the Treasury between 1981 and 1983 and we faced complaints about the high value of the pound, we always said that the exchange rate could not be altered by intervention on any permanent basis, and that all we could do was to smooth out short-term fluctuations.

Dr. John Reid (Motherwell, North)

rose—

Mr. Brittan

I am inclined to believe that that is just as true today of current attempts to prop up the dollar. Although the dollar may have fallen far enough already, there inevitably remains a real risk of further irresistible pressure on it and a further fall in the United States stock market. There is no way in which we can insulate ourselves against that, so that is the first main reason for adopting a cautious fiscal stance.

I reject the idea that we should try to spend or borrow our way out of a recession that has not come and, if it did, would be extraneously induced. I suggest that the same cautious conclusion emerges from an examination of the United Kingdom economy. I do not accept that the fall in share prices has had a deflationary effect, or that it will have one, and that therefore we should now adopt a more expansionary policy than would otherwise be desirable. One might reasonably have expected that the fall in the stock market and the fear of further falls would have had that effect, but all the signs are that that has proved not to be the case. There are no signs of a significant lessening of economic activity; expansion is continuing at a rapid rate in all parts of the United Kingdom, including the assisted regions.

It is interesting to see the Lloyds bank economic bulletin, entitled "Limited Impact of Equity Slump", which contains a careful analysis of the so-called wealth effect and comes to the conclusion that it has proved to be extremely limited.

Another commentator makes the point that the exceptional growth in the second half of 1987 —annualised GDP growth of 5 to 7 per cent. — has a carry-over effect into 1988 so strong that, with no further growth at all, growth would be 2 per cent. in 1988 for that reason alone; with continuing growth, 3 per cent. to 3.5 per cent. is the probable total for the current year. Moreover, the stock market effect — if it had a deflationary effect—has already been counteracted by the 1.5 per cent. reduction in interest rates. There are already significant labour shortages in certain industries in parts of the country. That underlines the need for a vigorous regional policy — but that is a matter for another day. Looking at the whole picture, I believe that the domestic risk against which the Government must guard is not recession but the further build-up of inflationary pressures. For those reasons, domestic and international, I come out strongly on the side of those urging caution in the preparation of the Budget.

However, on the figures in the Autumn Statement, even with caution, there is likely to be some scope for tax reductions, and certainly opportunity for tax reform. Political momentum in favour of moving to 25p basic rate and reduction of top rates to 50p is now probably irresistible, but its timing must depend on what is consistent with a prudent PSBR target.

One way of enabling more money to be available for tax reductions than would otherwise be possible would be to restrict tax allowances to the basic rate. Indeed, there is a great deal to be said for also limiting mortgage interest relief and pension relief to the basic rate. If all that were done, £1.75 billion would become available for tax reductions.

Much of that money may be needed to deal with the problem of the tax treatment of married women, depending on precisely how that is done. However, I am sure that the Chancellor appreciates that that is a structural problem, the resolution of which cannot be delayed any longer. The feeling of injustice about the present arrangements is now overwhelming. I for my part think that the Government's original proposals to deal with this had very much more to commend them than the critics have allowed.

Beyond that, and maybe beyond the forthcoming Budget, I would make the top priority the highest possible increase in personal allowances to take as many people as possible, at the lower end of the income scale, out of income tax altogether. That is desirable on two grounds. First, it is, of course, the people at the lower end of the scale for whom tax is now the greatest real burden.

Secondly, it is the obligation to pay tax on low incomes which is the main cause of the poverty trap and anything that can be done to make it more worth while to work than to stay on the dole is intensely desirable. Taking people on low earnings out of tax altogether means that employers can take on more people and further reduce unemployment, for the simple reason that the money that they can afford to pay will not be so reduced by tax that it is no longer higher than the dole.

If the main economic and social problem that we still face, particularly in certain parts of the country, is high unemployment, the top priority of fiscal policy must be to take people out of tax and stimulate employment in that way, provided always that that can be done in the confines of a reasonable fiscal policy.

To allow inflation to start up again would do no service to the economy, no service to the unemployed, no service to the Government, no service to the Conservative party, and no service to the country.

7.42 pm

Mr. Peter Shore (Bethnal Green and Stepney)

I should like to add my voice to the tributes that have been paid to the hon. Member for Wimbledon (Dr. Goodson-Wickes) for his successful maiden speech. The House was pleased with what he said about his predecessor, who was a most popular Member. Those who know his constituency of Wimbledon will share his sentiments entirely. We enjoyed his contribution and look forward to hearing from him again.

I join my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) in feeling considerable disappointment at the Chancellor's speech, which opened the debate. It was a mistake for the Chancellor to have left the entire subject matter of the Autumn Statement to the Chief Secretary who is to reply, rather than essaying himself an analysis, defence and general setting-in-context of the Autumn Statement for which, after all, he has the prime responsibility.

I listened, of course, to what the Chancellor said about the international economic scene. I accept that there are great difficulties in reaching any certain judgments about the likely course of events. However, I agree with the hon. Member for Horsham (Sir P. Hordern) and with my right hon. Friend the Member for Blaenau Gwent (Mr. Foot), because I do not see much sense or profit being gained from publicly upbraiding America for the alleged failure of its economic policy when the United States has been the principal engine of world economic growth for several years. Any significant reduction in the American deficit should, at least, be accompanied by corresponding increases in the growth activity of the great surplus nations of Japan and West Germany. If we were seriously to urge on the Americans dramatic movements in cutting their trade deficit and their budget deficit without corresponding and compensatory movements towards expansion by the other major industrial countries of the western world, we should have a recipe for a major slump and recession, which would not be confined to the western world but would, of course, embrace Third world countries, which have appalling suffering.

I am sorry that the Chancellor could not remain in the Chamber until he had heard the end of my speech. Nevertheless, I am glad that the Financial Secretary to the Treasury has heard what I have said and I hope that my sentiments will be conveyed to the Chancellor.

There are two or three crucial and indisputable facts about our present economic and social situation. The first is clearly stated in the Autumn Statement. The growth in GDP that we have enjoyed during the past year is forecast to slow down considerably in the year ahead. That does not conflict with the forecasts of the Organisation for Economic Co-operation and Development and others. The forecast of a falling-away of growth applies not only to Britain, but to virtually all the other countries in the western world and it is one principal source of our concern. It is clear that unless something else happens, growth will slow down. That will mean an end to the gradual reduction in unemployment and it is perfectly possible that there could be a reversal of the current trend. That is fact number one.

Fact number two is that the Autumn Statement forecasts—correctly, I am sure—the elimination of the public sector borrowing requirement. It is true that it will be the first time since 1970 that we have moved into surplus on the budget account. That is a remarkable change. However, the way in which that has come about might merit considerable discussion in the House.

My explanation of what has happened is that during the past 18 months there has been a significant increase in Government public expenditure, which has been only partially disguised by the sale of public assets. At the same time, there has been an obvious and notable decrease in taxation and a considerable fall in the exchange rate, especially in the earlier months. Surprise, surprise—the economy expands when one cuts taxation, increases public expenditure and lowers the exchange rate. Of course that is what happens, but for the past eight years the Treasury Bench has failed to understand that when one achieves expansion, one gets buoyancy in revenue, which means that the money that one thought that one had borrowed is more than covered by receipts from the increased economic activity. That is what the entire Keynesian argument is about. There are certainly criticisms of it and, although there are lessons to be learnt, it should not be carried too far. However, it is much more rewarding than the awful arid doctrines of monetarism which simply squeeze the life out of the economy while hoping that somehow spontaneous regeneration will occur. The elimination of the PSBR is, thus, the second point.

The third fact, which I think has impinged itself on all hon. Members and, indeed, on everyone in the country, is that two of our social services are going through a period of obvious crisis. The National Health Service has been referred to by many speakers, not only in this debate but virtually from the time the House resumed after the recess. I will say nothing more about it except that I agree entirely with the right hon. Member for Worthing (Mr. Higgins), the Chairman of the Treasury and Civil Service Select Committee, who pointed out that the growth rate in real terms is at most 1.2 per cent. That will not be adequate for the needs of the Health Service, where a massive injection of funds on the scale mentioned by the former Leader of the House, the right hon. Member for Shropshire, North (Mr. Biffen), is almost certainly required.

Another social service of great importance to our people is rented housing, where we are talking not about the inadequacy of growth but of devastation and destruction that has not been compensated by any new building in the private sector. There has not been an increase in overall housebuilding in Britain. This is the eighth year in which the total has fallen well below the level in every year during the 1970s.

Mr. Winnick

I am grateful to my right hon. Friend for giving way. Is he aware that just before the Christmas recess, I received a reply from a junior environment Minister saying that as far as the Government were concerned it was no longer the function of local authorities to build. Bearing in mind the thousands of people on waiting lists throughout the country, and the scandal of bed-and-breakfast and hostel accommodation, is it not absolutely disgraceful that for the first time in 60 to 100 years local authorities have been told that they no longer need to build?

Mr. Shore

It is the logic of the situation that local authorities can no longer be responsible if they are denied the resources. Let us look at the figures. The figures produced in the Autumn Statement on public spending are for expenditure on housing of £3,020 million. In the same 1988 cash value terms, we were spending more than £7,500 million in 1978–79. That is a fall in the housing programme of 60 per cent.

Mr. Roger Knapman (Stroud)

rose—

Mr. Shore

I shall not give way to the hon. Gentleman at the moment.

It will surprise no one to learn that both completion and new starts in public sector rented housing in the past year have been 30,000, whereas in 1978 starts were 107,000 and completions were 130,000. If anyone wants to know why we have an army of homeless and such discontent on oar estates, there is the reason. There has been total neglect of housing provision and an obsession with housing ownership.

I have put together three facts which are pretty much incontrovertible. The first fact is that we shall have a slowdown in growth over the next year. Secondly, we have no PSBR deficit; indeed, we have a surplus for the first time in 17 years. Thirdly, we have two obvious crises in two essential public social services which cater for the needs of our people. Surely there has never been a better opportunity for the Chancellor to act, for once, clearly and responsibly in the interests of the British people If the Chancellor felt when he presented the Autumn Statement last year that a PSBR of 1 per cent. of gross domestic product, a mere £4 billion, was prudent to the point of great praise for himself, why should not a similar PSBR in the coming year be equally prudent? Would not that mean that resources of the order of £6 billion would become available?

As many right hon. and hon. Members have said, it would be folly if such resources were flung into consumer purchasing power. Some contribution could be made there, but to dispense large sums of money to private consumers, knowing perfectly well that that would fuel an expenditure explosion or an increase in imports, would be folly. However, there would be no folly at all in spending more money on the Health Service and on the building and construction industries, both of which have a very low import content. Such expenditure would also give enormous help to many people who are in desperate need of adequate health care and decent accommodation.

I must say to the Chief Secretary to the Treasury that there cannot have been many such opportunities where circumstances have been so united for doing good things. They are now in the hands of the Treasury, and we hope that they will be exploited in the Budget of 1988.

7.56 pm

Mr. Bowen Wells (Hertford and Stortford)

One of my first observations in my brief remarks concerns what right hon. and hon. Members on both sides of the House have been saying about the way in which we could distribute the additional money that the economy is earning. My right hon. Friend the Chancellor and his team have managed to expand our economy so that there is money available for the Health Service and indeed the social services and housing, about which the right hon. Member for Bethnal Green and Stepney (Mr. Shore) has spoken.

Mr. Knapman

Will my hon. Friend bear in mind the remarks of the right hon. Member for Bethnal Green and Stepney (Mr. Shore), who referred to homelessness? Would it not help the plight of the homeless if certain Labour councils with 10 per cent. of their council houses empty got round to letting those houses?

Mr. Wells

That is a very good point, but I was congratulating my right hon. Friend the Chancellor on the way in which he has conducted the economy so that we have surpluses available to spend in this way. Indeed, it is a great credit to him that this wonderful situation has been brought about by careful and sensible financial policies.

I want to help the Chancellor in relation to the international scene. He opened the debate on that subject. It is in the international setting, as the right hon. Member for Blaenau Gwent (Mr. Foot) said, where, if we get it wrong and the United States economy goes wrong, we shall not be able to resist the forces of depression in this country if the economies of the world contract.

The issue causing me to detain the House this evening is my concern at the serious lack of analysis of the international financial situation that was displayed particularly by the shadow Chancellor of the Exchequer, the right hon. and learned Member for Monklands, East (Mr. Smith), on the occasion of the stock market crash and the subsequent Opposition Supply Day debate.

I thought that the right hon. and learned Gentleman conducted the debate in a frivolous manner that was most unhelpful in seeing a solution to the serious domestic and international difficulties that we faced at that time. On that occasion speaker after eminent speaker claimed that the financial markets would not stabilise until after the United States budget deficit had been reduced substantially. Indeed, my hon. Friend the Member for Horsham (Sir P. Hordern) made this point delicately—as the right hon. Member for Blaenau Gwent said in his speech—to the Chancellor this evening in taking issue with him on his Mansion House speech.

