HC Deb 12 November 1992 vol 213 cc983-4
9. Mr. Barry Field

To ask the Chancellor of the Exchequer how many items of public expenditure are index linked.

Mr. Portillo

Certain social security benefits, public service pensions and some debt interest are linked to increases in prices either by statute or ministerial pledges.

Mr. Field

Does not indexation amount to institutionalising inflation, something the private sector can never afford and which the British taxpayer should not be asked to underwrite? With the retired population exceeding the working population for the first time in the nation's history by the year 2005, is not indexation the economics of the mad house?

Mr. Portillo

My hon. Friend makes an extremely good case for low inflation because inflation causes indexation to be a burden. I believe that people who have contributed all their lives to social security benefits are entitled to see those benefits rise in line with inflation. It is the Government's duty to ensure that inflation is kept to the minimum. My hon. Friend raises a most pressing problem for all economies in the west. As time passes and the retired population becomes larger, so the burden falling on the working population becomes very large indeed. That is one reason why the Government have been so keen to help people make provision for themselves beyond and outside the state sector with personal and occupational pensions.

Mr. Sheldon

On a day when even Sam Brittan accepts the need to learn from John Maynard Keynes, does the Chief Secretary to the Treasury agree with him? Will the right hon. Gentleman do something to promote sensible public investment?

Mr. Portillo

I do not think that I have seen the article to which the right hon. Gentleman has referred. However, we have made it perfectly clear throughout the public spending round that we believe that we should do all we can to protect capital spending. However, the extent to which we can do that depends on the extent to which we can find savings in current spending. Given the present levels of borrowing and spending, I believe that it would be irresponsible to propose, as the Labour party proposes, that we should borrow more.

Mr. Oppenheim

Are not we fortunate that spending on health in Britain has not been strictly index linked since 1979 bearing in mind that under this Government spending on the health service has increased far faster than inflation? In contrast, were not we unfortunate in the late 1970s that health spending was not index linked, bearing in mind that Labour slashed the hospital building programme and on one occasion cut nurses' pay in real terms?

Mr. Portillo

Yes. The instinct of the Labour party when it concerns itself with controlling public spending is to cut capital projects wherever it can. It always takes the short-term, short-sighted view. That is not the view which we would want to take. My hon. Friend is absolutely right to say that spending on the health service has increased far faster than inflation. But the case is much stronger. Because of our efficiency gains and the reforms that we have made to the health service, the output which we get from that money is even greater than the amount would suggest.

Mr. Salmond

Some public expenditure items are linked to inflation and some to population. Now that the right, hon. Gentleman has routed the Scottish Secretary of State on the Barnett formula, is not it convenient for him to judge these things on population since it means that the more he depopulates Scotland the less he has to spend on it? If expenditure on Scotland is to be judged by population why is not expenditure on the London docklands judged similarly?

Mr. Portillo

The hon. Gentleman's last question is completely beside the point. He will find this afternoon that a very fair settlement has been made for Scotland. My right hon. Friend the Secretary of State for Scotland will be able to announce proudly the outcome of the public spending review. He has protected Scottish interests in a difficult round and he will have every reason to come away with considerable pleasure.