Autumn Statement

HC Deb 06 November 1991 vol 198 cc449-70 3.31 pm

The Chancellor of the Exchequer (Mr. Norman Lamont)

With permission, Mr. Speaker, I should like to make a statement.

Cabinet agreed the Government's expenditure plans this morning, so I am now able to inform the House of the expected public expenditure outturn for this year; the plans for the next three years; our proposals for national insurance contributions in 1992–93; and my forecast of economic prospects for the year ahead.

As usual, the main public expenditure figures, with the full text of the economic forecast, will be available from the Vote Office as soon as I sit down. The printed autumn statement will be published next Wednesday.

This year's public expenditure survey has been a difficult one. There is no more challenging task in government than to choose between competing expenditure priorities, while keeping public spending as a whole under firm control. But there is also no greater test. Let me at once pay tribute to my right hon. and learned Friend the Chief Secretary, who has shown great skill and judgment in bringing the survey to a successful conclusion.

Firm control of public spending has been, and will remain, a key element in this Government's economic policy. From its peak in the early 1980s, we have reduced the ratio of public spending to national income by over five percentage points. This has been achieved by reducing the size of government; by a rigorous search for greater efficiency and value for money; and by prudent management of the public finances, which has led to a large saving in debt interest.

Over the past decade, this careful and responsible approach has enabled us not only to cut tax rates and reduce public borrowing but to make substantial and well-targeted spending increases in areas of priority; and it is this approach that will continue to underlie the Government's plans over the years ahead.

The prospect now is for renewed economic growth, but the recession has inevitably added to the pressures on public spending both this year and next. I expect public expenditure within the planning total to be almost £205 billion in the current fiscal year, slightly below the revised level I set in the Budget. An increase in programme spending, largely the result of weaker activity, will be offset by additional privatisation proceeds.

After four successive years of debt repayment, I made it clear in the Budget that we would see a return to public sector borrowing this year. I now expect a PSBR in 1991–92 of £10.5 billion, about 1.75 per cent. of GDP. Our fiscal position compares well with other Community countries. It remains the Government's policy to balance the budget over the economic cycle.

Last year, we made provision for substantial increases in expenditure over the next few years. So our objective in this year's survey has emphatically not been to make significant across-the board additions to existing plans.

But I have judged it right to allow expenditure to rise to meet the unavoidable consequences of weaker economic activity. Our priority has been to meet in full our commitments to the most vulnerable members of society; to maintain the expenditure programmes which contribute most to the long-term strength of the economy; and to improve the quality of public services.

For next year, the planning total has been set at £226.6 billion, some £5.5 billion above the figure published in the Financial Statement and Budget Reports. The planning totals in the two following years have been set at £244.5 billion and £258 billion respectively.

The planning total for 1992–93 assumes privatisation proceeds of £8 billion, the same level as we now expect in the current year. For the two following years, the level assumed is £5.5 billion, the same as in the last year's plans.

The new plans also include reserves of £4 billion, £8 billion and £12 billion respectively. These are higher than the corresponding figures in last year's plans, but by no more than I judge prudent and realistic. I am determined to contain pressures next year within the reserve.

Let me turn now to the individual spending programmes. First, health. Once again, we have provided for substantial improvements to patient care. Planned national health service spending in the United Kingdom in 1992–93 has been increased by £1.5 billion. Additional capital expenditure will enable the health service to make faster progress in upgrading buildings and equipment. Total national health service spending in England will rise by 4.2 per cent. in real terms between this year and next, and spending on hospital and community health services will rise by a full 5 per cent.

These latest increases will bring the total real increase in national health service spending since 1978–79 to well over 50 per cent. In England alone, this has funded an increase of 1.5 million acute in-patient and day cases a year, with 16,000 more doctors and dentists, 51,000 more nurses and 500 major capital schemes completed. At a time when tough decisions have been necessary across a range of public service programmes, we could not have made our commitment to the national health service more clear—[Interruption.]—We will not take any lectures from the Labour party, the party which in 1977–78, cut national health service spending by 3 per cent. and which cut capital spending by no less than 22 per cent.

The investment programmes of British Rail and London Transport amount to more than £2½ billion next year and will contribute substantially to the efficiency and competitiveness of the economy. But their income from passengers and asset sales has been adversely affected by weak trading conditions. We have therefore provided for increases in finance of over £1.4 billion in 1992–93 to support that investment. Public transport has rightly taken priority within the transport programme, and provision for expenditure on roads has been held to its planned level.

Social security represents over a quarter of all public spending. We have added £4.25 billion to plans in 1992–93. This reflects both higher unemployment and increased take-up of other benefits. In addition to full indexation of benefits, the new plans allow for higher rates of income-related benefits for disabled pensioners and those over 80, the Budget increase in child benefit, and the two new benefits for disabled people which come into operation next April.

The July local authority grant settlement made provision for an extra £1.4 billion of central Government funding next year to maintain the new balance between local and central funding of local services that I announced in the Budget. The Government are determined that this generous level of support should not be used to fund massive extra spending at the expense of local taxpayers. My right hon. Friend the Secretary of State for the Environment has made it clear that he will be prepared if necessary to make full use of his recently extended powers to cap local authority budgets.

Approaching half of local authorities' revenue spending is on education, so the settlement should allow for a substantial increase in current spending on schools. Provision for capital work on all maintained schools next year will increase in real terms by 10 per cent. Taken together with lower construction costs, this will allow for a significant increase in school building work.

Public funding for universities and polytechnics will rise by 4.6 per cent. in real terms next year. This will help to finance a further increase in student numbers, enabling one in four of our young people to enter higher education next year compared with one in eight in 1979. By the end of the decade it should be one in three—a remarkable achievement. The proportion of students completing their courses in Britain is one of the highest in the industrialised world—a testimony to the quality of our higher education institutions.

The science budget, which pays for basic and strategic science carried out by the research councils, will rise by around 3 per cent. in real terms between this year and next. By 1994–95 it will be more than 7 per cent. higher than it is now.

We have made additions to nearly £500 million to employment spending in Great Britain next year. Overall, publicly funded expenditure on training, enterprise and vocational education will be two and a half times as high in real terms as in 1978–79.

The plans for defence include an increase of £830 million in 1992–93. They provide for the continuing costs of the Gulf conflict—in particular, the replacement of ammunition and equipment. They also meet the transitional costs—redundancy payments and works—needed to implement the new force structure and to secure the longer-term savings.

Full details of the new plans for other programmes are being made available separately.

We recognise that we cannot expect the private sector to control its costs if the Government do not do the same, so the plans we have made assume further improvements in efficiency and firm downward pressures on pay and other costs across the public sector. That underlies the tight settlements that we have made both on programmes and on running costs.

