Public Expenditure (Hansard, 6 March 1997)

§ The Deputy Prime Minister (Mr. Michael Heseltine)
No serious commentator can doubt the Government's commitment to containing the levels of public expenditure, while a glance at the Labour Benches shows clearly the total absence of any Opposition interest in the subject. In 1975–76, public expenditure absorbed more than 47 per cent. of our gross domestic product, which included massive subsidies to the nationalised industries. That figure was broadly in line with other European economies, and it went hand in hand with high levels of taxation. We had punitive levels of direct taxation—a basic rate of 34p in the pound, rising to 98p for high earners—and, as one would expect, a level of inflation significantly worse than that of our principal international competitors. The average for the period 1974 to 1979 of 15.5 per cent. sounds like an incredible figure today.
The Government's consistent prime objective has been to lower the level of public expenditure and to provide incentives through the tax system to encourage a faster-growing economy. In the next financial year, we are set to meet our target of reducing public expenditure below 40 per cent. of GDP. On the continent, the figures remain conspicuously higher: 49 per cent. in Germany, 52 per cent. in Italy, and 53 per cent. in France. That contrast has led to a quite different performance in this country from that of earlier decades.
In the 1960s and 1970s, we outpaced only Switzerland and New Zealand of the 25 Organisation for Economic Co-operation and Development countries in the growth of GDP per head. Since 1979, the United Kingdom has grown at a faster rate than Switzerland, France, Canada, the United States and another eight OECD countries. Since 1992, we have enjoyed the longest, strongest and steadiest recovery of any major European economy. Furthermore, according to the OECD, this country is set to be the fastest-growing major European economy not only in the year just ended, but in the next two years as well.
The other hallmark of that period is that, while the Conservatives in government have battled determinedly to achieve those successes, every significant reform that has led to such a desirable product has been resisted by the Labour party. Labour resisted our tax cuts, trade union reform, and each and every privatisation of the loss-making, or, indeed profit-making, nationalised industries. It resisted every change until we have proved that it works.
One can judge the quality of Tory initiatives by the vociferousness of Labour's opposition. If we get a bad headline in the Daily Mirror, that means that we are on a right track. If we get a yah-boo reaction from a Labour spokesman, that initiative becomes tomorrow's policy. Best of all, if we get downright opposition from the right hon. Member for Sedgefield (Mr. Blair) to an initiative, it is halfway to being in the Labour party's manifesto.
1048 If I needed any final commendation of the brilliant initiative announced yesterday by my right hon. Friend the Secretary of State for Social Security, it was Labour's knee-jerk reaction to it. We proposed to reduce public expenditure by £40 billion a year. We showed how we could increase significantly the funding available for investment, and as a product of that, offer an old-age pension of £175 a week, in a major, far-sighted reform of state pension funding. What do we get? New Labour, old Labour—every variety of Labour—on the airwaves searching for fat cats under the bed. It was a classic and typical response, and the louder they shouted, the more convinced I became.
Contrast our initiative with Labour's exploded initiative for pension reform. The leader of the Labour party lands in Singapore to proclaim that he has found the ultimate stakeholder pension scheme—whizz-bang, all-singing, all-dancing, and, above all else, run by the state. There is a small snag: the rate of return since 1980 on the state-run Singapore compulsory scheme is 2 per cent. above inflation. The rate of return on the British pension funds over the same period is almost 10 per cent. above inflation—collapse of stakeholder pension proposals.
Since the previous election, bruised by the humiliation of one electoral reverse after another, the Labour party has sought to recreate its popular support on the basis of expenditure pledges. So far, by our calculation, there have been £30 billion-worth of them. Not one has been renounced by the Labour party. Hardly any have ever been clearly shown as being funded in any coherent way, with the exception of one or two to which I shall come.
Nobody listening to what Labour has had to say should have the slightest doubt—those are not small commitments lightly given, or Conservative central office trying to misinterpret the words—that those are categoric, black and white statements.
The Leader of the Opposition said: We will give Britain a publicly owned, publicly accountable British Rail. There is no hesitancy, no doubt, no qualification there.
We calculate the cost of restoring the railways to public ownership at £920 million a year. What figure do Labour provide? Or does it now admit that the privatisation of the railways is proving as successful and as irreversible as all the other privatisation measures?

§ Mr. John Prescott (Kingston upon Hull, East)
It is costing twice as much.

§ The Deputy Prime Minister
If it is costing twice as much, why does not the right hon. Member for Kingston upon Hull, East (Mr. Prescott) stand and say that the Labour party will halve the cost, and tell us how it is going to do that? The fact is that it has no idea of how to run a railway, or, indeed, a whelk stall.
The right hon. Gentleman has a very clear commitment on a statutory national minimum wage, which we can explore. He told us that—again, this is black and white, no qualification—there should be, and there will be, a statutory national minimum wage. The right hon. Gentleman nods his head.

§ Mr. Prescott
Absolutely.

§ The Deputy Prime Minister
Right, well let us therefore parade in evidence the right hon. Gentleman's 1049 election address of 1992. Very helpfully, he did something that is rare for the Labour party and costed the minimum wage. He argued for a statutory minimum wage of about £3.40 an hour. He will not deny that. It was in his election address. If there is any doubt—[Interruption.] I had only a little time to do a back-of-the-envelope calculation today, but I have calculated that £3.40 an hour in 1992 would be £4.26 an hour now. Is that the figure, or was £3.40 in 1992 too high and therefore £3.40 today would be adequate, even allowing for inflation? Or is there another figure? Is there any figure? We saw the energetic nodding of the right hon. Gentleman's head—I think that even he knows that when he nods his head it means that he is agreeing with what I am saying—[Interruption.]

§ Mr. Prescott
That was extremely funny.

§ The Deputy Prime Minister
It was extremely funny.
The problem is that the right hon. Gentleman has given a whole new meaning to the saying, "Economics first and foremost, stupid". The annual cost of a minimum wage of £4.26 an hour is £3,700 million. I do not say that that is the figure that Labour has in mind, but it must have some figure in mind, so why cannot it tell us what it is?
The shadow Secretary of State for Education and Employment has been helpful again. He said: We will offer teachers of long standing a sabbatical period out of school at public expense. He was quite categoric. Labour must have done some calculations. How many teachers? That is not difficult to work out. How long a period? Anybody can get a slide rule. What is the cost? We think that it is £1,300 million a year.
Then the shadow Chancellor told us that, under Labour, the tax and benefits system and the benefit tapers must be addressed. The cost of reducing the tapers would be £1,800 million a year. Let me show hon. Members how that massive confidence trick is pulled.
About a fortnight ago when I was on television with the right hon. Member for Kingston upon Hull, East, he was asked: "Should anyone, regardless of age, have access to free eyesight and dental tests as a matter of routine?" It was a perfectly reasonable question, and a matter of high politics. I have no complaint about that. He replied: "Yes, I think it should be a right." Anyone listening to that might have thought that yes meant yes, and that if it was to be a right, a Government of which he was deputy leader—and now, as I read in The Sunday Times Secretary of State for the Environment —would give it legal backing.
I hardly said a word on that particular point, but I was amazed a day or two later to read, "Three more Tory lies". I had not said anything. It was the right hon. Gentleman who said that it would be a right. The article said: Lie one. Labour will spend £216 million on free eye and dental tests. John Prescott gave no such spending commitment. The Tories have deliberately misquoted him. This proposal is not in our early manifesto. New Labour, new life for Britain.
We never said that it was. He just said it a fortnight ago, conveniently in the middle of the Wirral, South by-election.

§ Mr. Prescott
rose—

§ The Deputy Prime Minister
Of course.

§ Mr. Prescott
The Deputy Prime Minister will recall that, in that debate, I was asked by a person in the 1050 audience whether I believe, as he rightly reported, that eye and dental tests should be free in the health service. Those were not the exact words, but that was the intention of the question. I said that that should be the aim of a national health service—[Interruption.] The Deputy Prime Minister can check the record if he likes.
I said that it should be the aim of a health service that was introduced by a Labour Government who gave those pledges and commitments in 1945. That was what we brought to this country and that should be our aim. I was then asked whether that was a commitment and I made it clear that it was not a commitment, but an aim. When the Government sought to reduce the rate of taxation to 20p, they said that it was an aim, not a commitment. What is the difference?

§ The Deputy Prime Minister
We have achieved that for a large number of people. The right hon. Gentleman does not even know that we have reduced the rate of income tax to 20p for a large number of people. The shadow Chief Secretary is looking closely at his papers. It is embarrassing for the Opposition when the deputy leader of the Labour party does not even know the minimum rate of taxation. It is no wonder that they keep him under wraps for most of the time. However, the right hon. Gentleman has been extremely helpful and we must take his comments extremely seriously—[Interruption.] My hon. Friends must be fair to the right hon. Gentleman.
It is important that we should not mislead or misquote anyone or omit anything from the record. Helpfully, I have the quotation from the BBC programme "Close Up North" on 20 February 1997. The words are here and I shall put them on the record. The right hon. Gentleman said: Yes. I think it should be a right. When he was told: You've got to find the money to finance it", he said: I agree, and we have to deal with that particular argument. If you had been listening, Mr. Deputy Speaker, as an elderly person—[Interruption.] I was making no reflection on you, Mr. Deputy Speaker; I was trying to recall the person who asked the right hon. Gentleman that question. If I recall, it was an elderly person who was concerned to find out whether there would be free eye tests under a future Labour Government. If I had asked that question, I would feel that I had been conned by the right hon. Gentleman.
It is a technique. Whatever cuts or adjustments we have made, the Opposition have criticised them. They have made pledge after pledge, amounting to £30 billion, but they never answer the question: where will the money come from?
The Opposition have made one or two interesting commitments. They pledged that income tax rates would not rise under Labour, but that did not fully convince a sceptic electorate, so they made a new pledge that the Government's public expenditure plans would remain in place for the next two years. The fact that they consistently voted against them has been swept to one side. They are now committed to the levels of departmental expenditure set out in the Red Book, with the exception of the deputy leader of the Labour party who does not know the basic rates of tax, but has probably been briefed by the shadow Chief Secretary.
1051 The position is quite incredible. As my right hon. and learned Friend the Chancellor of the Exchequer pointed out, there is a £12 billion black hole in Labour's expenditure plans. If the Opposition retain our figures, they will have to carry out the reforms that we have factored in and allowed for in preparing the Red Book figures. Their reaction last month to our proposed privatisation of London Underground suggests that new Labour's late conversion to Tory policies still does not embrace privatisation, despite the evidence of the past 15 years. Will the deputy leader of the Labour party confirm that a Labour Government would proceed with the privatisation of the national air traffic service and the sale of other assets that would raise £1.5 billion in proceeds that are included in the Red Book figures?

§ Mr. Tam Dalyell (Linlithgow)
Before we step off the underground, can we be told who will pay for all the repairs that are desperately needed to the crumbling tunnels of the underground?

§ The Deputy Prime Minister
That is a simple question to answer. The whole point of privatising the underground is to raise the funds to pay for the necessary renovations. If the underground is crumbling, how does the Labour party propose to pay for renovating it? That is the question and there can be no answer unless a Labour Government would proceed with our plans to privatise the underground and use the funds in large measure to carry out urgent repairs and improve standards, as we are determined to do.
Of course the Opposition would have to go further. Last November, they opposed our reforms of the social security system. That is a perfectly legitimate option. The shadow Secretary of State for Social Security condemned the Budget changes to bring the structure of benefits for lone parents into line with that for two-parent families. The hon. Member for Peckham (Ms Harman) spoke eloquently and I have no complaint about her explanation as to why the Labour party opposed a change that would produce revenues that are factored into the Red Book figures. She said: This move will increase the poverty suffered by children in Britain today and will do nothing to help get lone mothers who want to work, off benefit and into work. That is a clear statement of the hon. Lady's position on the policies included in the Red Book.
My right hon. Friend the Secretary of State for Social Security has generously asked the hon. Lady many times to clarify her position. He wrote to her and her reply had only one point of major interest: it completely avoided the question. However, the proposal would raise £60 million.
Labour has also opposed our proposals in respect of the private finance initiative in the national health service. The hon. Member for Peckham, keeping at it, voiced new Labour's approach to all the modernisation and described it as The latest scheme for privatising the NHS, more accurately called the privatisation initiative. 1052 She appeared to show a sad misunderstanding of the PFI and Labour support for it. The right hon. Member for Kingston upon Hull, East has claimed that he invented the whole idea some years ago.

§ Mr. Prescott
It is in Cabinet papers. The right hon. Gentleman discussed it and gave it the name "the Prescott option".

§ The Deputy Prime Minister
I am giving the right hon. Gentleman some credit. He should be proud of it.
What emerged from the hon. Lady's approach is that, deep down, Labour has a gut detestation of anything that involves a relationship with the private sector. She also drew attention to another cost in Labour's plans. According to the Red Book estimates for the Department of Health, nearly £500 million over the next two financial years involves PFI. If Labour is in favour of it I understand that, but if it regards it as some hideous Tory innovation, how would a future Labour Government be able to accept our public expenditure figures?
The Opposition do not speak with one voice on the subject. The hon. Lady might have done well to speak to the hon. Member for Sheffield, Brightside (Mr. Blunkett). As one would expect, he received high praise from the shadow Chief Secretary, who described his ideas as follows: An imaginative use of the public-private partnership has been suggested by David Blunkett to tackle the £3.25 billion school repair backlog. Let us consider what happens when imagination gets hold of public finances. The hon. Member for Brightside envisaged local authority schools borrowing from the private sector—from the banks—to increase capital spending on schools. The problem is that such borrowing by local education authority schools would count as public expenditure. If it continued for 10 years, it would add another £320 million a year to the costs not accounted for in the Red Book.
Labour's policies are littered with such mistakes. Let me use the example of local authority receipts for house building and the extension of student loans. Labour has set out plans for student loans, but its proposals would make sure that the loans were included within the definition of public expenditure. That would lead to an increase in expenditure of £950 million a year.
Perhaps the biggest and bravest of all the announcements is that which centres on the phased release of local authorities' capital receipts. If the capital receipts that are there were released over five years, they would amount to about £2.6 billion a year. I will not inflict my views on the House; I will give the views of The Economist, which said: This is a piece of creative accounting which lets Labour pretend that allowing councils to spend money they have raised selling homes will cost nothing. In fact, if they spent this money, councils would no longer have it to cut debt, and would have to borrow more on the market.
That is a wholly independent and accurate assessment of the position.
The first problem with the proposal is that it actually adds to public expenditure. That is only the start, however. Where are these capital receipts? They are all in the wrong places. Inner cities would not benefit very much. Thirty-six councils have no capital receipts to 1053 release. Although it could be argued that there is plenty of need in Birmingham, there is not a penny to be released there. There is bad news for the hon. Member for Blackburn (Mr. Straw), and the cupboard is bare in Hackney, Newham and Southwark.
There are, of course, receipts to come in some areas—the prosperous suburbs. That is very convenient for the Labour party, but not, of course, for new Labour. This is old Labour: this is Herbert Morrison. This is called building out into the Tory marginal constituencies. Releasing receipts where the receipts actually are serves a new political purpose—not a social purpose, or an economic purpose. On the assumption that it costs £40,000 to build a council house, Crawley will have 2,200 new council houses, Newbury 1,600, Bromley 1,500, Surrey 1,300, and Malvern Hills and West Dorset 1,000 each. The policy and the targets are wrong.
That leads me to the new panacea. Labour calls it a windfall tax. Perhaps we have been a bit slow: it is not a windfall tax at all, but a tax on jobs, savings and pensioners. I cannot say how much it will be, because Labour will not tell us, and will not tell us which company will be taxed and when. Whenever the tax comes, however, it will affect pensioners, savings, jobs and investment. There is no such thing as a cost-free tax, plucked out of the air without doing any damage.
The fact is that Labour is blithely uninterested in the effect of this latest tax on gas, electricity and water prices, jobs, consumers, pensioners and shareholders. What a dramatic contrast that is with the policies that we introduced so painfully in order to achieve the dramatic results that the country is now enjoying. Today, we have the conditions that are right for businesses to thrive, for investment and for the creation of real jobs. The figures are as eloquent as one could possibly ask. There are 1 million more small businesses than there were in 1979, and we have the lion's share of all the inward investment coming into Europe. There has been a remarkable and continuing fall in the claimant count of unemployed people over the past four years. We have viable businesses, proper jobs and the best outlook for the country for a generation. What is the Labour party offering?
Let us look at what Labour is offering in a bit more detail. It is offering three new policies. There is a programme for the young unemployed, of which the main elements are a job subsidy for the long-term unemployed and the abolition of the 16-hour rule. I confess at once: we all know that it is perfectly possible to pay employers to offer temporary jobs to the unemployed. That is what used to happen in the 1970s. In the nationalised industries, subsidy after subsidy was paid to loss-making companies such as British Leyland and British Steel to keep them afloat, and to enable them to employ more people than the market justified. That was madness then, and it would be madness to revert to it now. Paying billions of pounds in subsidies to employers to take people off benefit for a couple of years, parcelling them up into some new parallel, artificial economy, is retrograde, and would destroy British competitiveness.
Such action is also foolish. What happens when the money runs out? Money has been taken from the utilities and—let us assume that Labour's case is right—new employment for those affected has been created for a short time. The money, however, is supposed to be a one-off—a windfall. What happens when those who have taken it 1054 must face the fact that they have used it? The cycle begins all over again. Where will the new subsidies come from? From the employers, who then say, "We can no longer afford to employ the people whom you have been subsidising"? Will there be another one-off levy on some other sector of the economy that happens to be doing well, or happens to have offended against the ideology of the Labour party? All the young people will be back where they started—back on the dole.
Let us be clear. Labour's policies start by reducing overall demand in the economy. Labour will take money from the utilities, take money by means of the minimum wage, take money from the social chapter, and use it in part to subsidise 250,000 young people. There will be higher taxes, no extra demand, but 250,000 more young people in jobs. What will happen to those whose jobs the young people take, who are displaced because subsidised labour are available to do the work more cheaply for the employer than those currently employed in the companies that would take the young people on? There is no answer to that question. There will be no higher demand in the economy, just a switch from people who are now employed at market rates to a group who are temporarily employed at subsidised rates.
It is not good enough for the state to shovel people en masse into employment, and simply hope that it will be all right on the night. It does not work. We have proved that time and again, and I cannot say how strongly our experience justifies our indignation at Labour's policy. We have been more successful in rebuilding our urban areas in the renaissance of the great towns and cities of this country, and drawing jobs, opportunities and wealth back into those areas, than any other Government in modern times. That can be done only by changing the climate, so that it is attractive to those who can afford to invest—those who can make the choice, and live, build or buy their homes and create jobs in such areas. That is the way in which it must be done, and we have shown throughout urban England and the rest of the United Kingdom how successful it has been.
We shall build on all that. We are already doing so, with the single regeneration budget, city challenge and a range of partnerships between the public and private sectors, which have never been seen in this country during this century. That is a remarkable tribute to the Government's policies. What is Labour going to do? It is not just about some cosy gesture to try to buy a quarter of a million votes from young people; it is much worse than that. Labour's policies for the urban areas—the stress areas—are all about destroying the climate of opportunity: the job-creating opportunities on which those areas depend. Let us take the destruction of the grammar schools. We all saw what happened.