Once such an event as the stock market crash has occurred, we were assured that the dollar exchange rate would stabilise and the stock market would recover. Undoubtedly, the United States budget deficit has been a cause of imbalance in the international financial markets for some time, but in the years that it has been growing, it has caused stock markets to rise to unprecedented heights in this country and indeed in the United States. The value of the dollar has risen simultaneously and the deficit has been the principal reason that the world economy began to grow from 1981 onwards. I agree with the right hon. Member for Blaenau Gwent, who 1 am sorry is not in his seat, that the failure of the United States Government to expand the economy at that point would have led to a drastic world-wide recession.

Perverse as the phenomenon may be, this is what happened during the period 1981–87. It has two other significant effects. It was a major cause of the rising United States trade imbalance because its value was rising instead of falling, as a budget deficit would conventionally have suggested it should do, and which most economic commentators would say was inevitable. This has led to very serious calls for protectionism from beleaguered American manufacturers faced with a huge amount of competitive foreign goods on their domestic, let alone international, markets and their inability to compete with both in domestic and overseas markets.

The other effect of the United States deficit is to suck in foreign domestic savings to finance the budget deficit, and to create historically high real interest rates. The high interest rate regimes run in this country are a reflection of the United States policy, which has undoubtedly inhibited investment in our domestic economy. This in turn has led to the persistence of unemployment in Britain and Europe and has had a devastatingly contracting effect on the trading partners of Britain and Europe and the economies of the Third world trading nations because of the falling demand in Europe and Britain and falling commodity prices.

If the United States budget deficit had this effect in 1987, how can it be argued that simply by reducing the United States deficit we will gain market stability, exchange rate stability and continuation of growth? Undoubtedly, if the United States had responded to the calls for a drastic cut in the budget deficit, growth in the United States would have slowed dramatically, throwing the United States economy into recession. Such a situation would have made it very difficult to export to the United States, and slump would have hit the United States' trading partners, Japan, Britain and western Europe. Such a scenario would have been disastrous for the international economy.

If we look at the current condition of the world economy, we cannot be self-satisfied. Europe still has major unemployment and serious under-utilisation of productive capacity. The markets of the United States with Latin America and Europe's African markets are closed down because of their chronic indebtedness. No expansion of exports from Europe or the United States can take place there. Only the markets of the far east are open to world trade, where fierce competition between Japan, the United States, Britain and western Europe takes place, much of it resulting in trade on a very marginal, if not a minus, base. If, on top of this, we close down trade between the United States, Japan and western Europe by putting the United States into recession, we shall certainly face a worldwide slump.

It is widely argued that the way out of these difficulties is to enable the world economy to expand without overheating into inflation. How is this to be done? It will not happen automatically; it must be managed. As Paul Volcker rightly said, money will not manage itself, and certainly international money will not. It is equally certain that if one does not manage money, others will manage it for one. I agree with Lord Lever who, in an article in the United States publication "The International Economy", says: Yo-yo currencies are fundamentally incompatible with a liberal and prosperous, interdependent global economy. The most important condition for a return to greater world progress and trade expansion is the establishment of a system of collective disciplines for the management of the exchange rates of the world's major currencies and especially that of the dollar. I support wholeheartedly the Chancellor's efforts to coordinate policies in the world and, in particular, the measures that he outlined in his speech this afternoon. One thing that he left out of his analysis, however, was the issue of debt, yet my right hon. Friend is the most innovative Chancellor and the most imaginative Finance Minister on the world stage at present in putting forward his suggestion of how African indebtedness should be dealt with.

He has suggested that the world's indebtedness may be dealt with, especially as regards Africa, where there is very little hope of repayment, by converting present public indebtedness—that is, Government loans—to grants, by reducing interest rates and by extending the indebtedness of those countries so that repayment can take place over a much longer period, with the repayment being related to the economic capacity of a country to earn its living and service its debt.

My right hon. Friend has met with little encouragement from trading partners such as West Germany and the United States, but he should persist in his attempts to persuade both the United States in relation to the Latin American debt, and West Germany and Japan in relation to other indebtedness, to enable that reorganisation of the indebtedness of Third world countries so that trading can be resumed, markets can be opened up in those countries and we can thereby begin a world expansion in trade which will result in the reduction of unemployment in our own economies and the beginning of the expansion once more of the very impoverished nations of the world on which we impact. Unless we also look at that debt issue and get it put right, we will not see the world expansion in trade that we all desperately need.

It is by the combination of policies, the co-ordination of policies and the management of policies that we shall expand world trade, prevent recession and prevent the recurrence of inflation, which is an undoubted scourge on all our economies.

There are certain points which need, therefore, to be addressed in trying to achieve that co-ordination of policies that will benefit us all. First, there must be expansion of the German and Japanese economies, and trade with all countries. Their economies must permit imports from those of us who are able to supply them, and so there must be a dramatic reduction in tariff barriers, and a GATT round, designed for that purpose, must be hurried up and made effective. There must be a controlled reduction of the United States deficit, and of our interest rates here in Europe and in the United States to encourage investment; a stabilisation of currency relationships; and massive debt rescheduling to permit trade with the underdeveloped economies of the world.

We must support the international organisations in their attempts to make certain that there are proper economic policies, designed to produce wealth-creating activity in Third world countries—and that must be a condition of any rescheduling in which we might indulge. Those international organisations—the World Bank and the International Monetary Fund — should be strengthened to provide the money for that expansion and the disciplines necessary for those Third world economies to prevent them going once more into chronic indebtedness.

We must also reduce agricultural subsidy in the developed world so as to increase the possibility of trade with the Third world countries which mainly trade in agricultural commodities and which are unable to do so because of agricultural subsidy regimes.

Given those conditions, and working together, we shall see an expansion of world trade and so an increase in commodity prices, with the result that the whole world trading system will benefit and we shall be able to get an expanded economy, able to afford health services and social services without indulging in overspending in the public sector.

8.8 pm

Dr. John Reid (Motherwell, North)

I begin by adding my congratulations to the others given to the hon. Member for Wimbledon (Dr. Goodson-Wickes) on his maiden speech. I cannot say that I agree with everything he said, but I found it a generous contribution. It was concise and comprehensive and in many parts extremely interesting. In short, it was riot the Chancellor's speech.

The Chancellor's speech was a rather bizarre contribution, managing to open a debate on the Autumn Statement while making no reference to large and important sections of that statement, including, for instance, public expenditure. I do not blame the Chancellor for staying as far away as possible from the Autumn Statement because the only way I can sum it up is that it is a sort of plethora of platitudes. Unfortunately, he could not distance himself too far from it because of the striking similarity between that plethora of platitudes on 3 November and the cartload of cliches today.

We heard an updated version of the Chancellor's familiar theme of the Government's first four years. In effect, he said, "We are turning the corner." Indeed one of his hon. Friends could not resist throwing in a reference to Noel Coward's telling us that good times were just around the corner. When we heard that in the first four years of this Government, we knew in our hearts that it bore little relation to reality. The same is true of the Chancellor's statement. He boasts of prosperity to my constituents, who see around them nothing but increased poverty. He sings of industrial success when people in my constituency and in Lanarkshire experience little but industrial decline. He bleats about steady growth to those in Britain who have seen nothing but steady decline in the standards of public services over the past few years.

The truth does not lie in the statement that the Chancellor made today. The truth about the economy is simple: far from experiencing an economic miracle, we have an economy which is still growing more slowly than it did under the much reviled Labour Government whom the Chancellor likes to attack when under fire. Manufacturing output has only just returned to its 1979 level and manufacturing investment is still almost 10 per cent. lower than it was in 1979 when the Government came to power. Our manufacturing trade deficit is at an all-time record and our balance of payments has been deteriorating rapidly. As if this year's news were not bad enough, the Autumn Statement makes it plain that there is worse news for next year. On the Government's own calculations, the Treasury expects slower growth, higher inflation and a worse balance of payments this year than we had last year—all of this in spite of the fact that the Government have had the benefit of £60 billion of oil revenues.

How, then, can the Chancellor continue to boast of economic and industrial success? I do not believe that it is just because the Chancellor is a stupid man, although from time to time it strikes me that if he left his brain for scientific purposes the scientific community of Britain would contest the will. It is not just because he is an obstinate man — although, God knows, he is that as well. It is not merely that he is apparently ignorant of the social consequences of his policies. The fact is that the Chancellor has managed to combine all three characteristics—stupidity, ignorance and obstinacy—in a manner almost unparalleled since Marie Antoinette. It is almost unbelievable that, with a windfall of that magnitude, this Chancellor should have created such a manufacturing deficit—not for the first time in 30 years, but for the first time in Britain's industrial history.

It is because of the combination of the Chancellor's blindness to the consequences of his policies and his failure to realise the suffering that they have caused that he can boast about his fiscal policy, among other things. The Government's fiscal policy has been marked by two characteristics. First, it has been socially divisive and, secondly, it has increasingly diverted the burden of taxation away from those best able to afford it on the backs of those least able to afford it.

The Chancellor may not have departmental responsibility for the poll tax, but it is the child of his philosophy because it meets the two criteria that I have outlined. Not only is that tax grossly unfair, highly inefficient and thoroughly regressive, but its effects on millions of people in Scotland have been intentionally underestimated in Government propaganda. The truth is that the poll tax will not remain at the £250 per head that the Government have suggested. According to figures produced by the Library, assuming that the new business rate will be held steady in real terms—the Government tell us that it will—and that the cuts made in central funding to the local authorities over the past five years will continue, at 1986 prices the poll tax will be running at £450 a head in real terms in a very short time. That is one further act whose genesis lies in the fiscal policies based on the Chancellor's philosophy.

I refer briefly to the Chancellor's public policies. If he does not believe that there is a crisis in the National Health Service, let him speak to nurses and ancillary workers at Hartwood hospital. I understand that through the howls of disbelief at her statements on the National Health Service, the Prime Minister today challenged hon. Members with constituents who are nurses or ancillary workers who are holding a token strike to condemn that action. I shall respond to the Prime Minister's challenge. It is the height of hypocrisy for Margaret Thatcher of all Prime Ministers to ask us to condemn people who have committed their lives to the Health Service, who pursue a profession that has had a tradition of non-militancy for 100 years but who have been pushed to action that they regard as extreme for the sole purpose of safeguarding patient care.

On 15 March—the ides of March—the Chancellor will have the chance to prove that the Government really care for the National Health Service. If he does not take that opportunity to use part of the supposed £3 billion surplus to meet the inadequacies of the Health Service, we shall have a historic repetition of the events of the ides of March. "Et tu, Nigel?" may not have the same classical ring as "Et tu, Brute?" but there will be some classical justification for it if another supposed friend of the National Health Service sticks another dagger into its heart.

8.16 pm

Mr. David Howell (Guildford)

The world economy has been passing through an extremely dangerous phase, and continues to do so. Unlike the hon. Member for Motherwell, North (Dr. Reid), I feel that we owe my right hon. Friend the Chancellor a vote of confidence for the skill with which he has so far steered us through these dangerous and challenging rapids. His troubles are certainly not over yet, as I shall explain in a moment. Now that Paul Volcker has departed from the scene, my right hon. Friend's judgment will become increasingly central in world financial circles. He will be turned to increasingly and that will be a heavy responsibility, which I believe he will carry with skill and experience.

I said that my right hon. Friend's troubles were not yet over, because the worst is yet to come. In the 1930s, following the financial crash, many said, "That is just financial. We can all relax. The economy is fundamentally sound." Our position today is not dissimilar and the same pattern could unfold if we are not careful. The reason has less to do with our own affairs than with the fact that the United States economy is in an extremely fragile, indeed rotten, state. Despite the superficial signs of prosperity—job performance and the increasing exports to which my right hon. Friend referred—that economy is riddled through with debt of every kind.

Tomorrow's trade figures may be a little better. They will merely confirm what is obvious to some of us, although not to some Opposition Members: one cannot devalue one's way to salvation in trade any more than one can do so in any other activity. The trade figures will probably not be appalling, but they will not be very good.

Tomorrow's trade figures will tell us nothing. The United States economy is burdened not only with the debts of the developing countries about which my hon. Friend the Member for Hertford and Stortford (Mr. Wells) spoke so eloquently but, more seriously, with a mass of farm debts, energy bad debts, over-borrowing by consumers on a scale far greater even than in this country and, above all, a mass of bad debt arising from the huge speculative borrowing that went on throughout spring and summer last year to finance junk bond arrangements and leverage-managed buy-outs. The present situation is the legacy of that period, which some hon. Members seem to think was a good period for United States economic policy. The true legacy consists of borrowing and debt on a most fearsome scale, which are bound to mean that the American economy remains deeply sick.