Reflecting the economic cycle, I expect public spending as a proportion of gross domestic product to rise slightly in 1992–93, before resuming its downward trend. Even at its peak, the ratio of public expenditure to national income will be significantly lower than the levels that had to be financed following earlier recessions. That is good news for taxpayers, both present and future, and good news for the economy. It is a testimony to the Government's prudent and disciplined approach to the public finances over the past 12 years.

I come now to national insurance contributions. As usual, the review this year has taken account of advice from the Government Actuary on the income and expenditure of the national insurance fund, and of the decisions on benefit rates set out by my right hon. Friend the Secretary of State for Social Security in his statement to the House on 21 October.

The lower earnings limit at which national insurance contributions begin will rise by £2 a week to £54 in April, while the upper earnings limit for employees' contributions will go up by £15 a week to £405. The contribution rates for both employers and employees will remain the same, and the profits-related contribution rate for the self-employed will also be unchanged.

My economic forecast for 1992 was published today. Developments since the Budget have broadly confirmed the forecast that I made in March.

Over the past year, we have made dramatic progress on inflation. Retail prices index inflation has been more than halved, from almost 11 per cent. a year ago to about 4 per cent. in September. Measureas of underlying inflation have fallen too, though less sharply. RPI inflation, excluding mortgage interest payments, is down fromn 9.5 to 5.75 per cent. Producer price inflation, excluding food, drink and tobacco, is down from 6.5 per cent. to 4.75 per cent.

Also encouraging is the evidence of much greater realism in wage settlements. Average earnings growth has fallen from a peak of more than 10 per cent. to 7.75 per cent. in August; and those figures almost certainly understate the speed of the turnaround. According to the CBI, settlements in manufacturing industry averaged 5.5 per cent. in the third quarter, the lowest figure since the summer of 1987. Unit labour costs in manufacturing have actually fallen over the past three months. All that augurs well for the future, and suggests that the British labour market has benefited substantially both from our trade union and our supply side reforms.

As special factors drop out of the calculation of the RPI, inflation as measured by the RPI may rise slightly early next year, but it is forecast to fall back to 4 per cent. in the fourth quarter. Underlying inflation will continue to fall. Producer price inflation, excluding food, drink and tobacco, is expected to be 3.5 per cent. at the end of 1992, the lowest figure since the 1960s. The increase in the gross domestic product deflator, the widest measure of inflation in the economy, is also expected to fall next year.

I have never wavered from the view that the defeat of inflation is a necessary condition for economic success. The best performing economies are low inflation economies. Our objective is to match those economies, or better them. Our achievements on inflation are essential steps along the way.

To achieve that objective, we have followed a prudent and cautious monetary policy whose credibility has been underscored by our firm commitment to the ERM. The success that we have achieved on inflation has allowed us to cut interest rates without jeopardising sterling's position in the ERM. Interest rates have fallen 4.5 per cent. since last October, and are now below the average of the past 12 years. Our interest rate differential with Germany is at its lowest for 10 years.

As inflation and interest rates have fallen, it has become increasingly clear that we are emerging from recession. Consumer spending fell in the year to the second quarter of this year, but has been rising slowly in recent months. Service sector output seems to have stabilised in the second quarter, and manufacturing output may also now be picking up, though again slowly.

The monthly rate of increase in unemployment peaked in March and is likely to moderate further in the next few months as recovery gets under way. Consumer confidence has increased throughout this year as mortgage rates and inflation have come down, and it is likely to go on rising as the fear of unemployment begins to abate. I expect to see personal consumption rise by 2.5 per cent. in 1992, providing impetus to the recovery.

As I forecast in the Budget, output is likely to fall by about 2 per cent. this year. However, that fall is now behind us; the economy may have already started to pick up. I expect GDP to rise 0.75 per cent. in this half year.

With consumer spending expected to go on rising, an end to the business investment recession in sight, and the rundown in stocks likely to slow, I expect GDP to rise by 2.25 per cent. next year. Growth will gather pace through the year. The increase in output from the second half of this year to the second half of next is expected to be 2.75 per cent.

The performance of our exporters this year has been remarkable. Our exports of manufactures have shown renewed vigour, up 5 per cent. in volume terms over the past year. Our volume share of world trade in manufactures looks as though it may rise again in 1991, for the third year running.

The current account deficit in the first nine months of this year was less than £5 billion. For the year as a whole, we are on track for a deficit of about £6.5 billion, or 1 per cent. of GDP, half the size of the deficit in 1990 and closely in line with my Budget forecast.

Some rise in the current account deficit is to be expected at this stage of the cycle, but I expect the rise to be moderated by a continued good performance on exports. The current account deficit is forecast to be £9.5 billion, or 1.5 per cent. of GDP, in 1992. With prudent financial policies in place, I foresee no difficulty in financing it.

Turning to companies, business investment has fallen over the past year. That is never welcome, but it must be set in the context of the boom in the late 1980s. Investment rose by 45 per cent. in the three years to 1989 and was at a record level in the first half of 1990. Even now, after the fall over the last year, business investment is nearly 40 per cent. higher than in the first half of 1979; and the share of the country's resources going into investment remains higher than at any point in the 1970s.

Investment usually lags the cycle in total activity, but it is likely to rise from about the middle of next year as profitability recovers, company finances improve, and the general pick-up in activity gathers pace.

The last few months have seen a surge in business optimism in nearly every sector, nearly every region, in businesses large and small. [Interruption.] The October CBI survey was just the latest—[Interruption.]

Mr. Speaker

Order. This is an important matter.

Mr. Lamont

—but the most authoritative—of a whole succession of recent surveys to confirm this. Business confidence is at its highest level for three years. Output expectations are up, investment expectations have improved, export optimism is rising. This gives powerful support to our view of the recovery.

The spending plans that I have announced not only honour our commitments in full; they also provide substantial additional resources for health, public transport, and education. Once again we have demonstrated that there is no inconsistency between prudent fiscal and monetary policies and high-quality, well funded public services.

Those are the policies that have allowed us to reduce inflation and to cut interest rates. They are the policies that have enabled us to increase spending on the health service, more than by half since 1978–79, to help the most vulnerable, and to invest in the young people who are Britain's future. They are the policies which are leading Britain to a sustained, non-inflationary recovery, and I commend them to the House.

