Public Spending (Hansard, 16 December 1993)

§ 3. Ms Abbott
To ask the Chancellor of the Exchequer what estimate he has made of the effect of his public spending plans for growth in the economy.

§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)
Taking full account of effects of the Budget, my forecast is for GDP growth of 2.5 per cent. in 1994.

§ Ms Abbott
Yesterday, under questioning in the Treasury Select Committee, the Chancellor admitted that the total effect of his tax changes would be to put up income tax by the equivalent of 7p in the pound and to put up the average family's tax bill by £9 a week. You can debate—(Interruption.]

§ Madam Speaker
Order. The hon. Lady must put a question to the Chancellor.

§ Ms Abbott
Does the Chancellor agree that whatever one says about the effect of his public spending proposals on growth, the country will never trust the Conservatives on tax again?

§ Mr. Clarke
In the long session yesterday in the Select Committee, I certainly accepted that I had raised taxation to a certain extent and that I had reduced public spending as well to get down the level of public borrowing, which would otherwise be a constraint on recovery. The effect on the individual man and woman will depend not only on one feature of that, but on what happens to economic recovery.
At present, the British economy is the only major economy in western Europe enjoying any growth. We have inflation down to its lowest level for 26 years. We have unemployment coming down again today, which is not an experience shared anywhere in western Europe. That is what will affect the well-being of ordinary men and women, if we can strengthen the recovery. That is the context in which the hon. Lady should put her criticisms of tax policy. She and her party do not have the first idea —at least, they have given no hint of it—of what they would do about borrowing and how they would sustain the recovery.

§ Mr. John Townend
Does my right hon. and learned Friend accept that cuts in public spending have less effect on consumer confidence than do increases in taxation and, therefore, less impact on growth? Does he accept that the overwhelming majority of Conservative Members welcome the cuts in public spending under the Budget and the contribution made to bringing the Budget deficit under 1255 control? Does he further accept that there is still an enormous amount of waste, overmanning and inefficiency in the public sector, especially in local government? Will the Government launch a national campaign to cut that waste and to make further public savings?

§ Mr. Clarke
Obviously, it depends on how one makes the spending cuts. I agree with my hon. Friend that there is plenty of scope to cut out waste in the public service. Many dedicated public servants do just that. We have never embarked on an exercise of reducing public spending quite so sharply as we have on this occasion. It will not damage the economy, because a great deal of the savings will come from administrative improvements and from holding down the pay bill of those who work in the public sector to a level —for the same reasons as the pay bill will be held down in the private sector—to create the conditions in which we can have economic growth and today's welcome fall in unemployment can be repeated month after month. That is why we take the tough and necessary decisions on tax and spending. I will be grateful to my hon. Friend for his support when we do so.

§ Mr. Nicholas Brown
As well as increasing taxes "to a certain extent", the Chancellor has also committed himself to a very tight new control total for the non-cyclical elements of public expenditure, allowing for growth of only 3.8 per cent. between 1992–93 and 1998-99. Is not it the case that, at the same stage of the economic cycle under Baroness Thatcher's Government, comparable spending rose by 12.5 per cent? Is not it therefore incumbent on the Chief Secretary to say just what hardship and pain are to be caused to achieve these undesirable and hitherto unachievable spending targets?

§ Mr. Clarke
As a Government, we are in a position where we are very conscious of the need to constrain public spending. We have improved the opportunities for the private sector to be released and achieve growth, investment and new job creation. We have set a very challenging target for ourselves, but it is not impossibly challenging at a time when we have got inflation down. The headline figure is 1.5 per cent.—the lowest for 25 years. It is the first time since 1960 that inflation has been below 2 per cent. for almost every month in the year. That makes the spending targets realistic. When we made our spending decisions—as the hon. Gentleman will recall—we protected all our priorities. Spending on health and higher education was up, we had the new apprenticeship scheme and we protected our spending on law and order. It is a well-judged spending package.