All this will mean that the recession, which will come anyway, will be prolonged. I differ from my right hon. Friend the Chancellor only in that respect. Of course, he is right to suggest that this economy is in a strong position in a dangerous world. However, he is too sanguine about the prospects of recession arising from what is coming quite soon in the America economy. As happened in the 1930s—the present situation is not dissimilar—we have a mass of bad debt that will never be repaid and that will lead banks increasingly to seek loans of higher quality and to try to squeeze out those stuck with unrepayable loans.

Neither the clichéd traditional policies of Keynesianism recommended by the right hon. Member for Bethnal Green and Stepney (Mr. Shore) nor monetary policy have much power to exert a counteractive influence. There often comes a stage—this was very much so in the early 1930s—when a monetary policy that has been relevant during several stages of the cycle ceases to be an effective instrument. Keynes described it as like pushing on a piece of string, trying to counteract the recessionary forces of a debt-ridden world — particularly a debt-ridden United States economy — by monetary expansion and an injection of additional money and liquidity.

That is the reality, and those who think that we are over the financial crisis and that there will be a calm phase when everything will gradually pull together are living in cloud cuckoo land. The dangers are as great as ever, if not more so. Our task in our part of the global economy is to do everything responsibly and to manage our small ship in the colossal storms that are all around us and are still coming over the horizon.

The first thing that we must do—we have already done some things that were necessary—is recognise the limitations of our position and avoid following the Americans into debt-ridden disaster. We must avoid accumulating more debts. Luckily, we are in a stronger position than the Americans were in the 1930s, just as the Americans are in a much weaker position. In the 1930s, the United States was a creditor country, but now it is one of the world's biggest debtor countries. We had some credits in the I930s, but they were dying away. Today we are a strong, major creditor nation.

We must do everything possible to preserve that, internally and externally, and to maintain a creditor position. That means avoiding debt in terms of the Autumn Statement and the issues immediately ahead for the Budget, and it means that we must pursue a policy of a tight Budget. By a tight Budget I mean a balanced one, I understand from the excellent report of my right hon. Friend the Member for Worthing (Mr. Higgins) and his colleagues that when the Chancellor speaks of a balanced Budget he means a borrowing requirement of about 1 per cent. of GDP. That is probably sensible — a little borrowing covering some but not all of Government capital spending and revenues covering certainly all current spending.

If the Chancellor follows that policy with a tight and balanced Budget consistent with the picture that I have painted of an extremely dangerous world, it could make room for £3 billion or £4 billion-worth of tax cuts or increased expenditure. We have heard different views on which it should be, but I believe that tax cuts produce increased revenue. Cutting taxes has produced a vast increase in revenue from VAT, corporate taxation and income tax. Out of that can and should come the additional resources that should be spread to the vulnerable parts of the economy and to the major public and social services that we need.

If Opposition Members think that there is a policy choice — that we can have either tax cuts or public expenditure increases—they are living in a world of muddle. Tax cuts will generate the wealth that will enable us decently to finance vital public services and raise family living standards through individual effort.

Dr. John Marek (Wrexham)

Will the right hon. Gentleman give way?

Mr. Howell

No, there is not time.

In the Chancellor's own words, there is room for substantial tax cuts within the balanced budget strategy.

Should we go for higher interest rates? I cannot understand that view. Every time that interest rates go up, they add to the money supply and liquidity and increase the inflation risk, not reduce it. To increase rates would go against the strategy of G7, to which we are committed.

My right hon. Friend the Member for Richmond, Yorks (Mr. Brittan) said that he agreed with the comments of the Governor of the Bank of England. I do not agree with them, and I did not understand the reference to the need to raise interest rates. That would be wrong and inconsistent with the earlier point that I made about maintaining a tight position in this country. Raising interest rates is an absurd response to the need to maintain the position, avoid debt and tighten credit.

The more realistic policy that my right hon. Friend may have to face is to return to more direct controls over consumer credit, the various ways in which plastic money is dished out and the way in which some credit companies freely provide credit to completely uncreditworthy people without bothering to find out how much they have already borrowed. He may have to consider, dare I say, direct hire purchase controls, which is an old instrument of the past. If we are concerned about avoiding consumer debt, that is where we must press the button. The idea that raising base rates will do anything to improve matters has been disproved; on the contrary, it would be counterproductive.

That is the message that I want to add to the interesting points that my hon. Friends have made. We must avoid debt and keep a tight ship. This is the very last moment when one should crowd on sail in the middle of a storm — that would be absurd. There are enormous squalls ahead and we must be extremely cautious. The vast inflation of assets and house prices led to the crash in October and it could lead to another. Inevitably and unavoidably, now will come the recession. That is now much the greater danger than price inflation, although we may get both at the same time. Price inflation will remain subdued because commodity prices will not rise—they will fall. Oil prices will fall and that will create a climate internationally of disinflation.

What we must be prepared for is recession. My right hon. Friend has helped to prepare us with great skill in moving through all these shoals and difficulties, but there is more to come and much more skill will continue to be needed if we are to get through without great hurt.

8.26 pm

Ms. Joyce Quin (Gateshead, East)

I welcome the opportunity to speak in the debate, particularly as I am a member of the Treasury and Civil Service Select Committee that has considered the Autumn Statement and through it the state of the British economy.

Like my hon. Friends, I feel that the position is not quite as the Chancellor depicted it this afternoon. There are large sectors of weakness in our economy and in the Chancellor's strategy for dealing with it that have been glossed over.

One of our main concerns, if not the main concern, must be unemployment. I welcome any fall in unemployment, but even on the Government's figures it is still well over 2.5 million. I fail to understand how there can be general rejoicing among Conservative Members about the state of the economy when that level of unemployment persists. Rejoicing can begin only when unemployment drops below the level that it was when the Government took office in 1979.

In his evidence to the Select Committee, the Chancellor was less than clear about the future level of unemployment. He was not sure whether it would go up or down or stay the same, and he seemed to adopt a nonchalant attitude to questions.

Unemployment should be the centre of any economic strategy. I share the worries that many of my hon. Friends have stressed about the balance of payments, particularly about the value of manufactured goods and the increasing demand for imports. Allied to that is the fear that some have expressed, that many imports are bought on credit. As a part of the tremendous growth of consumer credit, that has virtually doubled since 1980. Perhaps even more worrying is the fact that the claims of moneylenders in court to recover loans has increased since 1980 by 180 per cent., which makes the credit problem clear.

As we look ahead to the Budget and the possible taxation changes, it is important to stress our commitment to zero rating on VAT. During Treasury questions today, the Government seemed to reiterate their commitment to continue with the zero rate on food, children's clothing and fuel, but we have still not had a firm commitment, despite repeated questioning during Question Time and in the Treasury Select Committee, to a continued zero rate on books, newspapers and periodicals. Perhaps in his reply the Chief Secretary will give such a commitment from the Government. I certainly hope so.

My hon. Friend the Member for Motherwell, North (Dr. Reid) talked about the unfairness of much of the tax burden, and I echo what he said. The tax burden is distributed unfairly. I hope that the Government have studied the Government publication "Social Trends", which shows clearly that under this Government inequalities in society and disparities in incomes have greatly widened. I hope that the Chancellor will take those figures on board when looking at future tax reform. Many tax perks and concessions are given unfairly to those who are already well off.

One case which the Chancellor could pledge to do something about concerns tax perks and concessions for private investors in forestry. I understand that those concessions amount to about £10 million a year. That may not seem a great amount, but £10 million could build about three new hospitals. It could certainly extend the attendance allowance to children under the age of two, as suggested in the amendment to the social services legislation put forward yesterday, which would cost only £7 million. It is unjust to give tax perks and concessions of that type.

A great deal of unfavourable publicity has been given to generous tax concessions to well-known television chat show hosts and snooker players, who have created vast tracts of unattractive conifer plantations which, in the absence of planning controls, are disfiguring some of our most beautiful landscapes and national parks. The Northumberland national park is having its character changed daily by geometric slabs of monochrome conifers. The Chancellor could do his bit for nature conservation and at the same time get back some money for a more useful purpose by ending those concessions.

The concessions mean that, to meet the real cost of £400 per acre for conifers, the tax investor needs to fork out only £120. By careful switching from schedule A to schedule B tax, the tax concessions become even more generous. This form of forestry is uneconomic without such concessions; I would ask the Government to affirm that. The Government are paying ten times more to subsidise forestry than to subsidise sheep farming on the same land. I hope that the Government will take this on board and give a commitment to us in the reply.

The initial points I made are more fundamental, particularly on unemployment. It would be good to have a comprehensive strategy for tackling that subject tonight, although precedent suggests that this is very much in doubt.

8.34 pm

Mr. John Townend (Bridlington)

The Autumn Statement is a vindication of the Government's economic policies since 1979. My right hon. Friend the Chancellor and his predecessor deserve the country's gratitude for the way they have managed our economy. We have had almost seven years of sustained growth. This year manufacturing output will rise by 5 per cent., which is one of the highest rises in the industrial world.

Despite what the hon. Member for Gateshead, East (Ms. Quin) has said, unemployment has dropped by 500,000 and is falling rapidly. In the Bridlington and Driffield travel-to-work area in the north of England unemployment has fallen by 2 per cent. in the past year and is now only 1 per cent. above the national average. At the same time, industrial productivity and profitability have grown fast. This has all been achieved at a time when inflation has been progressively brought down.

The Chancellor now has a real chance to create a virtuous economic circle. More growth creates higher profits and wages, which boost Government revenue. At Budget time the Chancellor will be in an enviable position enjoyed by very few previous Chancellors. He will be able to increase spending on health and education, as has been announced in the statement, to reduce Government borrowing and taxation, and have a virtual balanced Budget for the first time in many years. That will stimulate non-inflationary growth even further.

As a result of the undoubted strength of our economy, we are well placed to cope with the stock market crash which has taken place in most of the world's stock markets, and with the resulting world depression that is being forecast by many people, including many hon. Members, and most of our competitors. There is no doubt that if there is a world recession we will be affected. Two aspects of the economy must be watched carefully. The first is the competitive position of industry, which is likely to be adversely affected by the recent strengthening of sterling. We should be reluctant to increase interest rates further, as that would push the value of the pound even higher. I suggest that at Budget time there is a good case—I agree with my right hon. Friend the Member for Guildford (Mr. Howell) —for tightening the fiscal stance and allowing interest rates to fall and sterling to stabilise at a slightly lower level.

It would he damaging to our competitive position if unit labour costs rose faster than those of our industrial competitors. For several years, wages have risen significantly faster than inflation, but unit labour costs have been kept down by a massive increase in productivity. The rate of increase, which by historical standards has been large, is unlikely to be sustainable over many years. Recent increases of wages by 7 to 8 per cent. are worrying. Despite the pressure from many sources, the public sector, as the largest employer in the land, has a responsibility to set an example in keeping wage increases under control in 1988.

I have some apprehension about the level of public spending. Since 1979 the Government's policy on public spending has been progesssively watered down. The Treasury Select Committee, on which I am privileged to serve, has drawn attention in previous reports to the policy changes, and that is repeated in paragraphs 13 and 14 of the report on the Autumn Statement. I was one of those who strongly supported the 1979 policy of reducing spending in real terms. I was unhappy that this was not achieved and that spending rose by 2.25 per cent. in real terms between 1978–79 and 1982–83. The Government then faced the facts and changed their objective to holding public spending broadly level in real terms, but regretfully they failed to achieve that objective.

The policy now is to let spending rise in real terms it rose by 1.75 per cent. from 1982–83 to 1986–87—so long as it falls as a percentage of GDP. I was perturbed when the Chancellor informed the Committee at one of its recent meetings that in a recession the Government might let spending rise as a percentage of GDP in any particular year. Government spending, excluding the proceeds of privatisation, which is planned to be 42 per cent. of GDP in 1988–89, is far too high. We should have a target to get that figure down to under 40 per cent.

Without doubt the taxation rate on individuals is still too high. Our top rate of 60 per cent. is far too high when compared with our major industrial competitors. The bottom rate of 27 per cent., on to which is added 9 per cent. national health insurance contribution, making a total starting rate of 36 per cent., is also far too high.

Dr. Marek

The hon. Gentleman must get his facts right. Our top rate is not all that high. Only the United States and possibly one other country have a top rate lower than ours.

Mr. Townend

If the hon. Gentleman examines the facts, he will find that in many other countries the top rate starts at a much higher level of income.

Despite the excellent efforts by the Treasury in particular and the Government in general, expenditure in some areas is not very well controlled. The DHSS budget is spending £69 billion a year. I asked in a written question what was the cost to the United Kingdom taxpayer of DHSS payments to citizens of the Irish Republic. I received the reply that the Department did not know, as no separate records are kept. I thought that that might be understandable; perhaps all non-United Kingdom citizens were lumped together under one heading. Accordingly, I put down another question asking the total cost to the Exchequer of DHSS payments to non-United Kingdom citizens. I received the same reply—the Department had not the slightest idea.