Mr. John Smith (Monklands, East)

The autumn statement, as always, reviews the prospects for the economy for the year ahead as well as revealing public expenditure proposals. The House will recall that just 12 months ago the Prime Minister, who was then Chancellor of the Exchequer, gave an upbeat and optimistic forecast of the economy for 1991. He told us: the British economy is coming back on track".—[Official Report, 8 November 1990; Vol. 180, c. 125.] The word "recession" did not cross his lips. I remind the House of what the then Chancellor of the Exchequer said about economic growth. He said that it would resume early in 1991 and that the economy is expected to grow by over 2 per cent. in 1991".—[Official Report, 8 November 1990; Vol. 180, c. 121.] In fact, the right hon. Gentleman's successor told us today, rather diffidently, that growth for 1991 is minus 2 per cent.

According to the Prime Minister a year ago, fixed investment would experience what he called a modest downturn of 1.75 per cent. Today's statement shows that it has plummeted by 10.75 per cent. In last year's statement, unemployment was assumed to be 1.75 million in 1991. Today, we know from the Government's own figures that it is 2.46 million.

Far from "coming back on track", we have experienced a deep and damaging recession. Let us look at the cost in human terms. There have been 45,000 business failures—a record level of 860 every week; 85,000 house repossessions—a record level of 635 per week; and unemployment has risen by 750,000. That is the price that the Chancellor thinks is worth paying by the people of this country.

Today, the Chancellor provided the evidence that condemns the Prime Minister's economic forecast as no more and no less than a gigantic confidence trick. The House and the nation would be well advised to treat with scepticism any economic forecast that the Government produce, let alone one that covers a period that must include a general election.

Given the Government's past performance, it is no surprise that once again they are promising good times just around the corner, but in the detail of the Government's own predictions, and in the forecasts of independent commentators and institutions, there is revealed disturbing evidence of the real state of our economy.

According to the International Monetary Fund's most recent survey, the United Kingdom will be the only country among the G7 nations in which investment will fall during 1992. Both the Confederation of British Industry and the National Institute of Economic and Social Research predict an even deeper fall in manufacturing investment of between 8 per cent. and 9 per cent.—that is, a further fall on top of the precipitous decline this year.

Earlier this week the average of independent forecasts conveniently compiled by the Treasury revealed that in 1992 employment growth will fall by 1.2 per cent. and unemployment will rise to 2.8 million. I ask the Chancellor how we can he expected to believe his forecasts of successful and sustained recovery if in the year ahead investment continues to fall and unemployment continues to rise.

Why is it that next year the United Kingdom will be the bottom of the G7 league table for investment and employment growth? When the Chancellor's own forecast shows a £3.5 billion widening in the balance of payments deficit, is it not clear that our economy continues to suffer from a serious imbalance, which can only be corrected by investment in manufacturing industry, new technology, and training?

In that context, why is it that the autumn statement confirms continuing cuts in the Department of Trade and Industry's budget, which after the statement will be only half the size it was three years ago? When training is properly regarded as crucial to our prospects for recovery, why is it designated a non-priority area? Is it not the case that there will be no increase in real terms in the budget for youth training and employment training? Is it not the case also that the increase in the Department of Employment's budget is almot entirely to deal with the cost of extra unemployment and not with any real addition to training?

The Government claim to have increased spending on education by 8 per cent. in cash terms. Will the Chancellor confirm that the increase in real terms is half that amount—4 per cent., or about £290 million? Can it seriously be argued that education is a Government priority when the latest available figures for all education spending show that the proportion of gross domestic product committed to education has fallen from 5.5 per cent. to 4.6 per cent.?

We welcome any additional expenditure on health; it is much needed. The Chancellor claims a cash increase of £2.7 billion; but, if we apply the GDP deflator, is it not clear that the real increase is £1.2 billion?

Does not the Chancellor appreciate the scepticism that is aroused by public spending increases in a pre-election period, given the Conservative party's recent history in this regard? Before both the 1983 and the 1987 general elections, the Government made expansive announcements about public expenditure increases; yet, as we know—and as is clear from our national accounts—the following years were years of cutback and recession.

An example of that technique is contained in the public transport proposals. I note from the detail of the Government's figures that the external financing of British Rail is forecast to increae by £500 million in the next year 1991–92.

Mr. Julian Brazier (Canterbury)

We are not borrowing it from the IMF.

Mr. Smith

Let me remind the hon. Gentleman who interrupts me that the Government are forecasting a £500 million increase in 1991–92. The forward plans, however, show that external financing will be cut by £1 billion in 1992, 1993, 1994 and 1995. Is not that abundant evidence of yet another confidence trick in the making?

The public must be aware that, at the same time as giving the impression that they are committed to increasing public expenditure, the Government are making promises to cut the standard rate of income tax, not merely to 20p in the pound, but below that. Both the Prime Minister and the Chancellor do that on every possible occasion.

The Government's record on economic growth is pathetic: and average of 1.75 per cent. annual growth from 1979 to 1991. [Interruption.] Let me repeat those figures, in case Tory Members did not hear them because of the hubbub that they were creating. Average annual economic growth between 1979 and 1991—as is revealed by the Government's own answers—was 1.75 per cent. The Government cannot, therefore, reconcile their commitment to increase public expenditure with a simultaneous commitment to make dramatic reductions in income tax—unless, of course, they plan large increases in value added tax.

In both their economic forecasting and their public spending proposals, the Government are engaged in a process of deception, which, as they will soon discover at the election, will not fool the British public.

Mr. Lamont

The right hon. and learned Member for Monklands, East (Mr. Smith) implied that the plans that I announced were optimistic. He quoted selectively from what the IMF was saying, and from its projections for economic growth in this country. What he did not tell the House was that the IMF is predicting that Britain's economy will grow as quickly as the G7 average, and will actually grow faster than Germany's economy in the second half of next year. That has been predicated, not by the Government, but by the International Monetary Fund.

What the right hon. and learned Gentleman ignored was the fact that our forecasts are in line with those of independent organisations such as the IMF, the Organisation for Economic Co-operation and Development and the London Business School. Those institutions have confirmed that our forecasts are realistic, and cautious as well.

This time last year, the right hon. and learned Gentleman did not believe that we would get inflation down to 4 per cent.; but we did. He does not acknowledge what he was saying a year ago.

The right hon. and learned Gentleman talked again about investment. As I explained to him in my statement, investment is already at a high level. It has fallen during the recession, but we experienced three years of sharp increases in investment. The ratio of investment to gross domestic product is higher today than it was under any Labour Government, including the last Labour Government.

The right hon. and learned Gentleman asked about the Department of Trade and Industry's budget. There are cuts in that budget, and rightly so. What matters to industry is the environment—the conditions for and the profitability of industry—not the DTI spending money. The Government's innovation programme will at the same time be maintained and over the survey period will increase.