§ Mr. Prescott
You closed 400.

§ The Deputy Prime Minister
Is the right hon. Gentleman saying that he will keep the grammar schools open? Is he saying that?
If anyone wants to know why we have a vicious circle of decline in the most stressed areas of the country, it is because the Labour party's social engineering persuaded any parent who could exercise choice to leave those areas and move to the leafy suburbs where the comprehensives were just as socially polarised as the old grammar schools 1055 and secondary modern schools were. Hon. Members should not ask me whether that is right or wrong; they should ask the leader of the Labour party, who did exactly the same. He could afford to choose. He did not care about the rancid Labour local authority that he had left behind, with some of the worst levels of performance in factor after factor. He turned his back on it, just like hundreds of thousands of middle-class families have done, leaving stress and a vicious circle of decline. The Tories came riding to the rescue of those declining areas with policies designed—

§ Mr. Andrew Miller (Ellesmere Port and Neston)
This is a hustings speech.

§ The Deputy Prime Minister
These are the hustings—let us have no illusion about it. As I have said before, "You have heard nothing yet."

§ Mrs. Ann Taylor (Dewsbury)
Turn round.

§ The Deputy Prime Minister
If the hon. Lady wants it full frontal, she is very welcome.
What is the way out for the Labour party? It has said that there will be no increase in direct tax rates. It has said that it will stick to the Red Book, but it is so screwed to the floorboards by that commitment that it cannot meet its genuine ambitions. The shadow Chancellor has therefore come up with the oldest trick in the world. He is going to audit the books. There has never been a new, amateur chairman for the most browbeaten company who did not say when taking over the job of the outgoing chairman, "I am going to open the books and have an audit." Five minutes later, he sucks his teeth and says, "Oh, I never knew how bad it is. I can't believe it is that bad. They never told me. They never warned me."
The fact is that the books are open. We have not had to change our policies once we have set the public expenditure figure. Year after year, the only reason for changing policies is if one wants to cut something or raise more taxes. The excuse will be to try to blame the outgoing Government. That is as stark a threat as any that could be conceived. We stick to our policies and our Red Book forecasts, and there is no need for a new Budget at any time in the next 12 months.
The right hon. Member for Kingston upon Hull, East is sometimes helpful, but he should try a little harder. He has said: Labour would be absolutely stupid"— Has the House got that?— to give any indication of what tax rates might be. If I were out there trying to win power in a general election campaign and I intended to cut the rates and put taxes down, it would not be stupid to tell people. It would be sensible to let them in on the secret and share the good news. It would be stupid to tell them only if the tax rates were going to go up.
The right hon. Gentleman carried on being helpful, when he said: We are not prepared to make any statements about the matter of allowances and taxes, and it is quite proper for us to do so. 1056 It may be proper for him, but unfortunately it seems improper for his colleagues. The right hon. Member for Dunfermline, East (Mr. Brown) told us that there would be no increase in income tax rates. When the hon. Member for Oldham, West (Mr. Meacher) heard that, he was most helpful and he said of the shadow Chancellor: He was careful to exclude other forms of tax".

§ Mr. Nicholas Winterton (Macclesfield)
National insurance.

§ The Deputy Prime Minister
I have not come to that one yet. The hon. Member for Oldham, West continued: There is capital gains tax, inheritance tax and all the allowances and the share option schemes. So it isn't quite as bleak as it seems. Labour's deputy Chief Whip has been extremely helpful. He said: Gordon has made the position completely clear on the rates. We understand that. The rates are apparently going to be fixed, but the deputy Chief Whip did not want anyone to get too depressed. He continued: There are something like 200 different allowances and he is not going to go through them all, setting them before coming into Government. He has got to have some room for manoeuvre. That is what he said.

§ Mr. D. N. Campbell-Savours (Workington)
Will the right hon. Gentleman give way on that point?

§ The Deputy Prime Minister
I will not give way, because I have only one more point to make. The country has been clearly warned by the Government and it has been warned by independent commentators, but last night, Lord Barnett added his voice and his experience, as a former Chief Secretary in a Labour Government. He has been through it. He has lived through the experience and he knows what the Labour party is all about. When he warns the country that he does not believe that another Labour Government could stick to the tax levels and achieve their policies, I tell the country, "Listen, before it is too late."

§ Mr. John Prescott (Kingston upon Hull, East)
The Deputy Prime Minister made it clear what this debate and the series of Adjournment debates initiated by the Government are about. They are the hustings and the preparation for a general election. Presumably, that is why he spent so little time talking about the Government's record and so much on the Opposition's case. We will enter the debate, because public expenditure is important.
We thank the Government for the third Opposition debate that they have initiated, following the debates on the windfall levy—which the Deputy Prime Minister mentioned—and on constitutional reform. We are debating public expenditure now, and I understand that we shall have a debate on pensions next week. All those critically important issues will be at the heart of the political debate up to the general election. Therefore, it is right and proper to have those debates in the House.
While it is good practice to have the debates and rehearse our election arguments, I am not sure that it is a good practice for the Deputy Prime Minister, in view of 1057 the Government's record. Given their record on taxation, it was a bit much for the Deputy Prime Minister to talk about cons in relation to the Opposition's proposals. The Prime Minister and the then Chancellor said in 1992 that they did not want to see VAT increased or to increase the overall burden of taxation. I will not give the exact quotations, but I have them here.
Those commitments were given at the time of the election in 1992, and if anyone was conned, the electorate were conned by the Government's statements on taxation. We have seen 22 increases in taxation and an increase in VAT, even though the Government promised the electorate that that would not happen. They lied to the electorate, and the verdict given in the Wirral is a clear indication of how people feel about believing what Ministers say.

§ Mr. William Cash (Stafford)
The right hon. Gentleman knows perfectly well that one of the reasons why taxation increased, including VAT on gas and fuel, was the mistake—which has now been openly admitted—over the exchange rate mechanism. Will he and the Labour party now state that they will never enter the exchange rate mechanism, which brought such terrible tragedy to the British nation?

§ Mr. Prescott
The hon. Gentleman makes an interesting point, because it was the Prime Minister who said that he had no intention of devaluing or of leaving the exchange rate mechanism. The Tories were the party of non-devaluation. We were supposed to be the party of devaluation, if one listened to the Tories' rhetoric. Of course they devalued, despite all their promises, and at great cost. The cost was £15 billion, with an overall net cost of £2 billion for the taxpayer.
We have made our position clear on the single currency and the exchange rate. When the decision on the single currency has to be made, we will allow the people to make a decision. I believe that that is the Government's position, although they are divided on the issue. There are many Ministers on the Government Front Bench. The Foreign Secretary is not here, but the Secretary of State for Health is in his place. He told us that he had a confusion of thought about the matter. Clearly there are many different views in the Government and they are now paying the price with the electorate for that confusion.
Today we are debating the important subject of public expenditure. The size of public expenditure and its priorities determine security and progress in our society. Debates about those priorities are the essence of a democratic society. How we raise that money and spend it forms the basis of general elections. But the big political question is how to obtain the right balance. That is the matter to which the Deputy Prime Minister was addressing himself. He had his view of the correct balance, but the Opposition are more concerned about social justice, which is relevant to the arguments on a minimum wage. There are clear differences between us.
Eighteen years of a Tory Government have thrown the public finances into turmoil. We are not yet sure of the full extent of that turmoil and whether we are out of the woods. This year the public sector borrowing requirement is £26 billion, and the party that considers itself to be the guardian of the national debt has doubled it since 1990. Those are not my figures: they are the 1058 results of the Government's public expenditure priorities. Interest payments on that debt alone cost each taxpayer £1,100 a year.
Not only is the nature of that expenditure a matter for concern, but we have witnessed its terrible cost to our communities in the breakdown of social cohesion. We are clearly not a nation at ease with itself, although that might have been one of the declared aims in the early stages of the Government. It is a matter of fact that we have a record level of homelessness, that education and health standards have declined and that crime has doubled. [Interruption.] That is not in doubt, is it? I can understand that hon. Members do not want to believe such figures, but they are Government figures which I want to use for the purposes of this debate.
Poverty has doubled and there is mass unemployment in Britain today. [Interruption.] More than 1 million is mass unemployment, 2 million is worse and 3 million—the Government's record—is an indictment of a Government who say that they are concerned about unemployment. Mass unemployment is millions out of work, which has been the Government's record in their 18 years in office. I am astounded that, despite all their fiddling of the figures, the Government cannot accept that what we have today is still mass unemployment however it is defined.
That mass unemployment has caused massive problems in the public finances because of the cost of welfare expenditure, unemployment pay and social security payments. That is why we have difficulties in our public finances today. They are not the result of economic success, but the result of the failure to achieve the kind of economic growth and prosperity that could result in lower unemployment.
The Labour party's argument is that after 18 years there can be no excuses, no blaming a Labour Government of 1979. What we are asked to judge today is the Government's record. The responsibility lies fairly and squarely with this Tory Government.
This week we have had vivid reminders of the importance of public expenditure. What is important is not just how much is spent but how wisely and how fairly it is spent. Today we have seen in the newspapers alone issues that considerably affect public expenditure and reflect the Government's priorities.
I take as one small example Gulf war syndrome, which was clearly due to public expenditure on insecticides to protect our soldiers. [Interruption.]Yes, that was the judgment at that time, although the truth of the matter has been concealed by the Ministry of Defence. But the Government's treatment of those soldiers has been influenced more by the public expenditure consideration of the cost of compensation for the victims of Gulf war syndrome than by a judgment of what is fair. [Interruption.] Yes, that is at the heart of it.
We have debated in the House the beef scandal, about which we have heard more this afternoon. We put some of the blame for that on the Government's deregulation policy. That beef crisis alone has cost us £3.5 billion of public expenditure.
The Deputy Prime Minister also referred to local government finances. The Government's treatment of local authority finances has been deplorable. The Government have shifted the financial burden of public expenditure on to local authorities. In 1979 the 1059 Government carried 61 per cent. of that cost; today it is 52 per cent. The real effect of that on people's lives has been to force up the council tax and threaten local services. Moreover, the share-out between the councils has lacked any consideration of fairness. If the Government had given every council the same grant per head as Westminster, 94 per cent. of councils would be charging no council tax. That has more to do with party political considerations than social justice.
That is the issue, and it goes a long way to explaining why the number of councils under Tory control has gone down from 235 in 1979 to 13 now. That is the result of decisions taken by the electorate. I presume that the electorate made their judgment on the basis of the Government's role in providing their local services. So definite was their rejection of the Government at national and local level that the Tories now control only 13 councils, allowing the Liberal Democrats to claim that they are second in local authority representation.

§ Dr. Keith Hampson (Leeds, North-West)
Did the hon. Gentleman notice a leader in The Independent last week attacking Labour-controlled local government for spending unwisely? Is he aware that council tax payers in Leeds not only face a doubling of the rate of council tax, but the city's debt is now so huge that it costs more than £60 million—the cost of the royal yacht—each and every year in Leeds? Let us have none of that fiction from the Opposition. That is the reality of Labour in power.

§ Mr. Prescott
I assume that the Government would not want to put forward their record on the national debt. The Government have been responsible for a worse increase in the national debt than any local authority has in its debt. [Interruption.] That is true and I am quite prepared to defend that statement. Not every local authority is perfect. There are not many Tory-controlled local authorities about which to make judgments. One remaining one is Westminster, but I do not think that the hon. Gentleman would like me to compare Westminster's record with many other local authorities.
Some local authorities are good and some bad, and that is not necessarily a matter of their political control. Some can be efficient and some inefficient. That is the nature of it. I am not concerned with whether some are efficient and some less efficient, or whether that is related to their political control; my argument is that the Government have made it much more difficult to deliver services in the local authority areas as a result of Government changes in public expenditure to deal with the debts resulting from their policies.

§ The Chief Secretary to the Treasury (Mr. William Waldegrave)
I thought that I heard the right hon. Gentleman say that the Labour Government had a better record than the Conservatives on the national debt. The national debt in the Conservative Government's worst year was better than that in the Labour Government's best year. Had the level of borrowing under the Labour Government continued, the national debt would now be just about exactly twice what it currently is.

§ Mr. Prescott
I did not say that. [Interruption.] I did not. The point is a fair one. The Chief Secretary is talking 1060 about the debt under different periods of government. Debts are related to receipts, and in the period to which the right hon. Gentleman refers, there were considerable receipts from oil and privatisation. Had the Labour Government had such receipts, they would not have had to borrow. Therefore, as usual, the Chief Secretary tells only half the story which, as we all know, is consistent with his record.

Several hon. Members
rose—

§ Mr. Prescott
Let me make some more points. I have been giving way to hon. Members.

