Public Expenditure

HC Deb 09 February 1989 vol 146 cc1145-228

[Relevant document: First Report of the Treasury and Civil Service Committee on the Autumn Statement 1988, House of Commons Paper No. 89 of Session 1988–89.]

Mr. Speaker

We now come to the debate on public expenditure. Before I call the Chief Secretary to the Treasury, I announce to the House that I have selected the amendment in the name of the Leader of the Opposition.

4.20 pm

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

I beg to move,

That this House takes note of the White Paper on the Government's Expenditure Plans for 1989–90 to 1991–92 (Cm. 601–609, 611–619 and 621). Perhaps I may be permitted to say at the outset that I am sure that hon. Members will be extremely pleased to see the right hon. and learned Member for Monklands, East (Mr. Smith) in his place for this debate. We warmly welcome him and look forward to hearing his remarks.

This is the tenth year in which the Government have published a public expenditure White Paper. In those 10 years, the advance in our economic prospects has been mirrored by great improvements in the management of public expenditure. At the same time, the format, coverage and content of the White Paper have improved beyond recognition.

My right hon. Friend's Autumn Statement revealed that we now have the strongest fiscal position of any major nation. That is due in no small measure to the policy of firm control over public expenditure that we have followed consistently for several years. That policy has played an important part in the revival of our economic prospects and in the growing strength of our economic performance.

I have no doubt whatsoever that firm expenditure control is necessary. It is the right policy for the economy, and it is the right policy for the taxpayer, too.

Public spending has a central role to play in the provision of services that we all care about. But it differs from private spending in one important respect. It involves spending money, compulsorily extracted from the taxpayer, and then spent on his or her behalf by the Government on priorities that the Government determine and that, by and large, the taxpayer must accept. I believe this means, therefore, that the Government have two clear responsibilities. First, spending other people's money must be justified on merit. That means that it must meet a social or economic goal effectively and efficiently. Secondly, total spending must be no more than the taxpayer can bear.

Our policy is controlled growth of public spending—growth that we know we and the taxpayer can afford. The practical effect of being prudent is that, in the long run, we do more for services.

Within the parameters that I have set, public spending has an essential role to play; beyond them, it can be an unsustainable drain on the nation's resources, as the Opposition proved between 1974 and 1979, when borrowing reached over £110 billion in today's terms, and inflation soared. The House will recall that public expenditure then had to be savagely and swiftly slashed—most notably, capital spending. We are determined that will not happen again.

Firm control of the total level of public expenditure and the right choice of public spending priorities are absolute prerequisites of proper economic management. That has proved to be true in the past, and it will remain true in the future. There should be no expectation in any part of the House or beyond that a fiscal surplus will encourage additional expenditure that cannot be justified and cannot be sustained.

This year, we have made two important changes to the White Paper. First, we brought forward much of the material on the public expenditure totals to the Autumn Statement in November. The House has already debated that statement and considered the Government's overall policies for public expenditure. The White Paper now before us focuses on the detailed composition of our spending plans.

The second change is that we have split the White Paper into separate volumes for each Department. This makes it much more accessible and easier to use. For example, from now on, someone interested in the cost of Scottish roads needs to buy only the Scottish volume. Departmental Select Committees will find this approach much more convenient. [Interruption.] It is an attractive colour, as Opposition Members may have noticed. There is none of that nasty red.

It also moves towards the creation of separate departmental reports which, from 1991, will be published with each Department's main Estimate. This will improve clarity and assist the House in its scrutiny of departmental programmes and Estimates.

These changes reflect helpful recommendations, for which I am most grateful, from the Treasury and Civil Service Select Committee, and from the Committee of Public Accounts. I am sure they will be welcomed by everyone who uses the document.

I am grateful also to the TCSC for recognising the vast improvements in recent years in both the quality and quantity of the information provided in the White Paper. It has expanded dramatically from a single slim volume in 1979 to 19 volumes in the present year, although the House will be relieved to know that expenditure itself has not grown at the same rate. Nor is it a dry document. It is a detailed and comprehensive account of our stewardship of public expenditure. It provides more and better information than ever before both on how we spend the nation's money and the value that the public get from that expenditure—[Interruption.] Opposition Members may not think that the value that we get is important, but we do. That may be one of the distinctions between us.

The wealth of material in the White Paper reveals beyond any doubt that we pay the same close attention to the detail of expenditure as we do to the overall totals. But it is the substance of the White Paper, rather than its presentation, that is important. [Interruption.] As bedside reading, I would much rather read these White Papers than the notes from the IMF that the Labour Government used to get. This White Paper illustrates deep changes in the level of public expenditure and its distribution to priority services.

In the decade to 1978–79, the average real growth in public expenditure was nearly 3 per cent. In the decade since 1978–79, we have halved that growth so that it is now comfortably within the growth of the economy. The growth in the ratio of public spending to national income, which had been rising since the mid-1950s, has been halted and reversed. The past seven years have seen the largest and most sustained fall in the ratio since the unwinding of the wartime economy. It is now at its lowest level for over 20 years. and it is set to fall still further. We are now living within our means and not beyond them, and we propose to keep it that way.

Mr. Neil Hamilton (Tatton)

Talking of living within our means, will my right hon. Friend confirm that of the £170 billion national debt today, the equivalent of £110 billion was incurred by the Labour Government from 1974 to 1979? If we did not have to pay the interest burden on that debt, we could spend much more on other programmes or carry on with tax reductions.

Mr. Major

My hon. Friend is right. He anticipates the direction in which my remarks will turn in a few moments.

We want, and now have, fiscal prudence and lower taxes. We have it because of stable planning, value for money and sound finance. This firm control means that we need no panic cuts of the sort we saw under the Labour Government in the 1970s, which damaged so many services.

The most notable programme to beneft from the firm public expenditure control that we now have is the National Health Service, which we made a top priority in the last survey. I shall ask a question of the right hon. and learned Member for Monklands, East. Is he content with the resources that we have made available to the National Health Service, compared with previous plans? There has been an unprecedented increase of £2 billion next year and £2.5 billion the year after. I remind him that those record sums are more than what he said were necessary at this time last year. At his pre-Budget press conference, the right hon. and learned Gentleman said: We believe the minimum extra provision which should be made in the Budget is £2 billion. The right hon. and learned Gentleman had his answer in the Autumn Statement, and it exceeded his demands.

Real resources for health care have been increased by over 37 per cent. since 1978–79. As a result, in England alone, there are now 77,000 more hospital doctors, nurses, and other staff directly caring for patients than there were in 1978. They are better paid and better equipped.

But that increase in resources, massive though it is, is only part of the story, for better value for money is important too. And the number of patients treated has increased faster even than the level of resources. The National Health Service in England is now treating 1.25 million more in-patients, 2.6 million more out-patients and 440,000 more day cases than in 1978. The number of coronary artery bypass grafts has quadrupled, cataract operations have more than doubled and bone marrow transplants have increased 15 times. Better performance by the National Health Service has meant better health for the nation. What a shame that the Opposition so frequently run it down by saying that it is under-resourced and unable to cope.

Mr. Rhodri Morgan (Cardiff, West)

If that is true, how is it that I was told last week by the Brompton national heart hospital that the number of coronary bypass operations rose by 100 per year, from 600 to 1,200, over the six years up to 1984 and then stuck at that level, because it simply did not have the resources to increase it further although the demand was there, and that this year it is going down by 100? That is very far from the picture the right hon. Gentleman has given me of what is happening in the National Health Service.

Mr. Major

I have given the picture of what is happening in the National Health Service across the whole of the country. It is not a question of whether those figures are right; those figures are right, and that is what is happening in the NHS. I will tell the hon. Gentleman what else is happening, for it is relevant, and even he, I suspect, will welcome it. In all age groups the mortality rate fell between 1979 and 1987, partly, of course, as a result of the growing excellence of the National Health Service. For children under one and aged from five to nine, death rates have fallen by about one third. That is a staggering improvement that everyone will welcome—everyone, it seems, except perhaps the hon. Member for Cardiff, West (Mr. Morgan). The proposals that we announced last week will produce a still better, more responsive and more efficient Health Service.

Let me make it absolutely clear that we are not privatising the National Health Service as the hon. Member for Livingston (Mr. Cook)—who I am sorry to see is not here—absurdly suggested. His leak on that matter was as inaccurate as his leak on the level of community charge reimbursement some months ago. I say to the hon. Gentleman "Better luck next leak". He has been wrong on each occasion so far. We are modernising the National Health Service, making it more efficient and better resourced. Perhaps the Opposition had better do the same for the hon. Member for Livingston, for his leaks are deeply inaccurate and, as he is the same age as the NHS, I suspect that he is just as much in need of reform as it is

Mr. Max Madden (Bradford, West)

Just as the Chief Secretary seems to be wrong about heart operations at the Brompton hospital, so he is wrong about the National Health Service being safe in the Prime Minister's hands. Is he aware that the Bradford royal infirmary, according to yesterday's Telegraph and Argus, is to have a new private clinic within the hospital, and that the general manager for Bradford has already announced that the three biggest hospitals in the Bradford health district are going to opt out of the National Health Service? He seems to be wrong about Brompton; he is definitely wrong about Bradford.

Mr. Major

The hon. Gentleman is wrong on both counts. If there is a private wing to be added to provide a better health service for the community, I am delighted. Those hospitals are not going to opt out of the National Health Service; they remain within the NHS but with proper local community management as NHS trust hospitals. The trouble is that the hon. Gentleman lives I n the blinkered world of the 1940s and has not noticed that it has moved on.

One further area of priority that I know is of interest to Members of the Opposition is capital expenditure.

Mr. John Smith (Monklands, East)

Before the right hon. Gentleman leaves the subject of the Health Service and the plans to reorganise it announced recently, can he tell us, since he must have been consulted about this, what will be the cost to the taxpayer of subsidising private health care for pensioners?

Mr. Major

It will entirely depend upon the take-up at some future stage, but the net saving to the National Health Service as a whole brought about by the fact that people will be able to exercise choice—which I appreciate the right hon. and learned Gentleman does not like—may be substantial.

Mr. John Smith

I take it from the Chief Secretary's reply that he cannot give an answer to my question—what is the cost of the subsidy? Am Ito understand that this was agreed without understanding the public expenditure consequences of the decision?

Mr. Major

I can assure the right hon. and learned Gentleman that the sum is modest and that in due course it will be available to him. Something else will be available to the right hon. and learned Gentleman in a few moments: that is, information on public expenditure to correct some misinformation which the hon. Member for Dunfermline, East (Mr. Brown) gave some time ago.

As the White Paper shows, we have increased provision for next year by a massive £2.75 billion, bringing total public sector capital spending to a record £27 billion. Within that sum is substantial extra investment in roads and public transport. An extra £220 million is being provided next year for motorways and trunk roads in England, with a further £250 million in 1990–91. There is, in addition, substantial extra investment in London transport, including improved safety standards and refurbishing the Central line.

The Opposition are often critical of our record on capital spending, though I am bound to say that they are the last people in the world with any right to be so. For example, in the 10 years since 1979, real spending on motorways and trunk roads in England has gone up by 30 per cent.; it fell by 40 per cent. under Labour. Our plans provide for a further 20 per cent. increase by 1991. The record is the same for capital spending in the National Health Service: up by 30 per cent. in England, in real terms, since 1979; down by over 30 per cent. under the last Labour Government. Prison spending fell by 60 per cent. under Labour; it has increased by over 200 per cent., to provide modern and necessary prison facilities, under the present Government. And so on. The record of successive White Papers speaks for itself. When the right hon. and learned Gentleman speaks for the Opposition perhaps he will acknolwedge that record and not misinterpret it.

Last month my right hon. Friend the Chancellor of the Exchequer asked the hon. Member for Dunfermline, East by how much he would increase public expenditure. We still await an answer from the hon. Gentleman, and I look forward to it. Nor am I optimistic that we shall get one today because the hon. Gentleman plainly has no idea what his public expenditure costs would be. He is into promises but not into costing them. Let me help him with some of the more recent promises that I have seen—[Interruption.] It is a clear indication that the Opposition do not like it when they will not listen, but, whether they like it or not, they are going to get it.

The right hon. Gentleman the Leader of the Opposition came back recently from his trip to Botswana—I hope without the difficulty that he has had on other occasions—with a pledge to increase aid spending by £1.9 billion. The hon. Member for Motherwell, South (Dr. Bray) is reported—I hope the right hon. and learned Gentleman will tell me whether this is accurate—to have pledged a further modest £4,000 million boost for research and development. Health charges, we are told, would be abolished, depriving the NHS of half a billion pounds in revenue. How would it help Bradford if that sum disappeared from the Health Service? But that is just a dipstick sample of the Opposition's spending promises. I understand very well why the right hon. and learned Member for Monklands, East, who is a wise politician on occasion, said on 22 January: I will be keeping a careful eye on commitments. He knew his colleagues only too well. After the last few weeks he will keep a fairly careful eye on the hon. Member for Dunfermline, East as well, if I am any judge.

In the meantime, in a spirit of helpful inquiry, perhaps I can add another question on capital spending as this is an important issue to hon. Members on both sides of the House. The question is simple and the right hon. and learned Member for Monklands, East and his hon. Friends will undoubtedly wish to respond to it. Which would the Opposition prefer, this Government's record on investment or that of their predecessor, the Labour Government?

Before Opposition Members answer, perhaps I can help them out a little—[Interruption.] I will come to statistics in a moment. The hon. Member for Dunfermline, East complained last month that general Government investment was falling. I thought that that was a fishy claim so I investigated it. It is a very fishy claim. I push aside the fact that general Government investment is a very selective measure because it excludes much of public sector capital. However, even on the selective measure which the hon. Member for Dunfermline, East chose, he made his claim on the basis of a misunderstanding or misrepresentation of the figures. His figures were not the figures for total gross investment. His were net figures, net of receipts. Effectively, they were net of council house sales.—[Interruption.] Obviously the hon. Member for Dunfermline, East does not understand what he said, or he would not be chortling now. By being net of receipts, the hon. Gentleman's figures effectively excluded the new investment made possible by those receipts.

By that logic, if I sell my house and use the proceeds to build a new one, my contribution to investment is zero even though there is another home and another home owner. That is why the figures quoted by the hon. Member for Dunfermline, East are fishy. Last month I said that the hon. Gentleman was a purveyor of more dodgy material than Arthur Daley. I am now bound to say that I realise how unfair I was to Arthur Daley, now that I have had a chance to examine the figures.

If the hon. Gentleman had got his figures right, he would have realised that general Government investment is now 10 per cent. higher. [Interruption.] The right hon. and learned Member for Monklands, East should listen and then he might not make the same mistake as his hon. Friend the Member for Dunfermline, East. I know that the right hon. and learned Gentleman does not like it, but he should listen.

If the hon. Member for Dunfermline, East had got his figures right, he would have realised that general Government investment was nearly 10 per cent. higher in real terms in 1987 than in 1979 and was not falling. The indications are that 1988 will show a further increase, not a reduction.

By contrast, between 1973 and 1978, Government investment fell by more than 30 per cent. In that period the Government's investment figures fell by that percentage on either basis, gross or net, because council house sales were not permitted by the Labour Government and so the availability of receipts to add to spending did not arise.

When the right hon. and learned Member for Monklands, East has finished giggling with his hon. Friends, I hope that he will acknowledge that his hon. Friend the Member for Dunfermline, East wittingly or unwittingly misled the House. I hope that the right hon. and learned Gentleman will spare us lectures based on the wrong figures and answer my straight question. Whose investment record does he prefer, ours with more investment or the previous Labour Government's with declining investment? The country knows very well which is the better. [Interruption.] I can see that the right hon. and learned Gentleman does not want to answer and I know why. He has no answer to that question.

Does the right hon. and learned Gentleman prefer the efficient and effective public services that exist now to the impoverished services which we inherited? We look forward to his reply because we could not get an answer to that from his hon. Friend the Member for Dunfermline, East last month.

Mr. Tim Smith (Beaconsfield)

Is not the Treasury's presentation of the figures partly responsible for the misunderstanding under which the Opposition seem to be labouring? Why does the Treasury persist in deducting the proceeds of the sales of privatisations and council houses from capital spending? Would it not be better to show the gross capital spending and the proceeds separately?

Mr. Major

If my hon. Friend was to consider chapter 21 of the White Paper—I know that he is an accountant and I hope that that is not a disadvantage for him—he will see that the figures are perfectly clear for anyone who chooses to read them.

The figures produced by the hon. Member for Dunfermline, East for investment also neglect investment by public corporations. Perhaps he believes that investment in water or railways is unimportant. The Government do not, as the White Paper shows—[Interruption.] If the hon. Member for Dunfermline, East believes that to be so, perhaps for the first time in his life he will listen to me.

How much higher does the hon. Member for Dunfermline, East think that British Rail's investment in railways will he in 1991 in comparison with investment in 1978–79? He does not know. Will it be 5, 10, 15, 20, 30, 40 or 50 per cent.? What does he think? Investment in railways is set to be more than 75 per cent. higher in real terms by 1991. That is the biggest renewal programme in rail since the switch from steam to diesel. It will be 75 per cent. higher than at the end of the last Labour Government's period of office. That is a "cut" which most people would like to see.

As the hon. Member for Dunfermline, East referred to cuts, between 1973–74 and 1978–879 investment in railways hardly increased at all in real terms. That is the record which the hon. Gentleman tries to forget. A similar story applies to water. The volume of investment is half as high again this year compared with 10 years ago. There is a £1 billion programme to improve sewage treatment work over the next four years. That must be compared with the chronic under-investment during the 1970s. Investment in water was cut by the Labour Government by 25 per cent. in the five years to 1979–80. That led to an outdated and overloaded sewerage system which we are now renovating.

The lesson is clear. A successful economy can invest, and we are. An unsuccessful one cannot and cuts investment. That is what the Labour Government did. [Interruption.] I think that the right hon. and learned Member for Monklands, East said, "Wicked." I did not quite catch the word he used. There is nothing wicked about it. It was simply incompetence which led the Labour Government into that position.

I must tell the right hon. and learned Gentleman and his colleagues that a successful economy can do something else that an unsuccessful one cannot. [Interruption.] I was intrigued to hear about interest rates. Purely by chance, 10 years ago today, the bank rate increased to 14 per cent. because the Labour Government could not control credit. I do not need to be told about interest rates.

A successful economy can repay debt. An unsuccessful economy cannot do that. The stock of Government debt has built up virtually without interruption since the war, reaching £171 billion two years ago. As a result, this year we will pay £18 billion in interest on that debt. That is equivalent to over 10p on the basic rate of income tax. That is dead money for today's taxpayer. It does not build roads or railways, improve the National Health Service, education or defence. It simply pays the interest on past debts.

Our policy on that debt is clear. We will maintain a balanced budget. However, we are going further than that. We are repaying debt. As my right hon. Friend the Chancellor of the Exchequer set out in the Autumn Statement—[Interruption.] If the hon. Member for Durham, North-West (Ms. Armstrong) would like to intervene, I will of course give way.

Ms. Hilary Armstrong (Durham, North-West)

Will the Chief Secretary to the Treasury tell us about the redistributive effect of repaying the national debt in terms of the poor from the rich?

Mr. Major

I am not sure that it was wise to invite the hon. Lady to make an intervention.

As my right hon. Friend the Chancellor set out in the Autumn Statement, in the last fiscal year we repaid Of billion and in the current year we expect to pay a further £10 billion. That is equivalent in two years to one twelfth of the outstanding stock of debt which has built up over the past two centuries. This is the largest sustained debt repayment for over a generation, which is of relevance to the hon. Lady's question. It also means that the debt interest projections in the White Paper fall from £17½ billion in the current year to £15½ billion in 1990–91. Our reduced debt burden will be available, therefore, either to improve services or to reduce taxation, or indeed to further reduce debt.

One of the most striking changes over the past 10 years has been the dramatic fall in public expenditure resources spent on the nationalised industries—hon. Members should note that I said, spent "on" the nationalised industries, not spent "by" the nationalised industries—on improving services or new capacity. The fact is that since 1978–79 the total external finance required by those industries has fallen in real terms by nearly £5 billion. That means a saving to public expenditure which we have available to reallocate to other higher priority programmes.

Those savings have come about as a result of the transformation in the performance and productivity of the nationalised industries, which has been dramatic. In aggregate, today's nationalised industries have increased their productivity by an average of 7¼ per cent. a year in recent years. Last year they made a profit of £¼ billion. The White Paper forecasts a larger sum this year.

What is surprising is that the Opposition tend to describe those savings as cuts. In a debate last month the hon. Member for Dunfermline, East criticised cuts in spending next year on industry and energy programmes. To do so yet again is completely to miss the point on why spending by the taxpayer on energy next year is lower. The answer is above all because of the improved performance that I have just described. For instance, the electricity industry will generate more internal resources so that it can at one and the same time repay more borrowing next year than this, and invest £200 million more—a point which the hon. Gentleman did not mention last month. That is not a cut in investment. The hon. Gentleman has not acknowledged it; he clearly did not understand it and I hope that he will now acknowledge it. In any event, what he said on that issue in the debate on the Autumn Statement was wholly misleading.

Spending on industry will also be lower next year, but not because of so-called cuts. The reduction is the result of the fact that Rover will no longer be a drain on the Exchequer now that it has been successfully restored to full and profitable private ownership.

Mr. Stuart Holland (Vauxhall)

With a Honda badge on it.

Mr. Major

The hon. Gentleman had an extremely expensive education. I am not sure that it was money well spent. I, alas, did not have an extremely expensive education. I had the undoubted privilege of paying taxes in order to keep the hon. Gentleman at a university for many years. Frankly, I would like my money back.

Over the last decade the taxpayers coughed up over £3 billion for Rover. From next year the need will have gone. No doubt the Opposition will describe that as a public expenditure cut as well.

The position on employment is similar. Spending by the taxpayer is lower. But that reflects the longest period of falling unemployment since the war. That fall too has led to savings in unemployment benefit of over £1½ billion a year over the next three years. That clearly illustrates the savings which result from the success of our economic policies. Indeed, the fall in unemployment illustrates dramatically the contrast between our policies and those of the Opposition. They said that we should spend more to reduce unemployment; in fact, we are spending less because we have reduced unemployment. There is a clear distinction.

Over the years in the public expenditure debates we have had many lectures from the Opposition on the case for higher public expenditure. Their old, favourite theme is that more public spending is the only way to reduce unemployment. What has happened? Unemployment has fallen by over 1 million and for 29 months in succession. And not just in the south-east. In the past year unemployment has fallen in every region, and has fallen fastest in Wales, the west midlands and the north-west. The rate of unemployment is now lower than that of France, Belgium, the Netherlands and Canada. And the number of people in work is at the highest level ever, even after excluding those on community schemes and training programmes. It could be done only by public expenditure, the Opposition said, yet we have done it without boosting public expenditure but by creating an enterprise economy that is generating 1,000 new net firms a week. When did that happen under their public expenditure plans when the Opposition were in government? When unemployment benefit spending falls as a result, the Opposition no doubt will yet again point to cuts. If those are cuts, they are cuts which we are proud to secure, and I hope and expect that there will be more of them.

The Government who knew about cuts were the last Labour Government. Between 1973–74 and 1974–75 they increased spending by 12 per cent. in real terms. Inevitably the brakes had to be slammed on, the International Monetary Fund appeared and spending was cut by 8 per cent. in real terms. Although Opposition Members have still not learnt it, the fact is that control of public spending is a fundamental part of a credible economic strategy. It is inescapable, as every Government in every country must eventually recognise.

Mr. David Lightbown (Lords Commissioner to the Treasury)

Even Russia.

Mr. Major: "Even Russia," says my hon. Friend. Even the Politburo is ahead of the Opposition in learning that lesson. Purely by chance I want to quote to the Opposition from Tass: Bearing in mind the great difficulties in financing public expenditure, and the growing budget deficit, which leads to unbalancing the country's economy, the Government requires drastic measures to reduce public expenditure and cut down capital investment". What an echo of the 1970s for Tass to understand what the Labour party did not. The Government of the Soviet Union understand. Perhaps the Opposition Treasury team should follow their colleagues who deal with foreign policy and go to Moscow to get up to date with Socialist thinking—[Interruption.] For an intelligent man, the hon. Gentleman is very loud. As for us, we need no such advice. We know that economic disaster is the inevitable result of unsustainable growth in spending. Allowing public expenditure to grow inexorably is easy. Saying yes to every pressure group is easy. Forgetting about priorities or affordability is easy. It is plain wrong, but the Opposition do not understand that. Such recklessness inevitably brings a fearful reckoning, as it did for them. That is the legacy which we inherited and which we firmly rejected.

We believe the first economic duty of government is to safeguard the value of the currency; to protect the taxpayer and to be prudent and responsible with the nation's finances. Those principles are at the heart of our management of public expenditure. The plans in this White Paper are sustainable and affordable. They select priorities and they rest on a sound and strong economy. They are the right way ahead, and I commend them to the House.

4.57 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 the continuation of inadequate investment in public services, in the infrastructure, in education and training, in research and development, and in the regions; urges the Government to end its dogmatic insistence on reducing the level of public expenditure as a proportion of national income; and condemns the Government's failure to invest in the nation's essential public services, which further exacerbates the already seriously unbalanced economy, and will do nothing to bring down the level of unemployment, reduce the growing North-South divide, or improve the capacity constraints which currently impair the nation's economic performance. In the first debate since I have returned from my illness, may I be permitted not only to thank the Chief Secretary for his kind remarks but to take the opportunity to express my appreciation to right hon. and hon. Gentlemen in all parts of the House for their warm good wishes and encouragement, expressed to me so generously and frequently during my illness and since my return. I should also like to thank my hon. Friend the Member for Dunfermline, East (Mr. Brown), who was precipitated into undertaking my responsibilities at short notice and who showed his calibre and courage by a relentless and most effective critique of the Government's economic policies.

Returning to these debates, I am struck by how little has changed. The Chancellor certainly has not changed. He is as bulky as ever, even if things have changed a little on this side of the Dispatch Box. The balance of payments deficit is worse. Interest rates are even higher, causing, as a direct result of Government action, savage increases in mortgage payments which have wiped out for several million, by a factor of several times, any tax benefits which they got from last year's Budget. Inflation keeps rising and is heading towards 7 per cent., having doubled in about a year.