The right hon. and learned Gentleman asked about the Department of Employment's budget. That will be increased by £480 million, including £178 million for Employment Action. As a result of the package that I have announced today, nearly I million people will be helped by the Department of Employment's programme next year. That is the increase we are making, and the right hon. and learned Gentleman ought to have welcomed it.

The right hon.and learned Gentleman implied—as did his hon. Friend the Member for Derby, South (Mrs. Beckett), the shadow Chief Secretary, on radio—that in the past we have announced expenditure plans that sometimes were not implemented. If he is more worried about that than the control of public expenditure, which I am much more worried about, that must mean that he thinks that recovery in activity is going to be stronger. [Interruption.] The right hon. and learned Gentleman does not understand the point. Public spending would be reduced if expenditure on social security and losses in some of the nationalised industries were lower as a result of a recovery.

The right hon. and learned Gentleman tells us that the rate of growth will not be achieved. He points to what he thinks is the Government's poor record compared with that of the Labour Government. He ought to look at his figures more closely. Between 1974 and 1979, non-oil GDP grew by 1.2 per cent. under the Labour Government. Between 1979 and 1991, non-oil GDP grew by 1.7 per cent. under this Government. We are not making the comparison at a particularly favourable moment—in the trough of a recession. There is little evidence that the policies of the right hon. and learned Gentleman will achieve any growth. His most revealing comment was that he welcomed any increase in public spending at all. He can tell us that again. He is committed to an increase of £35 billion a year on top of the plans that we have already announced, which are realistic.

Several Hon. Members

rose——

Mr. Speaker

Order. I remind hon. Members that we have a debate tomorrow on this subject and that there will be a public expenditure debate later. Therefore, I ask for brief questions, please, to the Chancellor of the Exchequer so that as many hon. Members as possible may be called.

Mr. Terence L. Higgins (Worthing)

Does the Chancellor of the Exchequer recall that, in its report on the Budget, the Treasury and Civil Service Select Committee stressed that it was important that the so-called automatic stabilisers should be allowed to operate fully and that there was a case for supplementing them with discretionary increases in public expenditure? Can my right hon. Friend confirm that what he has said this afternoon is in line with that? Is it not important, however, to stress, particularly for the benefit of the foreign exchange markets, that some increase in the public sector borrowing requirement at this stage in the cycle is entirely appropriate and in no way reflects any weakening of his determination to win the battle against inflation?

Mr. Lamont

My right hon. Friend is absolutely right. The increase that I have announced today to some extent reflects weaker trading conditions and the recession. That causes part of the increase in social security and part of the increase relating to the transport nationalised industries. Over half the increase in programme spending arises in three areas—social security, transport and the national health service. We are following precisely the policy that my right hon. Friend suggested. We felt it right to accept the inevitable costs at this stage in the economic cycle and not to cut back on long-term plans that will strengthen the economy.

This is a prudent and moderate settlement. Because of shouting by Opposition Members when I made my statement, I was not able to point out that the increase in the ratio of total Government expenditure to gross domestic product, both central and local, is only half a percentage point next year. That will bring it to 42 per cent., which is way below the peak in previous cycles and way below the proportion of public expenditure to GDP under the last Labour Government in similar conditions.

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

Does the Chancellor recognise that his optimism about 2.25 per cent. growth is not shared by all commentators and that if he is proved wrong these figures will be shot to pieces? How can he believe that the fear of unemployment will go away while unemployment has continued to rise?

Does the right hon. Gentleman recognise that the figures that he has announced for training and education will go nowhere near far enough to fill the skills gap? The figures for railways might sound encouraging, but, when looked at in detail, they fall away sharply in the subsequent two years. The most eloquent comment was when he talked about his desire, once the election is out of the way, to resume the downward trend. Having seen the decline in public services over the past decade, I hope that he never has that opportunity. Is this not a quick election fix rather than a programme of long-term investment to improve our competitiveness?

Mr. Lamont

I explained to the House why I believe that the forecast that I have made is both cautious and realistic. I explained that it is in line with forecasts being made by the IMF, the OECD and the London business school. We are expecting that the British economy next year should grow in line with the G7 average. All we are expecting at this stage is modest growth in this half year. I see no reason why we should not accelerate again up to the average of the G7 countries. It has happened before and, with falling inflation, we will achieve the growth again. We did it before, and we have the same conditions again.

The increase in growth will come from exports, which have done remarkably well by increasing their share of world trade for three successive years. We are expecting exports to rise by 6 per cent. again next year. Also, some of the growth will come from consumer demand.

The hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to the increases for transport. What I have announced today are additional to the existing base line. Last year's published plans already show substantial increases in investment. For example, investment for transport nationalised industries will double over the next three years compared with the past three years. Spending on roads will double from the period 1988–89 to 1992–93. We must look at the existing base line plans, not just those announced today. The hon. Gentleman does not seem able to make that simple distinction.

Sir William Clark (Croydon, South)

Is my right hon. Friend aware that the moderate increases in health, transport and education will be widely welcomed throughout the country, if not in all parts of the House? Does he agree that the public sector borrowing requirement for this year and next year should be set against a background that, over the past three or four years, the Government have repaid some £27 billion of the national debt? That is what we should look at when we are talking about the public sector borrowing requirement. In 1979, the public expenditure burden on the taxpayer was some 44 per cent. of the national income. Even with the moderate increases announced today, the figure is very much lower—about 41 per cent.—and is proof positive that the Government still have a firm control over public expenditure.

Mr. Lamont

I am grateful to my hon. Friend. He is correct in intimating that, if we make international comparisons, the fiscal position of the Government, even at this stage of the cycle, compares well with that of other countries. At 42 per cent., the ratio of public spending to GDP is well below the European Community average. The public sector borrowing requirement is also below the level of Germany, which is about 5 per cent. now. Our PSBR is less than in previous recessions and at comparable points in the cycle in the past. Under the Labour Government of 1975–76, the PSBR was 9.5 per cent. of GDP—the equivalent of £55 billion today. It is now a different world, and we intend to stick to it.

Mr. Robert Sheldon (Ashton-under-Lyne)

I may be a little old-fashioned, but I can never rejoice in a definition of a recession that includes vastly increased unemployment. Will the right hon. Gentleman make it quite clear where the money is coming from? Will not the extra money come from more privatisation? He is selling more of the family silver year by year, but when it has gone what will he do?

Mr. Lamont

The right hon. Gentleman, whom we all respect and like, knows that the way in which we treat privatisation proceeds is in accordance with the way in which they are treated by other Governments. Of course the costs of recession are unpleasant, and, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said, they have been reflected in the increased borrowing requirement. That is where the main adjustment has been made.