§ Mr. Graham Riddick (Colne Valley)
rose—

§ Mr. Hartley Booth (Finchley)
rose—

§ Mr. Prescott
Let me make some progress. [Interruption.] What has the other manager of the Tory party, the Minister without Portfolio, got to say? I will give way to him if he wants. Does he want to speak? No. Clearly, the Deputy Prime Minister is in control; that has decided it once and for all.
When the Deputy Prime Minister was talking about the pension proposals, which the House will have an opportunity to debate next week, I thought that it was a bit much when he said that the Government's projection was for savings of £40 billion by the year 2040. The Government cannot get their projections right over two or three years. How can the right hon. Gentleman come to the House and offer us a projection about public expenditure savings of £40 billion by 2040? The record is clearly against him when he makes such projections. I shall come to some of the evidence in a moment. First, let us examine the other projections that have been made by the Chancellor and the Government, because they are relevant.
I will take no lectures from Tory Governments about pensions. They are the ones who divorced pensions from earnings—[Interruption.] I am talking about the Government's record. They are the ones who broke the link with earnings. Between 1945 and 1950, Labour brought in the first universal pensions scheme of the kind that we have today. The state earnings-related pension scheme, too, was introduced by a Labour Government. We were the people who established decent pension provision within a welfare system, under a Labour Government. The record of the Conservative Government has always been to undermine the pensioners in this country. That is clear.

Several hon. Members
rose—

§ Mr. Prescott
I want to finish this point. When we established the Borne commission, the Government made it clear that they were critical of Labour's discussions about the problems facing the funding of pensions. We were attacked for suggesting the possibility that SERPS might be changed. The Government's accusation was that there would be no SERPS in the proposals. Yet it is the Government who have done the U-turn, and are about to ditch not only SERPS but the right to a basic state pension. The Government have always attacked the rights of pensioners, and they are continuing to do so.

§ Mr. Quentin Davies (Stamford and Spalding)
The right hon. Gentleman has attacked the Government for 1061 bringing to an end the link between average earnings and the old-age pension. Does he mean that a Labour Government would restore that link? If a Labour Government would have no such intention, is it not pretty shoddy and hypocritical to imply that they would?

§ Mr. Prescott
It is a fact of life that the Conservatives made that break—and every Conservative Member voted for it. Make no mistake, we have not made a commitment to restore the link. [HON. MEMBERS: "Oh."] No, because, as hon. Members will hear from me, we have decided our priorities for public expenditure and taxation, and the electorate can make a judgment on them.
After 18 years, there are so many things that the Government have undermined. The same point can be made about the health service, prescription charges, and charges for spectacles and teeth. The Government have constantly put a health tax on the people of this country. We could not possibly hope to reverse all the damage that they have done in 18 years. All that we can do is to present to the electorate our priorities for public expenditure and tax, as we are doing now.

§ Mr. Davies
rose—

§ Mr. Prescott
I have not finished on pensions yet.
When the Government decided to make the first attack on SERPS and allow people to contract out into private pension schemes, it cost us billions of pounds to subsidise the transfer from the public into the private sector. Nearly 3 million pension holders were denied a proper pension because the value of their pensions was reduced. The private sector—

§ Mr. Davies
rose—

§ Mr. Prescott
Wait a minute.
The private sector totally failed the pensioners, and the taxpayer paid the price for it. That is always the case with the Tories on pensions.

§ Mr. Davies
Why criticise the Government for breaking the link between earnings and pensions if the Labour party has no intention of restoring that link? Is that not a thoroughly deceptive way in which to conduct an election campaign?

§ Mr. Prescott
It is still a fact that the Conservatives broke the link. [Interruption.] We shall have a debate in the House about it next week. The Government have set down a day for a debate on the pensions system, and that is the proper time to discuss it. I simply make the point that, again, public expenditure was involved in another pension fraud by the Government—and now they propose to put even more of our pensions into the private sector, which totally failed the people who were conned into transferring from public into private pension schemes last time. What motivates the Government to propose changes in pensions? As I have tried to point out, it is certainly not a desire to protect pensioners. History is clearly against the Government, and the taxpayer always ends up paying the bill.
The Deputy Prime Minister made certain statements about what savings would be made in public expenditure—the subject of the debate—by the year 2040, but the 1062 Government's record on forecasting and on managing the public coffers is a classic case of incompetence: I do not know how else it can be described. The Government say that they can save £40 billion in 50 years' time, but let us look at their projection record over shorter periods for the borrowing requirements arising out of their public expenditure programme. In 1993 the Government said that the borrowing requirement would be £32 billion; it was actually £45 billion. In 1994 they said that it would be £25 billion; in fact it was £36 billion. In 1995 they said that it would be £19 billion; it was £32 billion. This year it was supposed to be £6 billion, but in fact it is £26 billion.
The Government's sums have been about £60 billion out over just three or four years and those mistakes amount to more than the £40 billion that the Deputy Prime Minister projected would be saved in 50 years' time. He cannot even get his sums right over four or five years, so who could believe anything that a Minister in the present Government says on the subject?
With such a bill, we can see why the national debt has doubled. In 1992 the Government misled the public about the true state of the public finances, and certainly misled them on taxes. It is no wonder that the public in general, and the electorate in Wirral in particular, have lost faith in them, as we saw in the by-election last Thursday.

Several hon. Members
rose—

§ Mr. Prescott
No, I want to make some progress. I have given way to several hon. Members.

§ Mr. Jacques Arnold (Gravesham)
rose—

§ Mr. Prescott
I never give way to that hon. Gentleman.

§ Mr. Arnold
rose—

§ Mr. Prescott
The hon. Gentleman will not be here much longer.
We have heard lots of talk about a successful economy. But despite all that talk, which we heard yet again from the Deputy Prime Minister today, the past 18 years have not been as successful as he claims. In the Budget debate, the Chief Secretary to the Treasury attacked what he called the European social model. The right hon. Gentleman's idea of the countries that could be considered part of that model was a bit limited. Nevertheless, I believe that the European social model in the post-war period, to its credit, was the most successful economic model that we have witnessed in any developed economy—successful in growth, in investment and in prosperity, while at the same time securing full employment and social justice. That is to the eternal credit of a European social model that was managed both by the left and by the right. It was not a socialist creation: it was managed by Governments of all political parties, and it secured full employment and social justice.

§ Mr. Waldegrave
The right hon. Gentleman is making a serious and correct point. When the Germans, in particular, followed the economic advice of Ludwig Erhard, which nowadays would be called Thatcherism, they did extremely well.

§ Mr. Prescott
The right hon. Gentleman could also look to other European social models under socialist 1063 direction, which were equally successful in the development of their economies. The point that I am making is that that model saw a role for Government that accepted responsibility both for full employment and for dealing with the problems of inflation. The creation of wealth marched alongside social justice, whether the Government were German, Swedish or Danish. Throughout Europe the model was successful.
Of course there are great difficulties for that model at the moment. [Interruption.] I am trying to make a point about that. At the heart of the argument, as with Keynes, is the amount of money that is put into the economy and into public expenditure. What might have been all right in the 1950s, 1960s and 1970s is in grave difficulties in the 1990s, with a different global economy and all sorts of other factors that are changing.
It is important for us to recognise that fact, because the restraints that affect our public expenditure are considerable when one seeks to balance inflation, employment, borrowing and public expenditure. That is the problem for all Governments today, and I concede that it has changed. However, that model was far more successful than the competitive pre-war model that gave us mass unemployment and great poverty. The deregulated model that the Government are beginning to develop carries with it mass unemployment on a scale associated with the pre-war period.
That argument will go on between us. We are debating the role of public expenditure. I have no doubt that public expenditure—the total amount of it and its quality—can affect prosperity and levels of employment and has some relationship to economic activity in the country.

§ Mr. Michael Stephen (Shoreham)
The right hon. Gentleman complains about the national debt. Is he aware that the entire western world is even now just recovering from the worst economic recession since 1929? I trust that even he does not seek to lay the blame for that at the door of the British Government. Yes, it has been necessary to borrow, but does the right hon. Gentleman accept that it has been possible only because we paid off most of the national debt during the early years of the Conservative Government?

§ Mr. Prescott
That is confusing. During three years of apparently successful growth, we have been borrowing more heavily. In the cycle of decline and expansion, a country usually borrows less when it is growing faster. Why has the debt increased at what is claimed to be a time of great growth?
All world economies are faced with considerable debt. In a global economy, there are billions flooding around. There are real problems in dealing with that kind of flexibility. Time and again—

§ Mr. Booth
rose—

§ Mr. Riddick
rose—

§ Mr. Prescott
No; I want to make some progress.
Time and again, we hear from the Tories that the British economy has outperformed other European models. The argument is that we have discovered the ideal 1064 model, which is far better than the European social model. I recognise that there are difficulties for which we have to make some adjustments.

§ Mr. Michael Fabricant (Mid-Staffordshire)
On a point of order, Mr. Deputy Speaker.

§ Mr. Deputy Speaker (Mr. Michael Morris)
I hope that it is a point of order for the Chair.

§ Mr. Fabricant
It is, Mr. Deputy Speaker. I would like some clarification. I notice that while the deputy leader of the Labour party is talking about the European social model, only half a dozen Labour Back Benchers—

§ Mr. Deputy Speaker
Order.

§ Mr. Fabricant
Are we quorate?

§ Mr. Deputy Speaker
Order. That has nothing to do with the Chair.

§ Mr. Fabricant
I thought that we might not be quorate.

§ Mr. Deputy Speaker
Order.

§ Mr. Prescott
I hope that the hon. Gentleman is not losing his hair in this debate.
I should like to deal with the argument that somehow Britain has produced an economic model that is leading the way and is better than what we see in the European economy. I took the trouble to look at some of the figures from the Organisation for Economic Co-operation and Development, Eurostat, the House of Commons Library and parliamentary answers. In the latest European prosperity league, we are ninth out of 15. Our growth rate since 1979 puts us 13th out of 15. On investment, we are 15th out of 15. On inflation—the issue on which the Government make considerable claims—the United Kingdom lies 1 1 th out of 15. On long-term interest rates, we are 11th out of 15. Our record on unemployment since 1979 puts us ninth out of 15. On those six key economic indicators, the UK remains in the bottom half, if not the relegation zone.
Those statistics do not reflect the success of the British model. The Government have failed on so many counts that they should withdraw Chris Woodhead from the schools and send the Office for Standards in Education inspectors into the Tory Cabinet to look at its competence. That is what happens in education to those at the bottom of the league.
If Conservative Members do not like those foreign figures, we can draw on the evidence of the Deputy Prime Minister's competitiveness White Paper. It shows that on purchasing power parities, we have fallen from 13th to 16th in the world prosperity league. Those are the Government's figures. That is a great boast. The Government somehow claim that in 18 years we have produced a successful British model and have the audacity to tell the rest of the world to follow it.

§ Mr. Riddick
Will the right hon. Gentleman give way?

§ Mr. Prescott
No, I must make progress. I am already behind time.
1065 Stability is important in modern economies. We all agree that the cycle of boom and bust damages the economy. We have had two deep recessions during the Government's period of office. The February edition of the Lloyds bank economic bulletin says that since 1980, the UK has the worst record for economic stability amongst the 14 largest industrial countries.
That seems to be a pretty damning indictment of a Government from a bank that is not anti-Tory. The Tories have had 18 years to put the economy on an even keel. The record is not as given to us by the Deputy Prime Minister.
The one thing that the Tories might claim to have increased is exports. The audacity of that claim is that exports have increased since they devalued the economy. The Prime Minister said: The devaluer's option would be a betrayal of our future and it is not the Government's policy.
He called it a soft option. That seemed like a pretty clear policy. Did he con people when he said that the Conservatives would not devalue? Within days of that promise, he devalued the pound. Exports went up, but so did imports, because we did not have the capacity to deal with the demand that came from devaluation. We were taken to the bottom of the trade deficit league, with the exception of Spain. Does the Chief Secretary disagree? No. Okay. However one measures them, the Tories' claims for the economy are far from proven and their policies have been expensive for the taxpayer. The devaluation cost something like £2 billion.
The Government make another great claim on unemployment. I hear Conservative Members making it, as though they can live with this country's levels of unemployment and think that that is a success. They took it to 3 million from 1 million and then brought it down to 1.5 million and claimed great success. Even on their projections, apparently we shall still have 1.6 million unemployed by the year 2000. Presumably they are not attempting to get anywhere near the record of a Labour Government if they are elected for a fifth term.

§ Mr. Waldegrave
Will the right hon. Gentleman remind us who said that any fool knows that if we have a minimum wage there will be a shake-out of jobs?

§ Mr. Prescott
I will come to the minimum wage, but I made the quote. [Interruption.] I made the quote.

§ The Minister without Portfolio (Dr. Brian Mawhinney)
You said it.

§ Mr. Prescott
Did the right hon. Gentleman not hear? "I" means me. I know that he may be getting confused, but "I" means me, John Prescott.
I should like to deal with unemployment first. I promise to come to the minimum wage. Of course we welcome people being able to get a job. If more people have been returning to work, we welcome that. Any fool would welcome that. However, it is hard to accept the Government's claims at face value. What they say is happening to the level of unemployment is hard to determine, because we cannot believe the figures. I believe that there are lies, damned lies and Tory statistics. That is true for most areas. After 32 changes to the count, no less an authority than the Royal Statistical Society has said: The claimant count cannot be trusted.
1066 Why should the public believe in figures that even Tory Ministers do not believe in?
Everybody knows that, as employment spokesman, I constantly attacked the figures and whether they could be believed. I offered to agree with the Government on putting some honesty back into the figures. Some changes were made, but even the figures now produced by the Government cannot be believed. The Minister of State, Department for Education and Employment made it clear when the most recent figures were announced that we could not believe half of them because of the special reasons that he gave. The employment figures and the level of unemployment are not as Ministers tell us. Apparently, Ministers feel moved to make it clear that we cannot believe the figures that are given. The Minister said: The nearest we can come to is that about half these figures we are giving each month are genuine.
The Minister is saying that we should not believe the unemployment figures. I rest my case.

§ Mr. Barry Legg (Milton Keynes, South-West)
I note that the right hon. Gentleman does not believe that the unemployment figures are accurate. What changes would a Labour Government make to unemployment statistics?

§ Mr. Prescott
The first would be to make them honest.

§ Mr. Legg
What would Labour do?

§ Mr. Prescott
I have made a number of proposals. The Minister is saying that the Government are having to adjust the figures to project what he thinks is the real level of unemployment. I have given Ministers a number of papers on the technical details of how to make the figures more honest. My record is clear. The fact that we cannot accept the published unemployment levels is one of the problems of getting any kind of movement towards honesty.
Tory Chancellors have often committed themselves to cutting public expenditure, so why have they failed to do it? Despite all the promises through every election, they have not done it. I would be interested to hear from the Deputy Prime Minister why they have not. Did the Tories con the electorate in every election when they said that they would cut public expenditure?

§ Mr. Waldegrave
rose—

§ Mr. Prescott
The Deputy Prime Minister can think for himself. Would he care to tell us why he did not keep that promise?

§ The Deputy Prime Minister
What the right hon. Gentleman is saying is not true. The level of public expenditure as a proportion of GDP is falling and it is scheduled to reach our target figure of 40 per cent. We are on target for a balanced budget by the end of the century. If there was a shadow of doubt about the validity of our figures, the Labour party would not have accepted them.

§ Mr. Prescott
My question is based on the Government's figures. They are the same as they were in 1979. I want to know why they promised to cut public 1067 expenditure but did not do so. I have heard that promise constantly from Tory Members, but they have not done it. I could help the Deputy Prime Minister by explaining why they have not kept their promise; they are paying out huge sums for unemployment because of the failure of their policies. It is a simple answer, but it is difficult for the Deputy Prime Minister because he keeps talking about a successful economy.

§ Mr. Waldegrave
rose—

§ Mr. Prescott
I will not give way again. [HoN. MEMBERS: "Oh."] All right then.

§ Mr. Waldegrave
This is an important point and I think that the right hon. Gentleman might have misunderstood the figures. Of course the figures have a cycle, which is based on a trend. The trend was upwards until the late 1970s and it is now clearly downwards. The peak was at 47 per cent. in the 1970s, 45 per cent. in the 1980s and 43 per cent. in the 1990s. No statistician doubts that the trend is downwards.