Mr. Julian Brazier (Canterbury)

rose—

Mr. Smith

I shall give way to the hon. Gentleman, because he may keep bobbing up if I do not.

Mr. Brazier

I am grateful to the right hon. and learned Gentleman for giving way. Will he tell the House how many letters he has received from his constituents complaining about the rise in mortgage rates? I have received only one, and my constituents enjoy average living standards.

Mr. Smith

The hon. Gentleman's intervention says a lot about him and his relationship with his constituents. If it is true that the hon. Gentleman has received only one letter about the increase in mortgage rates, in a week or two he will be singing a different tune. He will receive a pile of letters from his constituents when they realise that he has expressed no concern about the increased burdens that they now have to shoulder.

I have received a substantial number of letters and have had time to read them carefully. What is more, I agree with what they say. The writers complained volubly that they were told that they would receive substantial tax cuts as a result of the Budget, but instead received monthly mortgage increases of £38, £50 or £60 which are several times what they were supposed to receive as a boost to the supply side. I hope that, when the hon. Gentleman receives the avalanche of letters that I trust his intervention will provoke, he will read them carefully and pay attention to the needs and desires of his constituents.

There is not much change between the Government's approach to public expenditure as revealed in the Autumn Statement that we debated some months ago and how it appears in the White Paper that we are debating today. Their attitude has three main characteristics. First, they continually make the dogmatic assumption that the amount of public expenditure, as a proportion of national income, should be consistently and constantly reduced. Secondly, they consistently seek to mislead in their presentation of statistics. Thirdly, they almost invariably have the wrong priorities.

Another feature has been revealed by the Chief Secretary's response to my intervention earlier. The Government clearly enter into commitments without fully understanding what they are doing. The Chief Secretary was asked a straight question about the cost of subsidising private medical services by giving tax relief to pensioners who use them. He said that he did not know, and that it would depend on demand. That means that it is open-ended. The Chief Secretary to the Treasury. who is responsible for controlling our public finances, has agreed to a change in our taxation system without knowing the consequences in terms of public expenditure. [Interruption.] If that is an example of the Chief Secretary's prudence, it is not one that we wish to emulate.

Mr. Major

The right hon. and learned Gentleman clearly does not realise that it is a tax incentive and does not concern public expenditure.

Mr. Smith

The Chief Secretary has made an even more interesting point. He knows perfectly well that to give a tax incentive such as that—to people who are already using private medical services—means a loss in another direction. The revenue will receive less money. There is little intrinsic difference between giving people a tax subsidy and giving them an absolute grant. The two are the same in terms of public expenditure. I do not know whether the Chief Secretary thinks that it does not matter, but it will matter to many people who will say, "Why should I pay taxes when I use the National Health Service to subsidise others who use private medicine?" I hope that the Chief Secretary receives a few letters from his constituents about the reply that he has given to the House.

It is not good enough to proceed in this way. When the Government announce such important chages, the costs and implications should be clearly stated to the House. When the Chief Secretary, of all people, cannot answer a simple question directly, it says a great deal about the way the Government approach the House.

We had to listen to quite a lot of lecturing from the Chief Secretary, who seems to find public expenditure White Papers exciting bedtime reading. He seems to think that Opposition Members regularly read Tass reports. In the previous debate, Pravda was quoted, and in this debate Tass. I am not surprised that Treasury Ministers prefer alternative sources to the Treasury's own statistics. That is a matter of taste for them, but it is not a taste that Opposition Members share. We are more sceptical about Pravda and Tass than the Treasury Ministers.

The first major difficulty about the Government's approach to public expenditure is that they assume that it is necessarily good constantly to drive it down as a proportion of gross domestic product. A leader in the Financial Times of 16 November 1988 tackled the matter very well. It was headlined: "Risk of public squalor". The Government's approach was described by the leader writer as follows: the simple-minded assumption that a reduction in the share of GDP that goes on public expenditure must be a 'success' i s indefensible. That was what the Chief Secretary kept telling us throughout his speech, yet the Financial Times thinks it is indefensible.

The leader continues: It is quite unlikely, for example, that parents would regard their ability to pay for a cheap holiday on the Costa del Sol as adequate compensation for the Government's refusal to spend more on their children's education. That is a sentiment that many of my constituents—whether or not they write to me—would share. The leader goes on: Public spending cannot be intrinsically bad"— that is a view that we would all share and its reduction as a share of GDP cannot be intrinsically good. One would think that was mere common sense. In a number of cases public spending ought to rise substantially faster than national income. Perhaps even the Government would agree with that. Success in the management of public spending consists in providing people with services of the quality and quantity they would demand if they had the choice. If the Government is unable to give them the choice, it should not disguise this failure in a cloud of rhetoric about successfully reducing public spending to its lowest share of GDP for 20 years. I imagine that all reasonable hon. Members would agree with that. The approach to public expenditure should be simple. Claims should be assessed on their merit and necessity. If they are meritorious and necessary, the money should be spent. To confine public expenditure within a necessary and constantly declining proportion of GDP is a very wrong-headed approach.

Mr. Ian Taylor (Esher)

Conservative Members are finding it difficult to follow the right hon. and learned Gentleman's reasoning. Is he objecting to the fact that public expenditure is actually rising? The percentage of GDP has clearly confused him. The GDP has been rising at an extremely fast rate under this Government.

Mr. Smith

I understood clearly what the Government were saying, as did the Financial Times. I repeat to the hon. Gentleman, who cannot have been listening, that the Government constantly make the proposition that it is desirable and meritorious to reduce public expenditure as a percentage of GDP. I challenge that assumption: there are occasions when we may want to increase the amount of money spent, and when it is justified, it should be done.

Mr. David Shaw (Dover)

Will the hon. Gentleman say why page 7 of the Autumn Statement shows that general Government expenditure under the Labour Government fell from 48.25 per cent. of GDP to 43.25 per cent.? Even the last Labour Government thought that GDP expenditure, as a percentage, ought to fall. The key point was that the gross domestic product did not grow enough under the Labour Government.

Mr. Smith

If I had asked someone to make a helpful intervention in my speech, I would have written that question for the hon. Gentleman. It shows clearly that the last Labour Government assessed public expenditure needs according to the individual case made and did not keep to a constant proportion. [Interruption.] It is clear in this case—I hope the hon. Gentleman will try to comprehend—that the Government are always saying that it is desirable constantly to reduce the percentage. Why on earth is it desirable to do so? The trouble is that the Conservative party has a deep-seated prejudice against public expenditure. It aims to squeeze public expenditure whatever the economic circumstances, and trumpet the fact when it can do so.

The Government say that their objective is to hold the rate of growth of public expenditure below that of the economy. There used to be another rationale for that. The rationale given by the Chancellor of the Exchequer and others, in the earlier years of the Government, was that we had to cut public expenditure to avoid the crowding out of savings, which forced up interest rates. We have had a few years of the Government's policies, and recent events may have dented this analysis somewhat.

British interest rates are now the highest of the major industrial countries, after the Government have had their way with public expenditure for nearly 10 years as the Chief Secretary was boasting, and the personal savings ratio has fallen dramatically, from almost 14 per cent. in 1980 to under 2 per cent. today. So much for the theory of crowding out. No wonder; perhaps the Chief Secretary, who constantly wants to intervene, could tell us whether the Government still believe that the crowding-out theory obtains in the circumstances of today.

The Government have none the less been operating under the assumption that there ought to be such a constant reduction. They fight shy of putting the case for public expenditure—[Interruption.] Now that the Chief Secretary has received the latest information from today's report from Tass, I shall give way to him if he wishes to communicate it to the House.

Mr. Jacques Arnold (Gravesham)

rose——

Mr. Smith

I have hardly developed this point, so it is difficult to give way on it. But I shall give way to the hon. Gentleman if it will allow me to get on with the debate, and then perhaps I can proceed with my speech.

Mr. Arnold

Is not the right hon. Gentleman yet again confusing the difference between net and gross? Is there not a considerable increase in gross savings which is offset by the vast increase in home ownership, and therefore do not two rights very much make a right?

Mr. Smith

I shall be dealing with those matters later, but the hon. Gentleman should have a better sense of topicality, and intervene at an appropriate point.

The Government constantly fight shy of putting the case for public expenditure; it is always presented in terms of savings in public expenditure. Public expenditure is a crucial element in the proper development of our economy and society. If we do not have necessary and sufficient public investment, at least at the level of growth overall, the economy's key public services are likely to be diminished, overstretched and under-resourced. In any sustained economic expansion, the growing demands of society, and the private sector in particular, will increase, and the public sector will be called upon to provide more.

If growth is unbalanced, as we would argue, and public investment is neglected, then the result will be bottlenecks that choke the opportunity for sustained expansion. The public squalor that I fear is occurring in some instances will strangle private affluence. Exactly these errors have been made by the Government, who have pursued the goal of reducing public expenditure below the overall level of growth in the economy. Public expenditure is running at only about 7 per cent. below the GDP growth par. A deliberate strategy of under-investment and neglect will result in this country being burdened well into the 1990s.

I take, for example, expenditure on transport, and especially roads, to which the Chief Secretary drew attention. The right hon. Gentleman said that an increase of £240 million will be made in the next financial year. We welcome the extra funds, but we recall that, over the past five years, investment in roads has fallen by 4 per cent. while the growth of traffic has averaged more than 25 per cent. and motorway use has increased by more than 60 per cent. That is a classic example of public investment failing to grow in parallel with increased demand.

Against such an investment shortfall, it is hardly surprising that the CBI recently demonstrated that Britain has the most congested road system in Europe; that this congestion alone costs an estimated £5 per household per week; and that the overall costs of distribution in the United Kingdom are about £40 billion in a year. The cost of road congestion should have been eased by public investment. The case for such investment should have been self-evident, and should have been undertaken years ago, before congestion became the major economic and environmental problem that it is today. But the Government's obsessive public expenditure squeeze has denied the road system of the resources that it needs.

When Labour left office in 1979—I hope the Chief Secretary will listen to this—investment in transport amounted to £5.4 billion in real terms, as against the £4.8 billion that is planned by the Government for the next financial year. Labour's investment performance in roads similarly compares favourably with that of the Government, as is helpfully revealed in the White Paper's report on the Department of Transport, one of the documents to which the Chief Secretary has referred.

In a new departure, perhaps even a breakthrough in the Government's presentation of facts, the Treasury has published a chart on page 17 of the White Paper relating to the Department of Transport, which analyses the road maintenance condition between 1977 and 1987. The chart usefully plots the progress of maintenance for local and national roads. It shows a sharp improvement in the maintenance standards achieved for both sectors until just after 1979, followed by a dramatic decline thereafter.

Most helpful of all, the chart is bisected by a line; above the line it is marked "better" and below the line it is marked "worse". I am happy to confirm that, according to the Government's own document, published as part of the White Paper on public expenditure, we see that road maintenance was constantly above the line during the period of the Labour Government and almost always below it during the time of the Conservative Government. If we are in any doubt about its meaning, the chart helpfully says "better" on the top and "worse" at the bottom.

I am sure that is what the Chief Secretary had in mind when he said he loved to read these documents when he was trying to get to sleep. I recommend, if he is dozing tonight and finding it a little bit difficult to drop off, that he looks at charts showing the better and worse positions.

I congratulate the Department of Transport—perhaps even the Treasury is responsible for this—on this newly adopted approach to presentation of Government statistics. I very much hope that other Departments will follow the Department of Transport's lead. Perhaps the Department of Trade and Industry's monthly trade figures could be similarly improved, perhaps with trade surpluses appearing above the line and marked "better" and trade deficits appearing below the line and marked "worse". That might make our debates more illuminating, as well as entertaining.

Even when the Government revert to the practice of being economical with the truth, the White Paper cannot conceal the continuing decline in public investment. Even on the Government's preferred definition of public sector capital spending, which includes defence, the White Paper reveals a decline of investment in real terms of 0.5 per cent. in the next financial year. By 1992, capital spending in the public sector, excluding the privatised electricity and water industries, will have been cut by £800 million in real terms. That is found in table 22.1.11, at page 22 of the Supplementary Analysis and Index attached to the White Paper.

The older definition of gross domestic capital formation which, in line with the national accounts excludes defence equipment spending, is declining in real terms in every year from 1984 to 1985, until 1991 to 1992. The truth is that Government spending on the nation's infrastructure, defined as gross spending on capital formation by central and local government, excluding defence expenditure and capital grants, has not increased at all under this Tory Government in real terms today. It is more than 50 per cent. below the level of the mid-1970s, and is planned to fall by 9 per cent. in real terms between now and 1991.

Those figures show all too clearly the Government's dogmatic hostility to the public sector. They are a recipe for stagnation and decline in living standards and ni economic efficiency. I hope that the Government will understand this point, if none other made during the debate—that under-investment in the public sector harms the supply side of the economy. In the next decade, the country will face enormous challenges. After 1992, it will have to compete successfully with other countries in Europe for the single market, and with the rest of the world, including Japan, for the global market place, in which our industries must thrive and survive.

If we are to pay our way in the world and live within our means—we hear little about this from the Government—we must tackle the huge £14,000 million balance of payments deficit that is the result of Government policies, which is the major economic obstacle facing this nation in the years ahead. We must ensure that we are equipped to supply the demands of the domestic and overseas markets. If we are to enjoy a genuine supply side miracle, that will need public investment. We must invest in education and training, in research and development, and in the regions —using public resources where the market has failed to provide adequate investment, and where Tory claims of success are absurd.

I note that the Chief Secretary, both in his documents and in his speeches, refers occasionally to priority areas. I assume that, by implication, the other areas do not receive priority. The right hon. Gentleman never refers to education and training, to research and development, or to regional development as priority areas. That is because they are all classified as non-priority areas, in terms of the Government's record and of their current viewpoint.

Education and training are the most important priority of all. Investment in education enhances the nation's most precious resource—the knowledge and skills of our people. From the nursery to the university, our country is failing to invest. It is one of the meanest providers of pre-school education for the under-fives, and there is inadequate provision all the way through secondary and tertiary education. Government education expenditure has dropped from 5.5 per cent. of gross domestic product in 1978–79 to 4.7 per cent. in 1989–90. That underspend is reflected in the levels of educational attainment, which are falling below those of other major industrialised countries.

Work undertaken by the National Institute of Economic and Social Research reveals that the average British student leaves compulsory education with a level of attainment in mathematics that is as much as two years behind the average German or Japanese student in the same age group. While almost half of British children leave education at age 16, in Japan and North America, 95 per cent. and 80 per cent. to 90 per cent. of children respectively stay in full-time education until age 18.

Mr. Major

Whose fault is that?

Mr. Smith

Most people would say that a Government who have been in power for 10 years might take a little of the responsibility.

Despite that poor performance, the Government plan to give less cash for local schools next year—even as primary school enrolment is increasing. They will make £9 million less investment in our universities. It is not surprising that a British brain drain is now enriching American universities and colleges.

Mr. Major

That is nonsense.

Mr. Smith

The Chief Secretary should attend some of the debates in this House. If he had been here to listen to Tuesday's debate, he would have heard startling evidence about the brain drain of highly talented academics, who are leaving this country for the United States.

Mr. Dennis Skinner (Bolsover)

But he is really worried about Professor Walters returning here.

Mr. Smith

Yes, I can understand why the right hon. Gentleman does not welcome every person who travels in the opposite direction, back to this country. Nevertheless, he should show a little regret that some of our most talented people, whom we trained, are leaving for other countries because they are denied the facilities they need in Britain.

Sir Peter Hordern (Horsham)

rose——

Mr. Smith

Perhaps the hon. Gentleman will allow me to finish this part of my speech. If I did not receive so many sedentary interruptions, I could perhaps deal with his more polite intervention.

The Committee of Vice-Chancellors and Principals reports that 36 per cent. of key professorial posts in Britain are vacant. On Tuesday, my hon. Friend the Member for Blackburn (Mr. Straw) informed the House, in a debate that escaped the Chief Secretary's attention, of the scale of teacher shortages. By 1995, there will be a 5 per cent. shortfall in mathematics teachers, a 14 per cent. shortfall in physics teachers, and an 18 per cent. shortfall in chemistry teachers. How shall we manage to man science-based industries unless those problems are tackled by the Government?

Sir Peter Hordern

The figures from the National Institute of Economic and Social Research review that the right hon. and learned Gentleman quoted made a deep impression on many people—but I believe that that review was written three or four years ago, and described a period during the mid-1970s, when relevant comparisons were made with West Germany, France and Japan. The figures that the right hon. and learned Gentleman gave, and the comparisons he made, relate entirely to a period of Labour government.

Mr. Smith

My understanding is that those figures aptly describe the present situation. If that were not so, the hon. Gentleman would make the point that matters have improved since the period to which he refers, but I note that he does not seek to do so. Everyone who has studied the subject knows perfectly well that this country is neglecting the education of its young people.

That is seen also in skills shortages and training. A shortage of teachers means a shortage of developing skills. Today, British industry is dogged by the Government's failure to invest in human capital. The nation is crying out for skilled workers, but the Government propose cutting training support. Spending on youth training schemes will decline by £25 million next year, in cash terms, and by £150 million in 1991–92.

The Chief Secretary's defence is that the number of people involved is dwindling—but when there is a falling number of entrants, surely that is the time when extra resources can be used to upgrade the scheme. We know that, in many ways, YTS has not been a good investment—now is the opportunity to make it such for the nation.

Support for employment training will be cut by 4.5 per cent., or by £50 million in real terms. Training for those at work will also decline—even though the Government spend only 2 per cent. of their training budget on improving the skills of people at work. It is almost unbelievable that a major industrialised country expresses its priorities in those terms. How on earth can we transform the British economy, reduce our trade deficit, and meet the challenge of 1992 with such an appalling record of under-investment in training?

On a number of occasions, the Chancellor of the Exchequer has told the House that training is a matter for industry, not Government. He has told Select Committees and others that British industry's record of training is lamentable—so the people on whom he placed responsibility for training are, according to his own evidence, failing to discharge that responsibility. If industry is not meeting that responsibility, should not the Government do so? But they say, "Sorry, it is not our responsibility. It is the responsibility of industry." What happens in that pass-the-parcel situation is that people do not get trained. That is disastrous for those who fail to acquire skills, and it is an even more disgraceful waste of our most important economic resource—the skills of our people.

Skills shortages are a major constraint on industrial capacity. Company after company reports bottlenecks due to skills shortages. In the area of information technology, for example, science-based industries are crucial in promoting British business and in increasing our success in world markets. However, the IT industry is hard-hit by skills shortages and lack of training. The report of the Select Committee on Trade and Industry published last November estimated that 30,000 vacancies exist in the IT sector, which is equivalent to about one tenth of the industry's total work force. Despite that, British IT training is far inferior to that of our European competitors.

In Britain, only 1 per cent. of payroll costs are used for in-service training, against the best practice of 4 per cent. to 5 per cent. in the rest of Europe. That is a classic market failure. The responsibility for training was placed on the market, but it is not being discharged.

The Government's response is to persist with the dogmatic view that training must never be a Government responsibility. That is reflected in the public expenditure White Paper, and it is one of the many reasons why its proposals are wrong. They will lead to a loss of competitiveness, a loss of market share, and an increasing trade deficit. Indeed, the IT industry now suffers a serious trade deficit. It was £2.2 billion in 1987—the worst figure in the last 10 years. This is one of the major components in our serious balance of trade deficit.

In research and development, under-investment is matched. The United States of America, Japan, Germany and France have all increased their R and D to GDP ratios, while in the United Kingdom the ratio has declined. The result is that British domestic patent applications rose by only 3.4 per cent. between 1979 and 1986, compared with 8 per cent. in France, 7 per cent. in the United States, and 93 per cent. in Japan. Yet the public expenditure White Paper shows cuts in the value of non-defence scientific and technical research of 8.5 per cent. over the next three years. Clearly this is another of the non-priority areas for the Government.

But there is regional development as well. Just as short-sighted is the Government's investment in the regions. This Government have presided over the most massive divide between north and south. We now have an overheating economy in the south, while the north is being deprived. We have a society which is congested in the south, while there is too much space in other parts of the country. We see the costs both for the people who live in the south and for those who live in the north.

It is not good enough to say that there is the occasional town in the north—whether Harrogate or Edinburgh—that is better off than some parts of the south. The statistics are blindingly clear that there is a growing and massive divide between the economic opportunity of those in the south and that of those in the north. [Interruption.] Then it is even worse than I thought. I thought I might have to make a case that the Government should do something about it; I did not think I would have to labour to prove that there is a difference between the north and the south. All the people who have lived in the north know about the difference in terms of economic opportunity.

Yet the White Paper reveals the Government's antipathy towards regional policy. That is why the cuts in the value of expenditure in Scotland amount to £230 million, and why there are freezes in spending in Wales and Northern Ireland, and more cuts in regional industrial support to the extent of £30 million. I know that the Chancellor does not like getting these facts, but we do not often get the opportunity to put them to him so directly, and I hope that the result of his listening will be that he might realise that some of his non-priority areas are absolutely at the heart of Britain's capacity to overturn the trade and balance of payments deficits.

In addition to these problems for the supply side, which is at the heart of our economic problems, there is the quality-of-life aspect of public spending. Our quality of life depends crucially on a number of important public services. I myself know how important the National Health Service is. It is crucial that it be adequately funded and able to improve the quality of its services.

I want to deal directly with the question of Health Service funding because the Chief Secretary made a great deal of it in his speech, and I want to point out that there are three types of definition that the Government use in the statistical fog that surrounds the presentation of the White Paper which led the Financial Times to say: The Government's announcements on public spending are up to the most creative standards of the accounting profession". It was not I who said that, but theFinancial Times— often a good witness in these matters. Sometimes the Government describe it in terms of cash increases. They do so most frequently in the case of the Health Service. Sometimes they use the GDP deflator—the average of inflation throughout the economy—and sometimes the deflator for general Government expenditure, which is easily obtained from Economic Trends and which can be applied to the figures. They do not use that very often because it gives them the smallest increases and, of course, it is the cash terms, which exclude totally the effects of inflation on the services to which they are being applied, that they are most happy to quote.

The Prime Minister, for example, often boasts about a cash increase, in the case of the Health Service, of £9.4 billion in 1979–80 to £22 billion in 1989–90. But the increase in so-called real terms is considerably less. If we apply the GDP deflator to Health Service expenditure, the increase is from £16.4 billion to £21.5 billion—a rise of just 3.1 per cent. per year.

But we get a very different picture of the real-terms increase if we use the implicit deflator of general Government expenditure to look at the cash figure. On this basis, the rise from 1979 to 1980 is from £19 billion to £21.6 billiona growth of 1.4 per cent. per annum. Taking account of demographic factors, principally the aging of the population, and the need to keep abreast of technology, which I think everyone accepts—which, together, require a minimum rate of growth of at least 1 per cent. per annum—it is pretty clear that real health provision in this country has been almost at a standstill. So we have a figure of 1.4 per cent. measured against a requirement of 1 per cent. I think that, for all the statistical conjuring tricks that this Government get involved in, the public do not believe them. When these figures are revealed in their true light, the public are proven to be right, and the Chief Secretary is proven to be wrong.

But it is not even just that. The quality of life is a crucial part of our public services. The tragic run of accidents at King's Cross, Zeebrugge and Clapham highlights the need for the highest regard for safety standards in the public and private sectors. But safety needs investment, and it is quite incredible that the Government cut, for example, research funding in food safety at the institute of food research in Bristol.

Only yesterday there was evidence of a report prepared by, amongst others, Government officials about the dangers of salmonella poisoning. It is hardly believable that the Government are ending next month a project which involves three scientists in dealing with the elimination of salmonella from poultry. They are to be made redundant and the research discontinued. I can tell the House that, although the Government claim to have a £15 billion public sector surplus, it would only cost them £300,000 over the next two years to save this project.

I may say also, on the conflict between whether it should be a private or a public responsibility, that I understand approaches have been made to commercial people to see whether they would carry on with the research. The response from the firms has been that they would carry on with the research only if they got the exclusive use of the results for their commercial benefit. So the safety of the public is less important than their commercial benefit, which is why we need to take responsibility for many other areas of public expenditure.

We find this problem throughout all the areas. I discovered just the other day that the tourist deficit in Britain is increasing by an enormous amount. The latest balance of trade in tourism shows that it is in the red to the tune of about £2.1 billion. Why has this happened? One reason—I hope that the Chief Secretary will listen to this—is that Mr. Michael Mendlicott, the chief executive of the British Tourist Authority, said that he blamed high hotel prices. I think he was quite right to do that, but he said also that it was the image of squalor and litter that foreign tourists now associated with Britain.

We have had a lot of talk from the Government about "operation facelift". We even had the Prime Minister scrambling around St. James's park trying to pick up pieces of paper that workmen had been instructed to put in careful piles so that she could pick them up and put them in a bag and be photographed doing so. That is the extent of the Government's commitment to improvement in this area. The truth of the matter is that visitors to this country are telling us how squalid it has become. That is because of the neglect of the Conservative party.

But what is perhaps the most shameful thing—this is the last example in detail that I will use, so that I may spare the Chief Secretary even more embarrassment—is the Government's record on overseas aid. When the last Labour Government left office, they were providing 0.52 per cent. of GNP in overseas aid.

In 1987, the Tory Government gave just 0.28 per cent. of GNP in aid—the lowest figure ever recorded. Under the Tories, British aid has declined by over 15 per cent. in real terms. [Interruption.] I hope that the hon. Gentleman who is shouting about fiddling will listen to what I have just said. British aid to sub-Saharan Africa in 1979 amounted to £386 million. In 1987 it was worth only £284 million—a cumulative decline since 1979 for one of the poorest parts of the world of over £600 million.