The right hon. Gentleman asks where the money is coming from. We continually ask Labour Members that question.

Mr. Charles Wardle (Bexhill and Battle)

If my right hon. Friend's spending plans are to have the most beneficial effect on the economy, will not it be essential to contain all public sector pay settlements well within the target rate of inflation?

Mr. Lamont

My hon. Friend makes a good point. He will recall that in my statement I stressed the need for the Government to look after their own running costs and pay settlements in Government Departments. His comments apply to the public sector more generally and more widely; we cannot let the burden fall on the private sector. The less the discipline in the public sector, the more it will hit the private sector. I entirely agree with my hon. Friend, and I am grateful for his drawing my attention to that point.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

Is the Chancellor aware that a recent survey showed that the cost of basic foods in British supermarkets was one of the highest in Europe? Does he realise that he has done nothing today to help the millions of people who are living in poverty because of the Government's inaction in dealing with high interest rates and unemployment?

Mr. Lamont

The hon. Gentleman says that we have done nothing to deal with poverty and the more disadvantaged members of the community. He will be aware that a large part of the social security increase that we announced will be spent on unemployment benefit, but perhaps he was not here when my right hon. Friend the Secretary of State for Social Security made his announcement, which included help for older pensioners and a number of measures designed to help the weaker and most disadvantaged members of society. I should have thought that the hon. Gentleman would welcome that.

Sir Ian Stewart (Hertfordshire, North)

I congratulate my right hon. Friend on sticking with his policies of getting inflation down and keeping control of public expenditure, despite the background to the economy in the past year. Will he confirm that reducing the proportion of GDP that goes on public expenditure to its present level, which is much lower than in previous recessions, gave room for the reductions in personal taxation in the past 10 or 12 years? That is the main difference between economic management under a Conservative Government and the Labour Governments that went before.

Mr. Lamont

My hon. Friend is right. Our past prudence in public expenditure gives us a considerable advantage today. Because we controlled public expenditure in the past, the burden of debt interest is less, and in the longer term that enables us to devote a little more to programme expenditure. We intend, as my hon. Friend advocates, to continue to reduce public expenditure as a proportion of GDP. That policy is not incompatible with increasing and improved provision for basic state services.

Mr. Peter Shore (Bethnal Green and Stepney)

An increase of £21 billion in public expenditure is certainly welcome, but the right hon. Gentleman has not yet told us what is to be the size in 1992–93 of the PSBR. Will he confirm that it will be above 4 per cent. of GDP'? Is he aware that if it were above 3 per cent. of GDP he would not be able even to make his statement in the House if he signed the present draft of the treaty of economic and monetary union in Maastricht which would limit not only this Chancellor but any other Chancellor to spending not more than 3 per cent. of GDP through public borrowing? What does he say about that?

Mr. Lamont

The right hon. Gentleman should realise that it is not normal in the autumn statement to make a forecast of the PSBR for the coming year. As with various other matters, an assumption is published and the assumption in the documents is for a PSBR of 3 per cent. next year. That assumption reflects the lagged fall in corporation tax receipts, which tends to continue even after recovery has begun.

The right hon. Gentleman refers to prospective rules that might emanate from Europe under provisions for a single currency—binding rules on budget deficits. No such rules have been agreed and, in any case, we intend to stick very closely to maintaining a tight fiscal position. As I explained, our fiscal position compares well with that of other countries. Our proportion of public expenditure to GDP is well below the average of other European countries.

As for the PSBR, I dread to think what the right hon. Gentleman thinks he could do to that with expenditure plans of £35 billion. Will it rise to 9 per cent. of GDP, as it did last time?

Mr. David Shaw (Dover)

Does my right hon. Friend agree that one of the very pleasing results of his announcement today is that it is confirmation that, despite the recession, the Government have managed to sustain the health, welfare, social security and education programmes throughout the recession without any significant cuts and, indeed, with significant increases in expenditure? Is that not in complete contrast with the problems of the previous Labour Government, when the only solution to the economic crisis in which they placed the country was to cut, cut and cut again from the health and welfare programmes? Is this not a major achievement by the Government?

Mr. Lamont

My hon. Friend is absolutely right. The previous Labour Government did what the right hon. Gentleman is threatening to do again: they overspent and overborrowed, had too high inflation and were forced to do what they professed that they did not want to do. They cut back massively on state services and on capital investment in them. As a result, total spending on the national health service is now 5.7 per cent. of GDP, compared with 4.8 per cent. when the Opposition were in power. Even as a proportion of public spending in total, spending on health in 1992–93 is 15 per cent. of total public spending compared with only 12 per cent. in 1978–79.

There can be no gainsaying the fact that we have made considerable increases over the years in spending on the health service. There has been a 54 per cent. real increase since 1978–79. As I said, for hospital and community health care services there is a 5 per cent. real increase next year, which everyone who is impartial and able to consider the issue with an unbiased and fair mind would regard as a very generous and well-intentioned settlement.

Mr. William Ross (Londonderry, East)

Surely the Chancellor today told us that he expected public expenditure to rise by about £53 billion over the next three financial years—an increase of more than a quarter of the current financial year's expenditure. Is he also prepared to say that he expects tax revenues to rise sufficiently to meet that increased expenditure—or does today's statement really represent a decisive shift from the doctrine of balanced budgets?

Mr. Lamont

It is an extremely important point that our intention and our policy are to balance the budget over the cycle. The hon. Gentleman is quite right. As he knows, corporation tax is paid a year in arrears and corporation tax receipts, therefore, very much lag behind the cycle. That is why we expect the public sector borrowing requirement to continue to be high next year, even though the recovery will be well under way. The plans that I have announced today and what I have said about the PSBR are consistent with our firm policy of balancing the budget over the cycle.

The right hon.Member for Bethnal Green and Stepney (Mr. Shore) referred to public sector borrowing of 3 per cent. next year. We had a public sector debt repayment of 3 per cent. at the peak of the cycle. We balanced it over the cycle and we will balance that 3 per cent. just as we balanced the previous 3 per cent.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. Friend confirm that the only way to accelerate recovery now is substantially to reduce interest rates? The very slow increase in both credit and the money supply show that that is both safe and wise. My right hon. Friend is prevented from taking that necessary measure simply by our membership of the exchange rate mechanism.

Mr. Lamont

I sometimes suspect that my hon. Friend is not quite as stern and unbending as he likes to pretend. We could not have got on top of inflation and reduced inflation in the way that we have—more successfully than any other country in the past year, because we have had the most dramatic reduction in inflation—if we had followed my hon. Friend's advice. If we had let the exchange rate go, that would simply have added to inflationary pressures. It would have lowered living standards and it would have done nobody any good. I realise that a projection of 0.75 per cent. growth in this half year is modest, but we normally come out of recessions gradually, and I have every confidence, based on what we already see about consumer spending and on the figures that we have seen for output, that the forecast that I have outlined to the House today, which is in line with many other forecasts, will be realised.