§ Mr. Prescott
Targets and trends, but in reality things are no different. I believe that the Chief Secretary to the Treasury is the man who told us that he wanted to achieve a figure of 35 per cent. for public expenditure. I do not know in what year he is predicting that that will be achieved, but in 18 years the Government have made no difference to the level. We have had ups and downs, but we have had ups and down in unemployment and every other economic indicator. It is called boom and slump and that is what we have seen from the Government.
The Deputy Prime Minister has talked about a black hole in the accounts and the waste of resources. Can he tell us why we are prepared to spend £450 million to privatise the railway system when, only this week, a report showed that it has cost us billions of pounds more than we have got back in receipts? Hon. Members laughed when I mentioned the railways earlier, but the reason for the high cost is that we have doubled the level of subsidy to the private sector. The Government said that that would not happen, but it is costing the taxpayer twice as much and we are paying out more than we get back in receipts. Would not it have been better to use those millions, or in some cases billions, of pounds to invest in the railway system instead of pursuing the ideology of privatisation?
The beef tax cost us £3.5 billion and the poll tax cost us £14 billion. That was a total waste of money. Many promises were made about the poll tax, but it cost us £14 billion. A total of £1.5 billion has been spent on extra bureaucracy in the health service. Those are all examples of waste.
Let me tell the Deputy Prime Minister about the minimum wage and the effect on jobs. Since I made the statement to which he referred earlier, a great deal of work has taken place in America and here which shows that my fears about higher unemployment are not true. If hon. Members want to see that research, I will send it to them.
There is another point about the minimum wage which I would have expected to concern Tory Members. I worked in kitchens as a commis chef and it was a wages council industry. I lived on wages council payments. 1068 The Government abolished the wages councils and deregulated. Despite what the Government have said, in those deregulated industries there has been a fall in wages and it has cost far more to pay for the wage subsidy needed to achieve what the Government have determined is a proper level of income. That has cost the taxpayer £3.5 billion.
Why do Tory Members not find it offensive to have to find £3.5 billion to pay to employers who hire people at rates of £1.50 an hour, telling them to nip along to the Department of Social Security to obtain the subsidy to make up their wage? The same employer under a regulated system was paying more and the taxpayer did not have to contribute. That is the hypocrisy involved in the Tories' view of the minimum wage. If they were concerned about the taxpayer, they should ask those questions.

§ Mr. Fabricant
rose—

§ Mr. Prescott
I will not give way. I know about this because I have lived it. [Interruption.] All right, I will give way.

§ Mr. Fabricant
The right hon. Gentleman mentioned the model in the United States. He will be aware that the US model is a percentage of an average wage in the United States. That would be the equivalent of a minimum wage in the United Kingdom of about £2.50 per hour. Is that what the right hon. Gentleman is suggesting? What rate is he suggesting? That will determine the rate of unemployment.

§ Mr. Prescott
We have made it clear that the rate will be determined by the minimum wage commission that we will establish. [Interruption.] What is wrong with that? It is employers who have said that they would like to give evidence. They are concerned, as are the trade unions. We will establish a commission and when the rate is determined, we will come here and there will be a debate. We will be the Government then and you lot will be in opposition.
We see the distortion of many of Labour's plans. The Deputy Prime Minister has been talking about a Labour spending plan of £30 billion. Then, the Bill and Ben of the advertising industry announced on posters that the figure was £12 billion, but we are now back to £30 billion. I wish they would decide what the figure is. In our defence, I shall quote what was said by The Financial Times when we offered our rebuttal of the Tories' claims. It said that the charge that it is £30 billion is riddled with inconsistencies and exaggeration…with little or no grounding in fact. We believe that the Tories are wrong to make such accusations about us. We wonder why the Chief Secretary to the Treasury always seems to be at the scene of the crime when these posters and pamphlets are launched. The right hon. Gentleman sometimes has to explain his position, which can be confusing, but I prefer the explanation given recently by the Secretary of State for Health. He made the mistake of talking about the Government's position on the single currency. He said that his "thought processes were blurred". That is a new approach and it could characterise many of those in the Government.
1069 Let me make it clear that there are no hidden Labour spending plans of either £30 billion or any other figure that the Tory party chooses to claim. The real question must be about the Tory figures. The Red Book assumes that there will be £4 billion from privatisation receipts. We do not know where those receipts will come from. The only thing mentioned by the Deputy Prime Minister was air traffic control.

§ Mr. Waldegrave
rose—

§ Mr. Prescott
Wait a second. I assume that the Post Office is not to be included.

§ Mr. Waldegrave
rose—

§ Mr. Prescott
I will give way because I cannot have the right hon. Gentleman scratching his head any more.

§ Mr. Waldegrave
The right hon. Gentleman has obviously not read the Red Book. The first £2.5 billion comes from the second-tranche sales of Railtrack. Even if the Labour party was in office, it would get that sum. There is £1.5 billion next year of which £500 million is predicted to come from the national air traffic service. If the right hon. Gentleman was in power, would he sell NATS?

§ Mr. Prescott
No—[Interruption.] Wait a minute. There is no doubt that the receipts from past privatisations will be part of our Treasury. Judgments about any further revenue from privatisations will be made at the appropriate time. Is the Post Office to be part of the privatisation receipts? I assume that the answer is no.

§ The Deputy Prime Minister
indicated dissent.

§ Mr. Prescott
Okay. Is the privatisation of London Underground to be part of the receipts? There is £2 billion involved in that. Are we right to assume that the money raised in the sale of London Underground will be used for investment? That is what was said in a letter from the Secretary of State for Transport to the Prime Minister. Is that correct?

§ The Deputy Prime Minister
The right hon. Gentleman knows that the answers to those questions have already been provided. The London Underground receipts, and any policy consequences of the Royal Mail, are not included in the Red Book figures, but it is clear that significant figures are included—£1.5 billion—so the right hon. Gentleman must either privatise or find the money somewhere else. It is apparent from his speech that he has not the first idea which is the answer.

§ Mr. Prescott
It is not absolutely clear where all the receipts will come from. No doubt that will be part of the debate in the election.

§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
My right hon. Friend might like to know that there is some confusion on the Government Benches. I have just received an answer from the Minister for Transport in London. I asked: if he will list the total amount payable to Her Majesty's Government for the sale of Railfreight Distribution.
1070 The answer reads: The British Railways Board has yet to finalise the sale of Railfreight Distribution. Another answer on another specific case reads: I will answer these questions shortly. Far from the confusion being on our side, the real problem is that the people who are selling the assets have no idea what they will get for them.

§ Mr. Prescott
My hon. Friend makes a telling point. The Secretary of State for Transport, in his letter to the Prime Minister, was concerned about whether the money was to go to the Treasury or to his Department, or to be used for investment; that was the heart of the letter, and we shall watch any developments with interest.
Usually the Government take the line that the private finance initiative principle should be extended. We have all discussed the PFI, but the Government have not been very successful in implementing it, and certainly not on the scale that they envisaged. As I understand it, the financial agreement for the hospital that was announced at the last Budget—we were promised one every month at the time of the Budget before last—has not yet been completed. Perhaps the Chief Secretary can tell us whether the financial agreement for the first hospital has been completed.

§ Mr. Waldegrave
I believe that the process leading to a successful conclusion is imminent, and I am sure that the right hon. Gentleman will welcome it. Let me put the question back to him: is he in favour of the PFI in the health service? The hon. Member for Islington, South and Finsbury (Mr. Smith) is not, and has said that it is privatisation. The PFI cannot take capital projects into the private sector unless there is a transfer of management control. As I understand it, the right hon. Gentleman and the hon. Member for Islington, South and Finsbury have both ruled that out.

§ Mr. Prescott
It is clear that, while there are ups and downs and targets, the target to which I referred has not been achieved. The Tories promised at the Budget before last that there would be a hospital every month under the PH; by the last Budget there had not been one; it was then announced that the agreement had been signed that day; and now we are told that it has not been completed, so we know that it was just a charade and a con.
We have always made it clear that the PFI in the health sector is more concerned with capital and buildings than with clinical services. The Chief Secretary knows the arguments well.

§ Mr. Jacques Arnold
On a point of order, Mr. Deputy Speaker. The hospital to which the right hon. Gentleman refers is the one that will serve my constituents. I can assure him that the contract has been signed.

§ Mr. Deputy Speaker
Order. That is nothing to do with the Chair.

§ Mr. Prescott
Thank you, Mr. Deputy Speaker. It has nothing to do with the hon. Gentleman's hospital either: it was in Norwich. The hospital announced by the 1071 Chancellor has still not been completed, and people wait in beds in the alleyways because of the inadequacies to which I was referring.
I have been a fan of the private finance initiative, because it was helpful to use capital investment by private funds in public industries when they were nationalised. I advocated it for quite a time, but it was The Economist that described the inadequacies of the PFI programme implemented by the Government as "a dog's breakfast". The programme has failed to get the important resources from the private into the public sector.
I will pray something else in aid of the PFI. The Chief Secretary must know that in 1994 the Government, led by the Deputy Prime Minister, tried to privatise the Post Office. We ran an effective campaign against that privatisation and the public made it clear that they did not want it.
In November 1994 the Chancellor of the Duchy of Lancaster wrote to the Prime Minister about a meeting to discuss how exactly they might privatise the Post Office. They had various options before them, one of which, "the BP option", was to allow the Government to have shares in a company and let it borrow privately. The second option was called "the Prescott option". That is an interesting name for an option on a Cabinet paper. I bet not many people around the table wanted to put their hands up to vote for that. However, the minute makes it clear that quite a few were in favour of it.
The minute says: 'the Prescott option' would be to allow the Post Office the sort of commercial freedoms proposed by the Opposition, while retaining its full public ownership. This could be achieved without legislation. Why did the Government reject it? The minute says: many colleagues took the view that 'the Prescott option' would seriously undermine our whole approach to privatization in the past and in the future: no-one was prepared to argue strongly in its favour. They were not prepared to accept that a publicly owned industry could borrow privatization and Treasury rules that prevented it.
The idea is not unique: British Airways did exactly the same thing when the Deputy Prime Minister was Secretary of Transport. The Government haul out different rules for different industries. There is no reason why the Prescott option could not have been accepted.

§ Mr. Douglas French (Gloucester)
Will the right hon. Gentleman give way?

§ Mr. Prescott
No, I want to make this point.
If the Government's option is no longer to privatise the Post Office, there must be another option. Does that mean that the public sector Post Office can now borrow privately? That was the Prescott option, and if that is what the Government intend to do, it is an interesting comment on what they said last week—that if the public vote Blair, they will get Prescott. Now, if they vote Major, they get the Prescott option on the Post Office anyway.
My proposal is now in a Tory party manifesto. Is that the Government's intention? If so, they could have done that for every public sector industry, creating greater 1072 investment and more jobs and improving public services. Their failure to do so exposes their ideological obsession with selling off assets at great profit to their people in the City, at the direct expense of the taxpayer and at some cost to public expenditure. That is the charge that we lay against them. The Deputy Prime Minister does not seem prepared to give us an inkling of what the formula for the Post Office will be.

§ The Deputy Prime Minister
There are 20,000 post offices in the country and 19,000 of them are in private ownership.

§ Mr. Prescott
Presumably the right hon. Gentleman means that a publicly owned company is a plc—a public limited company. It is still publicly owned, is it not?

§ The Deputy Prime Minister
There are 20,000 post offices in the country and 19,000 of them are in private ownership. That is nothing to do with the Government.

§ Mr. Prescott
The right hon. Gentleman understands the point that I am trying to make. The Cabinet discussion was not about corner-shop post offices, for God's sake; it was about the Royal Mail and the Post Office as we know it and about how services can be guaranteed and expanded. That is clear in people's minds.
We agree that the Government can get a proportion of the necessary funds from private finances and we have made it clear that a Labour Government will not increase either the basic or the top rate of income tax. With the exception of our windfall levy on privatised utilities, Labour's spending plans do not involve any extra taxation.

§ The Deputy Prime Minister
I heard the right hon. Gentleman saying two totally different things: first, that income tax rates would remain as they are and secondly that there would be no other increases in taxation. I want to be absolutely clear that that is what he said. As I understand it, the only pledges that have been given involve income tax rates.

§ Mr. Prescott
We will not increase the income tax rates, including the top rate. The Deputy Prime Minister talks about allowances and other matters, but past Chancellors, the present Chancellor and the Prime Minister have always made it clear that they do not give details of changes before a Budget. That applies as much to us as to the Chancellor and the Government.

§ The Deputy Prime Minister
The right hon. Gentleman is saying that every other tax level is up for grabs under a Labour Government.

§ Mr. Prescott
Let me quote the Chancellor, because this is precisely our position. He said: People have to wait until the final Budget judgments I make. What I am certainly not prepared to do is go for some ideological theory that at no stage from now on will we ever increase any tax. I have never served in a Government of that kind; I would never vote for any Government that said that."? 1073 That is the position of the Government, the Chancellor, and of anyone with any sense. We have made clear, and the Deputy Prime Minister was fair enough to repeat it, exactly what our position is.

§ Mr. French
Will the right hon. Gentleman give way?

§ Mr. Prescott
No, I must wind up; I have been far too long. [HON. MEMBERS: "Hear, hear."] Perhaps I should wind up on that point.
We have put forward our proposals, we have costed them carefully and we have indicated our priorities. We have made it clear that the release of capital receipts from the sale of council houses will provide self-financing expenditure for improving housing stock. We have said that the money allocated from the windfall levy will go on jobs and skills for 250,000 people. As soon as they take office, a Labour Government would need to audit the Treasury. The Deputy Prime Minister made great play of that, but it is only right that we should do it because we cannot believe half the figures that we have been given. It is fair to say that there should be an audit.

§ Mr. Waldegrave
rose—

§ Mr. Prescott
I am going to go on.
The Tories tell us that spending limits can be met without raising taxes. None of our pledges requires higher taxes other than the windfall levy to create jobs. In government, we will cut out the waste, inefficiency and wrong priorities in the £300 billion Tory spending bill to meet Labour's priorities.

§ Mr. Waldegrave
rose—

§ Mr. Prescott
No, I am going to carry on.
As a start, we will use our windfall levy on the privatised utilities to put 250,000 unemployed young people back to work. We think that that is a top priority and we intend to implement it. That will release resources to invest in education and front-line services, instead of increased public expenditure on the welfare bills of failure. Other spending plans will be paid for by re-ordering existing priorities. The bureaucracy in the health service—

§ Mr. Waldegrave
rose—

§ Mr. Prescott
I have gone on too long. The right hon. Gentleman agreed with me when I said earlier that I would sit down.
On education, we have made it clear that we will cut class sizes to 30 for six and seven-year-olds, financed by abolition of the assisted places scheme. All those arguments were heard during the Wirral by-election. People there gave their judgment. Their message to the Government is: enough is enough and time is up. Soon the people of the whole country will judge us in a general election. What we say today will be judged in that election. This debate, called by the Government to deal with Opposition policy, will only confirm the view of most people that they have had enough of this Government and want a Labour Government to take their place.