I am sure that we are not receiving value for money in many parts of the Health Service. We have been pouring in billions of pounds of extra money every year, yet the demand for more resources by those with vested interests is rising like a crescendo. I find it strange that we have far more nurses per hospital bed occupied than have, for instance, Germany and France.

Such massive consumer resources should be split up. They are far too large for any single Cabinet Minister to oversee. There should be separate Cabinet Ministers for health and for social security. If we do not want an extra Cabinet Minister, social security should be tacked on to employment. That would be far more logical.

Let me say a brief word about the world scene. If the United States must solve its dual problems of the trade and the federal deficits, it will inevitably cease for a period to be the engine of the world economy. If we are to avoid a world recession, other countries will have to take its place.

The United Kingdom, with its growth rate in the past year, has certainly played its part—especially in view of its balance of payments deficit, which Opposition Members have pointed out. The world, however, must look to the two major surplus countries to play their part if we are to avoid recession. They, of course, are Germany and Japan. Although both countries make gestures by stimulating their economies, they have not done enough to keep world trade growing at the required rate. In particular, Japan's actions to open up its home markets 1:0 imports have been pitiful. Japan needs to be pressurised more effectively and, indeed, threatened with retaliation by all members of the G7 group.

It is interesting that our Foreign Secretary said on returning from Japan that he was hopeful that the discrimination against Scotch whisky would end — not now, but within a year. It is always the same with the Japanese: they will do it, but not now. It is not convenient; it is not politically possible; it is in the future. It is always the same old story.

I support the remarks of my right hon. Friend the Member for Worthing (Mr. Higgins) about intervention. It is very dangerous for us to intervene to keep up the value of the dollar when the United States is not putting its own money at risk. Table 4 on page 12 of the Select Committee report shows that the brunt of the intervention has been borne by Japan, Taiwan, the United Kingdom and Germany, not by America.

This is a year in which the Chancellor has the resources to make significant reductions and, I hope, significant reforms in taxation, and to stimulate enterprise even further. However, all the big spenders have the scent of money in their nostrils, and every pressure group imaginable is demanding more and more spending. The Chancellor should not give in to those strident demands. He should use the resources available to lower borrowing, and to reduce interest rates and taxes. Our economy is in a healthy state, and the hand on the tiller is perhaps the most able of this century. There may be economic storms ahead for the whole world, but we can be hopeful that Britain will come through relatively unharmed.

8.45 pm

Mr. Alex Salmond (Banff and Buchan)

A few years ago, a bright young financial journalist wrote: In my mind the great social justification for a mildly inflationary economy is that a society in which borrowers do better than lenders of money is fundamentally more attractive than one in which the reverse is true. I have often wondered what happened to the ideas and ideals of that young journalist—particularly now that he occupies No. 11 Downing street. One of three cardinal errors in the Government's approach to the economy has been consistently to create an economic environment that has favoured the lenders rather than the borrowers of money. This culminated in 1986, when real interest rates over the average for the year—taking the three-month Treasury rate compared with inflation—reached plus 7 per cent., one of the highest rates of the century.

The Government claim consistency for their economic policies. Certainly interest rates, at least, have been consistently high, but the reasons for that have been changing all the time. When the Government first came to office, there were high interest rates in hot pursuit of sterling M3. That was eventually given up as being unmeasurable. Some three years ago, the Chancellor hiked interest rates to stabilise the currency, and latterly we have had high interest rates to stop so-called "overheating" in the United Kingdom economy. The phrase "overheating" comes as a bitter irony to regions whose economy is still in deep freeze. Industrial production in Scotland, for example, has not even returned to the levels of 1980. How, then, are we to reflect on a Government who talk about high interest rates to stop overheating of the economy?

Conservative Members used to say — perhaps they still do—that there was a direct relationship between the level of interest rates and that of public borrowing: the higher the level of public borrowing, the higher that of interest rates. Among the many "achievements" of the present Chancellor has been to establish that, in the United Kingdom over the past eight years, there has been an inverse relationship between the level of public borrowing and that of interest rates. Over the period between 1979 and 1986, the public sector borrowing rate went from £10 billion to £3.5 billion. Over the same period real interest rates rose from minus 1 per cent. to plus 7 per cent. Under the Government, the lower the level of the PSBR, the higher the level of real interest rates.

What has it taken to get any amount off the real level of interest rates? It has taken a 25 per cent. stock market crash. I was talking the other day to one of my constituents, a hard-pressed farmer, who asked why there was at last some relief in the level of interest rates. I replied that the reason was a 25 per cent. stock market crash. He replied that he wanted a fall of another 25 per cent. so that he would secure another 2 per cent. off the interest on his borrowing.

That reflects real feeling in the real economy—the manufacturing and the producing economy — that its interests are being made subservient to those of the financial economy. Instead of growing with the manufacturing economy, the financial economy has grown at its expense. In the 10 years between 1976 and 1986, the financial sector increased its share of gross domestic product from 11 per cent. to 16 per cent. In the same period, the manufacturing sector declined from 29 per cent. to 24 per cent. The financial sector has been allowed to grow at the expense of the real economy. The Government have committed the error warned of by a previous Tory Chancellor of making industry too poor and finance too proud.

In later life Churchill conceded that he was probably the worst Chancellor in British history. To be fair to the great man, he wrote that before the term of office of the right hon. and learned Member for Surrey, East (Sir G. Howe). That right hon. and learned Gentleman has the distinction of wasting the greatest economic opportunity of modern times—more than £100 billion of oil revenue protection for the United Kingdom's balance of payments. For generations successive Governments have been "blown off course" because of pressure on the balance of payments. The Government came to office with no constraint, but what did they do? They invented their own constraint and introduced the sterling M3 target.

I was interested in the remarks made by the right hon. and learned Member for Richmond, Yorks (Mr. Brittan), who demonstrates that the spirit of 1979 to 1981 still haunts the Conservative Back Benches. However, how on earth can he talk about regenerating the regional economy of the United Kingdom when he simultaneously advocates a policy of fiscal retrenchment?

I regard the appropriation of Scottish oil revenues as probably the greatest piece of international larceny since the Spanish stole the Inca gold. However, such action would have been much easier to bear if the oil revenues had been used to finance expansion and investment in the economy instead of being used to finance monetarist experimentation and retrenchment, and if Scotland had not been forced to bank-roll the Government's economic policies for the past eight years. Despite that, the Chancellor still has the effrontery to come to Scotland and tell the people how dependent we are on the largesse of the Treasury! The monetarist experiment is now over, but the economic consequences live on. They live on with the reemergence of the balance of payments as the major restraint in the United Kingdom economy. In the Autumn Statement discussed today we have had the forecast of a £3.5 billion balance of payments deficit this year and there is the possibility of it increasing next year to £5 billion or £6 billion. The United Kingdom will have to pay its way through the world without the comfort of massive oil revenues and with a vastly reduced industrial base.

The third major failing in the Government's approach to the economy is their lack of any attempt to redress the serious regional imbalances in the United Kingdom. Perhaps the greatest single cause of inflationary pressure within the United Kingdom economy at the moment is spatial imbalance. The south-east the south-west and East Anglia are bidding up prices throughout the country. Government policy, far from redressing that balance, in many ways reinforces it.

Let us consider the fiscal and transport subsidies that are available to the south-east of England, London weighting, and the massive defence expenditure based along the M4 corridor. Such subsidies, together with mortgage tax relief, represent massive implicit subsidies for the most privileged corners of the United Kingdom. The south-east of England houses 30 per cent. of the United Kingdom population, but it obtains 50 per cent. of the available mortgage tax relief. That represents an excess subsidy over that region's population share of £1 billion. That should be compared with the regional aid budget for the whole of the United Kingdom. We find that mortgage tax subsidy — an excess subsidy for the south-east of England—is now worth more than the entire regional aid budget for the rest of the United Kingdom, and that is before taking into consideration the recent announcement on regional aid.

It is part of the hypocrisy of the present Administration that public expenditure in the regions and nations of the United Kingdom is described as an unacceptable subsidy, but massive tax subsidies for the south-east of England are said to be "fostering the enterprise economy".

The Government have critically weakened the United Kingdom's industrial base as a result of high interest rate and high exchange rate policies. Secondly, the vast opportunities of the oil revenues have been wasted. Thirdly, and perhaps most important, no attempt has been made to redress the maldistribution of resources. The Government have concentrated power, income and wealth in the south-east corner of the United Kingdom, which just happens to be occupied by the Conservative party's friends, sponsors and voters.

8.54 pm

Mr. Andrew Mitchell (Gedling)

I shall be brief, not least because I am an enthusiastic co-sponsor of the early-day motion proposed by my hon. Friend the Member for Wokingham (Mr. Redwood) that urges that Back-Bench speeches should be limited to 10 minutes.

I wish to make three points. First, this year's Autumn Statement has been delivered against a background of profound international turbulence and nervousness in the financial markets. For many years, we were used to the British economy being rather less certain, more turbulent and less successful than other Western, or indeed Eastern, developed economies. Now the position has been reversed. In many ways, our economy is performing in much the same way as it did in the 1950s — inflation perhaps a little lower here and growth perhaps a trifle higher there. However, in the 1950s we were performing much worse than our main competitors—now we are performing rather better.

There must be something refreshing and perhaps invigorating for my right hon. and hon. Friends on the Treasury Bench about the way in which their policies and views have been copied around the world. That has occurred not only in countries with Administrations that follow avowedly free-market policies. So-called Socialist Governments in Scandinavia, Spain, Australia and New Zealand are pursuing policies similar to our own. That can hardly be dismissed as coincidence. In New Zealand and Australia, there has been a conversion to policies traditionally denoted as Thatcherite—a conversion to policies of minimum tax interference in the workings of the market and a philosophy of tax neutrality. It is interesting to note that the Labour Governments of those countries were returned to power in the past year—re-elected on such economic policies.

Over recent years, we have seen the internationalisation of the markets in terms of competition, supply side and tax regimes. Those countries that bucked that trend — as France did for a while—are now safely back on board. The alternative is simply too unpalatable. The countries that are winning are those which have competitive supply-side economies, which have competitive tax regimes and labour markets that work, and which are privatising and deregulating.

It is a truism that such greater internationalisation makes international co-operation vital. I believe that the concerted action behind the Louvre accord is absolutely essential. The accord has nothing to do with stopping international trends. It is not about seeking to prevent long-term market adjustments. It is about ensuring that the least amount of concerted intervention has the maximum impact on limiting the gyrations of the currency markets. Without such intervention, our industries and economies are too much at the mercy of the currency speculators.

My second point is that we are now in a strong position because of the consistency and sense of purpose of the policies that we have followed for the past eight years. Those eight years of caution and prudence have paid off. We have finally got public expenditure under control. We should keep growth in public spending within the prospective growth of the economy. The worst message that we could now give is that we have money to burn.

The corporate reforms enshrined in the 1984 Budget have had a dramatic effect. Corporate profits are now at an all-time high, with all the consequent gains for investment and new employment. I now look forward to a Budget that will include the major personal tax reforms that would be most beneficial to the supply side of the economy.

My third and final point is that I have some sympathy with paragraph 19 of the Select Committee report that deals with the determination of public expenditure priorities centrally, and particularly in respect of the NHS. The report makes the point that NHS expenditure has massively increased. Through medical research and discovery and the opening up of marvellous new medical cures and treatments, the demands and the need for funding medical care are increasing and will continue to increase. How we bridge that gap and how we increase the amount that we spend as a country on health care is a matter which exercises all hon. Members on both sides of the House. It is not a matter which I propose to pursue now.

However, the manner in which we target additional funds to the NHS is relevant to the debate. An overrun budget in a hospital department or a growing waiting list are not necessarily evidence only of need. They may be evidence of gross inefficiency and the misuse of resources For example, we know that some hospitals spend three times as much as their neighbours on the same operation. We need to know much more about that phenomenon within the NHS if we are to ensure that increases in funding are to reach directly and effectively those in need. To achieve that aim we must develop the internal market within the NHS. That is the best way to ensure value for money, support better health practice and enable funds to stretch further in the interests of patients.

The Autumn Statement offers steadily rising living standards, rising employment, low inflation and impressive growth. It was presented to the House against the background of an increasing international consensus of Governments of both the Left and the Right on the rectitude and success of this Government's policies. Tonight we shall see whether Opposition Members are moving towards accepting that consensus, or whether they wish to buck the trend and remain out in the cold.

9 pm

Mr. Austin Mitchell (Great Grimsby)

I want to emphasise how much the Chancellor has done during recent months to kill the goose that laid his golden eggs through a series of actions which have been directly harmful to British manufacturing industry.