Mr. Merlyn Rees (Morley and Leeds, South)

Have the increases in public expenditure announced in the autumn statement in November been influenced in any way by the fact that a general election will take place in the first six months of next year?

Mr. Lamont

I have explained to the House that the targeted increases are ones that, for the most part, we believed we had to make because of weaker activity. I explained how more than 50 per cent. of the increase in the planning total came from social security, from the transport nationalised industries and from the health service. I should be very surprised if the right hon. Gentleman were suggesting that the increase in the health service was in any sense unjustified. Given what I have told the House about the ratios and about our PSBR compared with that of other countries, I believe that the increases are prudent and cautious, and can in no way be described, as the right hon. Gentleman seems to imply, as some sort of cynical giveaway.

Mr. Quentin Davies (Stamford and Spalding)

Does my right hon. Friend appreciate that he deserves considerable congratulation, first, on the decision that he and the Prime Minister took last year to join the exchange rate mechanism, which enabled us to bring down interest rates by 30 per cent. and inflation by 60 per cent. over 12 months—an extraordinary achievement—and, secondly, on getting his forecasts consistently right? He got the balance of payments outturn more or less exactly right. He said that growth would resume in the second half, and we are getting growth resuming in the third quarter—right now, in this quarter. He got the inflation rate for the end of the year right to the last decimal point. That is a very impressive record.

Mr. Lamont

I am grateful to my hon. Friend. He knows that I am always very cautious about economic forecasts, and always treat all forecasting with some scepticism, as is right, and as we emphasise in our published forecast. But it so happens—perhaps surprisingly—that my forecast in the Budget has proved extremely accurate on both inflation and output, and, as my hon. Friend said, on the current account. I am grateful to my hon. Friend for what he said about inflation and interest rates, and I believe that the progress that we have made has been welcome to the country.

Mr. James Lamond (Oldham, Central and Royton)

Does the Chancellor recall that, about a year ago, from a comfortable job and home, he told us that the only acceptable way out of the mess that his Government had got into over the past 11 years was for people to sacrifice their businesses, their homes and their jobs in order to reduce inflation? After hundreds of thousands of people have done just that, today the right hon. Gentleman tells us that inflation will creep up again. Would not any reasonable person, hearing that, decide that the Government should not be returned at the next election?

Mr. Lamont

I have always made it clear that there is no conflict between fighting inflation and fighting unemployment. We know that, if we let the spectre of inflation get worse, it would he disastrous for our exporting companies and for employment, so there is no contradiction involved in wanting to fight inflation, too. That is the priority that we must have, and that is the battle we have had to fight—with very little support from Labour Members, who are not remotely interested in inflation.

Mr. John Townend (Bridlington)

Does my right hon. Friend agree that the more he increases public expenditure the more the Opposition demand further increases, especially on health? Will he tell the House to what extent the increases announced today will delay both a return to a balanced budget and further reductions in taxation?

Mr. Lamont

As I have explained to the House, our policy remains to achieve a balanced budget over the cycle. I believe that the plans that we have announced this year are compatible with that. When setting the PSBR for next year, I shall bear our objective in mind. My hon. Friend is right to stress that objective, because it is and must remain our policy, and we should not depart from it. We have made it clear that our medium-term objective—not necessarily over one Parliament—is further to reduce the rate of income tax. I believe that that would be compatible with the policies that we have followed and will continue to follow.

Mr. Alan Williams (Swansea, West)

Will the Chancellor confirm that the rate of growth that he suggests for the first six months is only half that needed simply to stop unemployment from continuing to rise? Will he also confirm that his full-year rate of growth is less than the likely rate of increase in productive potential, and that he is therefore planning for rising unemployment throughout the next 12 months? Will he come clean and tell the House what assumptions about unemployment underlie the expenditure plans announced today?

Mr. Lamont

I do not accept for one minute what the right hon. Gentleman says. The monthly rate of increase in unemployment has come down sharply. In March it was 110,000; last month's figure was just over 35,000. [Interruption.] I am answering the right hon. Gentleman's question. I expect the monthly trend to continue to decline.

As for whether the rate of growth that I project will be sufficient to stop the rise in the rate of unemployment, the right hon. Gentleman will have noticed that the rate of growth projected for the second half of next year—2.75 per cent. on the second half of this year—is very close to the long-term trend growth of the British economy. Therefore, the premise on which the right hon. Gentleman's question was based is not correct.

Mr. Nigel Forman (Carshalton and Wallington)

Does my right hon. Friend agree that the prospects for a sustained and non-inflationary recovery of the economy at this phase in the cycle are greatly improved by the fact that unit labour costs in manufacturing have been moving downwards and by the fact that our proportion of world trade has been moving upwards? Is it not perfectly clear that that policy and approach to the economy is greatly to be preferred to that of the Labour party, which seems to rely on overspending, over-borrowing and over-taxing, which will keep them over there?

Mr. Lamont

My hon. Friend might have added that the Labour party's policy is also to encourage every inflationary wage claim in the public sector. I have never yet heard Labour Members not support such a claim, and the right hon. and learned Member for Monklands, East (Mr. Smith) was at it again on television the other day.

My hon. Friend is absolutely right: one of the most welcome developments is that our unit labour costs are falling. It is not just the rate of increase that is falling: our costs have actually been falling. That means that there is a much better outlook both on inflation and for exports, and, as my hon. Friend said, our exports have done extremely well in recent months.

Mr. Giles Radice (Durham, North)

Will the Chancellor tell the House what assumptions about unemployment he has given the Government Actuary for the coming year?

Mr. Lamont

Yes: 2.4 million.

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

Does my right hon. Friend agree that someone listening only to the black propaganda about what we are doing to destroy the national health service would be forgiven for believing that the money spent is going down, whereas the chart shows that, since 1978–79, the money spent has increased from £6.5 billion to £34 billion—a 50 per cent. increase in real terms. That shows a great commitment to the national health service on the part of the Conservatives than the socialists—the only party to have reduced spending—have shown in their lives?

Mr. Lamont

I am grateful to my hon. Friend for emphasising the point. I think that I have already made the point about the increases that we have made, the proportion, of GDP, the proportion of public expenditure and so on. There is no doubt that this Government have provided well, and provided massively, for the health service. The Labour party is interested in spending more money on the health service; it is not remotely interested in ensuring that it is better run and better administered.