§ Mr. David Hunt (Wirral, West)
I congratulate my right hon. Friend the Deputy Prime Minister on a brilliant speech. He set out the ingredients of a winning general election campaign. The economic figures were remarkably robust. Many of us cannot recall such consistently good economic figures for a generation. That would be thrown away if there were a change of Government. He also exposed the inadequacies of the Opposition, which were exemplified by the speech of the right hon. Member for Kingston upon Hull, East (Mr. Prescott). We had some fun with him, particularly when he departed from the script carefully prepared for him by my long-standing friend, the hon. Member for Hartlepool (Mr. Mandelson).
Now and again, the right hon. Member for Kingston upon Hull, East assumed virtual reality, especially in a series of comments in which he said that, while the Government may have targets, the reality remains the same. He never sought to answer a point that fills me with anger. We may laugh at him, but what he said could be serious for the country.
The right hon. Gentleman is trying to pretend that he could walk into a position—we are not sure which—in a Labour Government, were Labour to win, and—against the background of the policies that he set out—would be able to stop the country falling into the economic ruin it fell into under the previous Labour Government. Last time, things were so bad that the Labour party then failed to win a general election for 23 years.
The right hon. Gentleman mentioned the Wirral by-election, but the last Wirral by-election was 21 years ago next week. Before my constituency was split into Wirral, South and Wirral, West, there was a by-election. He kept referring to the Wirral by-election, so I shall tell him what happened at it.
The country was in a serious economic mess. The Labour Government had inherited unemployment of 500,000, and trebled it to nearly 1.5 million, without tackling any of the economy's deep-seated problems. Inflation was rising fast towards 30 per cent. That was why Labour changed the link for pensioners from prices to earnings. It was done not to increase pensions, but so that pensioners would not get the increases they should have got for prices that were roaring ahead. [Interruption.] If the right hon. Gentleman could desist from calling me a twit—

§ Mr. Prescott
It was said by another hon. Member.

§ Mr. Hunt
I heard the right hon. Gentleman.

§ Madam Deputy Speaker (Dame Janet Fookes)
Order. I think that that proves my point about the valuelessness of seated interventions.

§ Mr. Hunt
The fact that the right hon. Gentleman has not sought to answer a point raised during the Wirral, South by-election makes me especially angry. I remember the Wirral by-election, because I remember the state of the country at the time. However, during the Wirral, South by-election, he went on the BBC's "Close Up North" programme. He has not responded to the question that was put to him, but I am willing to give way at any stage of this analysis. His only comment in his speech in 1075 discussing free eyesight and dental tests was that Labour would present the electorate with its priorities on public expenditure. He did not seek to explain the context of his remark on television, but merely referred to Labour's public expenditure priorities.
In his last general election manifesto, the right hon. Gentleman said that he would restore free eye tests and dental checks. I am sure that the member of the audience who put the question knew the right hon. Gentleman's track record: that he had always fought for that right—not an aim, but a right, a restoration.
For the sake of accuracy, I have managed to get a transcript. I have a video of this programme, and I offer the right hon. Gentleman the opportunity to watch it. I have not found many takers for such an opportunity. I would be happy for him to see it, because he would see that his body language could have left no one in the audience in any doubt what he was saying. The audience member asked: Should everyone, regardless of age, have access to free eyesight and dental tests as a matter of routine? The right hon. Member for Kingston upon Hull, East answered: Yes. I think it should be a right. Not an aim, a right. He went on: You've got to find the money to finance it". If I had heard the so-called deputy leader of the Labour party say on live television, "You've got to find the money to finance it," I would have concluded that he was trying to communicate to the electorate of Wirral, South that the money would be found to finance it. That would not have been an unfair analysis. I feel very angry indeed that, following that broadcast, the Labour party issued a statement saying that the right hon. Gentleman gave no such spending commitment: the Tories have deliberately misquoted him. I am a devotee of the election manifesto of the right hon. Member for Kingston upon Hull, East. I have a copy here. I saw him shake his head when my right hon. Friend the Deputy Prime Minister said that the right hon. Gentleman had pledged a statutory minimum wage of about £3.40 an hour. He shook his head and said no. Under the headings "Labour's Way" and "The Economy", alongside some pretty pictures—if I can describe them as such—of the right hon. Gentleman, his manifesto refers to a statutory minimum wage of about £3.40 an hour. The right hon. Gentleman cannot continue to have it both ways. He promises the electorate in his manifesto and promises the electors of Wirral, South one thing, and then comes to the Dispatch Box and says the opposite. If he had wanted to make sure that the electors of Wirral, South and the people watching that television programme knew exactly the position, he could have said, "By the way, this proposal is not in our early manifesto."

§ Mr. Alistair Darling (Edinburgh, Central)
Will the right hon. Gentleman give way?

§ Mr. Hunt
No. I have said that I will give way to the right hon. Member for Kingston upon Hull, East. For the sake of the record, I should say that I noticed that the hon. Member for Edinburgh, Central (Mr. Darling) has 1076 spent much of the debate so far trying to brief the right hon. Gentleman. I seek no apology for that, but will he excuse us if we point the finger at him when we ask who is making the policy of the Labour party, and ignore the deputy leader? We are talking about the deputy leader of the Labour party on live television making a clear commitment without qualification.

§ Mr. Darling
The right hon. Gentleman was a member of the Cabinet at the time of the last election. He will recall that the Conservative party had stood on an explicit platform of cutting tax year on year. He was in the Cabinet when that promise was made, and it was broken. He is in no position to lecture anyone.

§ Mr. Hunt
We were in a recession that had continued for longer than anyone, including the hon. Gentleman, had expected. The context of the world recession has been set out in the speeches that we have already heard. When it came to a balance between cutting NHS and education spending—crucial and critical spending—or increasing taxes, I had no hesitation in going for increasing taxes. The hon. Gentleman seeks to deflect me from my point. I will not be deflected. I shall return to it in one moment. I take pride in the fact that, although there have been tax increases to maintain and increase public expenditure on critical services such as the NHS, there have been 25 tax reductions.

§ Mr. Darling
Can the right hon. Gentleman refer us to the precise passage in the 1992 manifesto in which it was made clear that the pledge to reduce taxes year on year was qualified to the extent that, if it turned out that there was a recession, the pledge would not be kept?
The Conservatives knew all about the recession at the time of the last election. The Prime Minister is on record as saying the day after the election that he knew that his Government would be deeply unpopular. Where in the 1992 manifesto is there any qualification of that pledge? Is not the truth of the matter that the right hon. Gentleman and his colleagues deliberately misled the British people and fought an election on tax promises which they knew they could not sustain? That is why no one trusts them, and why they lost Wirral, South.

§ Mr. Hunt
That is untrue and incorrect. There was no question of any such deliberate intention. I have clearly said that, when it came to a choice between cutting public expenditure and increasing taxation to maintain critical levels of spending on crucial public services, I had no hesitation in approving tax increases. Of course we had to increase taxes, in view of the background economic situation.

§ Mr. Jacques Arnold
Does my right hon. Friend agree that the significant difference is that the Government faced the realities of coping with the economy under the pressures of a world recession, whereas the Opposition have responsibility for nothing, and their policy changes from one week to the next? The only difference is that the hon. Member for Hartlepool (Mr. Mandelson) has overruled the deputy leader of the Labour party.

§ Mr. Hunt
I am grateful to my hon. Friend, but it is difficult. We still have not received an answer from the right hon. Member for Kingston upon Hull, East on 1077 the specific points that I have put to him. I do not know whether the hon. Member for Edinburgh, Central will be replying to the debate, but perhaps he could have one of his characteristic conversations with the right hon. Gentleman, and perhaps the right hon. Gentleman will give us a reply before the end of the debate.

§ Mr. Clive Betts (Sheffield, Attercliffe)
Will the right hon. Gentleman give way?

§ Mr. Hunt
I should be happy to give way to the right hon. Member for Kingston upon Hull, East, but he has not sought to intervene.
I am angry that things were said in the Wirral, South by-election that were patently untrue. I warn the right hon. Gentleman that I am carefully monitoring what electors tell me was said to them by a series of Labour Members of Parliament by telephone and on the doorstep. I have given one example, and the right hon. Gentleman has not sought to deny it. I have the transcript and the video. It is shameful that he misled the electors in that way.
The right hon. Member for Kingston upon Hull, East said in his speech that there were great difficulties with the European social model at the moment. According to the right hon. Member for Livingston (Mr. Cook), that model will be our economic policy under a Labour Government. I do not know whether the right hon. Gentleman has disclosed to the Opposition spokesman on foreign affairs that he believes that there are great difficulties with the model, but it is the model that this poor country will face if it were ever to elect a Labour Government.
There is another example of deliberate misleading. I have here a survey by Merrill Lynch entitled "UK economics: weekly perspectives". Under the heading "The Social Chapter: does it matter?", it says that the key question for Britain is whether we should have the social model or the British enterprise model, which has proved so successful. Merrill Lynch poses several questions. It says: supporters of membership sometimes also argue that signing the Social Chapter should have little, if any, adverse effect on the flexibility of the UK's labour market. It says that the claim is made that once in, the UK can veto measures it does not support. As Mr. Blair said at the CBI, 'Each piece of legislation will be judged on its merits. I have no intention whatever of agreeing to anything and everything that emerges from the EU'". That was from 14 November 1995.
Merrill Lynch then proceeds to analyse over several pages whether that statement by the Leader of the Opposition is true. The conclusion of that independent body is that the statement is "not true". That is a nice way of saying that someone has told an untruth. The paper says: Some areas of social policy are outside the Social Chapter, others are subject to majority voting. But on a series of key issues, votes are on QMV and the UK would have no veto. The UK would have to go along with the majority. I had the privilege to serve in the Cabinet as Secretary of State for Employment, and I attended Employment Council meetings. I know the dangers of signing up to the social chapter, and I shall just give one or two examples from other countries. Indeed, their Employment Ministers 1078 used to share their frustration with me because they were subject to the following provisions of the social chapter. In Belgium, for example, all planned overtime must be notified in advance to the authorities. In Spain, overtime is limited to—

§ Mr. Prescott
This is not directly to do with the social chapter.

§ Mr. Hunt
Yes, it is.
In Spain, overtime is limited to under two hours a week, which is equivalent to 80 hours a year. In Sweden, parents are entitled to a minimum of 450 days of paid leave between them following the birth of child.

§ Mr. Prescott
That is nothing to do with the social chapter.

§ Mr. Hunt
The right hon. Gentleman may shout that from a sedentary position, but when I was Secretary of State for Employment, fighting the United Kingdom's interests in the Social Affairs Council, there was a proposal that we should introduce a parental leave regulation. The acceptance of such burdensome provisions was intended to bring us into line across Europe. I vetoed that proposal. If this country had signed up to the social chapter, I would not have been allowed to exercise that veto.
We always had informal working lunches with our opposite numbers on the Social Affairs Council, when my colleagues used to say to me, "I wish we had a veto. I wish we had the courage of the United Kingdom to stand out against the European social model." The right hon. Member for Kingston upon Hull, East admits that there are great difficulties with that model at the moment. Could he please have a word with his colleagues on the Labour Front Bench and persuade them to back off from their commitment to sign up to the social chapter? Indeed, all our partners in the European Union would like us to do that. They, too, would like to resile from the social chapter.
I have met many European partners who have told me, "If only we had the same flexible labour market as the United Kingdom. We would then see our unemployment rate coming down as it has done in the United Kingdom."
I listened to the right hon. Gentleman, and I am extremely depressed, disillusioned, and still angry. The sort of nonsense that he is peddling really means that voting Labour at the next election will mean voting people out of a job.

§ Mr. Robert Sheldon (Ashton-under-Lyne)
Much of the debate so far has been about guessing Labour's future expenditures, but we have the facts about the Government's expenditures. After 18 years, there are a load of facts about how they have projected their expenditures, not necessarily in the interests of the country, and where they have been excessive in their expenditures and not received value for money.
My right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) quite rightly referred to the possibility of an audit on the Treasury. When I first became Chairman of the Public Accounts Committee, the Treasury suggested that it could do an efficiency audit on 1079 the National Audit Office—a move which I did not welcome. I countered that by suggesting that perhaps the NAO might first do an efficiency audit on the Treasury. We never heard anything after that.
It might be thought surprising that the Government have given a day to debate expenditure when they are so vulnerable, because the facts are there to see. I understand that an annual debate on expenditure is necessary to determine priorities and to get the views of Members. I agree with the suggestion that we should get rid of the autumn Budget, with its expenditure implications, because that presupposes that we can do a trade-off between revenue and expenditure.
We know that that has not happened, because no one outside the Government can propose increases in taxation. There is no possibility of increasing expenditures, either. One is left with a phoney debate about the relationship between income and expenditure. As a result, we have messed up the parliamentary year. The sooner we revert to a spring Budget, as suggested by my hon. Friends, the better.
I should have thought that, given the facts on the Government's expenditure, they would want to keep them quiet. They might have thought about debating that record on a Friday afternoon, approaching the summer recess, when it would not be exposed. Let us look at the record of Government expenditure. Let us not look to the future, about which very little is known, when we can consider the past and present, about which a great deal is known.
All Governments have expenditures that they have come to regret, but this is the first occasion when a day has been set aside unnecessarily just to consider certain types of expenditure that need to be questioned. First, I should like to refer to central Government net debt interest. In 1979–80, the net debt was £8 billion—I agree that that was in the then current terms—and today it stands at £24 billion. Is a leap from £8 billion to £24 billion a sensible use of public expenditure? The Government have had to spend that money because of the way in which the economy has been run. That expenditure is wholly unacceptable, and not very prudent.
The eighth report of the PAC dealt mainly with fraud and corruption. I was pleased when the then Financial Secretary, the right hon. Member for Ealing, Acton (Sir G. Young), gave a full endorsement of the report's proposals. I welcomed very much the November issue of "Regularity and Propriety", which contained everything that the PAC wished to see. It is important to note that that was wholly admirable.
It was important that the eighth report should ensure that the levels of fraud and corruption were looked at carefully, but it also drew attention to the inadequate stewardship of public money and assets. We referred to Failure by departments to establish effective monitoring of non-departmental public bodies which they fund and sponsor, leading to failure to detect waste and irregularities. We referred to Inadequate oversight by those in authority…failure to ensure that delegation of responsibility is accompanied by clear lines of control and accountability, leading to the waste of large sums of public money. 1080 We also drew attention to the Failure to take prompt corrective action when things begin to go wrong. We made a blanket criticism of many of the things that had gone wrong.
Let us consider the actual detail of what has happened. I will not go back into the long distant past; I will confine myself to something rather more recent. The Pergau dam, for example, cost £234 million of public money. How was the decision made to spend that amount? Did we get value for money? We found out that an assessment of the dam was made by two people, who were sent to Malaysia to study the site on behalf of the Overseas Development Administration. They spent just two days there, and then came back and said, "It's okay." After just a two-day visit, the decision was made to spend £234 million. I am not even certain that they got to the site.
I note, of course, that that project had political overtones. One should not forget the famous note of dissent from Sir Tim Lankester, who pointed out that it represented an unreasonable expenditure of public money. That was his right, and when he came before the PAC he could claim that the fault did not lie with him because he had been overruled. We found that the path led to the Minister for Overseas Development, the Foreign Secretary and the Prime Minister. It then became a matter with political overtones. Nevertheless, it did not represent a good example of spending public money.
Then let us consider the Ministry of Defence's management of fire risks. The tale of the major weaknesses in its fire risk policy is almost unbelievable. In 1983, there was a conflagration at the Army store depot at Donnington, when £170 million of Government stores of various kinds went up in smoke.
The elementary fire precautions had not been taken. The PAC produced a stinging report on that failure, and received assurances that there would be improvements. Then, in 1988, another fire occurred at Donnington—the same place, the same sort of fire. There was £180 million-worth of damage this time; it was more expensive because some of the stores had been replaced, although we presume that they would not have replaced those stores that were not quite so essential.
In 1996, we looked at the problem again. There had been two fires in the same place and there had been a failure to take the obvious precautions, yet in 1996 we found that the Ministry of Defence did not even have a full record of the buildings it occupied, let alone whether they were at risk of fire. That, after 15 or 16 years of Conservative government. If the Government were really anxious about public expenditure and the control of public expenditure, they should have been looking at such matters. The Government did not lack reports—the problems did not come out of the blue—but they failed to take the action that had been recommended and strongly urged.
Let me turn now to part of the works programme for the management of the Trident programme, referring to Faslane, the Clyde base which services submarines. Construction of that base was started before the designs were completed—a risky task, which, when involving £1 billion, becomes even more serious. In 1984, the programme was expected to cost £694 million—£1.1 billion at 1994 prices. The total spent up to 1994 was, in fact, £1.9 billion—a stupendous overrun of £800 million.
1081 Why did that happen? It happened because of inadequate management and inadequate practices. The PAC report stated that the Committee was "astonished"— a word that is rarely used by the sober members of that Committee—by the ways in which the money had been spent. The PAC is experienced in the ways of the world, but its examination led to that strong language being used. At the peak of the work, and at one time—this is unbelievable—1,000 consultants from 67 firms were employed, at a total cost of £360 million. How did people get into the base with 1,000 consultants milling around? I could not believe that money had been spent in that way, but the Committee found that it was true.
So there we see another example of public money being wasted by a Government who are supposed to be concentrating on matters of public expenditure. I know that all Governments have made mistakes of that sort, but they do not come to the House on a Thursday afternoon and have a debate on them. They leave the matter quiet, and hope that people will not notice. They hope that, when they say that certain matters will be put right later, we will accept their assurances.