My hon. Friend the Member for Eccles (Miss Lestor) recently asked the Prime Minister her position on overseas aid. I quote the right hon. Lady's reply: You raised the question of the UN target for aid at 0.7 per cent. of GNP. The Government have accepted this in principle. But like previous administrations, and many other donors, we have not set a timetable to achieve this target; progress towards it must depend on economic services and other calls on Government resources. The sums involved are not large, and the Government have a £15 billion surplus. The spending of that money on aid would not add to any inflationary problems in this country but could bring much-needed relief to people living in very difficult circumstances indeed. Any Government with any sense of decency would use that money to increase overseas aid as one of their first priorities. [HON. MEMBERS: "What would you do?"] We would head towards the United Nations target, which is what every civilised country wants to do and which the Prime Minister says is also her objective.

Just in case it is thought that I am making a narrow partisan point—I do not think that the vast majority of the people of this country, who are ashamed of our aid record, will think that—1 remind the House of what our colleague countries in the OECD said recently about the British effort. The development assistance committee of the OECD reviewed the United Kingdom's overseas aid programme. It noted the Government's contribution and commented on the Autumn Statement—the precursor of the White Paper. The committee said: The Committee firmly believes that the time has come to reverse the downward trend in the United Kingdom's ODA/GNP ratio". That was the view of our fellow countries, whose Governments are trying hard to achieve the target set by the international community—a target on which the Government have so disgracefully turned their back. Perhaps one small thing that the Government might consider is the reversal of their priorities in this important respect.

An analysis of the White Paper in terms of concept, and a scrutiny in terms of detail, reveal that the Government are trapped in a dogmatic obsession on public expenditure, which undermines our national economic effort and impairs our quality of life. In terms of overseas aid, it also undermines our international reputation.

Nor is that the only evidence of the Government's wrong-headed approach and misshapen priorities. They are a Government who lavish benefits upon the rich but freeze child benefit and humiliate pensioners with the social security and housing benefit cuts of last year. They are a Government whose notions of equity are revealed by their determination to press on with the poll tax—a form of taxation that every other civilised country has rejected. They are a Government whose sense of responsibility for national assets is revealed by the irresponsible privatisation of vital public services such as electricity and water. In other words, they are a Government whose policies do not remotely reflect the priorities that the nation needs. Sadly, the White Paper reflects this Government's inadequate values, false priorities and deceptive techniques, and it is not worthy of our support.

5.43 pm

Mr. Nicholas Soames (Crawley)

The House will have listened with great interest and much amusement to the remarks of the right hon. and learned Member for Monklands, East (Mr. Smith). It is a great pleasure to have him back and I should be immensely grateful if he would do what he said he would do when I saw him on his first day back and send me a copy of his diet, which has obviously stood him in good stead. We are delighted to have him back, and he looks extremely well.

The voters of this country will certainly not be seduced by what they have heard from the right hon. and learned Gentleman—by the promise of apparently limitless public spending or by a raft of promises that could not possibly be fulfilled.

Mr. Skinner

When did you write this?

Mr. Soames

Just now.

Like a parachutist, the right hon. and learned Gentleman has dropped in on us from cloud-cuckoo-land. He gave all his old prejudices a good canter round the course, like an old hunter who has not been out of the stable for a very long time. He dodged all the fences and none of us learnt anything new. In short, he was deeply unconvincing. During his enforced absence the Labour party continued to show all the qualities of an organisation in terminal decline, and I am afraid that his return will have done nothing to help matters.

The debate takes place against a very favourable economic background. The firm control of public expenditure has been a vital ingredient in achieving such a satisfactory state of affairs. Restored and revived, the United Kingdom now has a golden opportunity to take a lead in Europe, not only in internal economic matters but in joint action to shape international developments that affect all our interests. We should not be in that position were ours not an economy with growth, substance and vitality in it.

We live in a heady atmosphere, so far removed from that portrayed by the right hon. and learned Member for Monklands, East that one can hardly believe that he lives in the same country. [HON. MEMBERS: "He does not."] For the first time in my lifetime, even the BBC—apparently with the sole exception of the "Today" programme—seems to sense that there are more possibilities than problems. The energetic creation of new wealth is a powerful force in any community and it has had a most beneficial effect in an enormous number of ways. In short, the country as a whole has been caught by the flame that is generated by the enthusiasm of economic success. Moreover, my right hon. Friend the Chief Secretary and his colleagues are particularly fortunate in their opponents who are, by and large, profoundly unconvincing as arbiters of financial rectitude.

The transformation of the economy since 1979, coupled with more vigorous policies to stimulate enterprise and the sound management of public finances, has allowed the Government to spend far more money on priority programmes. On this matter, the right hon. and learned Member for Monklands, East was positively churlish. It is to the Government's credit that they have maintained a clear sense of priority in their distribution of further moneys.

Ms. Armstrong

The hon. Gentleman talks about priorities and Government prudence. He may like to ponder what has happened in my constituency, where the Government have decided to save public money—the grand total of £2,000—by closing down two unemployment benefit offices. The cost of that prudent measure to claimants in my constituency will be £10,000 a year. Is that a measure of the Government's commitment to solving this country's problems?

Mr. Soames

The hon. Member for Durham, North-West (Ms. Armstrong) raises a constituency matter, which I am sure is important, but with which I am afraid I cannot deal. This year the Government have committed £1.4 million to the employment training scheme and substantial other moneys have been spent on employment, no doubt wisely, across the country. The hon. Lady shoula raise her constituency case with the Minister responsible for these matters.

It is to the Government's credit that they have maintained a clear sense of priority. The whole House will welcome—I am amazed that the right hon. and learned Member for Monklands, East did not welcome it more wholeheartedly—the substantial extra resources for the Health Service, which is more than £2 billion, and by far the largest increase that the Health Service has ever received.

I particularly welcome the substantial increase in the science budget and in defence expenditure and the amount to be spent on law and order which I hope will help to appease the cries of rage throughout the country. I welcome the fact that more money is to be spent on capital expendiure—an extra £2¾ billion this year alone. All those additions make a mockery of the Opposition amendment. However, I agree with the right hon. and learned Gentleman that many of our public facilities, such as DSS offices, are squalid in the extreme. The Government should embark on a programme of making good those facilities while emphasising improved services to the customers of the state. My hon. Friends will be amused to hear that since the competitive tendering clauses of the Local Government Act 1988 are beginning to rear their ugly heads, Crawley borough council has issued training instructions to its staff for the first time in 40 years on how to be nice to the punters. It is an agreeable thought that the council has finally woken up to that.

Many of my constituents will be pleased about the amount of money that the Government are spending on overseas aid. The right hon. and learned Member for Monklands, East was quite uncharacteristically churlish about that. I agree that we would like to be able to spend more, but the figures that he gave were quite inaccurate. Over the next three years spending will increase by 18 per cent. in cash and 5 per cent. in real terms. That is excellent news. The right hon. and learned Gentleman failed to acknowledge the quality of the aid delivered by the United Kingdom, which is of quite an exceptional standard and which sets it apart from almost any other country in the world. That marks an important step forward for British interests.

The ODA is also to be congratulated on the lead that it has taken to co-ordinate support for the Nigerian economic reconstruction programme to which substantial further funds have been committed. In the 1980s it is pleasant for the Government to be in such a position at the International Monetary Fund that we are co-ordinating the rescue of countries, rather than the reverse, which was the case when the Labour party was in government. The right hon. and learned Gentleman was right to say that one swallow does not make a summer, but the Government have turned an important corner by increasing the aid programme. It is continuing evidence that a strong and successful economy can and should do much more for nations far less fortunate than Britain. It is a further example that the might of modern powers is vested not in military prowess but in economic primacy. To that end I congratulate my right hon. Friend the Chief Secretary on arriving at such an excellent agreement for the British Council which does so much to promote British interests abroad.

I agree with the right hon. and learned Member for Monklands, East about transport infrastructure. In the past few years the Government have made a huge investment in that previously neglected area. There has been an increase of more than 50 per cent. since 1978–79 in new road building and trunk road maintenance. The trouble is that the investment is so very unevenly distributed. In the early 1970s, quite rightly, the Labour party built a large motorway infrastructure in the north. It is only now, about 20 years later, that that motorway infrastructure is beginning to grow into itself. The Labour Government neglected the south at the expense of the north and the south is now suffering serious problems. It will be clear to anyone who travels throughout the country that the picture that the right hon. and learned Gentleman painted of the north-south divide is an absolute fallacy. It is evident that only blindness and ignorance of the true state of the country's economy can lead the right hon. and learned Gentleman to say such things.

My constituency, which contains Gatwick airport, a large industrial estate and a town which has the lowest unemployment in any constituency in Europe, let alone the United Kingdom, has a road system off the motorways which would not be acceptable in a third world country. I would be grateful if my right hon. Friend would have a word with my right hon. Friend the Secretary of State for Transport to find out what can be done by way of transport supplementary grant for west Sussex.

I should also like to draw my right hon. Friend's attention to another serious matter which is building up a considerable head of steam. A clear and disturbing demographic pattern is emerging whereby we will face great difficulties in recruiting people into public service, particularly in teaching, science, the law and other professions. There will be a great deal more competition for new graduates, and just when the education reforms should have their most critical effect we shall be even shorter of the right people to teach those specialised and vital subjects.

I have recently been taking some interest in the magistrates' service, and in the pay and career structure of justices' clerks. My right hon. Friend will be aware of the critical role that justices' clerks play in the administration of the courts. I fear for the future of the profession, if faithful and loyal service by many good and honourable men does not receive a reasonable or just reward. They do not expect to keep up with private practice salaries, but, in a humane, honourable and prosperous society, it should be expected that the sums paid to lawyers in the public service who carry similar responsibilities should be comparable. The gap between the salary of a typical justices' clerk and a civil service lawyer with similar responsibilities is now several thousand pounds per annum. I find that unacceptable and prejudicial to the smooth running of the administration of the country. It is difficult to attract lawyers of the right calibre into the service and there is very little hope for its future unless we grab the opportunities that exist.

Mr. Churchill (Davyhulme)

My hon. Friend is making an important point. Is he aware that that problem afflicts not only his constituency in Crawley but mine in Manchester? It is becoming increasingly noticeable throughout the country that courts cannot do their work because there are no longer sufficient clerks to service the courts. In recent weeks there have been numerous incidents in which the courts have had to suspend their work and that is profoundly unsatisfactory.

Mr. Soames

My hon. Friend is completely right. At present my hon. Friend the Minister of State, Home Office is undertaking an inquiry into the administration of the courts in which he intends to pursue the matter of justices' clerks. It does no good for the Government whom we support and whose policies seek swifter dispensation of justice that despite the heroic efforts of the magistrates the shortage of justices' clerks means that it is taking 14 to 18 weeks for cases to come to court. That is completely unacceptable.

Mr. Ian Gow (Eastbourne)

Has my hon. Friend considered the possibility of leading a delegation comprising my hon. Friend the Member for Davyhulme (Mr. Churchill) and me so that we would make a trio and take a journey to see my noble Friend the Lord Chancellor who is responsible for these grave issues to which my hon. Friend has quite rightly drawn attention?

Mr. Soames

I would be proud to lead such a distinguished delegation. My hon. Friend is well known in Eastbourne as the fisherman's friend, and he will now be known as the justices' clerks' friend.

The same problems apply throughout the professional public service and I urge my right hon. Friend very carefully to study what steps we may take to improve the conditions of service and to recruit, maintain and motivate those people who are vital to the administration of the country.

By any measurable yardstick of achievements, individual political, economic cultural, or scientific, the Untied Kingdom has entered a new and brighter age. None of it could have happened without a sound and growing economy and the spirit of enterprise that permeates the whole fibre of the country. The Government should continue their prudent and sustainable progress. I wholeheartedly support the public expenditure White Paper.

5.59 pm

Mr. Giles Radice (Durham, North)

The hon. Member for Crawley (Mr. Soames) would not expect me to follow him in his eulogies of the Government, but I join him in congratulating my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) on his speech. It is delightful to see him in such sparkling form on his return. Having reeled from the blows of my hon. Friend the Member for Dunfermline, East (Mr. Brown), it must have been hard for Ministers to receive yet another devastating blow. If Conservative Members doubt that, they should have seen the Ministers' faces when my right hon. and learned Friend was speaking. They tried to obtain advice from their non-existent advisers, but clearly the message came back to them, "You are on your own." No answer was given to my right hon. and learned Friend, and they were unable to deny any of the statistics that he gave.

I shall consider two issues. First, I shall follow my right hon. and learned Friend the Member for Monklands, East and examine the Government's policy of reducing public spending as a proportion of gross national product. Secondly, I shall analyse the Government's related policy of forswearing fiscal policy as a short-term instrument and confining its use only to the medium-term. Both issues are important to the running of the economy.

We heard from the Chief Secretary about what happened in the 1970s. It is important to disentangle some of the realities from the fantasy that the Government put across. We must look behind the myths that they are trying to create. It is true that there was a surge in public spending in 1974–75. Social spending increased by 9 per cent. over that period, chiefly because of increases in pensions and subsidies on food and rents and especially because of the massive increases in public sector pay, which occurred mostly as a consequence of the threshold agreements introduced by the previous Conservative Government, which were triggered off by increases in inflation. Public spending was not matched by growth in the economy because it coincided with the shock to the economy caused by the quadrupling of oil prices, which amounted to as much as 2 per cent. of GDP. In other words, it removed 2 per cent. of our growth. Without growth, the share of public spending jumped dramatically from 41 per cent. in 1973 to 48 per cent. in 1975.

Conservative Members often forget that, faced with rapid growth in borrowing, the Labour Government acted swiftly and effectively to control public spending. Contrary to the myth put about by Conservative Members, especially the Chief Secretary, the initiator of the policy of restraining public spending was not the IMF but the Labour Government.

Mr. Major

indicated dissent.

Mr. Radice

The right hon. Gentleman was not in Parliament at that time. The decision was taken by the Labour Government as early as 1975, when cash limits were introduced. They were very effective, and, as a consequence, the share of public spending fell from 48 per cent. in 1975–76 to 46 per cent. of GDP in 1976–77 and to below 43 per cent. in 1977–78. So effective were the controls that in 1977–78 public spending fell 7 per cent. below the level of cuts demanded by the IMF. The IMF cuts were not necessary, because the controls were already biting. I was a member of the General Sub-Committee of the Expenditure Committee and followed that blow by blow.

Sir Peter Hordern

The hon. Gentleman rightly says that cash limits were a notable improvement on the previous presentations of public expenditure figures, which had been couched in funny money—there were no figures at all. That does not account for the fact that substantial cuts were made by the Labour Government, which were imposed by Dr. Witteveen's letter in 1976. The real cuts followed closely afterwards.

Mr. Radice

The hon. Gentleman is wrong. I have looked carefully at the facts. At that time, the Government thought that the public sector borrowing requirement was £6 billion, but it had already been reduced to £4 billion as a consequence of the cash limits. Public spending had been brought under control. As a member of General Sub-Committee, I assure the hon. Member for Horsham (Sir P. Hordern) that those are the facts.

The lesson to be drawn from the 1974–75 experience, which was quickly learnt by the Labour Government, is that it is unwise to increase public spending faster than growth in national output.

Mr. Major

Hear, hear.

Mr. Radice

Wait a moment. It is a sensible rule of thumb to increase public spending only in line with growth in national output. But the policy of expanding public spending in line with what the economy can afford is very different from the policy being pursued by the Government, which is of deliberately reducing the share of public spending as a matter of principle regardless of the circumstances. That is the point that my right hon. and learned Friend the Member for Monklands, East has been trying to get across. Continuing to reduce public spending as a proportion of GDP has no economic justification.

The Treasury and Civil Service Select Committee makes a good technical point in its report when its says that focusing on the overall ratio of public spending to GDP can be misleading because it does not distinguish between direct claims on resources and the transfer of claims between groups of individuals. It is only when transfer payments are excluded that one gets a true measure of the claim of public spending on resources, which is why we recommend that a ratio of public spending to GDP excluding transfer payments should be published.

More fundamentally, the idea that public spending must decline as a proportion of GDP has no economic justification. The share of public spending is already lower in the United Kingdom than in most European countries. All the evidence shows that continuing to plan for a declining proportion will harm the economy. My right hon. and learned Friend the Member for Monklands, East has made that case very lucidly indeed. Industry will be deprived of improvements in the vital infrastructure projects that it needs and could have. The Confederation of British Industry made that point very clear at its annual conference. As my right hon. and learned Friend so eloquently said, industry will be deprived of extra investment in education and training and the support for innovation and investment in research and development that it needs and could have. The regions will be deprived of assistance in regional support and aid that they need and could have.

As an hon. Member representing a northern constituency, I must say that the Government's attitude to regional aid has been extremely short-sighted. We are now spending the same over three years in regional assistance as we were in 1978–79. There are welcome signs of recovery in parts of the northern economy, but perhaps the hon. Member for Crawley should venture a little further north than the Watford gap to get a good idea of what is happening.

Mr. Soames

No good is done in the House by absurd remarks from one hon. Member to another about whether he knows the north. All hon. Members spend a great deal of time travelling and I spend a great deal of time in the north. The caricature of the north as against the south as it is portrayed by Labour Members does the north no good. It is a false picture of an area of the country that is beginning to take off. The north—whether Newcastle or the north midlands—has had its whole economy transformed. It is taking off and there are real opportunities, which people are taking. The hon. Gentleman does those people no good by running them down, even though he does not mean to.

Mr. Radice

I know that the hon. Gentleman has been shooting throughout the length and breadth of the British Isles and I respect him for that. Yes, as I have already said, there are signs of recovery in the northern economy, but it is only just starting to happen. I am sure, however, that the hon. Gentleman will bear me out when I say that the southern economy is greatly overstretched and overheated. But, as we know from experience, it is precisely when the national economy is expanding generally that firms are more easily encouraged to expand in the assisted areas. As the European Commission has pointed out, a vigorous regional policy is essential not only for the regions themselves, but, equally importantly, for a balanced and sustained national growth.

More generally, if Britain is to maintain a balanced and healthy economy, it needs a substantial level of public investment in line with the growth in the economy and the growth of output. Britain needs investment in such basic infrastructure projects as roads, as the hon. Member for Crawley agrees, transport, on which he again agrees, lighting and sewerage. My right hon. and learned Friend the Member for Monklands, East was right when he said that foreigners coming to this country say that we are a dirty country and do not invest in public utilities.

Mr. Soames

We do not say that.

Mr. Radice

The hon. Gentleman may not have done enough shooting on the continent. If he had, he might have seen the investment there. He might have seen how different matters are in West Germany, France or Scandinavia. One can see the difference with the naked eye, because the Government here have not been investing in the basic infrastructure.

Mr. Brazier

I am having a little difficulty in following the hon. Gentleman's argument. A moment ago, he said that the best condition for growth in the assisted areas was to have a good overall growth rate. That condition is being satisfied now. He then said that there was insufficient investment in the regions and he quoted statistics that related only to direct grants to the regions. He is saying that the infrastructure is the key factor. That is precisely the reason why so many companies are relocating to the north and why companies coming from the outside choose to go to the north. The reason is precisely that there is a higher level of investment in the infrastructure of the north than the south.

Mr. Radice

That is true. When a Labour Government were in power in the 1960s and 1970s, there was a large investment in the infrastructure of the northern economy. We are partly benefiting from that now. One of the reasons why Nissan came to the north-east was that some of the infrastructure was good, but we must continue to invest in the infrastructure.

Mr. Soames

We are.

Mr. Radice

We are not doing enough. If we brought our public spending up to the national growth rate, as is done in every other economy, then, with the growth that we had in the economy, we would be able to invest in projects not only in the north but in the south, where there is overcrowding. That is the burden of my case and I am glad that the hon. Member for Canterbury (Mr. Brazier) has given me the opportunity to say that yet again. I hope that he now understands the point.

The only substantial argument produced by the Chief Secretary to the Treasury for Government policy was that it was needed to free resources for the private sector and private individuals. My right hon. and learned Friend the Member for Monklands, East and I have already demonstrated clearly the ways in which private industry needs sustained public investment. For individuals, the idea that it is necessary to reduce rates of direct taxation as a matter of principle regardless of circumstances has no economic justification.

After last year's Budget, the Chancellor's tax cuts stimulated an already over-vigorous consumer boom and that should be a warning that reducing taxation is not always the prudent option.

That brings me to my second and final point, which is about the Chancellor's fiscal strategy. He has continued to stress that the Government's fiscal policy is set in the medium term and is not used as a short-term instrument. If one has a commitment to reducing public spending as a share of gross domestic product as a matter of principle and one also has a commitment to reducing taxation as a matter of principle, regardless of circumstances, it is true that that rules out the use of fiscal policy as a short-term instrument.

The problem with that strategy, as many commentators have pointed out, is that the Chancellor is forced to run the economy with an instrument too few and with one hand tied behind his back. It would help in the running of the economy if the Chancellor were able to use fiscal policy in a counter-cyclical fashion—by increasing public spending or reducing taxation when demand needs boosting, or increasing taxation and decreasing spending when demand needs reducing. An example of the first type of counter-cyclical fiscal action is the 1987 Japanese budget, when the Japanese Government, in contrast to what happened in this country in 1987 and 1988, both increased public spending and reduced taxation to boost the economy in a balanced and sensible way. That is different from what happened here. An example of the second type of counter-cyclical fiscal action would be if the Government decided that they should increase taxation levels on the better-off in the coming Budget. That would be helpful because there is now an overwhelming case for using all the instruments available to run the economy, including fiscal policy.

If we are to meet the justified social needs that we have in this country to assist our regional problems and to achieve balanced economic growth—which even the Government do not pretend that we have at present—the Government should first abandon their commitment to reducing and continuing to reduce public spending as a percentage of GDP. Secondly, if we are to manage the economy more effectively, we need to be able to use all the economic instruments, including fiscal policy, when necessary.

6.18 pm

Sir Peter Hordern (Horsham)

Let me start by welcoming the right hon. and learned Member for Monklands, East (Mr. Smith) back to his place. If I may say so—I hope it does him no harm—he made an excellent speech in full and good vigour.

I want to say a few things about the efficiency of public expenditure. Last week, we had the National Health Service review. I think that hon. Members will agree that it was devised to promote efficiency within the Health Service. The idea of costing pharmaceutical preparations, drugs and general practices, leads to that supposition. One must look more widely at public expenditure to see where else such an approach can be taken.

I cannot help but remark on the leading article in The Times today about the common agricultural policy. My attention was first drawn to that matter by a report of the European Court of Auditors, which explained that there had been a leakage of payments to unknown parties of about £4 billion. But recently the fraud inspectors, who have just been appointed, in evidence to the European Parliament worked out that the zone of shadows, as they described it, amounted to between 10 and 20 per cent. of the entire EC budget—£6 billion. All that had been spent on phoney export certificates and compensation claims.

I had not supposed that the CAP was a form of outdoor relief for the Mafia, but that plainly is what it has become. My right hon. Friend the Prime Minister has given the clearest instructions to our Ministers that when they go to Brussles next Monday they are to put that matter at the top of the agenda. But, with the best will in the world, I cannot help thinking that the weakness of the CAP is that it is in nobody's particular national interest to do very much about it. If the leaks and squandering of money stopped, it would mean a net repayment by a particular country to the European funds. There will not be enormous enthusiasm to stop such misdoings.

That points to, and has pointed to for a considerable time, the weakness of the CAP and the need to put it right. We must find some better way of compensating farmers by some kind of income support better than the CAP. It does grave damage to the Third world by producing and exporting food and produce which discourages them from producing their own. Moreover, and perhaps more seriously, it is a threat to trade with the United States of America, as has been shown by the recent ructions in the GATT negotiations.

This topic has arisen before, but I urge my right hon. and hon. Friends to believe that the weakness in the CAP, despite all their efforts to stop it, is a fundamental one which needs to be addressed by changing the form of income support for those who live on the land, not through this method, which has now become completely disreputable.

There is one other aspect to which I want to draw my right hon. Friend's attention, and that relates to defence procurement. The only figure that we have for defence is £20.1 billion, which is the total defence expenditure this year. We have a figure for expenditure on defence personnel and, by a process of deduction and a fortunate glance at the Public Accounts Committee's report, I see that we now spend some £8.5 billion a year on equipment. I regret to say that in the part of the public expenditure White Paper dealing with defence there is not a single mention of cash figures. There are plenty of percentages, plenty of mishmash and guff about efficiency, but no cash figures. Here again, this is a serious matter which should have been addressed a long time ago.

We should start from the basis that the Ministry of Defence should look at the original cost of the equipment that it now has and what was finally paid for it, and ask whether that money would have been spent in that way if it had had the opportunity to do otherwise. That leads me to ask what plans we are making for much closer collaboration with our European partners in defence.

We must accept that the time has now come when national research and development expenditure on enormously expensive articles of defence equipment can no longer be justified. We have at least three different kinds of torpedoes, each of which has cost well over £1,000 million so far. I do not know why it is necessary to have three different kinds of torpedoes, but I recollect that when the subject came up in the F'ublic Accounts Committee there was an American torpedo in use which we could have bought for £300 million. Those are enormous figures by any standards. Whether it is torpedoes or other forms of equipment, it is high time that EC Defence Ministers got together and decided what kind of equipment they wanted and did it to a common standard. The defence industries would have to gear themselves towards producing that equipment. Much-needed European collaboration would take place, and we would see a marked improvement. It is no longer possible to go it alone on important defence equipment procurement. I hope that that will be noted.

I notice that the Public Accounts Committee's report last November showed that the profit due to contractors engaged on non-competitive risk between 1982 and 1984 was £600 million and that a significant number of contracts were priced after they had started. We become concerned about figures of £20 million or £300 million and we have debates in the House. But for hundreds of millions of pounds for defence equipment we do not appear to have any debate at all.

Finally, I want to say a word about what are called the Ryrie rules—I think that hon. Members know what I mean—the financing of public projects by private expenditure and the innate Government guarantee that lies within it. That relates to something that the hon. Member for Durham, North (Mr. Radice) said earlier about the desirability of public expenditure on capital) projects.

I shall not discuss for a moment the share of GDF' because the Government are right in reducing the percentage of GDP take-up by public expenditure. But we have an entirely new position today. We have a large public sector debt repayment programme, which is almost unique. I think that it happened once under Roy Jenkins for one year, but that was very much under the influence of Dr. Witteveen. Apart from that, we have seldom been in the position of repaying public sector debt, certainly not to the extent that we are now doing.