The first and most dangerous of those actions was to encourage the pound to rise in value. The system of putting the pound into a relationship with the deutschmark when the deutschmark has to go up means that the pound has been rising and becoming dangerously uncompetitive. There has been a major loss in competitiveness during the past few months. A major real over-valuation compared with 1986 has emerged.

That tendency has been further sustained by the high interest rate, which the Chancellor refuses to reduce. Indeed, the Bank of England does not want to reduce it because it considers that the Chancellor has allowed credit to expand so enormously that any reduction in interest rates will boost the credit bubble again. Therefore, we are trapped in a policy of high interest rates and an overvalued pound, when it is logical that the pound should fall with the dollar, if we are to maintain our competitiveness in the American market which has produced two thirds of manufacturing exports since 1979. We have become dependent upon the American market. The dollar still has some way to fall. It is no use the world trying to shore up the dollar. We cannot push water uphill by international agreement. The pound needs to come down with the dollar.

The terms of trade in manufactures are now, at 104, worse than they were at the height of the monetarist depression in 1981. That forebodes the same consequences for manufacturing industry — the loss of jobs and exports and the rise of imports—as resulted from that depression. It means that expansion must now come to an end. We are now at an interesting turning point which will prove either the monetarist, moralist philosophy of economics that we have heard so much about from Conservative Members or the argument that I emphasise, that competitiveness and industrial health are based on the exchange rate, and that we need a competitive exchange rate for a healthy, exporting, competing manufacturing industry.

If the exchange rate hypothesis is correct, the economic consequences of the next few months will be serious to British industry. If the monetarist, moralist interpretation—to which several Conservative Members have referred—is correct, we shall be able to ride it out with only a slight setback in growth. We are now at that interesting test point. It is my thesis that the Chancellor needs to provide for some of the problems that we will have with our exports by expanding the domestic economy much more than he seems to envisage with the present halfcocked expansion, which is doing nothing to make up the ground we have lost or to bring down unemployment.

As a country, we are under-borrowed compared with competing economies and compared with what we need to do to sustain economic activities. If the exchange rate thesis is correct, it is ludicrous to cut borrowing, and even more ludicrous to be over-funding to try to damp down the credit explosion, which is what the Government are doing.

I conclude by saying that the next few months will provide a serious test, which bodes ill for British manufacturing. With the over-valued pound, the terms of trade and the high interest rate burdens with which it is compelled to compete, the prospects for survival of manufacturing and for a continued fall in unemployment are dire indeed.

9.4 pm

Mr. Gordon Brown (Dunfermline, East)

This has been an interesting and informative debate in which we have had a maiden speech by the hon. Member for Wimbledon (Dr. Goodson-Wickes). He concentrated, appropriately for his position as a doctor, on many of the issues facing the Health Service. His speech was eloquent and excellent in its delivery, even if it concentrated on the silver linings of the Health Service at the expense of the dark clouds on the horizon.

The debate was also dignified by speeches from the Chairmen of the Select Committee on Treasury and Civil Service and the Public Accounts Committee. The debate has been graced too by speeches from my right hon. Friends the Members for Blaenau Gwent (Mr. Foot) and Bethnal Green and Stepney (Mr. Shore) and from my hon. Friends the Members for Durham, North (Mr. Radice), Gateshead, East (Ms. Quin) and Great Grimsby (Mr. Mitchell).

The debate may be remembered most for the interesting speech by the right hon. Member for Shropshire, North (Mr. Biffen) who suggested that the 1p or 2p that might otherwise have gone to tax cuts would be better spent on the National Health Service, the amount being £2.5 billion if reckoned at 2p. He has done more in a few minutes to speak up for the traditions of one-nation Toryism than the Chancellor has done in eight long years as a member of the Conservative Government.

When we face one of the biggest crises in the National Health Service in its 40-year history, when we still have 2.5 million unemployed and 5 million on supplementary benefit, and when 8 million are dependent on these benefits and 16 million are on low incomes, one might have thought that the Chancellor would at least have paused this afternoon to consider some of the tasks that remain undone. One would have thought that the self-congratulation might have been interrupted to take note of the poverty, deprivation and misery in our midst, and that we might have heard from the Chancellor, if not a promise or a commitment, at least the offer to consider using some of our national resources to relieve poverty, further to reduce unemployment and to help the National Health Service, which is in such need.

But the truth about the Government has been revealed, as my right hon. and hon. Friends have said so eloquently. Even though the Government have the money—with the windfall of North sea oil revenue being higher than expected, money available to them by good fortune rather than by good management — even though they have been made aware from both sides of the House of the needs of the people, even though to secure re-election they made certain promises and even though they can see for themselves the employment benefits of spending and investing the money, the Government refuse to spend enough on Britain. Money that was once withheld on grounds of financial prudence is now withheld for reasons that can only be described as ideological. Again and again in the last eight years the Government have said that they would spend if they could. Now they can, and they will not.

If the economy is as successful as the Chancellor has said, why cannot he spend sufficient money to provide a decent level of pensions for 9 million pensioners? Why has he had to freeze child benefit for the 7 million mothers and 12 million children who depend on it, and why for the first time in 40 years has he had to introduce charges for a visit to the optician and dentist to raise £170 million?

If the economy is fundamentally far stronger than it has ever been, as the Chancellor said at the new year, and if we are to look forward to long-term sustainable, secure growth and rises in living standards, why by the one test of these economic prospects—the level of investment in training, in education, in research and development, and in machinery and plant — have the Government done worse and why are they still doing worse than all our major competitors? Why as a result of the Autumn Statement will the Government continue to do worse in the next three years?

Why are we investing less in ourselves—as a share of our national income—than all our major competitors, including Japan, which appears to be investing 50 per cent. more than we are? Why is no other country in the industrialised world, with the exception of Belgium, investing less in its economy? Why are we investing less as a share of our gross national product in the oil-rich 1980s than we did in the 1960s and the 1970s?

If the Chancellor will not listen to me, will he listen to the Confederation of British Industry, which had this to say a few weeks ago about our growth rate: The momentum will not be sustained without much higher levels of investment in research, development and training, as well as fixed capital. And, if he will not listen to the CBI, will he not listen to the Engineering Employers Federation, which said in its Budget submission: We believe the level of investment expenditure in the UK to have become disturbingly low … What concerns us is that growth will be unsustainable without increased investment, training and research and development. Faced with that record of low investment generally, might we not have expected the Chancellor to be telling us in his Autumn Statement how he is to bridge that gap in all those major areas, how he is going to make up that investment shortfall, especially when we know that in the public sector we invest 40 per cent. less per head than is invested in Germany and 200 per cent. less than is invested in Japan?

Is it not the case — and I expect detailed answers from the Chief Secretary when he replies this evening—that, far from narrowing, that gap will widen as a result of the Autumn Statement: £100 million a year less in local authority direct investment each year until 1990; £800 million a year less in public sector capital investment each year until 1990; a 2, 3, 4 per cent. decline in the amount of money invested by the Government in our economy? No wonder the CBI has also said that the cuts in public sector capital spending must be reversed. The Government's argument throughout all this is that spending has been sufficient, even when all the evidence from doctors, teachers, industrialists and public servants has been the opposite. If the Chancellor believes that spending is sufficient, has he looked at the state of our schools? One million of our primary schoolchildren are being educated in classrooms built before the first world war, on which, as a result of the Autumn Statement, only 2 per cent. of the money needed for vital repairs is to be spent. Has he visited our hospitals, where two thirds of the wards were built in the days of the voluntary and charity hospitals and even now nurses are having to leave their patients to run flag days to raise money for vital equipment and repairs? Has he seen the condition of our inner cities and our regions? Has he looked at our roads and railways? Does he not understand that what we do not invest in infrastructure today we shall have to spend on more unemployment tomorrow?

Nowhere is the need for greater investment more clear than in research and development, science and innovation. Prior to the last election the Government promised that they would spend more money in this area. They promised more support for single industry research. They commissioned and received the Bide report on information technology. They gave the impression that they would sponsor further space research. They promised £200 million for the collaborative programme in electronics called LINK. But since the election there has been not a penny more for single industry support, which is now abolished; not a penny more for space research, as, further, we pull out of the European programme; not a penny more for the second stage of Alvey, for which the demand was for £400 million and which is to receive around £30 million; not a penny, after 13 months, for the LINK programme in electronics. Is it not a scandal that, 13 months after the Prime Minister announced the creation of the LINK programme in electronics, not a penny has been spent, especially when the Prime Minister said as she announced it in December 1986 that it was essential that advances were rapidly exploited"? The Government claim that they are spending more when they are spending less, as a Government, on industrial research and development. Perhaps that is what the Department of Trade and Industry meant when it claimed recently in its press release that it was helping to translate science fiction into fact". All this has happened since the Prime Minister took personal responsibility for our research and scientific effort.

Education, promised more in the Autumn Statement and at the election, receives less after we take into account the election year teachers' salary commitments and redundancies in our universities. The vast majority of British young people leave school at the earliest opportunity without qualifications. Half as many workers in Britain have technical qualifications than their counterparts in the United States, Japan and West Germany. A lower proportion of our people are in higher education than in any European country with the exception of Portugal. If we followed the example of Japan, the United States and West Germany, 500,000 more pupils would stay on at school. One million more pupils would leave with higher grade qualifications and there would be 500,000 more people in our universities and colleges.

We are now doing worse than countries far smaller than ourselves. South Korea, with a population of 50 million, has 1,200,000 university and college students, yet Britain, with a bigger population, has only 800,000. Our best prospect now appears not to try to stay level with Japan, but to keep up with Taiwan, not to beat West Germany, but to stay up with South Korea. Are Conservative Members proud of the fact that, instead of pursuing the ambition to have the best educated, best trained, best qualified working population in the world, we are spending much less than most of our European competitors on education?

The cuts are nowhere more obvious and alarming than in the Government's policy towards our regions. The latest Government figures show that more than one million jobs have been lost since 1979 in the north, Scotland and Wales. The latest Government figures published in December show that the real value of manufacturing investment is still 35 per cent. lower in the north than it was in 1979, 33 per cent. lower in Yorkshire, 30 per cent. lower in the north-west and 27 per cent. lower in Wales. Most damaging of all is the high permanent unemployment, emigration and forced depopulation in one part of the country when we have overheating, congestion, skill shortages, pressure on the green belt and escalating house prices in another part of the country. That is neither good for the regions nor for the country as a whole.

What is the Government's reaction? On Tuesday they published a White Paper which makes a virtue of the fact that they will cut automatic regional aid which was worth £800 million in 1979, £200 million this year and will be worth nothing in the future. They plan to replace it with private consultancy services, one-stop shops and advisory services whose chief feature is that they will benefit the more prosperous regions more than they will ever benefit the disadvantaged regions. What has happened to the bipartisan tradition in regional policy? Regional policy was started by a Conservative Government when unemployment in the regions was 4 per cent. to 5 per cent. The Government are now abandoning it when unemployment is still about 14 per cent. to 15 per cent. in most of our industrial regions.

What about the promises to the inner cities? They are now in danger of moving from depression to recession, without ever having enjoyed an intervening period of recovery. Where is the new investment that will benefit the inner cities? Does the Minister not realise that the small amounts given by the Prime Minister to urban development corporations, city action forces and inner city task forces have already been taken away in cuts in rate support grant, and regional aid, and further cuts, even at the heart of the urban programme?

I do not know how Conservative Members can deny that. At the election the Secretary of State for Trade and Industry made a great virtue of the fact that the programme for the inner cities would have to be self-financing. The Chief Secretary said: We will not succeed by spending money". The British economy was not to have performed like that. It was to be quite the reverse. I shall finish the quotation: We can only tackle the problems of the inner cities by direct action to encourage local initiative, by giving people the opportunity to be self-reliant. Does closing schools in the inner cities provide the opportunity to be self-reliant? Does cutting the number of beds and wards in hospitals give patients the opportunity to be self-reliant?

Did the Government ever intend to do anything for the inner cities? We are told that on election night the Prime Minister said that something had to be done for the inner cities. But when it was suggested to the Prime Minister when she visited the north-east a few months ago on her walkabout that she had said that something had to be done for the inner cities, she said: That was not quite what we said. Notice the royal "we".

We said that we wanted to win back those inner cities to our cause. That was not a commitment to jobs in the inner cities, just to votes in the inner cities. Success is to be judged not by how much people in the inner cities were assisted, but by how much the Tory party in the inner cities was assisted.

Is that not the old trick — to hold out as long as possible by denying that there is a problem in the inner cities, the Health Service, or the education service or anywhere else, and then to turn out a huge and grand new initiative more to do with public relations than public policy changes?

Is that not what happened to the enterprise zones, announced with a great flurry in 1979 and quietly abandoned by the Government with a press release on Christmas eve? Is that not what happened with the great new initiative for 20 city technology colleges announced in October 1986 by the Secretary of State for Education, only four of which have been designated and none of which has been opened?