§ Mr. David Hunt
I recall that the right hon. Gentleman served in the last Labour Government with Joel Barnett, now Lord Barnett. Has he had an opportunity to read the speech that Lord Barnett made yesterday in the other place, in which he praised the Government's handling of the economy, and said that Labour would do no better and that it would need more tax?

§ Mr. Sheldon
My noble Friend did not say that—the right hon. Gentleman is misquoting him. Lord Barnett is my dear friend of long standing; I have a great attachment to him, so I always listen to what he says with great interest. What he said was that, at the moment, the economy is doing well—but what is to come? How can we be sure that that will continue?
My noble Friend speaks as one who, when he was Chief Secretary to the Treasury, wanted to increase expenditure on health and education, and he still hopes for improvement. As he rightly points out, improvements are possible without increasing expenditure, but they will be much smaller than he would wish—we must all agree with that. If we want very big improvements, it is obvious that we must increase expenditure; only smaller improvements can be achieved out of the modest increases in expenditure that come from savings elsewhere in Government programmes, but that method nevertheless offers some opportunities.
To return to the subject of the debate, the PAC issues about 45 reports a year, most of which are highly critical of the way in which the Government have spent taxpayers' money. For example, it is an astonishing fact that vehicle excise duty evasion is increasing. It increased by 18 per cent. during the period of the PAC's most recent report, and is now estimated at about £163 million a year.
That is a substantial sum of money, but the problem is made even worse by the operation of the Driver and Vehicle Licensing Agency, which admits that there are some 23 million unlicensed vehicles on the register. The agency does not know whether those vehicles exist or whether they have been scrapped—it does not know what has happened to them. That makes it difficult to run a licensing organisation of that sort.
1082 There are many other examples that I could quote. During my period as Chairman of the PAC, it has produced about 550 reports, and I shall pick out one or two recent subjects. First, there is the question of organised fraud in social security. That involves not the individual who claims a little more than he or she is entitled to, but bands of criminals going around manufacturing books, whose activities cost about £1 billion a year. We must do something about that. Then there is bovine spongiform encephalopathy, which is costing about £3.5 billion. Some of those difficulties might have been anticipated and some of the expenditure saved.

§ The Financial Secretary to the Treasury (Mr. Michael Jack)
I have been listening with care to the right hon. Gentleman's speech. Does he not agree that action is being taken through the Benefits Agency and Post Office Counters Ltd. arrangement to deal with many of the fraud matters to which he referred? Would he also agree that not all the reports from the Public Accounts Committee and the National Audit Office are bad? Some have praised Government expenditure—for example, a recent report praised value for money in respect of privatisation receipts.

§ Mr. Sheldon
No doubt there have been several in which criticism has been muted or even absent. However, the right hon. Gentleman will be aware of the constant criticism of the privatisations. The PAC does not look at policies—we take the policy for granted, and ask whether we got value for money. Again and again, in respect of nearly all the privatisations, we have pointed out that there were ways of getting better value for the taxpayer—for example, by selling the asset in tranches.
One should not sell off the whole of asset at one go; one should take one's time and see what the market will bear, in the same way as one sells one's gilt-edged stocks—the right hon. Gentleman will understand that one does not sell them all on 1 January, but feels out the market and sells according to the state of the market. That method was never used in the privatisations, although it was employed to a certain extent when British Telecom was privatised. So many privatisation issues were made without the full value of the asset being obtained.
In passing, I make the point that the suggestion of selling in tranches came from a Conservative Member, the right hon. Member for Horsham (Sir P. Hordern). We made use of his valuable suggestion; it is a pity that the Government did not use it more fully.
To return to other examples of Government mistakes, there were the expenditures on the poll tax and on the Child Support Agency. There was the scandal of the works of art at the Ministry of Defence, when 200 out of 900 valuable works were missing. I understand that other Governments might have a similar record to the one held by the Conservative Government, but for a Government to hold a debate on the subject when such a debate is not essential suggests that they have something of which to be proud. They have nothing of which to be proud.
The record on the spending of taxpayers' money is not good. If the Government felt that the debate was necessary, they might have kept it a little quieter. 1083 The purpose was to expose the plans of my right hon. Friends, but instead the Government have exposed their own record.

§ Mr. Alex Salmond (Banff and Buchan)
On a point of order, Madam Deputy Speaker. This afternoon, Ministers heard the Minister of Agriculture give the House the impression that the slaughterhouse document that was the subject of the statement this afternoon had been passed to the Scottish Office. That seemed remarkable, given that the Scottish Office had established an inquiry by Professor Hugh Pennington and that the professor had not had sight of that document. It now appears that Scottish Office officials are briefing the press to the effect that the Scottish Office did not have that document.
There seems at the very least to be substantial confusion between these two Departments as they pass the poisoned chalice to one another. May I expect that on Monday, if not sooner, we might have a statement from the Secretary of State for Scotland or the Minister of Agriculture, clarifying the matter and saying who was responsible for not giving the copy of that vital document to Professor Hugh Pennington to assist in his inquiry into E. coli 0157?

§ Madam Deputy Speaker
As the House will know, the Chair is not responsible for the accuracy or otherwise of the words of any Member of the House—indeed, were they to be responsible, I doubt that anyone would be found to occupy the Chair—but I have no doubt that those sitting on the Treasury Bench will have heard the hon. Gentleman's words, and perhaps this matter can be pursued another way.

§ Sir Archibald Hamilton (Epsom and Ewell)
I start by apologising to my right hon. Friend the Chief Secretary for the fact that I shall not be here for his winding-up speech tonight, as I have a long-term engagement that I cannot avoid.
Public expenditure has always been notoriously difficult to control, and it is sad that we still have not got away from the ethos that causes people to believe that a "good" Secretary of State is one who obtains a generous settlement from the Treasury in the public expenditure survey round. The Treasury is always painted as the enemy, and the press does not much help by criticising Ministers who have been seen to lose out in battles with the Treasury.
It is a small regret of mine that during my long and very enjoyable time in the Government, I was never a Treasury Minister, but as a taxpayer I know where my interests lie in this battle, because it must be in the interests of all taxpayers to have a Government who control public expenditure, provide good services and, where possible, lower taxes.
I am always amazed by the attitude of the right hon. Member for Kingston upon Hull, East (Mr. Prescott). In some remark about the provision of personal pensions, he said that that was an area which had cost the Government money. That is not true. What happened is that people who were prepared to pay money to provide their own pensions received tax relief and kept a little bit of their 1084 money, which otherwise the Government would have taken. Opposition Members' attitude seems to be that all our money belongs to the Government, and they are extremely generous to allow us to keep some of it. That is a major difference in the attitude of the two sides of the House to people's money.
We all know that Britain has an impressive record on inward investment. The total inward investment stock stood at £150 billion last year, and it is a credit to British industry that our investment abroad stood at an even higher figure—£214 billion.
There are many reasons for our great record on inward investment, not least the trade union reforms, which have transformed industrial relations, and a very well-educated work force. There has been deregulation and privatisation. A very important factor has been our relatively low public expenditure and taxation—relative, that is, to western Europe. It must be a matter of congratulation to my right hon. and learned Friend the Chancellor and my right hon. Friend the Chief Secretary that our public expenditure is 8 per cent. below the European Union average.
However, we are in danger of being complacent. It has been said many times tonight that we live in a world marketplace. We do trade, and must trade, with countries outside Europe. Public expenditure of 41.5 per cent. of gross national product, although it is reducing to 40 per cent., is not especially good if comparisons are made with many of the other countries with which we trade.
The fact that our western European partners are even worse should be no reassurance. Federal and state taxes as a percentage of GNP are 33.3 per cent. in the United States and 36.2 per cent. in Japan. In many of the young economies in the far east that are becoming extremely assertive, the figure is probably about 30 per cent. I know that they have young populations and do not have the problems of aging people that we have in western Europe, but those are the countries with which we must compete, and it is important that we start to bring our public expenditure down to their levels. I hope that we shall set ourselves new targets. I hope that, having hit 40 per cent., we shall start bringing our public expenditure down to 35 per cent., to enable us to compete with the world at large.
The right hon. Member for Kingston upon Hull, East made noises about the social model not working very well in western Europe at the moment. That must be one of the understatements that we have heard tonight—an understatement to beat all understatements. France and Germany are suffering from appallingly high wage costs, very high social costs heaped on top and very high public expenditure. As has been proven in this country, those countries want proper Conservative Governments, because it is crucial to liberate their markets, to denationalise their industries—it is amazing how much industry in France remains in state hands—to regulate their trade unions and to improve industrial relations. It is also crucial that they move much of the burden of social provision from the public to the private sector.
Germany's problems are very great. It is already exporting many of its manufacturing jobs to eastern European countries such as Poland, Hungary and the Czech Republic, and those problems can only get worse when those countries eventually join the European Union.
I congratulate my right hon. Friend the Secretary of State for Social Security on the plans that he has unveiled to reform pension provision. Such reform will have a 1085 significant impact on public expenditure, albeit far in the future. Once again, where Britain leads, Europe should follow, because the pension liabilities of some of our European partners, which will start to come to the fore in about 2015 or 2020, are horrific. Some of them will have to find moneys equivalent to 50 per cent. of gross national product then. They cannot sit and do nothing; they must start taking action now. In Chile, where the pension provision system was changed by General Pinochet 20 years ago, the effects are starting to come through only today. It takes a very long time indeed for such changes to work their way through.
Any Government of this country must limit the totals of public expenditure, and that means that there must be constant pressure to contract out services, with all the political significance that that has. It means that, in many cases where sections of the public sector have been moved into the private sector, there are redundancies, and sometimes people are paid lower wages, but I am afraid that those are some of the consequences of the competitive pressures of the marketplace being brought to bear.
We must continue with the privatisation programme, and I sincerely hope that we shall consider privatising the Post Office, because unless it is privatised, it will go nowhere. It is already falling drastically behind in the world communications market and it needs to invest in a mass of new technology. The money for that investment cannot possibly be found from the public purse. As we have seen, there are vast pressures on public expenditure. The investment that the Post Office needs is so large that it could never be afforded by the public sector. I do not believe that there is some squirmy way of getting out of the problem by creating a hybrid, halfway between the public and the private sector.
The Post Office must be denationalised and opened up. It must be given all the opportunities that were given to British Telecom when it was privatised, to invest in all the latest technology, to expand, to compete abroad and to become a serious international company. If we do not denationalise the Post Office, it will simply die on its feet. There is no alternative.
I am delighted to hear that we are to denationalise London Underground. Once again, there is an organisation in desperate need of investment. There is no way that that investment will come from the public purse. The sooner we get it into the private sector, the better, so that it can receive the investment that it needs.
There is clearly more to be done with prisons and hospitals.
Against that background, it is incredible to suggest that a Labour Government, if there ever were one, could come anywhere near matching the Conservative record on reducing taxes and controlling spending. Labour surprised me by suggesting that it could keep within the control totals set out by my right hon. and learned Friend the Chancellor for the next two years. As has been pointed out already, included in those figures are privatisation receipts of £1.5 billion. Where will the money come from, if Labour is not prepared to entertain privatisation?
It is fallacious to suggest that if £2.5 billion-worth of council house sales receipts are spent, somehow that is new money that does not count against the public expenditure totals. That is not the case. The fact is that if the money is drawn down, it will have to be replaced, 1086 because it represents loans to councils. All local authority spending, on council houses or anything else, goes towards the public expenditure totals. If the money is spent, it will still count and will be extra public expenditure, so it would not be possible to keep within the totals for the first two years.
The minimum wage will have a devastating effect on the public sector. It is usually suggested that the minimum wage should be brought in at £4.26 per hour. That is what everyone seems to think would be a significant minimum wage, if it were to happen. It would be a significant cost to the public sector—£3.7 billion. Once again, that would increase the pressures on public expenditure upwards.
The impact of a minimum wage would be much greater than its effect on the public sector wage roll. It would victimise those in our society who are least well educated and least skilled, and older people who are incapable of learning new skills. I have never understood how it can be argued that a labour market is different from any other market. If one shoves up the price of labour, one employs fewer people, because businesses cannot afford to employ them, or because they use automation and machinery instead. The effect is to push up the cost to the public sector by putting many people who were in employment on to the dole, where they claim income support and become a burden on the taxpayer.
It is incredible to suggest that socialists, whether old or new Labour, have changed their attitude to spending other people's money. Labour councils are some of the highest-spending councils in the country, and have been restrained only by the fact that their expenditure has been capped. Even that restraint would go, if we had a Labour Government. Immense extra sums would be spent by councils, if the capping restrictions were removed.
To anyone who has observed the political debate over the past few years, it is remarkable to hear any Labour party spokesman speak of restraining public expenditure, when all the attacks on my right hon. and hon. Friends on the Front Bench have focused on the fact that they have been cutting it. We hear nothing but the constant refrain of cuts on this, that and the next thing.
Public expenditure is extremely high in Britain. It is quite wrong for the Government to be accused of cuts, especially as most areas of public expenditure have grown. Moreover, it indicates a mindset. If Labour spokesmen are so concerned about cuts, can they be serious about restraining public expenditure, if they ever had the chance to do so?
What about taxation? What realistic chance is there that a Labour Government would cut tax? We inherited a standard rate of 33 per cent., with 83 per cent. being the top rate, and on top of that an unearned income surcharge of 15 per cent. It is almost unbelievable that some people were paying 98 per cent. of their income in tax, but that is what we inherited in 1979. Conservative Governments brought down taxes by stages. What did Labour do? It voted against every one. When my noble Friend Lord Lawson, in his Budget in 1988, reduced the top rate to 40 per cent., there was an outcry from the Opposition, as if an iniquitous crime was being committed, by bringing our rates down to an internationally competitive level.
It was not only on taxation that Labour consistently voted against what the Government were trying to do. Labour voted against every privatisation brought before the House. When one considers the record of success, it is 1087 extraordinary that the income to the Government from taxation receipts from the privatised industries is greater than the sum that was being paid out in subsidies to those industries before privatisation.
Labour was wrong about privatisation. It was wrong about the sale of council houses, and voted against that. Labour voted against trade union reform, and it was wrong on that. Labour has been wrong on every major decision taken by the Government and by the House. Why should Labour ever be right? Why should Labour ever be trusted by the people of Britain?