If we have too much consumer demand in the private sector, which appears to be the case, a position that we rightly tackle with high interest rates, is it right not to look at the public sector separately? We have a large public sector suplus and we are buying in gilt-edged securities at the long end of the gilt market. I simply mean by that that the Government are repaying debt by buying long-dated gilt-edged securities.

The effect of that is to reduce interest rates for a debt which is 15-years-old or more, with the result that we are now buying that debt at an interest rate of about 10 per cent. I am surprised that more companies are not borrowing long-term at that rate. Essentially, it means that the Government are in the position of a company which decides that, rather than invest in a capital project, it will repay its debt or retire its ordinary shares. That is a perfectly good option for a company to take, but it is somewhat unusual.

We must look specifically at the public sector and ask whether the repayment of debt which gives a return of 10 per cent. is as good a return as that which may be got by investing more in British Rail or British roads. I say that because the White Paper on transport has made a rather good analysis of the cost of building new roads, and trunk roads in particular, which shows a substantial advantage—I think about 20 per cent.—if expenditure on roads is proceeded with. I believe that the same is true for British Rail.

I defer to nobody in my admiration of what the Government are doing in public expenditure—the extra money that British Rail is spending and the extra that is being spent on British roads. However, such has been the prosperity in Britain that the increase in motor traffic has been far faster than anybody predicted. The result has been the snarl-up on the motorways, of which we are all aware, which has a direct economic cost to the country. What we should do is to look carefully at the marginal cost and the benefit of repaying debt in the public sector, as opposed to spending rather more and allowing, perhaps, British Rail to borrow on a 15-year basis the money it requires for a further major capital expenditure programme.

My right hon. Friend the Secretary of State for Transport plans to privatise British Rail. If it were privatised, as British Gas is, it would have no hesitation in going to the capital market and getting the money that it needed. One only has to look at British Gas's capital expenditure and the money that it raises to know that that is the case. We must look at it sensitively and consider whether it makes sense to refuse British Rail the opportunity to mount a higher investment programme, given the difficulties which are arising and will arise still more in the future. If one goes to France, one can see the effect of the high-speed trains and the volume of traffic because of the better communications. My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath)—I should have perhaps given him notice of this—is enormously in favour of our making further progress within the European Community, except when the railway goes through Bexley and Sidcup, which is understandable.

We must make a much more careful analysis than we have been accustomed to doing of the new conditions which arise from having a surplus in the public sector and consider whether it makes sense to repay debt or to have a further scale of investment. The extra traffic on the roads and on British Rail leads me to believe that, unless we take further action shortly, we shall have a serious snarl-up. The Ryrie rules are in need of a revision.

Such a long-term analysis should follow a strategic assessment of all our public expenditure programmes, rather than simply allowing a rolling programme for each Department each year three years ahead. I have argued before that there needs to be some form of body, such as the "Star Chamber," which comes together once a year to consider whether public expenditure really matches what our political and national aims are five or 10 years ahead. I feel that there would be some important strategic decisions made which would be different from our present ones.

Are we sure that we are making the best use of the information technology which is having such a profound effect in the private sector? I need only say that I understand that in the Social Security Department it is hoped to make payments—such as income support payments—through the local offices simply by tapping through the information to the computer at Newcastle and then telling the benefit recipient the position. It should be possible to have a plastic card with the information written upon it, thus making it unnecessary to go to some of those sordid social security benefit offices. That scheme should, of course, be voluntary, but the task would be made much easier if the recipient allowed the Inland Revenue to give what figures it felt were necessary to get the recipient's precise position and speed up the payment. Information technology can do a great deal in this respect. One of the advantages would be that it would speed up payments, make them more certain and make collecting them a good deal more agreeable than it is now.

I hope that when my right hon. Friend and his colleagues consider the public expenditure programme later in the year they will give some thought to the question of investment in the public sector, and consider the damage that has been caused to our communications by the large volume of traffic on our roads and railways.

6.34 pm

Mr. Charles Kennedy (Ross, Cromarty and Skye)

This, by definition, is an extremely wide-ranging debate and I hope that the hon. Member for Horsham (Sir P. Hordern) will understand if I do not follow specifically the number of routes or avenues he explored in his interesting speech. In the context of the points which have already been made by the hon. Member for Durham, North (Mr. Radice), I would say that I believe that the speech of the hon. Member for Horsham bears a great deal more resemblance to economic reality than the speech of the hon. Member for Crawley (Mr. Soames). The concept of the hon. Member for Crawley that there is no such thing as a north-south divide, of which so many Opposition Members frequently speak, is astonishing. It shows how fortunate he is in being able to boast that he represents the constituency with the lowest percentage level of unemployment. I believe he said that it was the lowest in western Europe. I wish that we could spread a bit more of it around. The hon. Gentleman's constituency being the jewel in the crown of employment opportunities in western Europe should be for him the most convincing argument yet in favour of the reality of the north-south divide.

There have been many friendly statements made about the right hon. and learned Member for Monklands, East (Mr. Smith). I have made mine in print north of the border—perhaps he has seen them on Saturday mornings—so I will not embarrass the right hon. and learned Gentleman now, but it is nice to have him back.

On behalf of the Social and Liberal Democrats I would first like to give our views about the current economic position and the public expenditure related to that. Secondly, I would like to suggest one or two changes of policy which the Government could pursue. Thirdly, I would like to take the opportunity of this public expenditure debate to make a constituency point which has arisen during the past 48 hours. Hon. Members on both sides of the House may know of the weather problems in the Highlands of Scotland during the past few days and the damage that has been caused.

There is no doubt that the overheating of the economy during the past year has resulted in the usual symptoms—severe trade deficit and increasing inflation. The higher demand in the economy has not been met by domestic suppliers, so prices have risen to ration demand and imports, too, have filled the gap. The cause was the £40 billion credit boom about which the Chancellor is taking action through high interest rates. The Chancellor also had an encouraging, if not benign, influence on that credit boom with the tax cuts in the Budget. The wringing-out within the economy that the Chancellor is now trying to achieve—it is the mortgage holders especially who are feeling the most squeezed—has been mainly encouraged not just by his earlier economic decisions, but by the positive political inducements which were put before the taxpayers and the public generally.

By attempting to cure or dampen demand by means of high interest rates, the Chancellor is arguing that credit has become more price elastic as the private sector has become a net debtor. The rise in the exchange rate, which results from the high interest rates, is considered a good thing because it encourages foreigners to lend us money to finance our trade deficit, thus forestalling a sterling crisis in the short term, such as we have seen previously. It is argued, too, that it exerts a downward pressure on wages because exporters and import competitors must control unit labour costs more tightly to remain competitive internationally. Therefore, two direct economic and political implications of the policy have favourable or acceptable resonances from a Conservative viewpoint—especially the dry one, which is currently in vogue at the Treasury. The Chancellor is also dampening demand by keeping a tight fiscal policy, and allowing a fiscal surplus to build up.

Against that backdrop, we have heard Conservative Members and the Chief Secretary to the Treasury argue that public expenditure must be controlled and not increased further, because of the inherent dangers that it would carry for further excess demand. As I have said, the Chancellor cannot be absolved of the responsibility for the position in which we now find ourselves. To get out of it, others will have to pay a price.

The economy must be slowed down. Interest rates are an essential component of any strategy that any Chancellor must use, but they are not the sole component. They should not be as blindly and slavishly followed as the Chancellor has done in recent times. He is relying too much on interest rates, and that is generating difficulties elsewhere in the economy.

In what other ways can inflation be curbed or its rate of upward movement kept in control and excess demand cooled? First, given our problems with savings levels, to which the Chief Secretary referred, although not convincingly, there must be further incentives for personal savings to aid interest rates and cool the credit boom. Anything that the Chancellor can do in his next Budget will be of assistance.

I do not recall whether the shadow Chancellor referred to the European monetary system, but, secondly, I repeat the argument that if we are interested in exchange rate stability within tolerable bands and an anti-inflationary regime which goes beyond the borders of this country, it makes eminent sense for Britain to join the exchange rate mechanism of the European monetary system. When trade figures are bad, we would not necessarily need to hike up interest rates to protect the pound. Membership of the EMS would give credibility to a stable level for the pound in the medium term.

We are now into the first decade of this Government—this premiership—and we are still waiting for the magical, mystical and impossible-to-attain circumstances in which Britain may enter the EMS. The Prime Minister is increasingly seen at home and abroad either to be isolated or in a rapidly shrinking minority in her implacable hostility to the EMS. I hope that the arguments of the Governor of the Bank of England, the Chancellor, the former Chancellor, the former Home Secretary and many others will win the day. They would add considerable momentum to the policies for which the Chancellor, in aiming for his objectives, could command general political support.

Thirdly, the Government should drop many of the proposed increases in public sector prices. They are inflationary and injustified, except by the Government preparing certain industries for privatisation. That is thoroughly irresponsible, even by the Government's own economic yardstick, and it should be abandoned.

Fourthly, we must increase public expenditure to tackle underlying inflationary pressures—here I endorse the remarks of the right hon. and learned Member for Monklands, East and the hon. Member for Durham, North—such as skill shortages, regional economic imbalances, and a crumbling infrastructure. Any loosening of fiscal policy in the coming weeks must be directed at that kind of expenditure and not at tax cuts. Expenditure to tackle those problems would be less inflationary than tax cuts, and it would also help to solve the underlying problem.

I am sorry that the hon. Member for Crawley is not present to hear the comments that I am about to make. The Town and Country Planning Association—not a hotbed of militant reactionary thought—recently produced a positive and constructive report on the north-south divide. It refers to attracting higher order corporate functions, Promoting local and regional businesses and Improving the development framework".

Under those headings it has some sensible proposals to improve the situation. It concludes by stating: Finally, to give credibility to any policies for dealing with the North/South Divide, the government must put its own house in order both politically and administratively. There should be a senior minister appointed with responsibility for coordinating all central government action concerning the regions, and the regional offices of central government should be strengthened with teams representing all relevant departments who can make decisions with regard to public investment, funding approvals etc. on the spot. I do not necessarily endorse the need to create yet another Ministry or to appoint yet another Minister to oversee it, but that conclusion demonstrates a genuine feeling in the regions, and the further north one goes, the more pronounced it becomes. Various squeezes have taken place on local authority capital expenditure. There is a lack of development agencies in the regions in England, in contrast with the number in Scotland and Wales. There is a stifling of local economic and planning initiatives to come up with schemes that will be sensitive to local circumstances and capable of making a local economic impact. Therefore, I hope that the Government will recognise and respond to the validity of that criticism.

In terms of the need for greater investment, I refer to a commentary on the Government's current economic plans—the White Paper—by the Federation of Civil Engineering Contractors, dealing in particular with roads and infrastructure. It is important to continue to bring down unemployment, and we should give priority to that. A typical breakdown of unemployment statistics shows that the last employment of a half to two thirds of those currently on regional unemployment registers is likely to be some form of construction-related activity. It is as important as that. Ironically, it has always been a British failing that, whenever there is a squeeze, and whenever a certain amount of money needs to be found in the system, the construction capital cost side is most likely to suffer. Yet it has the most immediate impact on creating employment and the most immediate potential for reducing unemployment and creating job opportunities. The Federation of Civil Engineering Contractors Association concludes: Despite a number of optimistic comments in the Press, it was never seriously expected that there would be any figures for infrastructure investment plans higher than those in the Autumn Statement last November, even if the Chancellor is now looking at a prospect of a 1988–89 budget surplus up to £5 billion higher than was expected when his public spending plans were drawn up. The whole system has now become too rigid for that. So, at the same time that there is still a widening gap between the nation's needs for infrastructure investment and the Government's plans for spending on infrastructure, there is another widening gap between those plans and what—in the view of a growing number of commentators— —including many Conservative Members— it could safely afford to spend on investment without prejudice to its stated economic objectives. The fact that they are not willing to do so suggests that the only obstacle now is political prejudice. That again is an area where the Government should be giving a change of direction and more positive emphasis.

Equally, further employment opportunities exist in terms of the environment and the many schemes at local regional and national level that could be run and could harness the talents and abilities currently not being used. This would not only have the beneficial effect of reducing unemployment and increasing economic activity but would also have beneficial social and environmental effects by way of the reduction of pollution, the saving of energy and the like.

The Government should begin to give greater attention to reducing our skill shortages by putting people back to work and encouraging the growth of small businesses. I hope that they will recognise eventually that that is a more positive way to try to move supply back into line with demand. It is not the only way; other initiatives can be taken. For example, in regions of high unemployment, why not look at the possibility of specially targeted reductions in employers' national insurance contributions to try to stimulate employment in black spots? None of this has been looked at, and that is a sad reflection.

I want to touch on one area of defence of which the hon. Member for Horsham spoke. I certainly subscribe to his comments concerning European defence design and procurement policy, which without a doubt has been woeful in terms of the open-ended and cost-plus types of contract that have hitherto been common. Clearly, there is a need for action here. At a time when the new President of the United States will be seeking to begin to persuade the Congress to endorse in a bipartisan spirit his general strategy with regard to the United States deficit, and as feeling is clearly building up more and more among Republicans and Democrats about the huge burden which the Americans shoulder through their military presence in the form of both manpower and machinery in Western Europe, we have to brace ourselves, along with the other western European NATO members, for higher defence expenditure if the Americans begin not, I hope, to disengage but perhaps slightly to reduce their level of financial and perhaps physical commitment on the continent of Europe. I hope that the Government will not be averse to defence expenditure increases should that burden begin to move on to the British economy, in common with the economies of other western European members of NATO, in due course.

For all these reasons, therefore, we cannot support the rather self-congratulatory and somewhat complacent tones of the Chief Secretary, and as a result will not be supporting the Government.

I will finish on a specific item. There has been very severe flooding in the Highlands of Scotland during all this week. Hon. Members may have seen press and television reports. A strategic rail link in the town of Inverness has been completely washed out, which has severe implications for the movement of haulage and passenger traffic in that part of the country. An entire valley in my own constituency, the Conon valley, is currently flooding. In Fort Augustus, in Inverness-shire people have had to be evacuated from their homes because of flooding conditions. In the constituency of my hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston), where the bridge is located, there has been further flood damage. In a rural school in the village of Kingussie in Speyside a quarter of a million pounds worth of damage has been done in the last few days.

I am not straying from the debate, because the Minister of State, Scottish Office visited what is frankly a bit of a disaster area, in every sense, yesterday. He said that, although he could not give any commitment at the time, he would be looking very sympathetically to see whether additional public expenditure would be available to help bail out and assist the Highland regional council, the district councils and individuals, such as landowners, tenants and so on, who have suffered considerable disruption, distress and direct personal loss. I hope that the Minister will take note of that, as we should be extremely grateful for a swift response—probably not by the conclusion of tonight's debate, but I hope not too long thereafter—as to what the expenditure commitment by central Government might be. Certainly, if there is any approach to the Treasury from the Scottish Office I hope that there will be a sympathetic and constructive response, because help is drastically needed.

On that particularly woeful but extremely important point I rest my case in this debate.

6.55 pm

Dr. Charles Goodson-Wickes (Wimbledon)

It is with some hesitation that I address the House in an economic debate, conscious of the wide array of talent on such matters on both sides of the House and the existence of a degree of knowledge much greater than my own.

We are debating the Government's expenditure plans and I would not be sitting on the Government side of the House if I did not believe that the creation of wealth—a misrepresented cause if ever there was one—was a prerequisite for the prudent management of the economy generally. Unless the wherewithal is produced—and by that I mean the products, the jobs, the reinvestment, the exports and the taxes—there is really no legitimate basis to the debate. The alternative, of course, is to go back to the bad old days of the International Monetary Fund bailing us out, when the right hon. Member for Leeds, East (Mr. Healey) became what The Times described as "the shy pioneer of Thatcherism"—a description which I fully endorse.

It therefore follows that the cake must be as large as possible before it is subdivided. I thus congratulate my right hon. Friend the Chancellor on his management of the economy, which has produced as healthy a situation as we have ever experienced. I congratulate him particularly not for wearing compassion on his sleeve but for acting to ensure that funds, for example, to the Health Service have not only been increased but are about to be better managed as well, to the benefit of the patient, first, as a human being and, secondly, as a consumer.

I shall concentrate on two issues: first, self employment and, secondly, home ownership.

The problems of unemployment and all its associated social evils have caused all of us in the House much anguish. The fall in unemployment, for which the Government must take much credit, has been associated with a rise in the number of self-employed people. This welcome increase, from just under 2 million in 1979 to almost 3 million in 1988, tells its own story. As ever, the Government have provided the climate, and the inherent ability and energy in the British character has done the rest. The prophets of doom about the enterprise allowance scheme have been proved wrong to the extent that fully 74 per cent. of the businesses so set up are still in business one year later. Employment for many others has been secured thereby and the expenditure earmarked for such projects by my right hon. Friend has indeed ensured value for money for the taxpayer.

However, I should like to put to him two apparent anomalies the correction of which may be both fiscally neutral and involve marginal increases in expenditure, to the benefit of society as a whole. First, a self-employed person—and I have to declare an interest as I have become self-employed during my own career——

Mr. Morgan

Are not we all?

Dr. Goodson-Wickes

I stand corrected, but I believe that in this House we are not self-employed as seen by the taxpayer.

As a self-employed person I belong to the group of people who attract the highest rate of tax, at 40 per cent. However, if a self-employed person incorporates, he or she is taxed at 35 per cent. The consequent pressure to incorporate brings with it exactly the sort of problem that the Government, I suggest, are dedicated to avoid—the generation of bumf and bureaucracy. Perhaps my right hon. Friend would look at this matter anew.

The self-employed cannot get the same funding rate for their personal pensions as those available to people employed by others. Up to the age of 51, only 17.5 per cent. of earnings can be so utilised, rising to 27.5 per cent. at the age of 61. That contrasts starkly with around 30 per cent. as the norm for funding through a company.

It is only natural that at the outset of a venture a self-employed person has so much to occupy his mind that pension planning is a very low priority. Even if he does get round to it, I will show that he does so at a disadvantage. I understand that the conventional wisdom is that an alteration in the rate might produce tax havens for the better off. However, speaking as a layman, I imagine that the lowering of the income tax burden and tax in general, a trend to which I look forward to seeing continued in the forthcoming Budget, would make such a set of circumstances much less attractive and less important in the context of the economy as a whole.

There are parallels with the lack of freedom for those in employment to make individual pension plans when their employers have company schemes. If the employee opts out, he has Hobson's choice of losing around 10 per cent. of his salary which is paid by the company in pension contributions. If SERPS is being re-examined critically, should not that other anachronism be tackled as well? In short, I am against any system under which people are discouraged from making their own pension provision and feel that Government expenditure in tax relief thereon is amply justified. For those of us brought up in the welfare state, it is difficult to break the shackles both psychologically and in fact. However, from personal experience I can state that forcing an individual to study the options concentrates the mind wonderfully. It makes sense morally and financially to encourage the trend towards more personal pension provision which has already increased from involving about 225,000 people in 1979 to nearly 1,250,000 in mid-1988.

The likelihood of long-term dependency on the state must be reduced by that trend. That argument is strengthened by demographic changes which in the years ahead will mean a smaller working population maintaining an increasing number of dependants. The icing on the cake is the encouragement of savings at a time when the Government are keen to seek that development as part of the concept of popular capitalism. It may be a truism that in the Western world conventional savings tend to increase only if there is little faith in the economy. If the Government's supreme success has been the response to the lifting of exchange controls, there is a certain irony in the low level of savings which is a peculiarly difficult index of achievement to explain.

I also want to consider the further promotion of home ownership. There is a danger at the moment that the high levels of interest rates are causing hardship to those who, through the Government's initiatives, have become home owners for the first time. It is perhaps only during this Government's term of office that Sir Anthony Eden's dream of a property-owning democracy has seen such a dramatic advance. In nine short years the number of owner-occupied homes has risen from 11.5 million to 14.6 million, giving 65 per cent. of the population a material stake in the country and putting the United Kingdom near the top of the western European league table of home ownership.

All hon. Members must be aware from their post-bags of the present cash flow difficulties among our constituents. We all look forward to a time when interest rates are reduced, once inflation, the most cruel tax of all, is again under control. I deplore the fact that various financial institutions have advanced sums at a ratio quite inappropriate to the income of the borrower. I trust that their irresponsibility will be examined should repossession be threatened.

On a more long-term basis, I urge the extension of the already well-proven business expansion scheme into the provision of the purchase rather than the renting of residential properties. I want to suggest two areas of great need that might benefit from an injection of private enterprise: starter homes for young people at an early and financially fragile stage in their careers and community housing for those on lower incomes.

I know that business expansion schemes are being considered under those headings, but have yet to be introduced. The provision of starter loans for first-time buyers will always be difficult, but it is the key for the whole residential property market which is experiencing particular difficulties at the moment. Whereas such schemes might be judged to be outside the spirit of the legislation as assured tenancies may be involved in a move towards subsequent purchases, private money could be brought to bear without generating new inflationary pressures or otherwise distorting the market.

With regard to community housing, it may be possible to bring BES funds to support housing associations. Although the returns for the investor will be low, security would be immensely greater and a new type of investor may be attracted in large measure.

In asking my right hon. Friend the Financial Secretary to the Treasury to look carefully and favourably on those schemes when they are introduced, I do so only in political terms as I have no financial interest in them. I believe that those new ideas will fit well with the Government's well-established philosophy.

I end with the following quotation from a politician of the gentler sex:

The limits of the possible constantly shift, and those who ignore the limits are apt to win in the end. Again and again the laughable idealism of one generation evolves into the accepted commonplace of the next. Those are not the words of my right hon. Friend the Prime Minister, but of the late Baroness Wootton of Abinger, who was not well known for her Conservative views. I hope that my right hon. Friend will consider my suggestions, if not limitless in implications, at least constructive in the context of Government expenditure.

7.6 pm

Mr. Rhodri Morgan (Cardiff, West)

I want to begin by seeing whether the debate can get away from the crude nostrums whereby Conservative Members have implied that all public expenditure is bad and all private expenditure is good. Alternatively, they have suggested that all public expenditure carried out by the Conservative Government is evidence of running a tight ship while expenditure carried out by previous Labour Governments was evidence of the Cabinet being infested by a team of drunken sailors. That simply cannot be true and there is no evidence for it. If Conservative Members persist in believing that it is true, I shall provide the evidence to show that the quality of public expenditure under this Government reveals that the drunken sailors are with us today. I shall show what is happening under this Conservative Government and the alleged efficiency of the tight ship accountants who are supposed to be running the economy.

When I say that, I do not mean that all public expenditure by this Government over the past 10 years has been bad. I simply criticise the doctrine of unilateral original sin with which the Government have been trying to put their case tonight. The Government have tried to state that all their public expenditure is tightly controlled, thoroughly justified and that it produces a real rate of return for the economy. They suggest that what happened between 1974 and 1979, and even under the Conservative Government run by the right hon. Member for Old Bexley and Sidcup (Mr. Heath), there was no control over public expenditure which went wild and was used for all sorts of things which did not pay. That is not true. There is very little evidence that public expenditure is somehow superbly run today because of the way in which the Government manage tight control.

This "public bad, private good" has produced a very strange attitude which has landed the Government in considerable difficulties. Conservative Back Benchers like the hon. Member for Crawley (Mr. Soames) are beginning to squeal about the lack of public expenditure in certain areas, for example, on commuter rail services or road expenditure in the south-east which they recognise has been neglected and must be pushed forward simply to keep pace with the demands which can be met only from the public sector. If Tory hon. Members think that public expenditure is invariably tightly controlled under the Government by chucking the drunken sailors out and getting the few accountants in, let me give them a few examples of public expenditure which is seriously defective in quality.

Two days ago the Secretary of State for Education and Science was proud to announce a major programme, costing £35 million over five years, allegedly to build up Britain's effort to solve the great global problems, including the greenhouse effect, by concentrating the oceanography effort of the country in a centre of excellence at Southampton university. The laboratory is to be removed from Wormley in Surrey to Southampton, and Research Vessel Services, based at Barry, is to be relocated in Southampton. The public expenditure total over three years was given as £17 million, but the commitment announced at the press conference in Cardiff that morning by the director of the Natural Environment Research Council was £35 million. That is a massive expenditure commitment to oceanography and to the solution of the greenhouse effect.

What about the quality of the expenditure? Will the money be spent on the right things? Oceanography requires boats. Good oceanography requires up-to-date boats. All of that £35 million is to be spent on things other than boats. Professional oceanography cannot be done without up-to-date boats. The £10 million which would be required to modernise HMS Discovery, the flagship of British oceanography, is not being spent on the boat. Money is being spent on a new laboratory rather than on the boat. That is one example of where the quality of public expenditure is characterised by the hands-off attitude of the Government.

The Government have only £35 million to spend so it may seem that they could not afford expenditure on the boat. We may ask why they are spending money on the laboratory rather than on the boat, or on bricks and mortar rather than on the raw science to collect data. It is the serious problem which the Americans regard as the GIGO principle—garbage in, garbage out. If we do not have good data from a modernised boat which can collect deep water samples, using winches with modern hydraulics, what is the purpose of having a beautiful new laboratory? That is an example of a public expenditure choice which is seriously detective, not in quantity, but in quality. It is an example of the way in which Ministers refuse to get involved in judging whether the Advisory Board for the Research Councils has got its priorities right.

Mr. James Paice (Cambridgeshire, South-East)

I find it difficult to follow the hon. Gentleman's argument. He seems to think that the Government, through their Ministers, should make every investment decision down to the £10 million to which he has referred. £10 million is a lot of money but it is only a tiny percentage of £150 billion of expenditure. Is the hon. Gentleman telling the House that Ministers should use their judgment, with whatever background they have, to decide how to allocate £35 million expenditure rather than, as the Government have been doing, giving the responsibility to people with greater technical knowledge who will be in a better position to decide how the money is best dispensed?