What about all the other initiatives? Remember Britain 2000 and Mr. Richard Branson of Virgin Records? Mr. Branson was brought in to clean up the litter. Mr. Branson cleaned up; the litter remained — government not by grand and great design, but government by gimmick and government by gesture. We do not get job campaigns for our inner cities and regions, simply advertising campaigns.

As we near the next election, the Prime Minister will return to the inner cities and, just as she did with unemployment, she will declare the problem of urban deprivation to be solved, no doubt after 19 changes in the definition of "inner city". The nation knows that the inner city crusade is a crusade without cash. The problems of the inner cities and regions will last until domesday if the Government's policies are all that confront them.

What of the National Health Service which has been mentioned by so many people this evening? When we know that the NHS needs at least an additional 1 per cent. above inflation for demography; when it needs another 1 per cent. to keep pace with technology; when we know that, to make good the shortfall that exists at the moment and to make up for the nurses' salary awards that were never properly funded, another 1 per cent. is needed; when we know on the Government's own figures, given by them to Select Committees and in documents that are available to the House, that the minimum that the Health Service would need is an increase in real terms above inflation of more than 3 per cent., what is the proposal in the Autumn Statement? What is the proposal, stripped of its pretentions, after taking into account the announcement just before Christmas of another 100 million this year?

When the Health Service needs at least an extra 3 per cent. above inflation, the Autumn Statement proposes 0.7 per cent. That is the best that the Autumn Statement can do. We find ourselves with one quarter of the money that is needed. [Interruption.] The Chief Secretary says that he will give the figures. The statisticians in the Treasury will now be at work. The figures are clear in the Autumn Statement. One should take account of the fact that spending is to rise by £100 million this year, and if that is not compensated for next year by another announcement there will be a cut.

The Government used to tell us that they would spend if only they had the money. Now they have the money and they still refuse to spend. It is not a shortage of cash in the Treasury that is depriving the Health Service of resources; it is a shortage of compassion and concern on the part of the Government. It is not the absence of money; it is the absence of morality in the Government. If they do not accept what we say, let them look at the evidence around the country. I shall not take the most publicised versions of what has been going on in different areas and communities. All one needs to do is to listen to the health authorities, the doctors and the patients.

One has only to listen to the consultants in Birmingham who, on Monday, had to form a committee to save the Health Service; to listen to the Cornwall health authority, which yesterday had to close a 79-bed hospital to save £500,000; to listen to the Greater Manchester health authority, which says it cannot even pay its salary bills and whose cash is running out—any other authority in that position would have been declared bankrupt; to listen to the people from the midlands whom the Prime Minister refused to meet this afternoon; to listen to the Shropshire health authority, which is faced with a decision to close 10 hospitals with a loss of 367 beds; to listen to them all to know that waiting lists are at 850,000 throughout the whole of the United Kingdom, we have lost 46,000 beds since 1979, 30,000 nurses are leaving the Health Service every year, and if the Government do not spend the money that is required, the Health Service faces the rest of 1988 with a crisis on its hands.

The position of the Government and of the Prime Minister is that the private sector must be encouraged to bridge the gap, even when she knows that the National Health Service is more efficient, less administratively expensive to run and that, in a unique way, it combines economy with equity. Even though all those things are known, and the Prime Minister knows that the public want to spend money on health—and want it spent on the National Health Service — she refuses to invest any more. She would prefer private money being used ineffectively to public money being used productively. She believes in the private sector, not because it is more efficient—it is not—but because it is the private sector. She opposes the extension of public provision, not because she thinks it is inefficient, but merely because it is public. In that way, she would reduce our great National Health Service, which is internationally admired and the envy of the world, to the economics of her corner grocer shop and the morality of the worst ethics of the stock market. Thereby denying people the security of a national service and replacing it with the uncertainty of dependence on free market forces, she then parades that choice as an extension of freedom.

My right hon. and hon. Friends have said today that the Chancellor faces a choice. We are told that he is considering reducing the top rate of tax for the top 4 per cent. of the population, at a cost of £850 million. Why does he not spend that money properly on the National Health Service, education and the public services? We are told he is considering abolishing capital gains tax, which is paid by the top people in this country, raising just over £1 billion. We are told that he is considering abolishing inheritance tax, which raises £1 billion from those who are rich enough to inherit sums of more than £90,000. Is it not clear to the Chancellor that the wish of the country arid of the vast majority of its people is that, instead of tax cuts to make the rich few who will benefit from them richer, the money should be spent on our Health Service, public investment and the expansion of our public services?

No Government have had the advantages of North Sea oil revenues of £60 billion of windfall money that this Government have enjoyed. During these past eight years, no country has lost so many jobs in productive industries or has invested so little a share of its national income in its industry or public services, with the result that no country faces the future so ill-prepared for the problems of the 1990s or the 21st century. If the Germans had discovered oil, would they have closed down the Ruhr and invested all the money abroad? Would the Japanese have closed down their computer industry and put all their money abroad?

The message to the Chancellor from the country is clear. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said earlier, the Chancellor may have changed his tune about the importance of the money supply and about the wisdom of leaving interest rates and exchange rates to the vagaries of free market forces, but on the issue of public investment, especially investment in the National Health Service, he has refused to learn from his mistakes. Even when he has the money and knows the needs, even when the Prime Minister has made promises, and when we can see the employment benefits of investing in the National Health Service, in education and the industries of this country, the Chancellor refuses to invest more in Britain. His is a message of dogma and ideology. What this country needs is realism and common sense, and for that it will have to look to the Labour party.

9.30 pm

The Chief Secretary to the Treasury (Mr. John Major)

The hon. Member for Dunfermline, East (Mr. Brown) has just made his debut as an Opposition Front Bench spokesman on the economy. He spoke with considerable eloquence and passion, but what he said was a welter of misleading and half-understood statistics, almost all of which were wholly inaccurate.

The hon. Gentleman had much to say about jobs, but nothing to say about falling unemployment. If the hon. Gentleman read the Autumn Statement, he clearly did not understand it. He refered to social security cuts, but made no acknowledgement of the £48.5 billion that is made available in the Autumn Statement. He referred to education restraint, with no acknowledgement of the extra £630 million over last year's provision.

The hon. Gentleman referred to inner cities with no acknowledgement of the fact that this year's public expenditure plans will bring total urban spending to £500 million a year, which is two and a half times more in real terms than the amount spent by the Labour Government at any time during their period of office. The hon. Gentleman made no reference to the substantial growth of initiatives that the Government have produced in recent years for the inner cities, such as urban development corporations, urban development grants, urban regeneration grants, enterprise zones, the inner city initiative and Estate Action. None of those initiatives has reached the hon. Gentleman. I do not know where he has been for the last few years, but I dare say that Rip Van Winkle is better informed than the hon. Gentleman about what is going on.

The hon. Gentleman referred to investment, but made no mention of the fact that in the economy as a whole investment was at record levels last year. Indeed, in the first three quarters of 1987 it was up 3.5 per cent. on the previous year's record figures. All those facts were overlooked by the hon. Gentleman in his welter of misleading statistics.

However, until the hon. Gentleman's speech we had had an interesting and thoughtful debate, which was marked by several excellent speeches, including an extremely eloquent maiden contribution from my hon. Friend the Member for Wimbledon (Dr. Goodson-Wickes). My hon. Friend paid a warm and generous tribute to his predecessor, Lord Havers. We all join my hon. Friend in wishing the noble Lord a full recovery soon from his recent illness.

My hon. Friend called for more publicity for payroll giving to charity. I congratulate him on turning his maiden speech towards a most important and interesting topic. I shall certainly draw his remarks to the attention of my right hon. Friend and I hope that those in industry and commerce who deal directly with payroll giving will take my hon. Friend's remarks to heart.

My hon. Friend has the triple attributes of being an occupational physician and barrister and a former serving officer in the Army. I have no doubt that the House will make ample use of his knowledge and talents in all of those areas, and will look forward to hearing from him on many occasions.

It is not often that events in the world economy take centre stage in British politics, but the effects in world markets and the responses of the major countries have justifiably and understandably raised serious questions in people's minds. It was, therefore, entirely appropriate that my right hon. Friend the Chancellor should have devoted so much of his opening speech to those issues.

While the fall in stock markets and the instability of the dollar have made the outlook more uncertain, this is clear to those who wish to see it. The British economy has the strength to weather any external difficulties that might arise. That strength is founded on the sound public finances that we have set out clearly in the Autumn Statement. The statement sets out our broad plans for public expenditure. The House may wish to know that the public expenditure White Paper, which will give our detailed plans, and better inform the hon. Member for Dunfermline, East, will be published next Wednesday. I am sure that we will then have the opportunity to debate it in the normal way, once the Select Committee has concluded its consideration.

The right hon. and learned Member for Monklands, East (Mr. Smith), who is at present enjoying a no doubt fascinating conversation with his hon. Friend the Member for Wrexham (Dr. Marek), spread his net quite widely. I shall turn to his comments on the National Health Service in a few moments.

When the right hon. and learned Gentleman hinges his remarks on opinion polls, as he did, perhaps I may remind him of an opinion poll last June that left him in Opposition and the Government in power with a substantial majority. Before he starts lecturing the Government about opinion polls and public attitudes, he might remember the result of the election just a few months ago.

It was generous of the right hon. and learned Gentleman to assume that my right hon. Friend the Chancellor might have a fiscal adjustment available for his Budget. That is not only generous, but curious too, as before that June opinion poll the right hon. and learned Gentleman and his hon. Friends were repeatedly telling the country to expect higher taxes and public expenditure cuts.

I am gentler than my right hon. Friend the Chancellor, so I will not quote the explicit words of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). [HON. MEMBERS: "Go on."] No, I am much too gentle for that. The fact is that the Opposition were wrong about public expenditure and they have changed their minds about our tax prospects. If the Opposition were so wrong and have changed their minds so rapidly on those issues, I am not sure why they should assume that they are right now in anything that they say.

Before I respond to the right hon. and learned Gentleman's remarks, I wish to deal with the strength of our public finances, as set out in the Autumn Statement. Much of what has been said today reinforces the fact that the background to the debate is extremely favourable. Growth in manufacturing output continues to rise and there is a secure outlook for investment and inflation.

My right hon. Friend promised that I would deal specifically with public expenditure, and I propose to do so. Our plans include cash increases in the planning total of £2½ billion and £5½ billion in the next two years, much of which is directed specifically to priority programmes. I emphasise for the right hon. and learned Gentleman's interest that they are increases, not cuts, in public expenditure. Our plans also show a welcome and rapid fall in the share of national income taken by public expenditure, with the trend set to continue from 44 per cent. of gross domestic product in 1986–87 to 41¼ per cent. by 1990–91. That will be of special pleasure to my right hon. and learned Friend the Member for Richmond, Yorks (Mr. Brittan), who expressed his concern to ward off inflationary pressures and urged caution in our fiscal stance. I agree without qualification that prudence and caution are vital and I know that the Chancellor will have heard my right hon. and learned Friend's remarks with great interest.

Public borrowing this year is also down, to ¼ per cent. of gross domestic product — £1 billion — which is noticeably better than earlier expectations and the lowest for 18 years. This is in sharp contrast to elsewhere in the industrial world, where the ratio of Government debt to income has been rising. Here, as an act of policy, we have bucked the trend, and our debt interest payments have decreased from 5¼ per cent. of GDP in 1980–81 to 4¼ per cent. this year. Lest that seem an arcane statistic, I shall point out that the decline, which is set to continue, means that within our medium-term plans we are able to spend more on priority programmes and less on debt interest.

The 1 per cent. reduction in debt interest amounts to £4½ billion — precisely the sum by which next year's spending is increased before taking account of reserves. I hope that it is not too unkind to remind the House that if borrowing had stayed at the same proportion of national income that we inherited, the increased servicing cost this year would have been £8+ billion — nearly 7p on the standard rate of income tax. That is where increased borrowing would have got this Government and the taxpayer, and that statistic was noticeably missing from the speech of the right hon. and learned Member for Monklands, East.

Nor did the right hon. and learned Gentleman make any mention of his pre-election claims of higher taxes and lower public expenditure if the Government were reelected. Nor, interestingly, in view of the way that he twitted my right hon. Friend the Chancellor about not covering all aspects of policy, was there any reference to the new economic strategy that the leader of the Labour party commissioned from the shadow team six months ago today. It may be that the future of other policies launched yesterday encouraged the right hon. and learned Gentleman to remain silent. In any event, Labour policies remain a secret after six months, while the alliance's have become a catastrophe after six hours.

The debate has repeatedly returned to public expenditure priorities, and the right hon. Member for Blaenau Gwent (Mr. Foot), his right hon. and learned Friend the Member for Monklands, East, my right hon. Friend the Member for Shropshire, North (Mr. Biffen) and a number of other right hon. and hon. Gentlemen referred specifically to the National Health Service. My right hon. Friend the Member for Shropshire, North set out some intriguing principles for the reform of the National Health Service and I have no doubt that they will be widely read and considered, although they seemed to receive no endorsement from Opposition Members who still live in a time of many years ago.