§ Mr. Malcolm Bruce (Gordon)
I was interested to hear the right hon. Member for Epsom and Ewell (Sir A. Hamilton), who made many fair points in defence of the Government's record, but seemed to be remarkably unconcerned about the social fallout from the massive changes that have taken place during that period. There is a fear among people that constant change, constant privatisation, the constant shedding of labour and the constant attempt to drive down public expenditure, all of which might be legitimate, nevertheless create significant social casualties, to which the Government have at times seemed rather indifferent.
An interesting fact, which brings that into sharp relief, is that the total number of extra people who have been claiming unemployment benefit since 1979, and the cumulative cost of those extra benefits, almost exactly equals the entire value of the taxation receipts from North sea oil and all the privatisation yields. That is why, at the end of 18 or 19 years, the Government's overall tax take is slightly higher than it was under the last Labour Government, and tax cuts have not been achieved across the board.
There have been changes in tax rates, and the burden of taxation and its impact have been changed, but the overall take has not significantly changed. That is because such an upheaval cannot be achieved without both social and economic costs. I am not saying that the changes were wrong or that benefits did not flow from them, but the Conservative party occasionally seems a little unconcerned about the people caught in the maelstrom, who have no control over the situation in which they find themselves.
For the record, I want to point out that my party—the Liberals, as well as the Liberal Democrats and the Social Democrats—did not oppose every privatisation. We did not oppose the privatisation of BP or British Airways. We were concerned about the way in which British Airways was privatised, to the disadvantage of other airlines and with the eventual destruction of British Caledonian and a number of other airlines. Similarly, we did not oppose in principle the privatisation of British Telecom, the electricity companies and British Gas.
However, we were concerned about the lack of competition and the consequences of privatising those companies in a monopoly state. We believe that those privatisations cost us a great deal, and their consequences have not yet been fully addressed. That is not to say that there will not be benefits at the end of the day. Nevertheless, the privatisations could have been conducted in a manner that advantaged the taxpayer: a greater yield could have 1088 been secured, as the Chairman of the Public Accounts Committee, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), pointed out, and the consumer might have also had a real choice.
We actively supported much of the legislation reforming the trade unions—indeed, we pressed the Government for such reform on several occasions. We were ahead of the Government in calling for the abolition of the closed shop. I vividly remember calling for the abolition of the dock labour scheme in this House on a Monday, and the Government announcing on Thursday that that would occur. The port of Aberdeen was then paralysed by a dockers' strike, and the Prime Minister prayed in aid my remarks to justify her decision.
I put those facts on record because, although this is billed as a public expenditure debate, the tax implications and the changes that are taking place are part and parcel of it. I am somewhat intrigued by the Government's tactics regarding business planning. This is the third or the fourth Conservative Opposition day. I do not know how many more there will be but, by the time the House reconvenes in May, I am sure that the Conservatives will be well practised in the art of opposition—which is just as well because they will experience it for many years.
There is consensus across the parties that we need to control public expenditure not just in the interests of regulating borrowing, bringing down inflation and keeping taxation low, but because we know that the efficient targeting of public expenditure enables the effective delivery of public services to those who need them most. A specific aim of Liberal Democrat policy is to continue to bear down on, and control, public expenditure. We have made a commitment to hold non-education and non-health expenditure below the level of real gross domestic product growth in order to allow us to concentrate first on increasing real expenditure on education and health and secondly on reducing borrowing. That clear priority has been costed into the Liberal Democrats' alternative Budget, and it will also be costed into our manifesto programme.
Like Conservative Members, we were intrigued—indeed, somewhat astonished—by the shadow Chancellor's announcement that there would be no changes in income tax rates under a Labour Government, and that he would adopt the Conservatives' spending envelope for the next two years. I doubt very much whether the Conservatives really intended to adopt their spending envelope for the next two years—especially as they had tended to review it twice a year.
We part company with both the Conservative and the Labour parties in our belief that certain areas of public service expenditure are now so seriously deprived of funding that they cannot maintain acceptable provision at current spending levels. We accept that quality education and health are not all about money. However, we do not believe that it is possible to see real and significant improvements in standards and to achieve specific objectives without injecting additional resources.
We believe that every three to four-year-old child whose parents wish it should be entitled to nursery education. Both the other parties claim to support that concept, but neither is prepared to fund it. We believe that it should be funded from this year. We want to reduce class sizes, starting with the first three primary classes. 1089 We want to increase expenditure on books and educational equipment and improve the physical quality of the teaching environment in schools.
We have identified that expenditure as totalling about £2 billion a year, or £10 billion across a Parliament. We do not believe that that investment can be delayed any longer or that it can be funded by an increase in borrowing—which we all agree is too high. We believe that that investment could be funded by reversing the decision to cut the standard rate of income tax by a penny, which the Government announced in the last Budget. The Liberal Democrats have made a clear, unequivocal commitment to returning the standard rate of income tax to 24p in the pound in order to fund that expenditure.
I visited Wirral—where I have some family connections—the day before polling. I was interested by the number of people—many of whom were lifelong Conservative voters—who told me, "We shall certainly vote against the Conservatives. We are absolutely determined to get rid of this Government and we shall vote Labour to do that." However, quite a few added, "But we are not sure that voting in a Labour Government will make any difference." The Labour party has boxed itself in to such an extent—in the light of its record, I understand the reasons why—that people wonder whether it will be able to deliver the much-needed extra investment in education. Education was an issue in that by-election.
Those are perfectly honourable debating points: it is a matter of priorities and of legitimate choice. The Labour party is setting out its stall—I do not complain about that—and the electorate are entitled to make their own judgment. I contend that the people of this country believe that it will not be possible to improve the quality of education and maintain the quality of the health service within the existing spending priorities and via the modest changes that are on offer. When one says, "Whichever Government get in, taxes will go up," people just nod; they are resigned to that fact.
The sad thing is that people do not believe any of us any more. Their experience, particularly over the past five years, is that politicians will say almost anything to get elected and renege on their promises once that happens. That is a sad sign of the decline in the relationship between politicians and the electorate. We must try to re-establish that confidence. We should tell people honestly what can and cannot be achieved. I do not take issue entirely with the Labour party: I accept that Labour Members are trying to be honest about what may be achieved. However, there are some gaping holes when it comes to how Labour's pledges will be honoured.
At present, Conservative politicians are fond of attacking the credibility of Opposition spending and tax programmes, which distracts attention from their own policy. However, upon examining the Red Book and reading the speeches of the Prime Minister and his Ministers, I find it hard to believe that the Conservative party has a credible tax and spending programme for an entire Parliament—which is all right, because it will not need one. Nevertheless, I think that the public do not find it credible either. Most Conservative attacks on the Opposition are designed to distract attention from the fact that the Red Book forecasts do not maintain a credible scenario beyond the first two years.
1090 The Conservatives' promises depend on achieving some very optimistic forecasts. That is a significant point. The Chancellor assumes that, between 1992–93 and 2000–2001—that is the basis of his overall working assumption—there will be eight years of continuous economic growth at above 2 per cent. per annum. That has never happened in recorded British economic history.

§ Mr. Jack
We have never had a Chancellor like this before.

§ Mr. Bruce
It is all very well to say that. When challenging Opposition politicians, Conservative Members are fond of saying, "First, create your growth." However, the Tories are basing their spending plans on a level of growth that has never been produced. If they deliver it, they will be able to spend it; if they do not, their forecasts and promises are empty. That is the real situation.
There is also an element of modifying the books. When forecasting expenditure commitments, one traditionally assumes a flat unemployment situation—that is, one assumes that unemployment will remain at the same level as the previous year. The Government assume falling unemployment for the first year. I hope that they are right, but a change of forecasting technique has enabled them to claim that there is extra room for manoeuvre; all that they have done is changed the rules, to massage the figures so that they look slightly more acceptable. If they are unsuccessful, their promises will not add up. That is why the public are increasingly disillusioned about what the Conservatives have to say.
We all need to review certain base areas of Government expenditure provision. The Government's big idea on pensions, which they announced yesterday, is not so big really, because all the parties agree in principle that we have to do something about funding the earnings-related aspect of pensions in the long term if we are to deliver it. We all have reason to be ashamed that the basic state pension is inadequate and that it will be unsustainable even to provide an inadequate basic pension for many people who do not have alternative provision. All the parties agree on that. The Governments's proposals—at least with modified details—are within the ball park of what we all can agree.
It is a cheek for the Government to announce, after 18 years, without debate, and six or eight weeks before a general election, "We", one party, "are about to introduce the biggest overhaul in pension provision ever achieved." As they freely admit, they are looking to operate the programme over 30 to 40 years. If there is one matter on which all the parties should co-operate, it is how to fund pensions—something that will have to be managed by successive Governments of different political complexions. It simply is not good enough for one party to claim that it can sort out pensions on its own. I anticipate the debate next week, so I shall not dwell on that further.
We have to review the way in which further and higher education is funded, because the reality is that Government funding has been like a roller coaster: massive expansion, then a panic, then a sudden contraction, which has resulted in inadequate resources. There is nothing in place to ensure the proper management and sustained expansion of further and higher education to the quality that we need.
1091 The right hon. Member for Kingston upon Hull, East (Mr. Prescott), the deputy leader of the Labour party, argued about the extent to which the Government have passed on debt to local authorities. Apart from anything else, that has created conflict between central and local government, which is not healthy for the proper delivery of good-quality public services. It is simply preposterous for the Government to suggest that every council in the country is profligate, incompetent and disreputable in its delivery of public services.
The Government know that that is not true, and so do the public. There is a variation in quality in how councils deliver services, but the Government have consistently increased their expectations of what councils will do, while reducing the allocation of funds from central taxation. At the same time, they have reduced the ability of councils to raise their own revenue. Fifteen years ago, councils controlled 50 per cent. of their revenue; they now control 15 per cent. The Government have in effect taken the revenue from councils and used it to disguise their own incompetence, and refused to allow councils a realistic allocation of resources.
The Government have financed much of their programmes by selling off capital assets, but we are running out of capital assets to sell and mechanisms by which to sell them that give a good deal to the taxpayer and a good service to customers. I am prepared, as is my party, to consider any reasonable and realistic proposals. There is a proposal to privatise London Underground, but at a very low price in relation to its capital assets, and that does not answer the question of how one will sustain the service in the long term. If it is to depend on continuing massive taxpayer subsidies, there will be many questions about why private companies should be allowed to fund their profits from taxpayer subsidies.
I do not accept that it is not possible to fund publicly owned enterprises out of the private sector without increasing the cost on the public sector borrowing requirement. Risk-bearing bonds for specific projects are a perfectly reputable, well-established way of financing specific developments that do not need to be charged to the PSBR. It is the Government's ideological drive to privatise but not to explore the ability to bring in the private sector in a risk-bearing but worthwhile way to the mutual benefit of both parties. The job of the private sector is to bring the benefits of management and risk analysis. The job of the public service is to ensure that we deliver adequate services. It is perfectly possible for the two to be combined.
As we move towards a general election, the public will have before them two parties offering something that the public know that they cannot deliver: falling borrowing, falling taxes and rising public services. I have said on numerous occasions that there are not many people on earth who have learned how to walk on water, and none of them is on either of the Front Benches. The reality is that people want a presentation of what the priorities are; how they will be paid for; what can be done; and what cannot be done. That is exactly what they will get from the Liberal Democrats.

§ Mr. Robert Jackson (Wantage)
Earlier today the House enjoyed a dress rehearsal for the general election debate ahead, although the right hon. Member for 1092 Kingston upon Hull, East (Mr. Prescott) will be in trouble with the hon. Member for Hartlepool (Mr. Mandelson) if his soundbites are as long as his speech.
At the risk of being a party pooper after all the excitement earlier—there is a pervasive air of unreality in the debate between the two Front Benches on public expenditure—I wish to say something about that and then to spell out in detail the implications that it has for higher education, to which the hon. Member for Gordon (Mr. Bruce) referred in an excellent speech. The unreality lies in the fact that both Front Benches seem to believe, first, that it is impossible to raise taxes, apart from Labour's one-off exception—the so-called windfall tax—secondly, that public borrowing must be reduced, not least to meet the Maastricht criteria and, thirdly, that it is possible at the same time to maintain public services free to their users at present standards or at even higher standards.
I believe that that is, to put it charitably, an unrealistic conclusion because most public services are labour intensive and their nature is such that machinery cannot easily be substituted for human labour. The price of labour in the public sector is largely determined by independent pay review bodies, operating on the principle of comparability with the private sector. Accordingly, the cost of public services will tend to rise roughly in line with those in the rest of the economy. However, if public borrowing is to be reduced and taxes cannot be increased, either the cost of labour in the public sector must be brought down, by abandoning the comparability principle, or the number of public sector employees must be reduced. Either way, the quality of public services will fall if my assumption—that technology cannot so easily replace labour—is correct and the funds for public investment in new technology are tightly constrained.
It is the proud boast of my right hon. Friends on the Government Front Bench that the ratio of public spending to gross domestic product in Britain has fallen to some 41.6 per cent. in the present financial year, and that it is scheduled to fall still further in future years. By ruling out increases in both taxes and public borrowing, the Labour Front Bench has implicitly accepted that Britain will continue to have the lowest public expenditure to GDP ratio in Europe. Well and good. I have no fundamental quarrel with that project, although I am not sure that it will carry public support when the implications are properly understood. As responsible politicians, we have a duty to face up to those implications, even eight weeks before a general election.
In spite of the remarks by the right hon. Member for Kingston upon Hull, East about the European social model, the position on both sides of the House appears to be that Britain's true comparators are not the countries of continental Europe with public expenditure to GDP ratios of roughly 50 per cent., but rather the United States and Japan with public expenditure to GDP ratios of 33.3 per cent. and 36.2 per cent. respectively.
It must surely follow that our aspirations in terms of public services should match those of the Americans and the Japanese rather than those of the continental Europeans. Alternatively, we must resign ourselves to running public services that lack the private sector-driven buoyancy of their equivalents in the United States and Japan and are increasingly degraded and slummy compared with those on the continent.
1093 What is the way forward? If the present Front-Bench consensus prevails, we are surely obliged to look at the way in which health, education and other public services are financed in the United States and Japan. Let me pick out one feature. In almost every case, services which in Britain and elsewhere in Europe are provided at public expense free to the users are funded in the United States and Japan on a mixed public-private basis. In my view, the only way forward consistent with our aspirations to keep a low public expenditure to GDP ratio and to maintain high-quality public services is to put them on a new financial footing based on a mixture of public and private funding.
I do not want to venture any general observations about how it should be done, except to say that we must recognise how astonishingly inept we have been in the past at handling the issue, notwithstanding the recent welcome innovation of the private finance initiative.
Every ideology—left, right and centre—has conspired to produce the result that in Britain services are either wholly private—in which case almost anything goes—or wholly public, in which case the Treasury rules, usually to the most obscurantist degree. We face a real effort of imagination—almost of self-overcoming—if we are to succeed on the road we really must take.
The best that I can do in the time I have today is to turn to one sector of public spending in which we are perhaps closer than in any other to embracing the idea of public-private co-operation: higher education.
In the universities, even at the height of the welfare state consensus, there always remained an element of private finance in the shape of the deemed contribution by parents to the maintenance of their student children. At the end of the 1980s, I had, as a Minister, something to do with the introduction of a further source of private finance through loans to students to enable them to finance part of their maintenance by anticipating their future earnings after graduation. Although the policy was fiercely resisted at the time, it is now seen to have been right and there is a emerging consensus that students and/or their parents should be expected to contribute further. A committee chaired by Sir Ron Dearing is deliberating on the matter and is expected to report in the mid-year—safely after the election.
I now come to what I consider to be the essential issue—whether, as some suggest, increased private contribution to higher education costs should continue to be limited to maintenance costs only, or whether it should be directed to the funding of higher education proper. In line with my previous argument about the implications of the attitude of Members on both Front Benches to tax and spending, I would plead with Front-Bench Members at least to keep the option open during the election campaign.
One reason for my request is that the additional finance that will be required to maintain higher education of an acceptable quality will not be forthcoming simply by shifting into university funding the residual public spending of some £1.3 billion which at present goes to student support, if that were to be the deal on offer. Sir Ron Dearing and his colleagues will make their assessment of what will be required and it would be wrong and, above all, unnecessary for Front-Bench Members to prejudge the matter before the committee reports.
1094 I said earlier that in Britain every ideology conspires to make us bad at managing private-public partnerships. The debate about higher education funding provides a good example in the shape of the widely held notion on both sides of the House that education must be free, so tuition costs at university must always be met by the taxpayer with nothing expected from students and their families. The great principle of universal free university education is absent in the United States and Japan, where the great private universities and the state universities charge tuition fees. It is also a comparatively recent innovation in Britain, where a deemed parental contribution to tuition fees remained until the late 1970s.
The notion that university education must be free to users has no philosophical justification. There is a logical link between the idea of compulsory education and the principle of state funding. If the state imposes an obligation upon parents, it has a duty to ensure that parents—or at any rate poor parents—can meet that obligation. Outside the limits of compulsion, however, it seems to me that there is no moral obligation on taxpayers to pay for education. The only considerations are those of expediency, such as at what price for education do undesirable consequences emerge in terms of participation rates or access by all social classes. Can it really be true, as the exponents of free higher education sometimes seem to argue, that the price of education to the student has to be set at zero to bring about any desired level of participation?
Is university education so poorly esteemed among the working classes, for example, that any price above zero will make it unattractive? One has only to ask those questions to know the answer. Practical experience since the introduction of student loans has demonstrated that requiring students to contribute to their costs while studying is compatible with higher participation rates in general and in detail with higher participation rates from the less advantaged social classes.
Two further fallacies underlie the ideology that although their maintenance might be paid by students themselves, tuition should not. The first is that there is a meaningful distinction to the student and his family, but in practice each student will have only one budget in which what matters is the size of his total outgoings rather than their various purposes. The second is that while tuition is a fixed cost, maintenance is a discretionary variable—as if the geographical distribution of our universities and the range of their courses were such that all students had an equal discretionary ability to save costs by living at home.
That brings me to equity, which must always be a central value in our public expenditure policies. Not only is it inequitable and unrealistic to assume that more than a fraction of students have the discretion to continue to live at home; there is also a marked inequity in the idea that the additional contribution we envisage from students should be towards maintenance rather than tuition.
If the entire cost of student maintenance has to be met by student borrowing, the effect will be to eliminate the contribution that is now expected from better-off parents, and amounts to some £800 million. Making students liable for all their maintenance costs would be socially regressive, in the same way as Shirley Williams' abolition of the parental contribution to tuition fees in the late 1970s.
1095 Still worse, if our main concern is to restrain the growth of public expenditure, the policy of requiring the student to contribute more to his maintenance rather than to tuition costs must be relatively expensive, at least until that distant date when income from the loans scheme will exceed expenditure on it.
As such a high proportion of the student body is from better-off families, the Treasury will incur substantial up-front costs as parental contributions are replaced by student borrowing. If, however, the parental contribution to student maintenance were retained alongside a private charge for tuition, most better-off families would continue to use their own resources to assist their student children to pay the bills.
In debates about public expenditure, it is all too easy to frame one's arguments solely in terms of the balance sheet, and that is how I have argued so far. We also have to recognise a deeper truth—that the way in which we pay for services can have implications for the way in which they are provided. Let me again apply that insight about public expenditure to the specific case of higher education.
There is a curious paradox in British universities today. In every other area of public policy, there is a healthy all-party consensus that decentralisation is desirable, that local units should be encouraged to get on with the job and that morale in public services depends on local initiative and local responsibility. In our universities, however, the whole trend of the last 20 years has been in the opposite direction. As the cost to the state of higher education has risen, the state and its agencies have, perhaps inevitably, become more and more directive and intrusive in their relations with the universities. The effects are well known to all who know the universities: a growing sense of powerlessness, and a pervasive demoralisation. The balance sheet may look good to the Treasury—more, much more, higher education at lower, much lower, unit costs—but what, meanwhile, is happening to what we think that we are buying?
Here we move beyond the question of resources to more fundamental questions, about the conditions in which activities such as university teaching and learning survive and flourish. I believe that what is needed is a greater measure of autonomy and local responsibility than the present state-dominated and state-accountable funding arrangements allow. Not only are more resources required for that, but, more fundamentally, those resources should be private, not public, and those who provide them should be accountable not to politicians and bureaucrats but to the users who benefit—or hope to benefit—from what they are paying for.
That is not to say that I am calling for a complete privatisation of the universities. That would be impracticable, and, in view of the importance of the public interest in higher education, it would also be undesirable. What I am pleading for in the funding of higher education is a mixed financial system, analogous to, for example, the system in the university of California. If we are to approximate to the American ratio of public expenditure to gross domestic product, let us at the same time adopt the admirable American system of higher education funding, in which the taxpayer's contribution is complemented by student fees so that the autonomy of 1096 universities is underpinned by the margin of financial manoeuvre that is secured by some 10 to 20 per cent. of income outside state control.
In the interests of social equity, the state should of course act to enable students to pay such fees. The student loan scheme should be extended—preferably outside the public sector borrowing requirement—to enable students to borrow up to a certain overall limit, both to maintain themselves and to pay their contribution to the costs of tuition. Beyond that the state should not intervene, except perhaps to insist that "means-blind" admission policies should be followed as a condition of state funding. In particular, the state should resist the temptation to try to fix the level of student fees. As the purpose of the policy should be to underpin university autonomy, the matter of fees should be left entirely to the autonomous institutions. It should be an essentially private transaction between universities and their students.
I make no apology for taking advantage of a debate on public expenditure to make a speech that is mainly about university finance. Not only is higher education an important branch of public spending in quantitative terms; it is also a striking example of how the way in which public spending works can affect the quality of the services being purchased. Our universities are like the proverbial goose that lays the golden eggs. So much do we appreciate the eggs that we are directing more and more effort to their mass production at the lowest possible cost-to-benefit ratio. As a result, the gold is rapidly turning to ever-thinner plate, and we are on course to create a university system that is over-centralised, over-bureaucratised and increasingly lacking in quality. In a country which has to live by its wits, that is unacceptable, and the first step towards putting the matter right must be to recognise the unreality of the assumptions about public expenditure, on both sides of the House, that have brought us to this pass.