Mr. Morgan

I wonder what the hon. Gentleman thinks Ministers are for. They receive information from trade unions or from people in an industry to warn them about the problems. The example that I give is a good one. Ministers were well aware of the importance of the choice between the laboratory and the boat; they were warned not only by my hon. Friends but by people with knowledge. in trade unions and elsewhere. If the hon. Gentleman thinks that Ministers are incapable of offering a view, he does not understand how public expenditure is run. The permanent secretary of the Department of Education unfortunately is the accounting officer for all of the Department's expenditure, and the Minister is the person who is accountable to Parliament. The Minister is accountable for the quantity of public expenditure and for its quality. Now and again that involves making choices.

In the example that I gave, if the choice had to be between a laboratory and a boat, Ministers got it wrong. If the choice was between spending £45 million and £55 million, I still say that they got it wrong because they spoiled the ship for a ha'p'orth of tar. They will have a beautiful new laboratory and a boat which is said, by the people who run it, to be rotting. That is the boat which we will send out into the oceans and on which we will depend l'or the British contribution to the solution of a serious global problem—the detection of the cause of the greenhouse effect. Everyone, including the Prime Minister, agrees that that is a most serious problem.

Mr. Paice

I have no knowledge of the £10 million which the hon. Gentleman believes should be spent on a boat, but does he accept that any Minister is surrounded by advisers from all sorts of backgrounds who can give him technical advice on which he will make a decision? We understand that the hon. Member believes that the wrong decision was made, but he seems to be suggesting that, because he thinks it was the wrong decision, the Minister made it wilfully, disregarding all the advice. Does he accept that any Minister can act only on the technological advice that is given to him? If a Minister makes a decision which favours one sector of advice, it will inevitably be against the advice of other people. That does not necessarily mean that the Minister's decision is wrong.

Mr. Morgan

That is a cop-out. I am not sure whether. the hon. Gentleman is saying that the Minister made the right decision or that Ministers should never take decisions when potential problems have been drawn to their attention by the people who are involved at the sharp end.

I shall give another example. The Chief Secretary mentioned in his opening remarks that expenditure on the nationalised industries was falling and that this was a sign that they had boosted their productivity and had become more efficient. He seemed to suggest that they were memorials to the greater pressure to which the Government had exposed them as regards public expenditure. We have heard all that before.

What are the facts? The Government spend money on giving grossly discriminatory tax breaks to industries when they are privatised but not if they remain in the public sector. Conservative Members are shaking their heads; I am about to give an example which may change their minds.

Let us consider British Steel which has been privatised. In the act of privatising British Steel, the Government have forgone taxation on the next three years' profits of about £180 million per year. BS has been given a tax break by the Government. This year its profits will be about £550 million. Normally it should pay about £200 million in corporation tax. How much corporation tax will it pay? The amount is £20 million, which is roughly the equivalent of the dividend which it will pay. In effect the taxpayer will pay the dividend.

The Government decided to forgo the tax because they wanted to launch British Steel successfully into the private sector. They will also forgo the tax for the next two years because City advisers told them that that was necessary to boost BS as an investment which would go down well with the investment analysts. That is spending money like a drunken sailor. There is no evidence that BS could not afford to pay the proper rate of corporation tax. Why should it not pay its taxes like every other company? Why should it have a tax rate of 5 per cent., effectively, when everyone else has a tax rate of 35 per cent.? Forgoing taxes of £180 million is an example, perhaps not of drunken sailors at work in the Government, but of dogma in the Government.

The Government's attitude of "private good and public bad" means that they knock off taxes to be paid by companies that they have privatised because they believe that they are good. The Government should be asking, "What is the proper rate of corporation tax for a company in the steel industry?" They should not ask how much they can knock off the taxes of a company that they are privatising, which then becomes a memorial to Conservative dogma.

Mr. Jacques Arnold

In the hon. Gentleman's example, does not the taxpayer, rather than forgoing the tax, actually receive the money up front? The new shareholders of British Steel paid the taxpayer money to receive shares in that company. The price reflected what was going, including any tax break of the sort that the hon. Gentleman was talking about. The taxpayer has had his money, with jam on it.

Mr. Morgan

That is an example of precisely the Conservative dogma that I was talking about. If people will buy British Steel only if it is virtually tax free, so that the dividend comes from tax forgone under the public expenditure proposals, dogma overtakes good sense. Why cannot British Steel be privatised and pay normal corporation tax? Why is it treated with the benefit of £180 million of tax forgone by the Government?

British Coal is not treated in that way. It still pays £440 million a year in taxes and interest rates because it has not been privatised and is not given special tax treatment. The accounts are left as they were. Why are benefits given to privatised companies but not to others? They are all businesses, so why should one receive special treatment? The answer is that it fits the Government's dogma. It has nothing to do with the quality and control of public expenditure. If it fits Government dogma, the money is there; if it does not, a tight control is kept.

My third example comes from higher education. In the "shrinkage" phase of public expenditure on higher education, when it was popular to bash universities, universities were squeezed. They came close to bankruptcy and were merged with others or taken over.

Whereas the last Labour Government set up the Open university, this Government almost brought about the first closure of a university, University college, Cardiff. At the last minute, it was taken over by the University of Wales institute of science and technology. Does that mean that all of a sudden there will be an improvement because of the rationalisation and merger of two university colleges where before there was only one? Does the quality of public expenditure improve? The evidence suggests that it does not.

I cite as an example an extraordinary process that has been taking place for the past 12 months. Twelve months ago the rationalisers or cost-cutters—I would say the accountants, but I might offend the hon. Member for Dover (Mr. Shaw)—decided to rationalise two universities. It was meant to be a big rationalisation exercise involving overlapping departments, so a top personnel officer was hired. A former union organiser for the Association of University Teachers was appointed at a salary far higher than ever previously paid for a personnel officer—a high professional salary of some £32,000 per year.

Less than 12 months later the personnel officer has disappeared from the scene. He was given two years salary as a pay-off, so the exercise has cost £100,000. That was an example of cost-cutters at work, and it shows that they do not always get it right. They wasted £100,000 on a personnel officer who was consequently given the sack.

The cost-cutters refused to say that they have sacked the personnel officer. They say that he has been suspended on full pay, that he is on leave and that he is not at the university any more. When cost-cutters start, they throw money around like drunken sailors and sometimes make mistakes.

A further example involves the roads programme. The Government make great play of this programme and say how well it is going. However, it is not going well at all in Wales. Anyone who knows south Wales will know its key road is the M4. There is one missing link in the M4, from Port Talbot to what some call Lon Las and pub-goers call the Bowens Arms. I call it the Baglan to Bowens Arms link, but the official title is the Baglan-Lon Las link. That missing link has been promised for the last 11 years. I asked the Welsh Counties Committee—which looks after the roads on behalf of the local authorites and liaises with the Welsh Office highways department—exactly what had happened to the missing link. My mother lives in Swansea and I live in Cardiff and I frequently use the road. I shall read the answers that I have been given about these wonderful tight-ship runners of the economy, who have nevertheless, devoted expenditure to priority areas such as the M4.

The letter from the Welsh Counties Committee said: The Baglan-Lon Las Road was included in the first `Roads in Wales' published in 1978 and identified as a dual two or three lane road 'to start in 1981–83' at a cost of £28.3 million in 1977 prices. In the next issue, for 1980, it was described as 'being prepared with a view to starting 1984–87' at a cost of £45.6 million at 1979 prices. In the 1983 edition, it is described as 'expected to start between January 1986 and December 1988' at a cost of £74–13 million at 1982 prices, and appears to have been reduced somewhat to a dual two-lane road. By the time of the 1985 version, it was described as 'expected to start between January 1988 and December 1990' at a cost of £87.65 million in 1984 prices. The road has still not started. The last promise that we received from the Welsh Office was that if the road—of some three miles—were broken up into four sections for four separate lettings, the final contract would not start for another two years. That is the key road for getting economic development off the ground in Swansea or further west, or for anyone who frequently travels from Cardiff to Swansea. Yet the link has been delayed again and again because of the incompetence of the highways department of the Welsh Office and its inability to control public expenditure so that promised road programmes are not delayed as on those four occasions.

Another example of the Government's rhetoric of "tight-ship" public expenditure is Government advertising. When the Government see the potential for an advertising programme, the drunken sailors come back in and accountants move out. Unlimited expenditure is allowed for newspaper advertising, with provincial and London newspapers simply awash with full-page Government advertisements for health programmes. They are no longer information advertisements for training programmes, privatisation programmes or Action for Enterprise. They carry almost no information but are solid propaganda advertising and are totally uncontrolled.

I do not know what the total amount spent on Government advertising in newspapers is. I do not suggest that newspapers have become afraid to criticise the Government because they depend on Government advertising, but it is fair to point out the danger of that happening. With the dripfeed of continuous advertising, in the end the threat of withdrawing that advertising is serious. That is particularly true if the private advertising boom comes to an end as it seems to be doing. It could raise serious constitutional and civil liberty issues.

What should the Government spend their money on that they are not spending it on at the moment? I raised the question earlier in an intervention in the speech of the Chief Secretary. I shall tell him why I raised it because he may be mystified why the hon. Member for Cardiff, West should raise a question on the Brompton and national heart hospital. Traditionally, the national heart hospital is a flagship hospital, particularly, as the Chief Secretary said, in bypass cardiac surgery, and carries out a national role. It tends to perform more complicated operations than those performed in the main regional centres of cardiology, such as Cardiff and Newcastle. Five years later when an operation has become routine in the national heart hospital, it is experimented and built on in the big regional hospitals.

The national heart hospital has traditionally served south Wales for many heart operations. This year for the first time it has started to turn away patients coming from south Wales. I went there to find out why it was turning away Welsh patients. I was told that it was because it could no longer carry out the operations even for those within the local catchment area in the home counties. The hospital could not carry out operations that it felt obliged to do because nobody else would do them in the home counties, and it had to turn away cases from south Wales.

One could say that was all right because the services in Cardiff could be built up. But I must tell the Chief Secretary that the situation that I have described at the Brompton hospital, where stagnation was reached in 1984 with 1,200 bypass operations a year and staggered on at the same level until only 1,100 operations were performed this year, is reflected in Cardiff. Far fewer people have operations in Cardiff. Since before the 1983 general election we have been waiting for the Welsh Office to get its act together and to fulfil an election promise to double the number of heart operations in Wales in the National Health Service, from 600 to 1,200 a year.

But not a brick has been laid on brick; not an intensive care unit bed has been hauled into a ward. Bypass operations are stuck at 600, even falling to 550 in Cardiff this year. This sort of thing does not happen in Germany or America or other countries. I know that the hon. Member for Dover will say that it is the wonder of private medicine, or of hybrid state and private medicine.

Mr. David Shaw (Dover)

I am grateful to the hon. Gentleman. The minute that he mentioned the United States of America I was reminded of my visit to Houston medical centre last August, where I witnessed a coronary operation carried out by Dr. Denton Cooley, who does about 4,000 coronary operations a year in a very impressive private sector hospital. I asked him whether there were trade unions in the hospital and his reply of course was no, not in his hospital.

Mr. Morgan

The hon. Gentleman is raising some important points, but it would be the greatest fantasy to imagine that anything that stops further expansion at the Brompton so that it could carry out the 100 operations a year that are needed has to do with the presence of trade unions. There is simply not enough money to carry out these operations in the Brompton. It used to get a sufficient allocation, now it does not. That position has been contributed to further by the house price boom in the south-east, and the product of the Barber-boom "mark two" that the Government produced in last year's Budget. They cannot keep intensive care unit nurses and medical laboratory technicians in London. On £8,000 a year, what chance does a technician have of getting rented or private accommodation? These issues hamstring the National Health Service. Basically, there is simply a lack of money for expanding the service.

Mr. David Shaw

rose——

Mr. Morgan

I am sorry, but I am about to finish and I am not giving way any more.

The Government are sitting on a cash mountain, rather like the British General Electric Company. After GEC has shrunk and rationalised, how does it find the spirit to set the resources free when it wants to expand into electronics, defence equipment and microchips? The company's feet seem to be trapped in clay. The same applies to the Government's cash mountain. They no longer know what to do with it. They will not spend the money on what they should be spending it on. They are trapped purely by their own dogma into spending on advertising, which does nothing but reinforce their own dogma.

Our message is that the Government have not improved the quality of public expenditure. Their wayward attitude has been adopted to achieve a turnround. After managing a shrinking economy now that oil prices have come down, the Government say they are back on a path to growth and need to expand railways and spend more money on the roads. But all of a sudden they find that the skills, the training and the attitudes are not there. Control over the quality of public expenditure is not there to get it right.

7.35 pm

Dr. Ian Twinn (Edmonton)

I join my hon. Friends in congratulating the Treasury Bench on the good news in the Autumn Statement, and the public expenditure White Paper. It was a welcome message that the sound financial management that the Treasury has overseen since 1979 has been rewarded. It has not been an easy path, no one would suggest that it has, but the message has been widely welcomed in the country over three general elections. I have had the honour to fight and win at a general election on two occasions. It has been clear to me on the doorsteps before and during elections that the economic policies of the Government have been a major factor in their success.

The Government have never shirked taking measures that are painful in the short term. Indeed, we would not be the Government today if we had shirked carrying out those painful short-term measures. In 1979, the newly elected Government inherited the inflation that the Labour Government brought upon this country. We were highly and irresponsibly overborrowed, overtaxed and overregulated. We had to take some very painful measures.

The good management of the economy in those years allows us today to talk about an impressive array of public investment projects which have been announced in the past few years. These are good in themselves. Contrary to the opinion of the hon. Member for Cardiff, West (Mr. Morgan), public expenditure is not regarded as a bad thing on the Conservative Benches. But irresponsible public expenditure clearly is bad.

Even more heartening to the Conservative Benches than the public expenditure projects that we have heard about in the past year or two is the fact that they are complemented by investment in the private sector. Industry is busy investing again in its future. The strict controls and cuts in public expenditure that we faced in 1979 to put right the damage done by the Labour Government were painful, and were indeed opposed by hon. Members on both sides of the House. All hon. Members had pet projects, which they would rather riot have seen cut, but we had to accept those cuts in the national interest.

Now this country is increasing its public expenditure again. Thankfully, it is reducing as a percentage of the total national income. We are allowing more of the taxpayers' money to remain with them so that that money can be responsibly spent, on an individual or commercial basis. We again undertake public spending. These projects are very popular in the country, and very popular with my constituents.

I am not somebody who would normally be associated with demanding increased public expenditure. However, in Edmonton these projects are of great benefit to my constituents. I would argue strongly for increased public expenditure on public street lighting, which is perhaps a matter of concern to you, too, Madam Deputy Speaker. It can have a great impact on safety on the roads and for pedestrians.

I must praise Treasury Ministers for what they have done. But clearly the fact that we can consider public investment now does not give us an excuse to relax. The Chancellor said during the Autumn Statement that things can still go wrong. One of the Government's greatest assets is international and domestic confidence that they will take strict and harsh action, if that proves necessary.

But we do not want to spend the money just because it is there to spend. We want to spend it in a responsible way. Perhaps that is the key difference between the Government and the Opposition, whose attitude is that, if money is there, it should be spent, whatever the objective. We believe that our country's wealth should be spent wisely and responsibly. It should be spent on reinforcing the enterprise culture, so that we may move away from the dependency culture which many right hon. and hon. Members born into the welfare state have grown up with. The Government's success has been in persuading voters that that is the right path to take—[Interruption.] Opposition Members may look shifty and smile to themselves—

Ms. Armstrong

I am not smiling. I am angry.

Dr. Twinn

The electorate have rejected the policies of the hon. Lady who is muttering to herself on the Opposition Benches. She well knows that her party's policies hold no sway in the country today. We believe in an economy in which initiative is rewarded.

Ms. Armstrong

This is a disgraceful speech.

Dr. Twinn

The hon. Lady may not recognise initiative when she sees it, but the electors do.

Ms. Armstrong

How much more of this?

Dr. Twinn

Does the hon. Lady wish me to give way to her?

Ms. Armstrong

Not me—but there are many others waiting to speak.

Dr. Twinn

The country's wealth must be used wisely, so that the best value is achieved for money that, as has been said, is confiscated from taxpayers, who expect the Government to behave responsibly in spending it.

Because the economy is flourishing, we can plan ahead and not indulge in stop-go public expenditure policies that were a feature of the 1970s, which are wasteful and destructive both of the incentive to be a productive economy and of individuals, in that they deter people putting their best efforts into it. Stop-go policies are destructive also of the money itself. Government Departments, local authorities and the private sector need to plan ahead in the medium to long term, and the firm foundation that the Government have given the economy now makes that possible. The Government have also accumulated reserves, so that they can respond responsibly when there are sudden changes of needs and priorities.

Taxpayers' money must also be used wisely to reinforce the major programmes of capital expenditure that the Government are now starting. The Government's diligence is to be congratulated. We can now undertake programmes that, a year or two ago, we thought would be a long time coming. I refer to major public investment in the Health Service, with £2 billion this year, and another £2½: billion the year after, being spent on Health Service buildings alone. I refer also to major investment in the roads infrastructure, in the rail network, in London Underground, in the law and order programme, and in prison building.

This week we have had a major announcement concerning expenditure on the sciences and about the money that will be spent on environmental research. That is something close to my heart, as is the major investment in our polytechnics over the past three or four years. That may have been at the expense of other education sectors, but perhaps that is because the polytechnics have been willing and eager to respond to the Government's challenge to use public investment wisely, to produce a return for the country.

I turn to the ways in which the public expenditure White Paper affects my own constituency. On the macro side, tax cuts are important and are particularly welcome. I hope that they are not finished yet, and that we may hear further good news in next month's Budget. Tax cuts have helped stimulate growth, and have brought more employment and improved incomes for my constituents. They spend that extra money in the way they see best—perhaps on their homes or on company shares. Alternatively, it is saved. Share ownership has increased magnificently under the present Government. When I go door-knocking in my constituency, I find that people take an interest in the economy that they did not do before privatisation of previously nationalised undertakings.

Higher interest rates are not such good news, and, unlike some of my right hon. and hon. Friends, I do not pretend that my constituents welcome them. They find them painful, and anyone who has embarked on a mortgage in the last year or two will know just how painful. There are right hon. and hon. Members in that same situation. Others, like myself, will remember first entering into a mortgage in the 1970s, under a Labour Government, when our incomes were squeezed equally severely, and when we found it difficult to meet mortgage repayments.

There is another side to high interest rates, because many people are enjoying a greater return on their savings. That is particularly important to the elderly members of our society, who find that their capital is increasing in real terms, by comparison to the situation under the last Labour Government, when savings were effectively confiscated. My constituents recognise that the Government are, by imposing high interest rates, acting responsibly in controlling the evil of inflation. If the Government did not do that, my constituents and I would be much worse off.

I turn to specific items of expenditure affecting my constituency and the constituencies of my hon. Friends the Members for Enfield, Southgate (Mr. Portillo) and for Enfield, North (Mr. Eggar), which are also benefiting from Government expenditure. Expenditure on the London Underground is of importance to Londoners commuting to work. There is also encouragement to be had from the central London rail study and the possibility of new rail services for the capital. Anyone who works, lives or travels in London knows that its roads, although not as full as the media speculators like to pretend, are becoming uncomfortably busy, and investment in public transport is welcome. There is to be serious investment also in Docklands and in other London areas.

Edmonton has seen the transformation of its local hospital service, with major public investment in the North Middlesex hospital, which serves Tottenham as well as my constituency, and in Chase Farm hospital in Enfield. They are being improved with the construction of major ward blocks. At the North Middlesex hospital, £8 million has been spent on two major developments since 1985, with another £2 million annually on smaller projects. When the Opposition criticise the Health Service, my constituents look at their local hospitals and, while acknowledging that things could be better, and that the old Victorian buildings could have been pulled down sooner, they can see for themselves that the Opposition's claims are untrue.

Mr. Morgan

The figures that I gave the House are not untrue.

Dr. Twinn

I invite the hon. Gentleman to visit my constituency, where he can see for himself the impact of the public investment there. A year or two ago, the hon. Gentleman might have found it difficult to enter my constituency. Edmonton is famous on London travel news as the location of two major traffic jams. One occurs where the Great Cambridge road crosses the north circular, and the other is at the Angel. These are stationary lanes of traffic. The Government are now spending £26 million on digging up my constituency and the constituency of my hon. Friend the Member for Southgate so that the traffic may flow freely again. We have a further £60 million committed to speed the traffic, by dual carriageway, through my constituency—aiding the industry there—and into the constituency of my right hon. Friend the Member for Chingford (Mr. Tebbit).

The north-south road being built in my constituency—again funded purely from the public sector, to the tune of £100 million—will facilitate industry in Enfield, Haringey and Hackney. Traffic from the East End following the Lea valley will be enabled to get into and out of London efficiently, cutting the cost to industry and securing retention of jobs in London—something that is very important to us all. If we did not have the good economy that allows expenditure of the magnitude of £100 million on industrial spine roads in London we would be losing even more jobs than have already been lost as the result of the bad management of the local authorities in central London. Both of these schemes represent very important investment for local employment and local growth.

Let me put in a plea for a little extra public expenditure. There is a rather beautiful park in my constituency. It is called Pymmes park, and I am very keen that it should be preserved. The north circular road is about to lop a large lump off the front of the park. The Conservative council in Enfield, being a public-spirited council, paid for alternative schemes to be investigated. It engaged consulting engineers and has come up with an excellent scheme that would cost just a few million pounds extra. If that could be provided from this magnificently flourishing economy that we have, it would be very much appreciated by my constituents.

Let me return briefly to the matter of roads and lighting. In this respect I have an interest to declare as a consultant to Thorn Lighting, but, more important, I am joint chairman of the British parliamentary lighting group. Perhaps I should draw the Government's attention to the work we have done as an all-party group in sponsoring research showing that very small increases in public expenditure to improve and increase the quality of street lighting, whether in the inner city or in the suburbs—like my constituency—or in rural areas, pays big dividends in the reduction of crime.

It makes people who live in those areas much happier, and reduces the fear of crime. But it actually has an impact on public expenditure as well, because there is less need for the use of police time and there are fewer calls on the Health Service. There is also less need for calls on the social services from people who are worried about going out at night. The old and the frail are particularly affected in this way. So, increased spending on street lighting could have a dramatic effect on the well-being of our country and, I believe, in the long term, on public expenditure.

Finally, I congratulate my right hon. and hon. Friends on the good work they have done in improving our economy since 1979 and in giving us the scope to spend more money. I hope that this will not stop, that public expenditure will continue to decrease as a percentage of total national income. But I hope also that the flourishing economy will make it possible to spend more money on projects on which the Government have a legitimate right to invest, and that they will encourage the private sector to come into partnership with them.

7.54 pm

Mr. Pat Wall (Bradford, North)

This debate, the debate that we had on the Chancellor's Autumn Statement and, even further back, the debate that followed the Budget of last April are as much a marketing exercise and a slick public relations operation as they are about real investment in the real economic world. I believe that the Government, whatever criticisms we may make of them—and I would make many—have had one relatively outstanding success. Despite the fact that, for the last 10 years, the British economy has achieved a relatively unremarkable performance, it has been paraded by the Government, with some success, as a most successful economic performance.

I think it is reasonable in this debate to look briefly at what has in fact taken place during those 10 years, because it is only in the light of the economic performance and of the economic decisions during that period that expenditure decisions announced in the White Paper have been taken.

This Government came to power at a time when the British economy was recovering, hesitantly, from the recession of 1975. They then proceeded, at a relatively very slow and poor-performance rate, to the second post-war world trade recession—in my opinion, a typical, traditional, capitalist world trade recession. I refer to the years 1981–82. Their vicious social policies exacerbated the consequences of that recession by the mass unemployment and increasing social misery which resulted for at least two fifths of the population of Britain, and which leave us today in the situation where at least 10 million of our fellow citizens are low-paid by any standards, earning under £150 a week, which is the base of the European Community's decency level for wages.

In my opinion, the upturn in the economy during the last three years has been a highly exaggerated performance. I think that that was made clear in an Observer editorial on 27 November last year: Behind the hitherto remarkably successful Government propaganda lies an uncomfortable fact—that economic growth since 1979 has been rather low by post-war standards. In particular, the growth in manufacturing output has been exceedingly low—indeed, almost negligible. The editorial went on to say: We are not producing nearly enough to satisfy the voracious appetite for imported goods created by the Government's credit relaxation and tax cuts. The editorial went on to point out that that gap had not been nearly filled or offset by the growth in overseas earnings and in the proceeds of the City of London.

It is not an issue, as the Chancellor and the Minister would try to make out, of a temporary overheating of the British economy that creates the problems we now face. It is more and more apparent, I think, that what we have is a gross under-powering of British manufacturing industry, and that really results from the lack of investment, both in the private sector and, as we are discussing tonight in the vital public sector of our economy and the infrastructure of the economy.

During the period betwen the two world wars it was common in Britain to belittle the performance of France. Although, even in those days, Britain was declining as an industrial power, it was still a major producer of goods on a world scale. Scorn—indeed, contempt—was heaped on the heads of Frenchmen for being a nation that did not produce but invested abroad and lived on the interest. Now, rentier France out-produces British industry by more than one third, and so called productive Britain has become rentier Britain, relying more and more on its investments overseas, and less and less on the wealth that it used to create. It is an interesting fact that, since 1981, the proportion of the gross domestic product invested by the state in France has actually increased, whereas in Britain it has been declining.

In his opening speech the Chief Secretary made great play of the way in which—he said—investment had gone up. The real truth is that what is important is not so much whether investment has gone up or down in those terms; it is the proportion of the national product that is used for state investment.

In 1983–84, 45.75 per cent. of gross domestic product went in Government expenditure. The figure has fallen to 39.75 per cent. in this financial year with a further decline to about 38.75 per cent. in 1991–92 suggested in the White Paper.

I was amazed by the arguments advanced by the Minister. The Government have repeatedly claimed that they have cut state expenditure and reduced the proportion of the national income that goes on it. For years, we were told in speech after speech and in article after article that when the public sector borrowing requirement was brought under control interest rates would fall and an investment boom would follow. Even today the Chancellor was boasting that the Government have had such success in controlling the PSBR that they are now repaying a substantial amount of the national debt.