Few people would doubt the genuine affection in which the National Health Service is held. It has been manifested in recent weeks in calls for greater funding and I will return to that point in a moment. First, I wish to refer to Opposition Members who in recent years have repeatedly claimed that the Government simply do not care about the National Health Service.

Miss Marjorie Mowlam (Redcar)

The Minister's performance is absolutely pathetic.

Mr. Major

Not only is this not true, but remarks like that simply trivialise and debase what ought to be an important national debate—and the hon. Member for Redcar (Miss Mowlam) illustrates the point far more eloquently than I can. I have no doubt that Opposition Members care about the National Health Service, and I have no doubt that their predecessors cared 10 years ago when they imposed on the Health Service the largest capital cuts it has faced at any time in its history. So the question is not about who cares — we all care — but about how to achieve the quality and quantity of service that we all wish to see. In that, money cannot be the whole answer. The pressures are clear.

The hon. Member for Walsall, North (Mr. Winnick) is present with us. Lord Wilson of Rievaulx once referred to the hon. Gentleman as the silliest man in the House. Clearly, that was one of the noble Lord's characteristic understatements.

The pressures on the NHS are clear. Demographic changes, an aging population, medical improvements and greater expectations have all led to the calls for greater funding. If we are genuinely concerned not about making political points but about getting the best possible Health Service, that cannot be the whole answer. [Interruption.] It is interesting that the Opposition are not genuinely interested in the Health Service but only in making partisan political points about the Health Service.

The House is familiar with the growing resources devoted to the service, the increasing number of patients treated and the increasing number of medical staff employed. [Interruption.] I see that the hon. Member for Walsall, North is making his usual intellectual contribution; he is welcome.

Mr. Winnick

Does the Minister use the NHS?

Mr. Major

The answer to the hon. Gentleman's question is yes.

For next year, the net increase for the whole of the National Health Service is £1.15 billion and a similar increase is already committed in the public expenditure plans for the second year in the public expenditure programme. To that £1.15 billion must be added the proceeds of cost improvements programmes, income generation schemes and, to supplement capital programmes, the resources raised by surplus land sales.

We are witnessing extensive public examination of the resources put into the Health Service and I believe that we need equally careful consideration of what we get out of the Health Service as a result of the money that we put into it. Some of what we get is familiar and welcome: the extra medical staff responsible for patients, the extra 1 million in-patient cases, the extra 500,000 day cases and the extra 3.75 million out-patient cases. Those improvements in the service are concrete evidence that the Government have put in extra resources for care and that they have been used.

As the right hon. and learned Member for Monklands, East and my right hon. Friend the Member for Shropshire. North acknowledged, Governments alone cannot meet the infinite demands for health care.

We have to ask some uncomfortable management questions of the NHS if we are genuinely to confront the difficulties of getting the best possible patient care for the resources that are made available. Why are general surgical beds in some parts of the country empty for nearly seven days between patients hut occupied again in less than half a day in other parts of the country? That question deserves an answer. Why does it cost more in some hospitals than in others to do the same operation on the same type of patient? Why can so few health authorities tell us what a particular operation costs? Why do general surgery patients spend two and a half days in hospital before their operations in some health districts while in others they spend less than a day? Why, when there are said to be nursing shortages, do four-hour overlaps on nursing shifts still exist? Those genuinely concerned to improve the quality of our health care believe that those questions, as well as the question of resources, need to be addressed.

Moreover, those questions need an answer before we or the Opposition can know that shortage of funds is the problem. If the answers are unsatisfactory, the case for looking first to improve value for money becomes unanswerable.

Mr. Winnick

Will the Minister give way?

Mr. Major

No, he will not.

That is why, when responding to the problems arising this year, we insisted that the extra funds were accompanied by an improvement in the arrangements for monitoring Health Service performance and why I believe that the results of that monitoring should be published in the interests of getting the best patient care.

Mr. John Smith

The Chief Secretary to the Treasury is aware that yesterday the heads of the three royal medical colleges met the Secretary of State for Social Services, who gave them certain assurances. Will the right hon. Gentleman say whether, in real terms, any extra money, on top of that committed in the Autumn Statement and in statements since, will be given to the National Health Service?

Mr. Major

The right hon. and learned Gentleman anticipated what I was about to say in a couple of paragraphs' time.

We all wish to ensure that patients are treated as well and as speedily as possible. If we are to do that we cannot and should not exclude medical practice and medical efficiency from consideration in the future. It is neither acceptable nor credible simply to blame the level of funding.

The right hon. and learned Member for Monklands, East referred to press comments following the meeting between the Secretary of State for Social Services and the presidents of the three royal colleges. I cannot answer for those press reports, but I can confirm that my right hon. Friend made it clear to the presidents that we had recognised the need to increase resources for health care in the public expenditure round that we have just concluded. Furthermore, last month we announced an additional £100 million for the National Health Service for the current year, and next year we plan to make available a record £21 billion, which is 32 per cent. more in real terms than under the last Labour Government.

We are launching the new income generation scheme and taking powers to increase health authority powers. As my right hon. Friend the Member for Shropshire, North said, we see the private sector as having an important role to play in the provision of health care. That is what my right hon. Friend made clear to the three presidents, and he did not suggest to them that further sums were about to be added to this year's public expenditure settlement.

The increase in public expenditure in real terms for the next year, in terms of the specific increase identifiable in the public expenditure White Paper, is around 2.1 per cent. With the income generation scheme and other schemes, that is likely, based on precedent, to be raised to a real-terms increase of about 3 per cent. in the next year, which is precisely the sum that the hon. Member for Dunfermline, East said was needed. That is the sum that will be available in the next year for the public expenditure settlement that has just been concluded.

The Autumn Statement shows that the National Health Service has been a major beneficiary, with an increase of £700 million over plans in England. There have been other significant additions to the programmes that I have mentioned and other programmes as well.

Mr. Winnick

Will the Minister give way?

Mr. Major

No.

The plans for education have been increased by £600 million, providing additional funding for universities, for basic science and for improving the condition of school buildings. There are additions for law and order, in particular to provide for an expansion in the prison building programme that will amount to almost £400 million in the next financial year.

We have also, contrary to what was said, made substantial additions to our capital plans. Next year capital spending will be about £22 billion, which is £1½ billion more than we had previously planned. Of that increase, spending by nationalised industries accounts for about £660 million, and spending by local authorities, particularly on housing, another £560 million.

Priorities have been the theme of much of the debate. The Select Committee report, for which I thank my right hon. Friend the Member for Worthing (Mr. Higgins) and his colleagues, posed two important questions—how are priorities determined and what is the mechanism by which they are set? My right hon. Friend the Member for Worthing echoed those questions and I strongly suspect that he will follow them up when the Select Committee takes evidence on the public expenditure White Paper. I am delighted that he did so, for not only do they lie at the heart of successful planning and control of public expenditure, but they reveal clearly the difference between this Government and the Labour party.

For the Government, the setting of priorities means establishing the total public spending that can be afforded in the light of the need to keep borrowing down and to meet the Government's objectives for taxation, and then choosing what can be afforded for individual programmes and costing them. The approach of the Labour party is quite different but quite simple. It is a philosophy of, "Give them the money and to hell with the consequences, however inflationary they may be."

The right hon. and learned Member for Monklands, East has made that plain. He wrote in Tribune some time ago: I'm not sure it's important to cost everything. Later he said: I'm cautious about writing down bits of money, they get added up by the Conservatives. Until the right hon. and learned Gentleman learns that it is necessary to cost everything and add it up, he is not fit to be an Opposition spokesman, let alone Chancellor of the Exchequer—not that he is likely to get the chance, with their policies.

The Select Committee, to its credit, is looking for something a good deal more sophisticated, although it veers to the opposite extreme of searching for the philosopher's stone. I fear that that does not exist. There is no magic mechanism for comparing the merits of extra spending on one programme as against another. In the end, the judgment must be political. What there can be is a full appraisal of spending options, with an assessment of output so that the judgments can be informed judgments.

Mr. Winnick

This is rubbish.

Mr. Major

The hon. Gentleman is a specialist on rubbish. The prospect for reviewing policies is continuous, but the public expenditure survey is designed to draw the threads together year upon year.

Mr. Winnick

That is all he is good at.

Mr. Speaker

Order. The hon. Member must not shout across the Chamber.

Mr. Major

It is clear that the legacy of the noble Lord has upset the hon. Gentleman.

I know that my right hon. Friend and the Select Committee are uneasy that Departments are expected to look first to their own cash provisions to finance new initiatives. I make no apology for asking a Minister seeking additional resources to see what in the first instance he can contribute from his own programme to offset the savings. If savings cannot be found, his bid will have to be considered alongside those from other Departments and against the possibility of making reductions in existing programmes. To allow Departments to post off bids to the Treasury without having searched for offsetting savings would substantially weaken public expenditure control, and I have no intention of permitting that to happen.

We have heard a little today about cuts, but not as much as we often do. The dog has barked less loudly than usual. It may be that the Opposition are beginning to realise that it is possible to increase spending, reduce borrowing and cut taxes if we pursue policies that lead to an expanding economy. I remind the Opposition what real cuts look like: a 30 per cent. reduction in capital spending on hospitals and a 40 per cent. reduction in roads capital spending—the product not of this public expenditure survey but of those conducted by Lord Barnett.

Let me tell the Opposition what Tory "cuts" look like: a 36 per cent. increase in National Health Service capital spending, a 30 per cent. increase in the roads programme, and further increases in the coming years. Our cuts have been in borrowing and inflation, not in hospitals and roads. The cuts we have seen have been cuts by the Labour party in Labour headquarters in Walworth road and in the axing of that most enjoyable publication "Labour Weekly" only weeks after reporting that Labour lost the election on economic issues. "Labour Briefing" also has little affection for the Labour party, as it clearly shows.

The Autumn Statement reflects the greatly improving prospects for the economy. Public spending and borrowing are under control. Inflation is low and will remain so, investment is rising, unemployment is falling and there will be growth this year and next year. The Autumn Statement is a further signpost on the route to prosperity, and I commend it to the House.

Question put, That the amendment be made:

The House divided: Ayes 227, Noes 283.

Division No. 139]	[9.59 pm
AYES
Abbott, Ms Diane	Blunkert, David
Adams, Allen (Paisley N)	Boateng, Paul
Alton, David	Boyes, Roland
Anderson, Donald	Bradley, Keith
Archer, Rt Hon Peter	Bray, Dr Jeremy
Armstrong, Ms Hilary	Brown, Gordon (D'mline E)
Ashdown, Paddy	Brown, Nicholas (Newcastle E)
Ashley, Rt Hon Jack	Brown, Ron (Edinburgh Leith)
Ashton, Joe	Buchan, Norman
Banks, Tony (Newham NW)	Buckley, George
Barnes, Harry (Derbyshire NE)	Caborn, Richard
Barnes, Mrs Rosie (Greenwich)	Callaghan, Jim
Barron, Kevin	Campbell, Menzies (Fife NE)
Battle, John	Campbell, Ron (Blyth Valley)
Beckett, Margaret	Campbell-Savours, D. N.
Beith, A. J.	Canavan, Dennis
Benn, Rt Hon Tony	Carlile, Alex (Mont'g)
Bennett, A. F. (D'nt'n & R'dish)	Clarke, Tom (Monklands W)
Bermingham, Gerald	Clay, Bob
Bidwell, Sydney	Clelland, David
Blair, Tony	Clwyd, Mrs Ann