Mr. Gordon McMaster (Paisley, South)

Given that the autumn statement offers no change in this Government's no-hope economic policies, does the Chancellor still think that unemployment is a price well worth paying—yes or no?

Mr. Lamont

I told the right hon. Member for Swansea, West (Mr. Williams) that I think that it is necessary to fight inflation, and fighting inflation gives the best prospects for employment. The low inflation countries are those that have the best record on unemployment. That is why, even given the current recession, there are now 800,000 jobs more than there were in 1979.

Mr. Robert Adley (Christchurch)

Is my right hon. Friend aware that this is the twelfth year running that the Government have produced an autumn statement in the autumn and the twelfth year running that they have produced a Budget in the spring, whereas, under the Labour Government, and when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor, the economy was in such a spiral of decay and disorder that, at one stage, statements were coming before the House monthly?

Is my right hon. Friend further aware that, if he reads his own speech, he will see that he did not mention the IMF—because he did not need to mention it? Does he recall that, when the Labour party was in government, the name of Mr. Witteveen was on everybody's lips because the Labour Government were constantly going cap in hand to the IMF? Is it not clear that the reason why the people of this country trust the Government's economic policies is that we do better for them?

Mr. Lamont

My hon. Friend is right that, like all our autumn statements, the present autumn statement contains no tax measures, whereas the Labour Government were always having to introduce emergency budgets and tax measures in the autumn. My hon. Friend is right: every Labour Government in my lifetime have made the same mistakes and ended up the same way. A future Labour Government would be no exception.

Mr. Alex Salmond (Banff and Buchan)

I acknowledge the Chancellor's belated—almost deathbed—conversion to the sanity of Keynesian economics, even if it has been done for the shabbiest of electoral reasons. Will he confirm, however, that, after allowing for inflation, real interest rates are still among the highest this century? When will they come down in real terms?

Mr. Lamont

I do not agree with the hon. Gentleman's first assertion. The fact of allowing and conceding the automatic effects of a recession does not tally with what he likes to call Keynesian economics. He may have noticed that there was an interesting article on this very theme by Mr. Gavyn Davies—formerly, I think, an adviser to the Labour party, but an admirable commentator none the less. He disagreed with what the hon. Gentleman has just said—[Interruption.] I am sorry, but if the hon. Gentleman has read the article, he has misunderstood it. I am afraid that he has also misunderstood the point about interest rates. It is true that in real terms in recent years interest rates have been historically high across the world. Our real interest rates are not out of line with real interest rates in other European countries.

Mr. Tim Smith (Beaconsfield)

Should not my right hon. and learned Friend the Chief Secretary to the Treasury be congratulated on a successful outcome to a public spending round that was carried out in difficult circumstances? Did not Labour, when it was in charge of the Treasury, cut hospital spending by 20 per cent. in one year and also cut nurses' pay in real terms? Should we not compare that with the remarkable announcement made by my right hon. Friend the Chancellor of the Exchequer today that health spending has risen by an increadible 54 per cent. over 12 years and that no less than 4 per cent. is forecast as the increase for the forthcoming year?

Mr. Lamont

My hon. Friend's comments about my right hon. and learned Friend the Chief Secretary to the Treasury are absolutely right. Various people have implied that the settlement is in some way influenced by the general election. We have of course tried to come up with a settlement that we believe is responsible and prudent. However, without revealing any secrets, let me say that the task of my right hon. and learned Friend the Chief Secretary was made difficult in recent months as a result of the rise in the political temperature. However, he has done an absolutely exceptional and outstanding job in very difficult circumstances.

On my hon. Friend's second point, we have made considerable increases in health service spending: £2.7 billion is the year-on-year increase, and I believe that the House should welcome that.

Mr. Doug Hoyle (Warrington, North)

Why cannot we get away from this ritual of an autumn statement and a Budget the following year? It reminds me of a witch doctor who is called in by a primitive tribe in the hope that there will be rain and sunshine and a bountiful harvest some time in the future. Why is there no comfort in the Chancellor's statement today, or in his Budget, for manufacturing industry? Why is he doing nothing about the chronic underfunding of training when even TECs, set up by the Government, claim that as a result of a lack of funding they cannot guarantee a place for the young and long-term unemployed? What we have today is a fourth-rate statement made by a fourth-rate Chancellor.

Mr. Lamont

In his opening remarks, I am not sure whether the hon. Gentleman was attacking the procedures of the autumn statement. It was not the purpose of this autumn statement to review the general way in which we tackle expenditure and separate it from taxation. As he knows, that matter is widely debated. I do not agree with him that there are not things in the statement that will be welcome to manufacturing industry. Industry will welcome the continued and increased expenditure on public transport. That is exactly what employers and the Confederation of British Industry have been asking for. They have also welcomed the considerable increase in roads expenditure which is already present in the base line. Above all, I am sure that manufacturing industry will welcome the fact that next year we are going to get back to growth in line with the G7 average.

Sir Anthony Grant (Cambridgeshire, South-West)

Is my right hon. Friend aware that the 8.5 per cent. increase in spending on education and the 10 per cent. in real terms on school buildings will be particularly welcome in Cambridgeshire? Since 1979, the number of young people entering higher education has doubled. Do not those facts demonstrate that the Labour party's claim to be the only friend of education is sheer bunkum?

Mr. Lamont

My hon. Friend puts it extremely succinctly. Spending per pupil has increased by 40 per cent. in real terms since 1979, and that adds force to my hon. Friend's observations.

Mr. Dave Nellist (Coventry, South-East)

Is it not clear that the freeze in real training budgets which the Chancellor announced today means that yet again there will be no increase in the abysmal level of youth training allowances? Had those allowances, which were introduced in April 1978, risen in line with the level of average earnings, youngsters on youth training schemes would be on £68 a week—about £40 more than the £29.50 that they actually receive. It is clear that, among today's pre-election, elastoplast political announcements, 16 and 17-year-olds have no vote.

Mr. Lamont

We have honoured all our pledges on youth training. I announced today that there will be additions to plans of £480 million to the Department of Employment's programme. That includes more for employment training and £178 million for employment action. Next year, the Government will be spending 2.5 times more on training in real terms than in 1978–79. Most of my colleagues and most fair and unbiased people would regard the increases that I have announced as very substantial. Only a party that was totally divorced from financial reality could go on asking for more.