The truth is that, so far from falling, interest rates have risen by eight stages to 13 per cent. That is the opposite of the outcome suggested in past Government propaganda and it has happened at a time when manufacturing industry—far from enjoying an investment boom—is struggling to achieve a level of investment only slightly higher than it enjoyed in 1979 when the Government came to power.

In addition to their false arguments about the public sector borrowing requirement, the Government have advanced false arguments about the balance of trade deficit. The Chancellor says that it does not matter that we have a balance of trade deficit of £14 billion or thereabouts. That was not what Tory party propaganda said about the Wilson and Callaghan Governments and their balance of trade difficulties, still less what it said about the Government of the right hon. Member for Old Bexley and Sidcup (Mr. Heath). For internal party reasons, great play has been made over the years of the balance of payments problems faced by that Government.

The Minister said that we can have proper investment only on the basis of a thriving economy. We should consider to what extent our economy is thriving. The Financial Times recently noted an unwillingness and inability of companies"— British companies— to set aside an increasing share of profits or outputs at the same rate as their foreign competitors. In the past six years, manufacturing investment in Britain has barely covered depreciation in industry.

We should remind ourselves that in 1960 Britain produced a third more vehicles—cars and trucks—than France. We now produce only half the number of vehicles produced in France. Fifteen years ago, we produced 2.3 million vehicles; we now produce fewer than 1 million. In mechnical engineering, we still have a surplus of £2 billion, but in electronics, which is supposed to be a more modern and thriving industry, we have watched rough equilibrium in balance of trade terms in 1970 turn into a £2 million deficit. In the key machine tool industry, Britain and France are the only countries in the OECD that have not recovered output lost in the recession of 1979. West Germany now produces six times as many machine tools as Britain, with a work force only three times the size. Little Switzerland produces three times more machine tools with a work force only half the size of ours.

A further interesting illustration is to be found in one of the few industries in this country that has been able to compete on the world market—the aerospace industry. In that industry, a turnover of £2 billion in the late 1960s has been increased to £8 billion and exports have quadrupled in 10 years, reaching £4.7 billion. That industry has probably had more state investment and state aid than any other. It has benefited in particular from state investment in research and development, because the vast majority of the Government's investment in research and development has been directed at the defence industry at the expense of the manufacturing and non-military sectors of the economy.

Even the successful sectors of our economy—chemicals, aerospace and mechanical engineering—are now suffering from a shortage of investment as compared with our major competitors—the point that was made by the Financial Times. Those industries have also suffered directly through the lack of trained scientists and skilled engineers and technicians. Despite that shortage, the White Paper cuts £25 million from the pathetic youth training scheme and reduces the funds available for the employment training scheme. Virtually nothing is being done to retrain unemployed workers or re-skill older workers in declining industries.

What about education? More than half our pupils leave school at 16. In America, more than 80 per cent. of pupils stay at school until they are at least 18, and in Japan the figure is 95 per cent.

The Paymaster General (Mr. Peter Brooke)

Would the hon. Gentleman like to give us another statistic? How many of those Japanese pupils stay on at school at their own expense?

Mr. Wall

That is not the point at issue. It would be far better if education were entirely free, and if I were in Japan I would be a Socialist fighting for that cause. The point is that Japan has invested sufficient amounts of money in its industry to enable it to maintain an education system allowing pupils to be educated to the age of 18 and beyond and allowing workers to be trained, skilled and equipped. The lack of investment that the Government have encouraged and the mad flight of capital abroad have led to a deterioration not only in our industrial performance but in our social superstructure, in our competitiveness in the world market and in our education, training and skills. Our work force is underskilled, undertrained and under-educated. As a result of Government policy, we cannot compete with our major competitors.

Britain spends £265 per employed person on research and development; France spends £325, and Germany £432. The latest CBI Industrial Trends survey found that 42 per cent. of firms in the capital goods industry face a reduction in output because of the shortage of skilled workers. In its latest quarterly survey the British Chamber of Commerce pointed out that 65 per cent. of companies in manufacturing industry now have difficulty in recruiting skilled staff.

What is true of education, training and research is true of a wide variety of public services, which are inadequately funded. As I have probably said before, 40 per cent. of our sewers in the city of Bradford are more than 100 years old and 30 per cent. of our schools were built before 1906. Large areas of redundant industrial land are waiting to be cleared to make way for new industry. We now have a major trunk road—recently opened by a Minister—which goes nowhere, to the complete bewilderment of the local population and to the consternation and amazement of visiting drivers.

What is true of Bradford is true of all our major cities. Public investment in infrastructure—roads, sewers, canals, railways and new industrial development—is absolutely vital to the reconstruction of British industry. At the same time, they are not in any way inflationary and have a real contribution to make for the good of society.

That public relations exercise has been exposed by rising inflation and the enormous balance of trade problems. Even the modest increase in exports has been dwarfed by the gigantic expansion of imports and has not kept pace with the growth of world trade. Far from there being any miracle, far from there being the marvellous, thriving, competitive economy that has been described by Conservative Members, the current situation promises a nightmare future for working people in Britain and the possibility of a return to mass unemployment and reduced living standards.

As my hon. Friend the Member for Dunfermline, East (Mr. Brown) said in his much-praised speech on 25 October, the Chancellor who claims success for that marvellous economy and for the first-ever success since the war got it wrong. He got the figures on inflation wrong, he got wrong by 400 per cent. the figures for the balance of trade deficit, he was wrong by 100 per cent. about the imports into the country and he got wrong by at least 60 per cent. the increase in currency within the economy. The Government, the Treasury and the Chancellor have been proved wrong about almost every major figure. It is clear that they have also been proved wrong about the developments in the direction of the economy in the past few months.

In my opinion, far from leading us to a new, miraculous future, private industry has failed to compete worldwide, even with its major competitors. The issue of public investment will not go away. On the contrary, it will return as a major factor on the agenda. As a Socialist, I believe that the question of democratically run public control will shortly return to the political agenda of this country.

8.11 pm

Mr. David Shaw (Dover)

I must confess that the speech of the hon. Member for Bradford, North (Mr. Wall) reminded me of a visit I made to East Germany some years ago, but I fear that even East Germany is in better shape than the country he described.

The debate appears to have lost some of its importance in the parliamentary programme compared with previous years. That is because the Government have become too successful at controlling public expenditure by getting value for money from existing expenditure and limiting Government spending. It seems that my right hon. Friend the Chief Secretary has too efficiently and effectively reconciled the competing bids of all the Government Departments and has denied us the thrill of battle. We all remember that, under Labour, that battle was more like a civil war.

The results of that well-managed position are low inflation—an average of 5 per cent. in the past five years. As we all know, under Labour, inflation increased to nearly 20 per cent. We have falling unemployment—no Labour Government have ever achieved that. Between 1974 and 1979, unemployment rose by two and a half times. We have a successful and expanding economy, with a new positive and entrepreneurial feeling throughout the country.

The Opposition are so desperate that they have had to find a new way to fiddle the comparative figures. We all welcome back to the House the right hon. and learned Member for Monklands, East (Mr. Smith), but I notice that the new way that he describes some of the figures of the Government are as a percentage of gross domestic product. That enables him to say that in certain sectors expenditure has fallen because under this Government GDP has risen so hugely and rapidly that many areas of expenditure have fallen as a percentage of GDP. There has been real growth in the economy and there has been a real increase in income for those who are in work and for those on social security or pensions. At the same time, there has been debt repayment. I remind my right hon. Friends that the Bow Group—I am chairman of its economic affairs standing committee—has issued its suggestions for the Budget, which include the proposal that the Government should seriously consider repaying the whole of the national debt by 1995. Certainly that must remain a real possibility on the agenda for economic success.

The fact that all those things have been happening in the economy and public expenditure has been so controlled means that, whenever one travels abroad, one finds that we are the envy of much of the rest of the world. [HON. MEMBERS: "Nonsense."] Opposition Members may say, "Nonsense," but no one abroad would agree with them. That healthy position contrasts completely with the position under Labour in the 1970s, when the national debt increased by more than £100 billion. The interest costs incurred on that debt were very heavy, and every family in the land had to contribute to them through higher taxation. As has been said, expenditure was completely out of control, and the IMF had to put the handcuffs on the Labour Government. I well remember that Labour Ministers used to tour the trade union conferences promising money to every hare-brained idea that was discussed at those conferences. Did those promises of money buy anything? They brought the winter of discontent in 1978 and led to Labour's defeat in 1979.

One wonders whether Labour has learned anything since then. We noted a considerable lack of expenditure commitments in the speech of the right hon. and learned Member for Monklands, East—at least he did not put figures to most of his words. Of course, that speech contrasted with what happened while he was absent. During his absence, the hon. Member for Dunfermline, East (Mr. Brown) sang some beautiful songs, but he did not notice that the orchestra behind him was playing the music of more public expenditure with more state control. No doubt my right hon. Friend the Chief Secretary has an accurate total of all those expenditure commitments, but my personal estimate is that Labour Members made some £10 billion-worth of promises while the right hon. and learned Member for Monklands, East was absent. We all know that to pay for it would require an increase of about one quarter in income tax. We all know that any future Labour Government would not be able to find the means to pay for all those promises and commitments. They would simply not keep many of their promises.

The public expenditure White Paper reveals many sensible areas of expenditure. For example, there is to be some £2 billion additional revenue expenditure on health this year. In regard to law and order, we shall have more police on our streets. The country villages in my constituency are particularly concerned that they should have more policemen available.

Mr. Bernie Grant (Tottenham)

Tell us why.

Mr. Shaw

We all know that, because of the education policies pursued by the Labour Government in the 1970s, there was not enough discipline in the schools; therefore, young people today are not properly educated not to commit crimes.

Mr. Brazier

Does my hon. Friend agree that one of the saddest aspects of the breakdown of discipline among young people is when politicians, in fact one hon. Member who is present in the House today, encourage them by making vicious attacks on a dead policeman?

Mr. Shaw

My hon. Friend has made a very strong point, which cannot be refuted.

The Health Service has benefited more than anything else from the Government's increase in expenditure. There has been considerable additional investment in hospitals and other sectors of capital expenditure. Over the next couple of years, my constituency expects to be especially grateful to the Government for a third operating theatre in its second hospital. One of the Government's major achievements has been capital expenditure on the Health Service.

More value for money must be achieved in other sectors. The Government must answer why the expensive administration costs of the dock labour scheme are being incurred. It is forecast that the national dock labour scheme board will cost £4 million a year. More important, when will the sentence in the expenditure White Paper that refers to parliamentary approval being required for expenditure of £44.5 million on the national dock labour scheme be made subject to parliamentary approval? It is amazing that the dock labour scheme is still incurring so much expenditure, with much debt to be written off and forgiven by Parliament.

Considerable expenditure is incurred by the Department of Employment on wages councils. One wonders why we are spending so much money on them, when they have done more to increase unemployment than to reduce it.

Further improvements can be made by the Government as an employer. National wage bargaining could be a means of reducing inflexibility in the public sector, and if it were abolished it might reduce disincentives and disadvantages to recruitment. That could also lead to greater efficiency in the public sector and better distribution of its labour force.

That could be achieved by decentralisation, and I welcome the suggestion in the newspapers that the Government are considering further decentralisation. There are too many civil servants at too much office cost in London. I do not understand why the Civil Service should be exempted from private sector practices. The private sector pays people according to their performance; civil servants should be paid in the same way. [Interruption.] Opposition Members may make statements. I will gladly give way if they will put their mouths where their minds seem to be.

Another aspect of Civil Service efficiency that the Government must consider is self-assessment for income tax. About 80,000 people still work for the Inland Revenue, which is far too many. The United States Internal Revenue Service manages with the same number of staff but handles four times as many taxpayers.

An increase in Government expenditure on port health charges would result in reduced local government expenditure. The Government get off cheaply, which is unfair on constituencies with ports, of which mine is one. Dover must pay 100 per cent. of the cost of checking food, which is distributed throughout the country. The Government must face up to their responsibilities, because it is ridiculous that Dover has to foot the bill for the whole country. This work benefits everyone, so the burden should be more widely shared.

I ask the Government to note that there is considerable uncertainty in Whitehall about how the port health charges structure will continue, especially once the Channel tunnel comes into operation. I do not understand why the people of Dover should pay the full cost of port health charges for the Channel tunnel and the port of Dover.

I have suggested a number of issues that the Government should consider. The Government can obtain better value for money for the taxpayer from the pounds that the taxpayer pays for the public sector. They must be vigilant and maintain control over public expenditure. The public expenditure White Paper will result in the Government maintaining their high popularity, and the economy will continue to expand and be successful under them.

8.24 pm

Ms. Hilary Armstrong (Durham, North-West)

It is an experience to follow the hon. Member for Dover (Mr. Shaw). He addressed us in his normally aggressive manner, for which we are grateful; we should hate him to be inconsistent.

Throughout the debate, I have been amazed at the way in which Conservative Members are prepared to put only one side. It is as though we live in different countries. The descriptions given by the Minister and Conservative Members bear little relationship to the reality of people's lives in my constituency. We are told by Conservative Members that, whenever we talk about reality, we are running our people down. I resent that enormously, because I never have and never will run down the people of the north. They have contributed to Britain's wealth and prosperity more than anyone, but are paying the price of the Government's economic development of that region. For me not to represent the needs and aspirations of those people, who feel cheated by the Government, would be dishonest. For the Government not to acknowledge the costs of their public expenditure policy is short-sighted and a reflection of the short-term manner in which they have conducted the economy.

Anyone who tries to follow the logic of the Government's argument becomes highly confused. They constantly attack the principle of public spending and seem to work on the principle that anything public is bad but anything private must be good. They should be considering needs, demands and opportunities and matching them and developing an economic policy around them rather than dogmatically acting as though everything in the public sector were evil. Whenever the Government's public expenditure policy is attacked, Conservative Members say how much expenditure has increased. The Government clearly find it difficult to live with those contradictions.

We have an uneven economy that is riddled with differences, which are experienced as divisions and massive inequalities. The Government's priorities have not been determined by a cool assessment of needs. They have been determined by whomever has the most sway in Government or by whoever has committed a gaffe that must be put right. Earlier this year, the Chancellor had a difficult time with journalists. No one knew whether what the Chancellor said was on or off the record, and that resulted in a commitment to more public expenditure.

That had not been planned; there was no order of priority and no question of it meeting the need that it was supposedly addressing.

Mr. Major

Purely for the sake of accuracy, I must tell the hon. Lady that the package to assist elderly pensioners on low incomes that was announced, and to which she referred, was a matter that was under discussion between my right hon. Friend the Secretary of State for Social Security and myself for some months before the press conference to which she referred. Her comments in that regard are wholly wrong.

Ms. Armstrong

That is a matter of judgment.

Mr. Major

It is a matter of fact.

Ms. Armstrong

The facts were not placed before the House at that time and it took some time for the story to be given to the House.

Mr. Major

I have just placed the facts before the House. I invite the hon. Lady to accept them.

Ms. Armstrong

I am happy to accept the Chief Secretary's assessment of what happened, but other people will have their own assessment and history will decide.

It is clear to the Opposition that priorities have not been assessed in a clear, cool way, in which it is decided what the needs are and what is the most effective way for a civilised society to meet those needs. An example is the way in which the Government have responded to the crisis in the Health Service. Some of my hon. Friends were concerned that the review of the Health Service had been created by the Opposition and by the rather painful experiences that the Prime Minister had at the Dispatch Box at the end of 1987 and the beginning of 1988. As a result of very unequal decision-making processes, we have, therefore, an unequal and divided society.

Our society is divided between north and south and between those who are doing well under the Government's economy and those who are not. For the Government not to acknowledge that substantial numbers of people in our society are paying a very dear price for the successes of the economy is staggering; that is what I was angry about earlier this evening.

Often, what is seen as efficiency by the Government is experienced as real deprivation by the people who happen to be at the other end of it. I shall give an example. It was decided to close small unemployment benefit offices in villages in my constituency. The Government have done that as a matter of efficiency, and they are saving the magnificent sum of £2,000 a year. The cost to those unemployed people, just in bus fares, is about £11,000 a year. That means that those individuals will have to pay additional bus fares out of their benefit. A bus fare of £1.50 will not kill the Chief Secretary or myself, but if one is on unemployment benefit, the loss of that money every week or fortnight is significant. The Government are telling us that they are being efficient and saving money, but the cost to the individual is substantial. There is also a cost to the local economy and, therefore, to the ability of the local economy to regenerate and build up. It may be short-term efficiency for the Government, but in terms of the economy overall, it is a short-sighted, puny and vindictive measure.

We have heard something about squalor. I am not so interested, in this case, in the litter problem. I am interested in the squalid society that we seem prepared to tolerate. I have spent my lunchtime talking to people from the National Children's Home and Dr. Barnardo's and we talked about those young people who have left care and who are trying to live in the community. If they are not on a youth training scheme, they are entitled to nothing from the state and they are the victims. It is not their fault that they have ended up in care. Most of them ended up in care for a series of reasons over which they have little control, but they are being punished now. They are being punished in a way that I, as a politician, am ashamed to even have to discuss with them because I find it completely indefensible in a society that proclaims itself to be successful and prosperous.

Of course the economy of the north has been growing and changing. It has been changing significantly, and we welcome many of the changes. We welcome the diversity in the economy and we welcome an economy that is moving towards not being dependent on one industry; but I would also argue that we could have moved towards diversification without destroying some of our industries and without destroying the skill base. We have benefited from the drip-down effects of prosperity elsewhere, but the effect is that in my constituency the level of skills is lower than it ever was. There has been investment through the Manpower Services Commission and the youth training scheme. The Chief Secretary will know that there has been a relatively high proportion of investment through the MSC in my constituency, but we have not ended up with the quality of training and the quality of skill that we should be demanding of any training programme that we are developing in this decade or century.

In my constituency, the level of wages is significantly lower than it was 10 years ago. Conservative Members may be confused by that, so I shall give an example. A man who was a labourer in the steelworks is today earning what he earned eight years ago. He is now a foreman in one of the new factories and his take-home pay is exactly the same. No hon. Member can tell me that that is prosperity. What is the role of public expenditure in that? We have been arguing consistently with the Government that the economy is not at a stage where it can take off in the north.

Mr. Keith Mans (Wyre)

Will the hon. Lady give way?

Ms. Armstrong

No. I have given way once, and I know that other hon. Members want to speak.

The economy is not yet at that level. We have been arguing consistently for more expenditure in economic development. The authorities in the north have committed themselves without hesitation and with enthusiasm to working with the private sector to achieve a reasonable economic development programme. They have invested in the Northern Development Company as have the trade unions. They have not abandoned private industry; they have tried to work with it. All of them, inlcuding the private sector, have told us that they need to continue to have investment in, for example, large factory space and to continue to be able to spend money through section 15 on European regional development fund schemes and if they cannot do that, we know, as the private sector tells us, that we shall not be able to achieve the level of investment that will allow us to take off.

The Government say that they still cannot do that and that by now things should be running on their own. In reality, people from all sectors are telling us that that cannot happen in the region. We have low wages, low skills and high credit levels. The commitment and determination of people to hang on and to continue to live there is matched by their fear about the future for their young people and about the future opportunities for young people.

Public expenditure is still too low in our region to enable it to take off economically. As long as that is so, its Members of Parliament will have to come here to represent the prosperous and the growing industries, but also those who are far from prosperous—those tens of thousands of people who are still living on benefit and whose benefit is being cut; those young people who are still fearful about a future of real opportunity, and a region which is determined that it will not give way. The north has never been a dependent area. It has always been strong, contributing to Britain's economy. But we know that that requires work from all of us, from the public and the private sectors, and the Government are still selling short the people of the north.

8.40 pm

Mr. Julian Brazier (Canterbury)

The hon. Member for Durham, North-West (Ms. Armstrong) has just spoken with considerable conviction. I profoundly disagree with much of what she said and I intend to try to answer some of her points in a moment, but first let me make some general observations on the economy.

When I was a management consultant I learnt that one of the tests of a good well-run company was that it is rather boring for an outsider to visit. There is no sudden excitement from a crisis. There can be no more eloquent testimony of the Government's successful economic policies than the sheer emptiness of the Chamber. The Press Gallery and the Chamber have been almost completely empty because everybody knows that there is no crisis within a million miles and that the Government have the country firmly on course.

I want to focus on four statistics which say a great deal. The first relates to debt. There was a lot of chattering among Opposition Members when my right hon. Friend the Chief Secretary commented on debt. I have spent a great deal of time in working men's clubs and pubs at both ends of the country and I know that many Labour party supporters started to come over to the Conservative party on that one issue. Again and again I heard people say that my right hon. Friend the Prime Minister had paid off the debts that had been run up. I am not talking only about paying off international debts—the transformation from being a debtor country to being the second largest owner of overseas assets. It equally importantly applies to the domestic level—the sheer wastefulness inherent in the fact that the second largest area of Government spending when the Government took office was not health, education or defence but paying back the debts caused by the profligacy of previous Governments.

What a contrast now. Like my hon. Friend the Member for Dover (Mr. Shaw), I would like to see a firm target date, albeit some way away, for paying off the national debt. I would not be quite as ambitious as my hon. Friend; I would be satisfied with the year 2000, and I am satisfied that there will be a Conservative Government throughout that time to do it.

The second statistic is that for inflation. The only comment that I would make on inflation is that ours is still a little higher than our competitors. It is the single aspect of Government policy about which I am most concerned and I am glad that the Government are giving it primacy. But, my God, any recent Labour Government would have been proud to have reduced it to the present level.

The third statistic that I touch on is growth. In his long speech, which cleared the last remaining members from the Press Gallery, the hon. Member who represents the Militant Tendency—I have forgotten his constituency—alluded again and again to our output falling further and further behind our European competitors. He must be joking. Our total national domestic product has grown faster since we took office, even allowing for the first poor 18 months when we emerged from the Labour-created crisis, than that of any of our three main European competitors—France, Germany and Italy.

The fourth of the key statistics is that for unemployment. The sad fact is that the unemployed today are the sixth largest state in the EC. There are more unemployed people in Europe today than there are people in Portugal, Ireland Luxembourg, Belgium, Holland and Greece. But that does not reflect a high level in Britain. We have only 7 per cent. unemployment. The average the other side of the water is 11 per cent. It is true that the unemployment figure today is a little higher than when the Government took office, but compared with the massive increase across the water, it is a remarkably small difference, and whereas our unemployment is falling fast, it is rising in almost every other country.

Mr. John Battle (Leeds, West)

I remember the slogan, "Labour isn't working" when unemployment was at 1.2 million. Will the hon. Gentleman confirm that even according to the Government's massaged figures, with 24 changes in the way that they are calculated, unemployment is well over 2.5 million? Will he condemn that figure rather than praise it?

Mr. Brazier

I confirm three things. First, unemployment is well below 2.5 million. It is more like 2.2 million. Secondly, at the time when those posters were put up, Britain's unemployment was among the highest in Europe. It is now among the lowest. Thirdly, the proportion of people who are in work today is not only substantially higher than it was then, but it is, as I have already mentioned, higher than that of any other EC country, except I believe Denmark and Luxembourg.

Mr. John Watts (Slough)

Is it not also true that at that time there was a tremendous amount of hidden unemployment which was one of the major problems in our economy that the Government have had to tackle?

Mr. Brazier

My hon. Friend makes a good point. To expand that, one of the features of a successful growing economy is that employment within manufacturing shrinks quickly. It is striking to note that even today with a move from 8 million in manufacturing when we took office, of whom perhaps 6 million were really necessary for the job. to 5 million now, we still have a much higher proportion of people in manufacturing than, for example, America or Japan. If one takes into account hidden unemployment, even on that one statistic the record is much better than it was then.

I want to deal briefly with the points made with such deep feeling by the hon. Member for Durham, North-West. Although I do not know Durham well, I do know two cities on either side. I know Darlington to the south, because my sister lived there for a long time, and Newcastle to the north where I worked for a client over a number of years. I fought a seat just to the north of Newcastle—Berwick-upon-Tweed—at the last election but one.

In both those areas public spending, for which the hon. Lady calls so vociferously, is vastly higher than that enjoyed by my constituents in Canterbury. Let me touch on just three areas. According to every set of statistics that I have seen, hospital waiting lists are much shorter in the north-east than they are in my health district. Secondly, road provision in the north-east is excellent, but in my part of the world it is crummy. I hope that it will get better and I welcome the decision to develop the Thanet way which will make a big difference to us. Thirdly, investment in schooling in the north-east has been higher than in my constituency, and not just under a Labour-controlled authority. A lot of investment was made by a Conservative-controlled Northumberland county council. The national constraints applied in the south-east mean that our investment in schooling has been low.

I have argued with my right hon. Friend the Chief Secretary that the time will come when we must have more of the cake, but part of the reason for that is precisely—[Interruption.] Does the hon. Member for Durham, North-West want to hear my point? We all listened to her. [Interruption.]

Madam Deputy Speaker (Miss Betty Boothroyd)

Order. One at a time, please.

Mr. Brazier

Thank you, Madam Deputy Speaker.

The Government's priority has been precisely to ensure that the hon. Lady's constituents get a decent share of the growing cake. That is why jobs are moving up to the north and why firms are relocating there.

Ms. Armstrong

I represent not the city of Durham but part of Durham county. We have been deprived of all of the special grants because we are not a city, which adds to our problems. Part of the special investment in the city has now gone from such areas as mine, because they are considered to be essentially rural areas.

Mr. Brazier

I have heard the hon. Lady's point. The same point applies to my constituency. When the hon. Lady comes to see the beautiful city of Canterbury, I shall ask her to walk with me through some of the deprived streets that are literally a stone's throw from the cathedral. We do not qualify for inner city relief either. The rural areas in the hon. Lady's part of the world—I know the areas a little further north than her constituency a little better—have much better facilities, especially health care, and roads than my constituency.

I hope my right hon. Friend the Chief Secretary will forgive me if I ride a few hobby horses—that is what these debates have become now that the days of economic crises are over—and mention a number of specialist areas. While we have turned round our overall economic performance enormously, it is time that we focused a little more on the detailed ways in which we apply financial controls. I should like to mention four specific points of financial control and then one special case at the end. First is the issue of public sector pay. We must get closer to the market place. It cannot be right, for example, that in the south-east, where average private sector earnings, excluding London, are 30 per cent. above the public average, that so many public sector workers are paid the same as their counterparts in other parts of the country, and account is not taken of the enormously higher housing costs. It cannot be right either that people with critical and scarce skills in the public sector are not given extra reward to keep them employed within it.