Cohen, Harry	Leadbitter, Ted
Coleman, Donald	Leighton, Ron
Cook, Frank (Stockton N)	Lestor, Miss Joan (Eccles)
Cook, Robin (Livingston)	Lewis, Terry
Corbett, Robin	Litherland, Robert
Corbyn, Jeremy	Livingstone, Ken
Cousins, Jim	Livsey, Richard
Crowther, Stan	Lloyd, Tony (Stretford)
Cryer, Bob	Lofthouse, Geoffrey
Cummings, J.	Loyden, Eddie
Cunliffe, Lawrence	McAllion, John
Cunningham, Dr John	McAvoy, Tom
Dalyell, Tam	McCartney, Ian
Darling, Alastair	Macdonald, Calum
Davies, Rt Hon Denzil (Llanelli)	McFall, John
Davies, Ron (Caerphilly)	McKay, Allen (Penistone)
Davis, Terry (B'ham Hodge H'l)	McKelvey, William
Dewar, Donald	McLeish, Henry
Dixon, Don	McNamara, Kevin
Dobson, Frank	McTaggart, Bob
Doran, Frank	McWilliam, John
Douglas, Dick	Madden, Max
Dunnachie, James	Mahon, Mrs Alice
Dunwoody, Hon Mrs Gwyneth	Marek, Dr John
Eadie, Alexander	Marshall, David (Shettleston)
Eastham, Ken	Marshall, Jim (Leicester S)
Evans, John (St Helens N)	Martin, Michael (Springburn)
Fatchett, Derek	Martlew, Eric
Faulds, Andrew	Maxton, John
Field, Frank (Birkenhead)	Meacher, Michael
Fields, Terry (L'pool B G'n)	Meale, Alan
Fisher, Mark	Michael, Alun
Flannery, Martin	Michie, Bill (Sheffield Heeley)
Flynn, Paul	Millan, Rt Hon Bruce
Foot, Rt Hon Michael	Mitchell, Austin (G't Grimsby)
Foster, Derek	Moonie, Dr Lewis
Foulkes, George	Morgan, Rhodri
Fraser, John	Morley, Elliott
Fyfe, Mrs Maria	Morris, Rt Hon A (W'shawe)
Galbraith, Samuel	Morris, Rt Hon J (Aberavon)
Galloway, George	Mowlam, Marjorie
Garrett, John (Norwich South)	Mullin, Chris
Garrett, Ted (Wallsend)	Murphy, Paul
George, Bruce	Nellist, Dave
Gilbert, Rt Hon Dr John	Oakes, Rt Hon Gordon
Godman, Dr Norman A.	O'Brien, William
Golding, Mrs Llin	O'Neill, Martin
Gordon, Ms Mildred	Orme, Rt Hon Stanley
Grant, Bernie (Tottenham)	Patchett, Terry
Griffiths, Nigel (Edinburgh S)	Pendry, Tom
Griffiths, Win (Bridgend)	Pike, Peter
Grocott, Bruce	Prescott, John
Hardy, Peter	Primarolo, Ms Dawn
Harman, Ms Harriet	Quin, Ms Joyce
Hattersley, Rt Hon Roy	Radice, Giles
Healey, Rt Hon Denis	Randall, Stuart
Heffer, Eric S.	Rees, Rt Hon Merlyn
Hinchliffe, David	Reid, John
Hogg, N. (C'nauld & Kilsyth)	Richardson, Ms Jo
Holland, Stuart	Robertson, George
Home Robertson, John	Robinson, Geoffrey
Hood, James	Rogers, Allan
Howell, Rt Hon D. (S'heath)	Rooker, Jeff
Howells, Geraint	Ross, Ernie (Dundee W)
Hoyle, Doug	Rowlands, Ted
Hughes, Robert (Aberdeen N)	Ruddock, Ms Joan
Hughes, Roy (Newport E)	Salmond, Alex
Hughes, Sean (Knowsley S)	Sedgemore, Brian
Hughes, Simon (Southwark)	Sheerman, Barry
Illsley, Eric	Sheldon, Rt Hon Robert
Janner, Greville	Shore, Rt Hon Peter
John, Brynmor	Short, Clare
Jones, Barry (Alyn & Deeside)	Skinner, Dennis
Jones, Ieuan (Ynys Môn)	Smith, Andrew (Oxford E)
Jones, Martyn (Clwyd S W)	Smith, C. (Isl'ton & F'bury)
Kaufman, Rt Hon Gerald	Smith, Rt Hon J. (Monk'ds E)
Kennedy, Charles	Snape, Peter
Kinnock, Rt Hon Neil	Soley, Clive
Kirkwood, Archy	Spearing, Nigel
Lamond, James	Steel, Rt Hon David

Steinberg, Gerald	Wareing, Robert N.
Stott, Roger	Wigley, Dafydd
Strang, Gavin	Williams, Rt Hon A. J.
Straw, Jack	Williams, Alan W. (Carm'then)
Taylor, Mrs Ann (Dewsbury)	Wilson, Brian
Taylor, Rt Hon J. D. (S'ford)	Winnick, David
Taylor, Matthew (Truro)	Wise, Mrs Audrey
Thomas, Dafydd Elis	Worthington, Anthony
Thompson, Jack (Wansbeck)	Wray, James
Turner, Dennis	Young, David (Bolton SE)
Vaz, Keith
Wall, Pat	Tellers for the Ayes:
Wallace, James	Mr. Frank Haynes and
Walley, Ms Joan	Mr. Ray Powell.
Wardell, Gareth (Gower)
NOES
Allason, Rupert	Couchman, James
Amess, David	Cran, James
Amos, Alan	Currie, Mrs Edwina
Arbuthnot, James	Curry, David
Arnold, Jacques (Gravesham)	Davies, Q. (Stamf'd & Spald'g)
Arnold, Tom (Hazel Grove)	Davis, David (Boothferry)
Ashby, David	Devlin, Tim
Atkins, Robert	Dickens, Geoffrey
Baker, Rt Hon K. (Mole Valley)	Dicks, Terry
Baker, Nicholas (Dorset N)	Douglas-Hamilton, Lord James
Baldry, Tony	Dover, Den
Banks, Robert (Harrogate)	Dunn, Bob
Batiste, Spencer	Durant, Tony
Beaumont-Dark, Anthony	Dykes, Hugh
Bellingham, Henry	Eggar, Tim
Bendall, Vivian	Evans, David (Welwyn Hatf'd)
Bennett, Nicholas (Pembroke)	Evennett, David
Benyon, W.	Fallon, Michael
Bevan, David Gilroy	Favell, Tony
Biffen, Rt Hon John	Fenner, Dame Peggy
Blackburn, Dr John G.	Field, Barry (Isle of Wight)
Blaker, Rt Hon Sir Peter	Finsberg, Sir Geoffrey
Body, Sir Richard	Fookes, Miss Janet
Bonsor, Sir Nicholas	Forman, Nigel
Boscawen, Hon Robert	Forsyth, Michael (Stirling)
Boswell, Tim	Forth, Eric
Bottomley, Peter	Fowler, Rt Hon Norman
Bottomley, Mrs Virginia	Fox, Sir Marcus
Bowden, Gerald (Dulwich)	Franks, Cecil
Bowis, John	Freeman, Roger
Boyson, Rt Hon Dr Sir Rhodes	French, Douglas
Braine, Rt Hon Sir Bernard	Fry, Peter
Brandon-Bravo, Martin	Gale, Roger
Brazier, Julian	Gardiner, George
Bright, Graham	Garel-Jones, Tristan
Brittan, Rt Hon Leon	Gill, Christopher
Brooke, Rt Hon Peter	Glyn, Dr Alan
Brown, Michael (Brigg & Cl't's)	Goodhart, Sir Philip
Bruce, Ian (Dorset South)	Goodlad, Alastair
Buchanan-Smith, Rt Hon Alick	Goodson-Wickes, Dr Charles
Buck, Sir Antony	Grant, Sir Anthony (CambsSW)
Budgen, Nicholas	Greenway, Harry (Ealing N)
Burns, Simon	Grist, Ian
Burt, Alistair	Hamilton, Neil (Tatton)
Butcher, John	Hanley, Jeremy
Butler, Chris	Harris, David
Butterfill, John	Hawkins, Christopher
Carlisle, John, (Luton N)	Hayes, Jerry
Carlisle, Kenneth (Lincoln)	Hicks, Robert (Cornwall SE)
Carrington, Matthew	Higgins, Rt Hon Terence L.
Carttiss, Michael	Hordern, Sir Peter
Cash, William	Howarth, Alan (Strat'd-on-A)
Chalker, Rt Hon Mrs Lynda	Howarth, G. (Cannock & B'wd)
Channon, Rt Hon Paul	Howell, Rt Hon David (G'dford)
Chapman, Sydney	Hughes, Robert G. (Harrow W)
Chope, Christopher	Hunt, David (Wirral W)
Churchill, Mr	Hurd, Rt Hon Douglas
Clark, Hon Alan (Plym'th S'n)	Jack, Michael
Clark, Sir W. (Croydon S)	Jackson, Robert
Colvin, Michael	Jones, Gwilym (Cardiff N)
Conway, Derek	Kellett-Bowman, Mrs Elaine
Cope, John	Key, Robert
Cormack, Patrick	King, Roger (B'ham N'thfield)

King, Rt Hon Tom (Bridgwater)	Renton, Tim
Kirkhope, Timothy	Rhodes James, Robert
Knapman, Roger	Rhys Williams, Sir Brandon
Knight, Greg (Derby North)	Riddick, Graham
Knowles, Michael	Ridley, Rt Hon Nicholas
Knox, David	Rifkind, Rt Hon Malcolm
Lamont, Rt Hon Norman	Roberts, Wyn (Conwyj
Lang, Ian	Roe, Mrs Marion
Latham, Michael	Rowe, Andrew
Lawrence, Ivan	Rumbold, Mrs Angela
Lawson, Rt Hon Nigel	Ryder, Richard
Leigh, Edward (Gainsbor'gh)	Sackville, Hon Tom
Lester, Jim (Broxtowe)	Sainsbury, Hon Tim
Lightbown, David	Sayeed, Jonathan
Lilley, Peter	Scott, Nicholas
Lloyd, Sir Ian (Havant)	Shaw, David (Dover)
Lloyd, Peter (Fareham)	Shaw, Sir Giles (Pudsey)
Lord, Michael	Shaw, Sir Michael (Scrab')
Luce, Rt Hon Richard	Shelton, William (Streatham)
Lyell, Sir Nicholas	Shepherd, Colin (Hereford)
McCrindle, Robert	Shersby, Michael
Macfarlane, Sir Neil	Sims, Roger
MacKay, Andrew (E Berkshire)	Smith, Sir Dudley (Warwick)
McLoughlin, Patrick	Smith, Tim (Beaconsfield)
McNair-Wilson, M. (Newbury)	Soames, Hon Nicholas
McNair-Wilson, P. (New Forest)	Speed, Keith
Madel, David	Speller, Tony
Major, Rt Hon John	Spicer, Sir Jim (Dorset W)
Malins, Humfrey	Squire, Robin
Mans, Keith	Stanley, Rt Hon John
Maples, John	Steen, Anthony
Marland, Paul	Stern, Michael
Marlow, Tony	Stevens, Lewis
Marshall, John (Hendon S)	Stewart, Allan (Eastwood)
Marshall, Michael (Arundel)	Stewart, Andrew (Sherwood)
Martin, David (Portsmouth S)	Stradling Thomas, Sir John
Mates, Michael	Sumberg, David
Maude, Hon Francis	Summerson, Hugo
Maxwell-Hyslop, Robin	Taylor, Ian (Esher)
Mayhew, Rt Hon Sir Patrick	Taylor, John M (Solihull)
Mellor, David	Taylor, Teddy (S'end E)
Meyer, Sir Anthony	Tebbit, Rt Hon Norman
Miller, Hal	Thompson, D. (Calder Valley)
Miscampbell, Norman	Thompson, Patrick (Norwich N)
Mitchell, Andrew (Gedling)	Thorne, Neil
Mitchell, David (Hants NW)	Thornton, Malcolm
Moate, Roger	Thurnham, Peter
Montgomery, Sir Fergus	Townend, John (Bridlington)
Morrison, Sir Charles (Devizes)	Tracey, Richard
Moss, Malcolm	Tredinnick, David
Moynihan, Hon C.	Trippier, David
Mudd, David	Trotter, Neville
Neale, Gerrard	Twinn, Dr Ian
Needham, Richard	Vaughan, Sir Gerard
Nelson, Anthony	Viggers, Peter
Neubert, Michael	Waddington, Rt Hon David
Nicholls, Patrick	Wakeham, Rt Hon John
Nicholson, David (Taunton)	Waldegrave, Hon William
Nicholson, Miss E. (Devon W)	Walker, Bill (T'side North)
Onslow, Rt Hon Cranley	Waller, Gary
Oppenheim, Phillip	Walters, Dennis
Page, Richard	Ward, John
Paice, James	Wardle, C. (Bexhill)
Parkinson, Rt Hon Cecil	Warren, Kenneth
Patnick, Irvine	Watts, John
Patten, Chris (Bath)	Wells, Bowen
Patten, John (Oxford W)	Wheeler, John
Pattie, Rt Hon Sir Geoffrey	Whitney, Ray
Pawsey, James	Widdecombe, Miss Ann
Peacock, Mrs Elizabeth	Wiggin, Jerry
Porter, David (Waveney)	Wilkinson, John
Portillo, Michael	Wilshire, David
Powell, William (Corby)	Winterton, Mrs Ann
Price, Sir David	Winterton, Nicholas
Raffan, Keith	Wolfson, Mark
Raison, Rt Hon Timothy	Wood, Timothy
Rathbone, Tim	Woodcock, Mike
Redwood, John	Yeo, Tim

Young, Sir George (Acton)	Mr. Mark Lennox-Boyd and
	Mr. Stephen Dorrell.
Tellers for the Noes

Question accordingly negatived.

Main Question put and agreed to.

Resolved, That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 3rd November 1987; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.