Mr. John Butterfill (Bournemouth, West)

Will my right hon. Friend the Chancellor confirm that the recollections of the right hon. and learned Member for Monklands, East (Mr. Smith) about the outcome of election pledges are quite erroneous? Does my right hon. Friend recall that, in 1987, the Labour party pledged that another £2 billion over and above the current levels would be necessary to sort out the problems of the national health service? Can he confirm that this Government exceeded that figure within months of once again gaining office and that the present levels of expenditure, coupled with today's announcements, are beyond Labour's wildest dreams and certainly beyond what it could ever achieve?

Mr. Lamont

My hon. Friend is right. Expenditure on the health service has been averaging 3.6 per cent. in real terms. We have done more than the Labour party said at one stage that it would do. However much we do, Labour always promises to do more. Labour is not interested in containing public expenditure or taxation.

Ms Kate Hoey (Vauxhall)

Is the Chancellor aware that his statement offers nothing in terms of improving housing to the millions of people who listened to his statement who live in substandard, overcrowded and squalid housing? Does he realise that housing is in crisis, not just in inner-city areas such as mine, but throughout the country? What is he offering in his statement to people who need adequate and affordable housing?

Mr. Lamont

If the hon. Lady looks at the expenditure plans and the base line, she will see that there are considerable resources for housing. We made very large increases in the amount available to the Housing Corporation. I hope that she will not be misled by figures for the housing revenue account which are affected by interest rates: the point is the expenditure made available by central Government to the Housing Corporation. In the past two years we have made substantial additions; it is now a substantial programme. I do not accept that the situation for people in difficulties is without hope. We have done a lot.

Mr. Keith Mans (Wyre)

Does my right hon. Friend agree that our export performance over the past year is particularly encouraging, bearing in mind the fact that our major trading partners—France, Canada, the United States and Spain—have all been in recession? Does he also agree that it would be virtually impossible for us to maintain our international competitive advantage if he ever followed the policies advocated by the Labour party?

Mr. Lamont

My hon. Friend is right. As I have said, we have seen an increase in our share of world trade. I expect that our exports will be even more successful next year. That, of course, is reflected in the current account deficit, which is much smaller this year than last. That is largely due to the strength of exports.

Mr. Terry Patchett (Barnsley, East)

Several times this afternoon the Chancellor used the term "targeted increases". Would he use the same terminology to describe the present unemployment figures?

Mr. Lamont

The expenditure increases are targeted, and they are targeted at those areas that we think are most deserving and most in need, but, at the same time, we want to follow responsible and prudent policies to balance the budget over the medium term.

Mr. Ian Taylor (Esher)

My right hon. Friend is absolutely right to target extra expenditure on the key public services. However, would it not be that much more difficult to achieve that in order to keep a reasonable PSBR if there were no future revenues from privatisations, which are £8 billion next year and £5.5 billion in the years thereafter? Is not that what the Labour party would recommend delivering—no revenue from privatisations and therefore a much more difficult task of boosting public services?

Mr. Lamont

My hon. Friend makes a very good point, and it is relevant to our £35 billion costing of Labour's programme. Opposition Members will not tell us what they regard as wrong with that £35 billion figure, but, in fairness to them, one of the points that we have not made is that they would not have the benefits of privatisation receipts, and that is why their public expenditure proposals are even greater nonsense than the country already realises.

Several Hon. Members

rose——

Mr. Speaker

Order. It may not be possible to call all hon. Members who wish to speak, but I will allow questions to continue for a further five minutes. If hon. Members are brief, most of them may be called.

Mr. Peter Hain (Neath)

The people of Wales have about as much confidence in the Chancellor's policies as they have in the antics of Eddie the Eagle. There is a great gap between the Chancellor's promises to reduce income tax and the spending promises of his spending Ministers. Is not the only way that that gap can be bridged by the Chancellor increasing VAT? If the Government are re-elected, will the Chancellor increase VAT—yes or no?

Mr. Lamont

The hon. Gentleman is totally wrong. One can increase spending and cut taxes at the same time. I do not know where the hon. Gentleman has been—he has not been in this House very long—but we have been doing that ever since 1979.

Mr. Robert Litherland (Manchester, Central)

As the Chancellor claimed that business is gaining confidence, what does he think of the words that emanated from the CBI last week when it lambasted the Department of Trade and Industry for the unneccessary recession that has cost British industry billions?

Mr. Lamont

The hon. Gentleman talks about the CBI. I have looked at the CBI's booklet entitled "Competing with the World's Best", its report on manufacturing. I noticed how it very much endorses our view that there has been a remarkable improvement in the performance of British industry. For example—one did not read this very much in the press—it states: Most of those responsible for running British industry believe that there has been a marked improvement in performance during the 1980s, which has been more than a temporary phenomenon. That is the view of the CBI, and it is also our view.

Mr. Bob Cryer (Bradford, South)

Will the Chancellor of the Exchequer confirm that the increase in social security spending is due to what he terms weaker economic activity, which is a euphemism for the millions in unemployment, for which the Government are responsible? Will he confirm that the cost in increased social security expenditure and lost tax revenue will be about £20 billion? Does he agree that it would be far more sensible to spend much more than 10 per cent. on capital expenditure in education in a city such as Bradford, with its crumbling schools after 12 years of neglect by successive Tory Governments, to create jobs in buildings that are much needed, and to reduce the dole queue rather than spend money on sustaining it?

Mr. Lamont

On the hon. Gentleman's first point about the social security budget, there is an increase of about £4.25 billion, and about £2 billion is for unemployment benefit. There is also the take-up of other benefits, the new benefits for disability and the increase in child benefit, which I thought was welcomed by the hon. Gentleman. His caricature of the social security settlement that my right hon. Friend the Secretary of State announced to the House is not wholly accurate.

On capital spending, £1.25 billion has been added to capital spending plans. That is about a fifth of the increase in the planning total. There is a very considerable increase in capital spending in the health service and also on education. I said that support for voluntary-aided and grant-maintained schools capital will be up by about 10 per cent. in real terms. When we add that to the increases that they had last year, we realise that there is a major programme of capital works in the education services.

Mr. Gavin Strang (Edinburgh, East)

When the Chancellor tells the people who have lost their homes and the people who are suffering poverty and demoralisation on the dole that it has been worthwhile to get inflation down, is he not concealing the underlying truth—that all that would have been unnecessary if it had not been for the Government's disastrous financial and economic policies?

Mr. Lamont

The hon. Gentleman seems to think that the recession is confined to this country. I do not know what he thinks is happening in the United States, Canada, Australia, some Scandinavian countries, and New Zealand. Over the past year, the world economy has grown more slowly than for many years. Many other countries are in recession. The hon. Gentleman is not living in the real world.

Several Hon. Members

rose——

Mr. Speaker

Order. I will bear in mind the hon. Members who have not been called today if they wish to participate in tomorrow's debate.