I shall cite a couple of important examples. In my neck of the woods we are short of candidates for heads of department in local schools. A school head of physics recently told me that he applied for some posts in the north before he came to Canterbury. Each post that he applied for had more than 100 applicants, but there were only a handful of applicants for the post that he now holds. There are shortages, too, of people with key technical skills, especially those related to the sciences. I am pleading for better rewards for hospital physicists and the special laboratory staff who support our universities. They are a small number of people, but they are crucial to the running of the universities, and we would receive good value if we rewarded them.

Secondly, it is important that, if the Treasury is to have a modern approach to controlling capital spending, it takes full account of life cycle costing. I shall cite as an example the defence sector, which I know well. It is possible by spending extra money up front to save substantial sums of money later on. All too often pressure from the Treasury—under all Governments—has been towards trying to save the up-front costs, even if that meant having an armed vehicle which spent a lot more time being repaired. It is worth spending more money on designing in features which make repairs cheap and easy. That applies not only to defence, but to all forms of infrastructure. If one looks at the rebuilding programme on the M2—a post-war road—one can see that only a generation ago corners were cut. If they had not been then, we would have saved a great deal of money now.

Thirdly, it is important that, when we look at the way in which we control spending on research and development, we do not stifle innovation. When a man comes forward with a good idea, it is easy to shoot it down on financial grounds. One does not know whether it will work for certain until it has been tried. To some extent one must put faith in people according to a past record that has been tested over a number of years. I put it to my right hon. Friend the Chief Secretary that to have 12 separate sets of accounting checks on some of our branches in the Procurement Executive is not the best way to control public spending within it. We would get much better value out of the Procurement Executive if we were willing to allow project managers their heads.

My hon. Friend the Member for Horsham (Sir P. Hordern) made some interesting comments. Unfortunately, he has had to leave. He commented on the importance of getting better value for money out of our defence budget. I would just like to add two of my thoughts. First, there is nothing which could more effectively ensure an increase in waste in defence spending than allowing the takeover of Plessey by GEC to go ahead. A frightening situation is developing within the European defence industry. Electronics in Germany are now largely monopolised by Siemens. France is desperately trying to build up some competition for Thomsons—which is nearly a monopoly company—by getting Matra into a joint venture with a Swedish company, L. M. Eriksson. In this country, if GEC were to be allowed to take over Plessey, even if there was some palliative process of hiving off defence interests, it would be so overwhelming a market presence that those three companies, GEC, Siemens and Thomson stacked up and linked together, would be able to take on the Governments of Europe and ensure that they get their way. We would go back to the bad old days of defence contracting tail-wagging the Government dog.

I profoundly disagree with the comments of my hon. Friend the Member for Horsham about detailed parliamentary scrutiny of individual defence projects. The most interesting study on this subject was the Packard report, commissioned by the President of the United States in 1985. Seventeen experts drawn from a range of different disciplines looked into how they could get better value for money out of the American defence budget. It was a fascinating report. They concluded that the biggest single area of waste in the American defence budget came from congressional interference. The changes in Congress within the lifetime of 15-year projects resulted again and again in a waste of money. The way to get value is to let the projects have good project managers, pay them properly, keep them in their post for a long period and let them get on with it.

The fourth aspect of getting better value for money has long been the favourite subject of my right hon. Friend the Chairman of the Select Committee. I refer to introducing a proper concept of modern accounting into Government finance, in particular, getting away from pure cash flow accounting. Nobody thinks that we should value every public lavatory and start writing them off over the years, but the key must be to allow true comparability. Looking at two hospitals side by side, we cannot tell which is more efficient at the moment. If we do that on a cash flow basis alone, there is nothing to compare them with. Unless we can take out capital spending and compare current items, and then get capital spending back in, in a depreciation form so that we have some kind of apples and apples comparison, the exercise becomes hopeless.

The last issue to which I refer is a hobby horse about which I feel particularly strongly. The defence budget has been mentioned three or four times in the debate, and always in an equipment context. We have a good record on defence spending, but, whatever, the level of defence at which we were aiming, it is essential that the men and women of the armed forces should enjoy the increase in the standard of living in the country as a whole, not just the increase in the cost of living. We have a good record on armed forces pay, but, sadly, it is not matched by all the other conditions of service. A rapidly increasing number of people are leaving the armed forces—some of them are desperately expensive people such as Harrier pilots, who cost £3 million to train—because of the deterioration in other conditions of service.

Some years ago, a friend of mine in the Army—it happened under the last Government, but it could just as easily have happened under this one—had his wife go into hospital to have a baby. Such is the shortage of gynaecological services within the Army medical services—they do not have an obvious wartime purpose—that she not only lost the baby but was sufficiently damaged that She will never be able to have another one. The health service that is provided for our armed forces, particularly those abroad, is slipping rapidly behind the standards that are required in the NHS. The same applies to education.

Fifteen or 20 years ago, continuity of education was provided for many of the children of people of all ranks who moved every two or three years, as most service men do. It was provided largely through state-run boarding schools, which have almost disappeared. Today, instead, the service man gets an allowance which is supposed to help to send his children to a fee-paying school. The allowances are now so far behind real costs that the position is becoming hopeless. For a sergeant with three or four children, the position is desperate.

The third and worst aspect is housing. I referred to this matter in my ten-minute Bill last week, so I shall not dwell on it. Unless we give members of our armed forces an equal chance in the housing market with their counterparts outside, we will not retain the best people when the number of younge people is declining.

9.1 pm

Mr. John Battle (Leeds, West)

I apologise to both Front Benches for not being in the Chamber throughout the whole of the debate. I spent the earlier part of the evening as a member of the Standing Committee which is considering the Social Security Bill. Opposition Members were attempting to get the Government to think again about their proposal to price people into work by forcing them to accept whatever low level of pay a prospective employer might offer an unemployed person. There is a clear link between the Bill and the public expenditure White Paper, in particular chapter 15, which deals with social security.

If, when they talk about tax cuts for the rich, the Government believe that there should be no floor for low wages, that they should abolish wage councils, and refuse to accept that there should be minimum pay levels, people will be asked to work, as they are in my constituency, for rates of pay of £2 an hour and, more recently, £1 an hour. It is absolutely unacceptable to ask people to accept that level of pay when others get high wages.

Ministers may say that no one in Britain will be expected to starve, because families will be expected to take up family credit. As we all know, the take-up level for family credit is 36 per cent. If the Government are prepared to build an economy on low wages, family credit would be a clear but indirect subsidy to employees who are paid low wages.

So much for the Government's argument that there is no intervention in the economy. So much for the argument that free forces should be allowed to play, when the Government will be using social security to underpin the funding of employers who pay low wages. Instead of doing that, and fostering a low wage policy, they might be better off spending money on restoring the regional support grant for proper investment in chapter 9 of the public expenditure White Paper.

I should like particularly to confront the Government's view that all are participating in the increasing wealth of our economy. We have heard tonight hon. Gentlemen calling for the continuance of tax cuts. There is a real deception concerning the figures that the Government are presenting to the people of our country. I urge hon. Gentlemen to get hold of and look very carefully indeed at "Social Trends 19", which was published recently, because that demonstrates, in the small print, that at the same time as wealth is increasing and more people have switched to mortgages, inequalities in Britain are deepening. Britain, the Government may say, is not divided. I would be tempted to agree in the sense that it is not divided in the past tense, but "to divide" is an active verb and it is dividing into the rich and the poor now.

To take the figures in "Social Trends 19" for gross weekly earnings, the official record supports the Government's assertion that incomes have been increasing. But, as the tables dealing with gross weekly earnings show, those at the top have done much better than those at the bottom. In 1981, the top 10 per cent. of male earners received 168 per cent. of median earnings. By 1987 their share was up 8 per cent. to 176 per cent. But for the bottom 10 per cent. it is a very different story: in 1981 they received just 64 per cent. of median earnings, and their share went down by 5 per cent. to 59 per cent. in 1987.

Then we see what happens after income tax and national insurance are allowed for and benefits are added. In 1976 the top 20 per cent. received 38.1 per cent. of all disposable household income, and the bottom 20 per cent. received just 7 per cent. of the post-tax and benefit income; yet by 1986 it was down to 5.9 per cent.

How do such income inequalities affect daily living? Looking at "Social Trends 19", if we take expenditure on food, housing and fuel as representing spending on the basics, the top 20 per cent. of income earners spent just 36 per cent. of their total expenditure on these items. By contrast, for the bottom 20 per cent., 56 per cent. of their expenditure went on the same items. In other words, the cost of living for them was higher. So the real distribution of wealth under this Government has been among the well-off, not from the well-off to the poor. The top 10 per cent. is still owning 54 per cent. of the total wealth. Any trends to greater economic justice in Britain certainly died with the 1979 election of the present Government.

In 1981, the bottom 50 per cent. owned just 6 per cent. of all marketable wealth, and by 1985 that share had increased to just 7 per cent. So much for the noise from the Government Benches about the increasing property-owning and share-owning democracy.

What is noticeable in "Social Trends 19" is what it does not tell us about inequality. It does not spell out the fact that the poor are being written out of the text and not even left in the margins. That disparity in income and wealth in our society is being hidden by the Government, often behind the myth of the average wage. What this Government, perhaps above all others, realise is that they can hold on to power by manipulating image and presentation. It is government by sound bite and photo call creating the illusion of truth by devising statistical fictions. My hon. Friend the Member for Bradford, North (Mr. Wall) put it well when he said that it was developing into a marketing and PR exercise.

With regard to the chapter dealing with spending on the environment, I should like to give three examples. The Department put out rather illuminating press releases in the wake of the publication of the public expenditure White Paper. I want first to quote from the press release about the package for the inner cities. It states that a £4.3 million urban programme package is approved for Leeds. Run-down areas of Leeds will receive £4.3 million. The Minister comments: The resources we have allocated demonstrate the Government's continuing commitment to the revitalisation of our inner cities. What the Minister did not say in the press release was that that figure is exactly the same as it has been now for four years. Perhaps the word "continuing" in the press release means the same as "as of now" when the Government said that they would continue to pay child benefit "as of now". In other words, it would be frozen as inner city funds are frozen.

Another Government press release refers to continuing the fight against dereliction. It states: Resources available for derelict land grant in 1989–90 will be about £67 million. It will be about 50 per cent. higher in real terms than the £23.5 million available in 1979–80. That press release did not tell us that there is actually a £7.2 million cut in relation to last year's figure for derelict land grant. Let us not hear about continuing the fight or continuing the expenditure in inner cities when the Government are really making cuts.

More recently, the Government issued a press release which welcomed the Audit Commission's report on housing the homeless. The Minister stated: It is clear there is considerable scope for local authorities to improve their performance in the use of their stock. However, the Government's press release did not have the courage to take on board the criticisms in the report about the fact that the Government have prevented local authorities from building houses. Perhaps that is the most significant point in the White Paper. It is demonstrably the case that the number of houses to be built in 1992 will decrease to 6,000. How can the homeless be provided for when the White Paper ensures that homes cannot be built for them? Local authorities cannot tackle homelessness if they cannot build.

So much for the Government's view that we will become the best housed nation in Europe which was vaunted in the 1979 Conservative election manifesto. This country is developing the record for having homelessness visible on the streets in 1989 when other societies do not.

Chapter 15 of the White Paper contains a catalogue of cuts in public expenditure. There are cuts in benefits to the poor, cuts in assistance for the inner cities and in housing. No matter how many press releases the Government might issue giving half the story, effectively the poor in economic and housing terms are written out of the text of the White Paper. I urge hon. Members to vote against the White Paper tonight.

9.12 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

In his exciting and elegant opening remarks, engaging, as they did, the attention of the whole House, the Chief Secretary to the Treasury introduced the White Paper by telling us about its physical size, the way in which it is sub-divided and the printing costs. He then told an agog House about the importance of the colour of the cover. At that stage, I feared that the Chief Secretary was in danger of becoming what I believe is referred to in the Conservative party as a "future Home Secretary". However, he redeemed himself. He pleasantly welcomed the return of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). It is a substantial tribute to my right hon. and learned Friend that welcoming him back was one of the few things upon which the whole House agreed in the debate tonight.

I do not want to attribute unworthy motives to the Chief Secretary because, in spite of my joke, I have high hopes of him. However, it must have at least crossed his mind that the return of my right hon. and learned Friend would spare him another pounding from my hon. Friend the Member for Dunfermline, East (Mr. Brown). As it turned out, the Chief Secretary got a pounding from my right hon. and learned Friend instead.

The debate brought a mixed response from the Government side. On the one hand, Conservatives are keen to take a firm line on public expenditure; on the other, they want to encourage the Government to spend more money on things which they consider important, like prisons, or, in the case of the hon. Member for Crawley (Mr. Soames), justices' clerks. They want to believe that inside every Nigel Lawson there is a John Smith trying to get out. My hon. Friends have echoed Lou Reed, urging the Chancellor to take a "Walk on the Supply Side" in fiscal drag. Inevitably, the debate on the Labour side has been dominated by education and the Health Service.

My hon. Friend the Member for Cardiff, West (Mr. Morgan), in an excellent contribution, referred to the state of play in education. He pointed out that, as a proportion of the gross domestic product, Government spending on education has fallen from 5.5 per cent. in 1978–79 to 4.7 per cent. for 1989–90. With primary school rolls increasing, the Government cut the school budget by £45 million. The Government should encourage youngsters to make the most of the opportunities which higher education has to offer. Yet in the short term they find it cheaper to cut investment in universities by £9 million. It has often been said that young people are the country's future. If we neglect them now, there is a heavy price to be paid later. We need a new word for public expenditure foolishly and short-sightedly forgone. In that context I want to attempt to insert into the English language the word "Lamontable".

The same "Lamontable " state of affairs is to be found in the Health Service. An extra £210 million in the White Paper for hospitals and community health has to be set alongside and against a projected fall in the real value of capital investment in the NHS between 1989–90 and 1991–92. It also has to be set alongside the Government's proposed changes for general practitioner services. What sort of Government place financial penalties on general practitioners for spending too much public money on patients? What sort of Government would devise a system of health care with built-in disincentives for general practitioners to have old or permanently sick clients on their lists? What sort of Government require general practitioners to choose for their patients the hospital that is not necessarily the one with the shortest waiting list, the one with the most skilful treatment available for the ailment or even the one that is nearest, but one that is most definitely, presumably, the cheapest? Only one sort of Government would behave in that way—this Government, who believe that there are only two categories of desirable patients, those who are not ill and those who can afford to pay for private treatment.

What are we supposed to make of the proposal to give tax relief on the cost of pensioners' private health insurance? Tax relief is public expenditure forgone. The proposal is targeted towards those who already have extra money to spend. Surely, if money is available, it would be fairer to spend it on health care for all of us, not on incentives for the more affluent. [Interruption.] The Chancellor laughs, but he will be elderly one day, sooner rather than later if he carries on as he is doing now.

Why should elderly people, who have paid taxes and national insurance during their working life, have to pay for private health care at the very time of life when they are most likely to need medical services? It is surely legitimate to ask the cautious, steady—I hesitate to say parsimonious—custodian of the public purse how much the tax relief will cost. The representatives of prudence surely know the answer. The scheme could not have been announced without an estimate of the cost. I shall willingly give way if someone from the Government Benches will tell me what it is [Interruption.] The Chancellor sits there muttering. If he finds it difficult to get to his feet, I will give him a hand. There is no reaction. Silence sometimes tells its own story and may even be the wisest course.

There are those on this side who harbour suspicions about the explanation for the Government's advances. To those of my hon. Friends who have advocated extra public expenditure, I have to give this advice: there seem to be only two ways of securing extra public expenditure. The first and easily the most efficacious way—in spite of what the Chief Secretary said to my hon. Friend the Member for Durham, North-West (Ms Armstrong)—seems to be to lure the Chancellor into an off-the-record press briefing with Sunday newspapers about his real plans for the service in question. Experience shows that the resulting outcry will gain extra money from the Treasury. [Interruption.] I heard what the Chief Secretary said, but I do not wish to get into an argument with him. My hon. Friend the Member for Durham, North-West was right when she said that the public would draw their own conclusions.

The second method of obtaining extra public expenditure is to persuade the hon. Member for Derbyshire, South (Mrs. Currie) to make a speech about the desired area of expenditure, and wait for the Government to use public money to buy their way out of the damage caused. I have to say to my hon. Friends contemplating using that technique that it does not always work. When the hon. Lady described the people of Newcastle as ignorant, we did not get extra money towards the cost of education. It is fairly obvious that we are not the farming lobby.

Recently, the hon. Lady has been saying, "I want to be alone," echoing Greta Garbo—not, as is often thought, the right hon. Member for Plymouth, Devonport (Dr. Owen). She has been alone in the Grand Committee Room. I was told that the hon. Lady wanted to be alone with her memories but we now learn that she wants to be alone with her memoirs instead$[Interruption.] I thought that was quite good. The Chief Secretary groans. I was not sure about including that, but when I heard his joke about Arthur Daley I felt much better about my own.

Far and away the most damaging blow to an area of public expenditure is for the Prime Minister to take a personal interest in it. Last year, we were told that the Prime Minister was intervening personally in the Government's science policy. We learn from the public expenditure White Paper that the science budget is set to fall by 3 per cent. in real terms. Our national commitment to research and development, expressed in terms of national income, is less now than in 1979. The number of Government employees in that area has fallen by 12,000 since 1979, and another 700 are due to go by 1991. Even the Confederation of British Industry has complained.

The Prime Minister declares herself an environmentalist but we learn from the White Paper that the budgets of the Countryside Commission, the Rural Development Commission and the Nature Conservancy Council have all been reduced.

The Prime Minister took charge of the interdepartmental committee on women, but child benefit has been frozen. The Government say that they want to help working women, yet they have taxed the provision of workplace nurseries as a benefit. Even the Treasury—if we are to believe last week's Evening Standard—says that senior civil servants are being charged £5 a day for the use of the Treasury creche. I am not making a dig at the Box, but I am talking about a facility that, I understand, is provided inside the Treasury—at what strikes me as quite a reasonable rate. We may be able to explore that further when we debate the Finance Bill.

The Prime Minister intervened to attack football hooliganism, but the Government provide a solution to the problem that attacks football rather than hooliganism. The climate of fear, once ascribed to inner city areas alone, has now spread. Rural and surburban communities are overshadowed by acts of hooliganism, which are regarded by those communities as a new phenomenon, and certainly have nothing to do with football.

It is no good for the Government to point to extra provision in this year's public expenditure round for more prisons and more police officers. The party that proclaims itself the party of law and order has allowed problems to develop over the past nine years. Policing the result is no substitute for dealing with the cause.

The Prime Minister decides that there is too much litter lying around, so there is a well-publicised photo opportunity, giving the clear yet obviously misleading impression that she is going to pick up a fair hit of it personally. Once the stunt is over, the Prime Minister sweeps on; the litter remains.

Perhaps the cruellest stunt of all was the Prime Minister's assertion after the 1987 general election that something would be done for the inner cities. The public expenditure White Paper shows that the overall value of Government programmes dedicated to inner-city areas is to be reduced by £17 million, and reduced again by £30 million by 1992. Alongside that is the drop in rate support grant of about £100 million for those local authorities that have to cope with the problems of inner cities. The total fall in rate support grant to those local authorities is £318 million since June 1981. Alongside that we must set the reduction in regional development grants. Indeed, the entire budget of the Department of Trade and Industry is due to fall by 30 per cent. over the next three years.

The Government believe that it is not what—[Interruption.] Share what? This could be a very damaging allegation from the Chancellor—[Interruption.] Thank God, it is just a research assistant we shared. The Government believe that it is not what they do but what they tell people that counts, which is why I was so worried about that intervention.

In line with this philosophy, expenditure on Government advertising has dramatically increased. The advertising is insulting. The employment training advertisement, which invites the unemployed to dig a round hole and knock the corners off a square piece of concrete to get it in, seems like an ill-conceived Keynesian joke, which might appeal to the Chancellor.

In my constituency, youngsters ask me how they can get a job that offers them a manual skill or a chance to serve their country in the armed forces or the police; a chance to go into nursing or, for the ambitious, a chance to go on to higher education; or even to get an office job. In better times these were sensible, worthy and realistic ambitions. They cannot be fulfilled, because the opportunities are not there.

There is no point in telling such communities that the economy is overheating. The only time that the economy overheated in my constituency was when somebody burned down the Department of Employment offices off Shields road. Labour MPs will understand me when I say what a bitter and painful thing it is to have visited local schools five years ago and seen youngsters with vigour and enthusiasm, personality and energy, having had all of that knocked out of them after a year on the labour market. It offers them nothing but unemployment or a patronising Government scheme. It is a hurt that carries a price tag that cannot be expressed in money alone. The problems that are created feed upon themselves, and get harder and harder to resolve.

It is certain that more policemen and prison places are not the answer. The Government, with their slogan, "Go for greed", have brought us higher interest rates and inflation, and an unacceptable balance of payments deficit. The White Paper says little about economic efficiency and nothing at all about social injustice or the quality of life.

Training, research, skill shortages and overcrowding, congestion and pollution are all issues that are as important to the efficiency of the British economy as the need to encourage private investment—I should have thought the Chancellor would agree with that.

Mr. David Shaw

Will the hon. Gentleman give way?

Mr. Brown

Yes, if the hon. Gentleman is quick and amusing.

Mr. Shaw

I shall try to be as amusing as I can, but the hon. Gentleman has made some serious accusations. Can the hon. Gentleman reconcile what he said with my understanding, that we have in this country one of the highest growth rates in any of the OECD countries over the past five years? We also have the greatest fall in unemployment and the creation of most jobs of anywhere in Europe.

Mr. Brown

It will take more than the six or seven minutes left to me to reconcile my understanding of the situation with that of the hon. Gentleman—and I also regret his lack of humour in his intervention. His points might apply to parts of the economy, but certainly not to the whole economy.

It is the Labour party's case that public expenditure underpins the fabric of our society. I shall give an example that the hon. Member for Dover (Mr. Shaw) would do well to heed concerning an injustice that arises from the Government's revised social security regulations. A single person on income support who is in hospital for more than six weeks has his income reduced to £8.25p—which is probably less than the hon. Member for Crawley (Mr. Soames) spends on cartridges for one weekend. That £8.25p is supposed to cover all that claimant's outgoings, including any accumulated debt, fixed costs on his home—such as 20 per cent. of his rates—water rates, and any other standing charges. If the same individual is in receipt not of income support but of housing benefit, a six-week hospital stay will wipe out that benefit, leaving rent unpaid and the prospect for that patient of no home to return to, or substantially enhanced rent arrears.

How can a society as wealthy as ours bring such pressure to bear on people when they are poor, ill and at their most vulnerable? The savings to the Treasury from that meanness are not large, but the pain inflicted on the people affected is considerable. It does not make any sense to tell such a person that the economy is overheating. It is surely legitimate to ask what kind of society the Government are trying to shape. Their public expenditure plans, set alongside their taxation policy, produce a vision of tax cuts for the wealthy, service cuts for the poor; public squalor and private affluence; tax relief for private health care, fear and uncertainty for the public health sector.

Above all, there is the widening of social divisions by region and by class. To tell the people of this country that the quality of their lives is about nothing more than what they personally can consume insults their intelligence. That insult is a strategic mistake, and it will be the Government's downfall.

9.31 pm

The Financial Secretary to the Treasury (Mr. Norman Lamont)

First, I join other right hon. and hon. Members who have spoken in this debate in welcoming back to the House the right hon. and learned Member for Monklands, East (Mr. Smith). Although we disagree strongly with what he had to say, we are delighted to see him fully recovered and in sparkling form.

There seems to have been confusion between the official channels as to whether the hon. Member for Dunfermline, East (Mr. Brown) or the hon. Member for Newcastle upon Tyne, East (Mr. Brown) was to wind up the debate. The fact that I spent the entire weekend reading the biography of Maxton by the hon. Member for Dunfermline, East is entirely coincidental; I did it for my own edification and education. Much as I enjoyed reading that autobiography, I am not sure that it profited me very much. I was astonished to discover that not one opinion was expressed in its 300 pages.

Today, we have heard not facts but what I call factoids paraded by the Opposition—factoids about investment, about living standards, and about the public expenditure White Paper. That has been combined with the complete absence of any proposals from Opposition Members. At the start of the debate, my right hon. Friend the Chief Secretary to the Treasury took up comments made in recent articles by the hon. Member for Dunfermline, East concerning central Government investment and public expenditure, and about gross domestic fixed capital formation. My right hon. Friend clearly demonstrated that whatever measures one takes—gross domestic fixed capital formation, general Government expenditure net of privatisation receipts, or the total for public sector capital expenditure—the fact remains that Government investment under the present Administration has sharply increased, whereas it sharply fell when Labour was in power.

It was all the more surprising that after my right hon. Friend the Chief Secretary had explained this very carefully, the right hon. and learned Member for Monklands, East repeated the error. He claimed that the public expenditure White Paper showed that public sector capital would not increase in real terms next year compared with this year. But my right hon. Friend the Chief Secretary had carefully explained that, in fact, the figures for last year included provision for capital expenditure by the Rover Group and that, once that was taken out, there would clearly be a real increase in public sector capital next year compared with this year.

The right hon. and learned Member gave expenditure on transport as a particular example of the savage cuts that he thought were embodied in this White Paper. He talked about departmental spending coming down from £5.4 billion to £4.8 billion. But that merely represents the privatisation of various public transport industries and the improved performance of British Rail. Once those factors are taken into consideration, it is clear that there has actually been a 38 per cent. real increase in the Department of Transport budget since 1978. Furthermore, the White Paper provides for a further increase of some 21 per cent. over the plan period.

My hon. Friend the Member for Crawley (Mr. Soames) also pointed out that expenditure on roads had gone up. We have heard that there has been a decline in expenditure on maintenance and that most of the money has gone on capital works. It is not surprising that we have had to allocate large sums for capital expenditure on roads when capital spending by the last Administration was cut by some 41 per cent. between 1973–74 and 1978–79. That is why capital spending has had priority. That is why it is given priority in the White Paper.

Mr. John Smith

Can the Minister kindly tell us whether we are to believe the chart—I suppose one might call it a "chartoid"—that appears in the White Paper. It shows quite clearly, in graphic terms, that the roads were always better under Labour and have always been worse under the Tories. What is the point in publishing a chart like this for our edification if the Minister does not support it? Will he admit that this is a correct statement?

Mr. Lamont

The right hon. and learned Gentleman should also believe the gross figures that I have given him—for public sector capital, for the increased provision for spending on roads, and the increased provision for spending on transport generally.

My hon. Friend the Member for Horsham (Sir P. Hordern) mentioned the need for increased investment in railways. Of course, he is quite right to say that we ought to look at the return that can be had from railways in terms of reduced congestion. That is precisely what the Government and the Department of Transport do. I am sure my hon. Friend will welcome the fact that there is to be a very considerable increase in investment in the railways, as the plans referred to in the White Paper imply. He may know that there is going to be a real increase of something like 35 per cent. in rail investment over the period of the White Paper. That is the biggest railways renewal programme that this country has seen since the 1950s.

The hon. Member for Newcastle upon Tyne, East put forward the doctrine that tax relief given is public expenditure forgone. That certainly enables us to understand the attitude of the Labour party towards tax cuts: it just regards them as public expenditure forgone. The hon. Gentleman asked about the tax relief for private health care. That relief will, of course, be provided for in the Finance Bill. It will be legislated for in the normal way. The cost will be contained in the normal way in the FSBR and will not be announced now. This debate and this White Paper are about public expenditure, and the cost of the tax relief will be revealed in the usual way.

Mr. John Smith

Is the. Minister serious? He has announced a scheme of tax concessions but will not tell Parliament what the consequences will be. Is it because he does not know, or is he refusing to answer reasonable questions in Parliament?

Mr. Lamont

Parliament will be told at the right time and the measure will appear in the Finance Bill. That is the normal way in which the cost of tax reliefs is announced to the House of Commons.

The hon. Member for Newcastle upon Tyne, East claimed that rate support grant in the inner cities would fall next year. That is a surprising claim. If we allow for the transfer of responsibility for the polytechnics away from local authorities, we find that all the inner London boroughs will receive more grant next year—they will all do well—except for the City and Westminster. Moreover, with the exception of Solihull, all the metropolitan districts will receive more. I am surprised that the hon. Member for Newcastle upon Tyne, East should look upon the City and Westminster as hard-hit inner city areas.

A remarkable feature of this year's White Paper is that general Government expenditure has been reduced as a proportion of GDP—from more than 46 per cent. in 1982–83 to less than 40 per cent. That is the longest and most sustained fall since the wartime economy was unwound.

The right hon. and learned Member for Monklands, East suggested that the figure of 40 per cent. was an arbitrary and dogmatic figure and that it made no sense to go on reducing public expenditure as a proportion of GDP. In one sense, of course, any public expenditure figure is an arbitrary figure but the right hon. and learned Gentleman seems to have forgotten the warnings given by Lord Jenkins—if I am allowed to mention his name—when he was a Labour Chancellor. Lord Jenkins said that if public expenditure went on increasing indefinitely and became too high a proportion of GDP, it would become a threat to the values of a plural society and to freedom of choice. The right hon. and learned Member for Monklands, East also ignores the fact that in recent years many previously state-owned industries have been transferred to the private sector and that more are to be transferred. It therefore seems appropriate that the proportion of GDP taken up by Government expenditure should be very different from the proportion that pertained in the days when the Government owned and operated vast state industries.

We also believe that our policy is better and will allow more freedom of choice. Better decisions are likely to be made if more decisions are made by individual citizens and by the private sector. As this year's White Paper clearly shows, limiting the role of the state is not inconsistent with substantial increases in the main social services and on infrastructure. Of course there are things which only the state can do, and which only the state ought to do, but the state should not over-extend itself. It is most likely to do things properly if it confines itself to doing what it is essential for it to do.

One reason why the right hon. and learned Member for Monklands, East wants to increase public expenditure is that he believes that it can be used to remedy the defects of the private sector. [HoN. MEMBERS: "Hear, hear."] Hon. Members say "Hear, hear". I suppose that that is the meaning of the strange phrase that emerged from Labour's weekend at the Rottingdean retirement home, when we were told for the first time about supply-side Socialism—a curious paradox, like democratic Socialism or boiling ice. For most of us supply side measures mean free markets and stimulate competition and measures to remove burdens, restrictions and bureaucracy. It is not surprising that supply-side Socialism, in the newspeak of the Labour party, means precisely the opposite—more intervention, more spending, more taxes and more bureaucracy. When applied to training it presumably means Government-controlled and Government-financed training on the model of the 1960s. That is not the way to achieve training related to the needs of markets and the needs of industry. It means investment financed by regional development agencies and national enterprise boards. It means state direction and state subsidy. That is hardly a recipe for profitable or efficient investment.

Of course there is another way to remedy the defects of the private sector and that is directly to encourage the private sector and instead of taking over the functions of the private sector giving it the opportunity and wealth to carry them out. That is what the Government have done and that is why the profitability of industry is at the highest level for decades. That is never mentioned by the Opposition because it proves that we have a real, genuine, supply side revolution in Britain.

Opposition Members seem to suffer from a misapprehension. They believe that unless the Government do something, it cannot and will not happen. They talk about cuts in the budget of the Department of Trade and Industry. There have been some cuts. We have removed support from many nationalised industries which are much more profitable as a result. We have cut certain grants to industry, and industry is doing far better without the crutches that it needed when the Opposition were in power. Opposition Members go on about investment, presumably implying that investment needs Government stimulus. But although we have cut Government grants for investment, private investment is at a record level and the highest ever proportion of GDP.

The right hon. and learned Member for Monklands, East goes on about the ending of automatic regional development grants, which were a wasteful misuse of resources. But that has not for a moment prevented investment rising, and output in the regions rising, and unemployment falling in every region over the past year. Unemployment has fallen fastest in the west midlands, the north-west and Wales and by more than two percentage points in each case. In every region long-term unemployment has fallen faster than unemployment as a whole, demonstrating that such things can happen without grants and without Government intervention, given the space, freedom and incentive. That is what our policies are designed to do.

The right hon. and learned Member for Monklands, East said that the Government are not giving training a high enough priority, but nothing could be further from the truth. The White Paper provides for Department of Employment Training Agency expenditure of £2.9 billion in 1989–90—a doubling in real terms over 1983–84. There are more people on the Department's employment training schemes than ever before. The employment training programme, launched last September, will raise the skill level of the adult work force by giving longer-term unemployed people the skills that they need to compete for jobs. The plans in the White Paper provide £1.4 billion a year for that—enough for up to 560,000 trainees. That is the evidence that the Government take training seriously and have provided the resources for it to happen.

We should not lose sight of what employers are doing. A recent study shows that in 1986–87 employers were spending some £18 billion on training. Employers and employees are getting the message. The most recent figures show that half a million more people are in job-related training than two years ago—a 25 per cent. increase. That is a considerable and welcome development.

Opposition Members have given us a long list of factoids—misleading facts. But certain facts have been increasingly and significantly absent from their speeches—the facts relating to living standards. Opposition Members go on about interest rates and investment, but they seem to forget that the object of economic policy is improved living standards. Those are the most appropriate criteria on which to judge it. Investment is not the object of economic policy; it is the return from that investment and the impact on living standards. Under this Government, living standards have risen dramatically.

On television the other day, the Leader of the Opposition dismissed living standards by saying that they had increased in every decade and had done so automatically. I am not sure why we have debates on the economy year after year, week after week if living standards increase automatically. It is a curious view that one need argue only about the distribution of wealth because the creation of it can be taken for granted.

The Leader of the Opposition was right. Living standards have increased in every decade, largely because in every decade there have been a few years of Conservative government. The rise in living standards under Conservative and Labour Governments is dramatic and instructive. Since the war, the Labour party has held office for 17 years, in which time living standards increased 13 per cent. The Conservative party has been in power for 27 years—one and a half times as long—in which time living standards increased 72 per cent. There is nothing coincidental about that; it occurred because of our public expenditure policies and realistic control of them.

The right hon. and learned Member for Monklands, East was coy about the Labour party's policies. We know that it believes in massive increases in expenditure. In his 35-minute-speech, sparkling and welcome though it was, the right hon. and learned Gentleman spent the Government's entire surplus. He prefers to call it public investment because it is a better contrast with private consumption. He and the Labour party are determined to increase public expenditure whatever the economic circumstances. That is the fatal mistake that the last Labour Government—and the Labour Government before that—made. Labour Governments begin by increasing public expenditure massively. They push it to the limit in the first few years, but cuts follow—the big dipper effect.

As my right hon. Friend the Chief Secretary said, in their first year, the last Labour Government increased public spending by 12 per cent. in real terms, but then the misery began. After that, cuts followed in capital spending on hospitals, on roads—about which Labour Members have been grumbling today—and on schools and education. My hon. Friends may wonder where all the money went. While they were making these cuts, public expenditure continued to increase. The money was spent on current expenditure. It was spent on wages, but it did recipients no good because it was accompanied by massive inflation, which lowered their living standards.

The other day, the hon. Member for Dunfermline, East said that what the last Labour Government did was not relevant. It is relevant as long as Labour Members are prepared to make the same mistakes as their predecessors. All the signs show that they are on the same road.

My right hon. Friend the Chief Secretary referred to the pledges that the Labour party has made on science, health charges and overseas aid. The right hon. and learned Member for Monklands, East added pensions to the list. The hon. Member for Bootle (Mr. Roberts), who is an Opposition Front Bench spokesman, told the Standing Committee considering the Water Bill that when the Labour party is returned to office there will be no external financing limits on capital spending by trading organisations in the public sector. That could be an expensive pledge. The hon. Gentleman also told the Committee that the last Labour Government had lost the election because they had not spent enough money. That certainly is a speech to distribute to the markets.

There could not be a greater contrast between the White Paper and the one published by the Labour party in 1978. The 1978 White Paper admitted that for four years there had been no increases in output and that real national disposable income had fallen by 2¼ per cent. That 1978 White Paper pointed out that public and private consumption had grown at the same rate for a decade, but had diverged since the Labour Government had come to power. It pointed out: Personal consumption actually fell between 1973 and 1977 while public authorities' consumption rose at an average annual rate of 2.5 per cent. The fall in real take-home pay was even sharper than the fall in personal consumption. Those are the consequences of excessive growth in public expenditure and they are consequences that fall on ordinary people through increased taxes and falls in living standards.

We know that we cannot expect the Labour party ever to understand that. We cannot expect it to understand the dangers of the public sector crowding out the private sector. We cannot expect it to understand the wealth-creating role of the private sector. The Labour party's problem was revealed last year in a report by its co-ordinating committee, of which the hon. Member for Dagenham (Mr. Gould) was a part author. I understand that another member of the co-ordinating committee was the hon. Member for Islington, North (Mr. Corbyn). Some people might think that another co-ordinating committee would be needed to co-ordinate those two hon. Gentlemen. The committee's report said: Many party activists are positively hostile to the idea that the party should have something to say about productivity, competitiveness, efficiency or enterprise. The report, part of which appeared in The Guardian, then went on to make the most astonishing admission of all. It said: it often comes as a shock to party members that public sector employment is not the norm in society. If that is the Labour party's attitude, how can we expect it to have a realistic attitude to public expenditure? We do not expect that.

This White Paper is the fruit borne from a decade of successful economic management and prudent budgeting. To listen to the right hon. and learned Member for Monklands, East one would think that nothing had changed since 1979. Year after year, Labour Members pray in aid economic ruin and social collapse. Year after year, they predict rising unemployment and industrial decline. Year after year, the British economy continues to expand, its finances are in better shape and its provision for priority services increasingly improved. The right hon. and learned Gentleman has described the growth of the economy in recent years as a short-term boom. It is a short-term boom that has continued for eight years and that is the longest period of growth on record since the second world war. The right hon. and learned Gentleman calls for an investment boom. He is apparently unaware of the 18 per cent. rise in manufacturing investment over the past year.

Yet the firm management of public spending has not prevented an extraordinary and unprecedented investment in priority programmes. The Government have managed to reduce public spending as a proportion of national income and, at the same time, they have increased health spending massively with the largest increase ever given. They have increased considerably spending on science in this year's White Paper, despite what Opposition Members have said. Everyone but Opposition Members can see that those increases are the product of an economy that is expanding. Everyone but Opposition Members realises that the growth in the economy has been facilitated and accelerated by the reduction in overall Government borrowing. Yet Opposition Members cling to the nostrums and policies of yesterday—policies that would produce not a dash for growth, but a race to ruin. It is ironic that Opposition Members today have criticised high mortgage rates and have exploited the concerns of those paying them, for they are the country's true mortgagors. It was their reckless economic management that mortgaged this country up to the hilt.

The one thing that we might have expected Opposition Members to remember was the ruinous effects of their own policies, such as punitive taxation that drove businesses and management abroad and lowered living standards in this country.

Opposition Members' belief that only public money can get things done is false and destructive—false because it ignores the significant changes that can be brought by private spending; destructive because it crowds out private investment and enterprise.

The plans put forward in the White Paper are realistic and will underpin the stability, the financial security and the Government's tremendous economic achievements, and I commend them to the House.

Question put, That the amendment be made:—

The House divided: Ayes 165, Noes 256.

Division No. 88]	[10 pm
AYES
Abbott, Ms Diane	Hughes, John (Coventry NE)
Adams, Allen (Paisley N)	Hughes, Robert (Aberdeen N)
Allen, Graham	Hughes, Roy (Newport E)
Alton, David	Hughes, Simon (Southwark)
Archer, Rt Hon Peter	Illsley, Eric
Armstrong, Hilary	Ingram, Adam
Ashley, Rt Hon Jack	Janner, Greville
Banks, Tony (Newham NW)	Jones, leuan (Ynys Môn)
Barnes, Harry (Derbyshire NE)	Jones, Martyn (Ciwyd S W)
Barnes, Mrs Rosie (Greenwich)	Kaufman, Rt Hon Gerald
Barron, Kevin	Kennedy, Charles
Battle, John	Lambie, David
Beckett, Margaret	Lamond, James
Benn, Rt Hon Tony	Leadbitter, Ted
Bennett, A. F. (D'nt'n & R'dish)	Leighton, Ron
Bermingham, Gerald	Lestor, Joan (Eccles)
Blair, Tony	Lewis, Terry
Boateng, Paul	Litherland, Robert
Bray, Dr Jeremy	Livsey, Richard
Brown, Gordon (D'mline E)	Lloyd, Tony (Stretford)
Brown, Nicholas (Newcastle E)	Loyden, Eddie
Brown, Ron (Edinburgh Leith)	McAllion, John
Bruce, Malcolm (Gordon)	McAvoy, Thomas
Buchan, Norman	Macdonald, Calum A.
Buckley, George J.	McKay, Allen (Barnsley West)
Caborn, Richard	McKelvey, William
Callaghan, Jim	McLeish, Henry
Campbell, Menzies (Fife NE)	McNamara, Kevin
Campbell, Ron (Blyth Valley)	McTaggart, Bob
Canavan, Dennis	McWilliam, John
Carliie, Alex (Mont'g)	Madden, Max
Cartwright, John	Mahon, Mrs Alice
Clarke, Tom (Monklands W)	Marek, Dr John
Clay, Bob	Marshall, David (Shettleston)
Clelland, David	Marshall, Jim (Leicester S)
Cohen, Harry	Meacher, Michael
Corbett, Robin	Meale, Alan
Corbyn, Jeremy	Michael, Alun
Cox, Tom	Michie, Bill (Sheffield Heeley)
Cryer, Bob	Mitchell, Austin (G't Grimsby)
Cummings, John	Morgan, Rhodri
Cunliffe, Lawrence	Morley, Elliott
Cunningham, Dr John	Mowlam, Marjorie
Darling, Alistair	Mullin, Chris
Davis, Terry (B'ham Hodge H'l)	Murphy, Paul
Dixon, Don	Oakes, Rt Hon Gordon
Doran, Frank	O'Neill, Martin
Dunnachie, Jimmy	Orme, Rt Hon Stanley
Fatchett, Derek	Parry, Robert
Fearn, Ronald	Pendry, Tom
Field, Frank (Birkenhead)	Pike, Peter L.
Fisher, Mark	Powell, Ray (Ogmore)
Flannery, Martin	Prescott, John
Flynn, Paul	Primarolo, Dawn
Foster, Derek	Radice, Giles
Fraser, John	Randall, Stuart
Fyfe, Maria	Redmond, Martin
Galloway, George	Rees, Rt Hon Merlyn
Garrett, John (Norwich South)	Reid, Dr John
George, Bruce	Richardson, Jo
Gilbert, Rt Hon Dr John	Robinson, Geoffrey
Godman, Dr Norman A.	Ruddock, Joan
Gordon, Mildred	Sheldon, Rt Hon Robert
Graham, Thomas	Shore, Rt Hon Peter
Grant, Bernie (Tottenham)	Short, Clare
Griffiths, Nigel (Edinburgh S)	Skinner, Dennis
Hardy, Peter	Smith, Andrew (Oxford E)
Harman, Ms Harriet	Smith, C. (Isl'ton & F'bury)
Heffer, Eric S.	Smith, Rt Hon J. (Monk'ds E)
Henderson, Doug	Snape, Peter
Hinchliffe, David	Soley, Clive
Hogg, N. (C'nauld & Kilsyth)	Spearing, Nigel
Holland, Stuart	Steel, Rt Hon David
Hood, Jimmy	Stott, Roger
Howarth, George (Knowsley N)	Taylor, Mrs Ann (Dewsbury)
Howell, Rt Hon D. (S'heath)	Thompson, Jack (Wansbeck)
Hoyle, Doug	Turner, Dennis

Wall, Pat	Worthington, Tony
Wallace, James	Wray, Jimmy
Walley, Joan	Young, David (Bolton SE)
Wareing, Robert N.
Welsh, Andrew (Angus E)	Tellers for the Ayes:
Wilson, Brian	Mr. Ken Eastham and
Winnick, David	Mr. Frank Haynes.
Wise, Mrs Audrey

NOES
Adley, Robert	Dorrell, Stephen
Aitken, Jonathan	Douglas-Hamilton, Lord James
Alexander, Richard	Dover, Den
Alison, Rt Hon Michael	Dunn, Bob
Allason, Rupert	Durant, Tony
Amess, David	Emery, Sir Peter
Amos, Alan	Evennett, David
Arbuthnot, James	Fairbairn, Sir Nicholas
Arnold, Jacques (Gravesham)	Favell, Tony
Ashby, David	Fenner, Dame Peggy
Aspinwall, Jack	Field, Barry (Isle of Wight)
Atkins, Robert	Finsberg, Sir Geoffrey
Atkinson, David	Fishburn, John Dudley
Baker, Nicholas (Dorset N)	Fookes, Dame Janet
Baldry, Tony	Forman, Nigel
Banks, Robert (Harrogate)	Forsyth, Michael (Stirling)
Batiste, Spencer	Forth, Eric
Bellingham, Henry	Fox, Sir Marcus
Bendall, Vivian	Freeman, Roger
Bennett, Nicholas (Pembroke)	French, Douglas
Benyon, W.	Fry, Peter
Bevan, David Gilroy	Gale, Roger
Biffen, Rt Hon John	Gardiner, George
Blackburn, Dr John G.	Garel-Jones, Tristan
Blaker, Rt Hon Sir Peter	Gilmour, Rt Hon Sir Ian
Bonsor, Sir Nicholas	Glyn, Dr Alan
Boscawen, Hon Robert	Goodhart, Sir Philip
Boswell, Tim	Goodlad, Alastair
Bottomley, Peter	Goodson-Wickes, Dr Charles
Bottomley, Mrs Virginia	Gorman, Mrs Teresa
Bowden, A (Brighton K'pto'n)	Gow, Ian
Bowden, Gerald (Dulwich)	Grant, Sir Anthony (CambsSW)
Bowis, John	Greenway, Harry (Ealing N)
Boyson, Rt Hon Dr Sir Rhodes	Greenway, John (Ryedale)
Braine, Rt Hon Sir Bernard	Gregory, Conal
Brazier, Julian	Griffiths, Peter (Portsmouth N)
Bright, Graham	Grist, Ian
Brooke, Rt Hon Peter	Ground, Patrick
Brown, Michael (Brigg & Ci't's)	Gummer, Rt Hon John Selwyn
Browne, John (Winchester)	Hamilton, Neil (Tatton)
Bruce, Ian (Dorset South)	Hanley, Jeremy
Buck, Sir Antony	Hannam, John
Budgen, Nicholas	Hargreaves, A. (B'ham H'll Gr')
Burns, Simon	Hargreaves, Ken (Hyndburn)
Burt, Alistair	Haselhurst, Alan
Butler, Chris	Hayes, Jerry
Butterfill, John	Hayhoe, Rt Hon Sir Barney
Carlisle, Kenneth (Lincoln)	Hayward, Robert
Carrington, Matthew	Heddle, John
Carttiss, Michael	Heseltine, Rt Hon Michael
Cash, William	Hicks, Mrs Maureen (Wolv' NE)
Chapman, Sydney	Higgins, Rt Hon Terence L.
Chope, Christopher	Hill, James
Churchill, Mr	Hind, Kenneth
Clark, Hon Alan (Plym'th S'n)	Hogg, Hon Douglas (Gr'th'm)
Clark, Dr Michael (Rochford)	Hordern, Sir Peter
Colvin, Michael	Howard, Michael
Conway, Derek	Howarth, Alan (Strat'd-on-A)
Coombs, Anthony (Wyre F'rest)	Howarth, G. (Cannock & B'wd)
Coombs, Simon (Swindon)	Howell, Ralph (North Norfolk)
Cope, Rt Hon John	Hunt, David (Wirral W)
Cormack, Patrick	Hunt, John (Ravensbourne)
Couchman, James	Hunter, Andrew
Cran, James	Irvine, Michael
Currie, Mrs Edwina	Janman, Tim
Davies, Q. (Stamf'd & Spald'g)	Johnson Smith, Sir Geoffrey
Davis, David (Boothferry)	Jones, Gwilym (Cardiff N)
Day, Stephen	Jones, Robert B (Herts W)
Devlin, Tim	Kellett-Bowman, Dame Elaine
Dicks, Terry	Key, Robert

King, Roger (B'ham N'thfield)	Mayhew, Rt Hon Sir Patrick
King, Rt Hon Tom (Bridgwater)	Mellor, David
Kirkhope, Timothy	Meyer, Sir Anthony
Knapman, Roger	Miller, Sir Hal
Knight, Greg (Derby North)	Mills, Iain
Knight, Dame Jill (Edgbaston)	Mitchell, Sir David
Knowles, Michael	Moate, Roger
Knox, David	Monro, Sir Hector
Lamont, Rt Hon Norman	Montgomery, Sir Fergus
Lang, Ian	Moore, Rt Hon John
Latham, Michael	Morris, M (N'hampton S)
Lawrence, Ivan	Morrison, Sir Charles
Lawson, Rt Hon Nigel	Morrison, Rt Hon P (Chester)
Lightbown, David	Moss, Malcolm
Lilley, Peter	Nelson, Anthony
Lloyd, Sir Ian (Havant)	Neubert, Michael
Lloyd, Peter (Fareham)	Newton, Rt Hon Tony
Lord, Michael	Nicholls, Patrick
Luce, Rt Hon Richard	Nicholson, David (Taunton)
Lyell, Sir Nicholas	Nicholson, Emma (Devon West)
MacKay, Andrew (E Berkshire)	Norris, Steve
Maclean, David	Onslow, Rt Hon Cranley
McNair-Wilson, Sir Michael	Oppenheim, Phillip
McNair-Wilson, P (New Forest)	Page, Richard
Madel, David	Paice, James
Major, Rt Hon John	Patten, Chris (Bath)
Malins, Humfrey	Patten, John (Oxford W)
Mans, Keith	Pattie, Rt Hon Sir Geoffrey
Maples, John	Pawsey, James
Marlow, Tony	Porter, David (Waveney)
Marshall, John (Hendon S)	Portillo, Michael
Martin, David (Portsmouth S)	Price, Sir David
Maude, Hon Francis	Rathbone, Tim
Maxwell-Hyslop, Robin	Redwood, John

Rhodes James, Robert	Vaughan, Sir Gerard
Ridsdale, Sir Julian	Waddington, Rt Hon David
Roberts, Wyn (Conwy)	Waldegrave, Hon William
Rossi, Sir Hugh	Walden, George
Sackville, Hon Tom	Walker, Bill (T'side North)
Scott, Nicholas	Ward, John
Shaw, David (Dover)	Wardle, Charles (Bexhill)
Shephard, Mrs G. (Norfolk SW)	Warren, Kenneth
Skeet, Sir Trevor	Watts, John
Smith, Tim (Beaconsfield)	Wells, Bowen
Soames, Hon Nicholas	Wheeler, John
Stern, Michael	Whitney, Ray
Stevens, Lewis	Widdecombe, Ann
Stewart, Allan (Eastwood)	Wiggin, Jerry
Stradling Thomas, Sir John	Wilshire, David
Taylor, Ian (Esher)	Winterton, Mrs Ann
Taylor, John M (Solihull)	Winterton, Nicholas
Thompson, D. (Calder Valley)	Wolfson, Mark
Thompson, Patrick (Norwich N)	Wood, Timothy
Thorne, Neil	Woodcock, Mike
Thurnham, Peter	Yeo, Tim
Townsend, Cyril D. (B'heath)	Young, Sir George (Acton)
Tracey, Richard
Trippier, David	Tellers for the Noes:
Trotter, Neville	Mr. David Heathcoat-Amory
Twinn, Dr Ian	and Mr. Michael FaUon.

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House takes note of the White Paper on the Government's Expenditure Plans for 1989–90 to 1991–92 (Cm 601–609, 611–619 and 621).