§ Mr. Andrew Miller (Ellesmere Port and Neston)
It is a great pleasure to follow such a thoughtful speech as that made by the hon. Member for Wantage (Mr. Jackson), although I disagreed with some of his conclusions, especially the one relating to his Californian example. The way in which the economy works in that part of the United States is so fundamentally different from the way in which it works here that I am not sure that it would be possible to import the system. Nevertheless, the House should heed the hon. Gentleman's thoughtful comments.
A few minutes ago, a telephone message was passed to me, consisting of some of my daughter's interim examination results. I am rapidly putting money aside for to fund her university education.
The debate began with what appeared to be a campaign to secure shadow Cabinet places under the next Labour Government. I want to deal with two specific issues, one of which was not dissimilar to a point raised by the hon. Member for Wantage. The first is public funding for science, which used to be—and doubtless still is—of great interest to the Chief Secretary to the Treasury; the second is the funding of local authorities. There are serious anomalies in the Government's attitude to both.
In his usual robust fashion, the right hon. Member for Wirral, West (Mr. Hunt) spoke about the Wirral, South by-election, and made a number of comments about the 1097 European dimension. A week ago today, I attended a party in Hulme hall, Port Sunlight, to celebrate a magnificent victory. The last time I was in that hall, I was negotiating with Unilever on the creation of a European works council—that was during my previous life. Unilever, one of our most successful companies, has agreed to set up works councils to cover the various divisions of its operations, and now recognises that there are benefits to both company and employees in keeping the organisation moving.
I return to the public funding of science. As most people will know, during the past two days, the Science and Technology Committee has been considering the subject of a sheep called Dolly, which has probably had more jokes made about it than any other sheep that has ever existed. Some important issues were raised. In a public hearing today, the Roslin institute gave extremely important evidence to the Committee.
What worries me is that, in our drive to lower the headline public expenditure figures, we are not looking behind that headline and at the detail. As a result, confusing messages are emerging. The Roslin institute has links with not only the Ministry of Agriculture, Fisheries and Food but the Home Office, the Department of Trade and Industry and the Department of Health, and the funding structure is very confused. We were shocked to hear today that the institute, which is doing very valuable work relating to animal husbandry and future medical benefits, is suffering massive cuts. It is rather ironic that the Minister of Agriculture should be limping with a broken limb today, given that one of the 30 per cent. cuts was in bone biology. We are missing the point. A long-term investment strategy should be adopted in such areas to ensure that the public get the best value for money.
One of the great problems—the Chief Secretary will recognise it from his days as a Science Minister—is the long gestation period of such research. It has been especially difficult to create the right financial structure in the United Kingdom to generate private sector companies that will support the type of innovative companies that exist on the west coast of California that do research in, for example, human genetics, and will give more support to the work of the public institutes and the universities. One company, PPL, works closely with the Roslin institute, but such companies are rare in this country.
Our venture capitalists seem to lack the confidence to support research in areas in which the Government might pull the plug. For example, tremendous work is being done with transgenic sheep, an area of research that may yield clear therapeutic benefits for cystic fibrosis sufferers. That will be of great benefit to individuals and, of course, to the public purse, because supporting those who suffer from complex genetic illnesses costs significant sums. Financially and morally, we should try to create the environment in which such research can take place.
Sadly, because headline cuts are needed to satisfy the soundbite politics of the Chancellor, we have not addressed the long-term strategic needs properly. The work that is the subject of the Select Committee's inquiry will receive a 50 per cent. cut in this financial year and is projected to lose all its funding from the Ministry of Agriculture, Fisheries and Food in the following year. That is shortsighted, and it will have two effects. First, 1098 it will mean that the Roslin institute has to cut its major research programmes that could be beneficial to animal husbandry and human health. Secondly, people will lose their jobs and, potentially, become a burden on the state. The entire team might be headhunted by countries with a more innovative approach to the public funding of science. The team could go and work on the west coast of the States, because of the different funding environment. I hope that the Government can give some reassurance to those people. The bizarre tabloid headlines of the past week may have woken the Treasury up to the need to continue funding for that research because of its long-term social benefits.
I shall now consider the problems experienced in Ellesmere Port and Neston, which the district auditor believes to be a well-run local authority. Again, the Government are missing the point about some serious problems. Extraordinarily, given the language that we often hear from Tories, the Government are missing the point about the relevance of investment. That shows in a wide range of areas. The Government have deployed various arguments to explain why they have changed the freedom of local authorities to establish their spending base. The Government now decide the total spending, the planning fees that local authorities can charge, and what they can borrow. Local authorities have to compete with other local authorities for additional resources, such as the single regeneration budget. The projects on which SRB money should be spent are also decided by the Government. That is bizarre. I do not understand how someone 200 miles away can determine the best strategic approach for the redevelopment of a town centre.
Last night, the council set a budget figure for 1997–98 that I predicted almost precisely when I commented on the Chancellor's local government figures in the Budget. The increase in the council tax is some 6.4 per cent. The district council collects the money for the county and the police authority, and those two institutions take up some 83 per cent. of the funds collected. Locally, we began the budget process with a Government decision that we needed to spend some 3.2 per cent. less than last year, despite inflation increasing by 2.5 per cent. The reduction of 3.2 per cent. in what we are supposed to spend is almost the highest reduction in the country.
The reduction in spending does not take account of comments made by the district auditor, or of programmes to promote inward investment and to raise housing standards. We all know the correlation between poor housing and poor health. Because of the inflexibility of the funding decisions, the programme of work to renovate pre-cast reinforced concrete properties has been halted, even though it would provide financial advantages for the local authority and the central Exchequer in the long term. If the programme remains stagnant for much longer, the authority will have to demolish properties because they will be beyond economic repair. That is not a good use of public money.
Similarly, there is less flexibility on business rates. Hon. Members who do not live in areas with heavy industry perhaps do not understand the problem. The petro-chemical complex that stretches from Runcorn to Ellesmere Port is a hazard site, and significant funds have to be invested to boost fire service protection and to deal with the environmental health issues that arise from public worries about pollution, yet we derive no benefit from the business rate, which is drawn down to the centre. 1099 The local authority is charged with the duty of collecting it, but it does not get its fair share back. Under the previous rating system, there was an element of equity. I believe that Shell was the biggest ratepayer in the county at the time, and that money was available to help boost the shortfall on fire safety and environmental protection issues. Again, we have found ourselves somewhat disadvantaged.
The result of the financial programme is that repairs have been postponed and staff have been reduced—including, I have no doubt, people from the direct works department, which generates a profit and is certified to BS5750. It has been able to get out into the marketplace and win some exciting tenders, but is being stymied by this process. We expect increased charges, even for services that affect our elderly population, such as bus passes. The programme of minor improvements is slowing down and the issue of balances is close to being a joke because the balances are almost non-existent.
How the calculation works and, as I have suggested locally in the past year, the fact that the Government seek to blame the local authority for its council tax rise, is clear when we see how the council tax calculation is made. Of the average increase of about £19.28, the local authority is directly responsible for only 8p. That is extraordinary when we see the Government again running the headline about the successes that they claim will emerge from the Budget.
All the Government have succeeded in doing in both the examples that I have cited is to pass the buck elsewhere. First, the headline cuts in public science will result in long-term disadvantages to the country as well as potentially higher expenditure on unemployment. Secondly, we are seeing an attempt to blame local authorities for something over which they have 8p in £19.28 responsibility. That is not a fair burden of blame. The real blame lies on the Government Benches.
We have heard today a number of examples of how the iniquities in society have grown worse as a result of the processes with which we are currently faced. The right hon. Member for Epsom and Ewell (Sir A. Hamilton) referred to the minimum wage, but he failed to address the other side of the coin. He did not seek to justify employers squeezing down wages and sending people down the road to gain family credit and income support. That is not a proper use of public money. We should set much higher standards than that.
We have also heard about people's rights. The Deputy Prime Minister referred to my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), to deal with what he was alleged to have said in a television interview. My right hon. Friend quite honestly said that he believed that people have rights.
I have referred at length to people who I believe have rights. For example, the people who will benefit from the long-term work at the Roslin institute have rights. The people in my constituency living in poor housing have rights. We as politicians should address those rights. That is where the Deputy Prime Minister missed entirely the point of my right hon. Friend's contribution. We must address the needs of those categories of people and we have a social responsibility to do our best to do that.

§ Mr. Peter Brooke (City of London and Westminster, South)
The hon. Member for Ellesmere Port and Neston (Mr. Miller) paid a compliment to my hon. Friend the Member for Wantage (Mr. Jackson), to whom I thought the House owed a genuine debt for using this occasion for so elegant an analysis of a subject very important to our national future, following so swiftly on the Adjournment debate on the same issue initiated by our mutual hon. Friend the Member for Buckingham (Mr. Walden), at which my hon. Friend the Member for Wantage was also present. It is an index of the House's occasional serendipity that the hon. Member for Ellesmere Port and Neston should have followed on a directly analogous topic. I shall, however, be briefer.
I apologise to the House for my absence from the debate for an hour, of which I advised Madam Speaker in advance. I have for the past 20 years been a trustee of a third-world trust, and chairman for the past 10 years or so, and the timing of our trustees' meetings is dictated by the availability of our director, who is often in the third world. I meant no discourtesy to the House.
This is the first time that I have revisited a public expenditure debate since July 1989. Had that year's Government reshuffle—what I choose to call a shuffle—occurred in September 1989 rather than in July, I should have become the longest-serving junior Treasury Minister since 1979.
Today's are arcane matters, yet they constitute 40 per cent. of our national economic activity. In the third of a century between 1945 and 1979, each ratchet of the economic cycle, regardless of who was in government, found us at the end of each relevant ratchet with the economic indices of inflation and unemployment worse than they had been at the end of the prior respective ratchet. My own public expenditure responsibilities during my four years in the Treasury were restricted to assisting the then Chief Secretary in certain regards detailed in the document "Ministerial Responsibilities" of that era. My role was essentially that of Oddjob, the title assigned by the noble Lord Healey to his then Chief Secretary, the noble Lord Barnett, in 1974.
However, I derive vicarious pride, taking a long perspective, from the fact that the high point of public expenditure in the mid-1980s was down to 45.5 per cent. as a percentage of national income and is down to 43.5 per cent. so far in the 1990s, by comparison with 47.25 per cent. in the 1970s. That is a wholly beneficent trend, markedly different from the post-war third of a century that I mentioned earlier, and reflecting the admirable control of public expenditure by Conservative Governments since 1979.
In terms of the current public expenditure plans, I will dwell for a moment on education where, in succession to my right hon. Friend the Chief Secretary, and a little before my hon. Friend the Member for Wantage, I served as Minister with responsibility for higher education in the early 1980s. I have noticed that the Leader of the Opposition has said that his party's priority is education, education, education. My right hon. Friend the Chief Secretary and I inherited from the Labour Government an age participation rate in higher education of one in eight. It is an index of the economic success and the imagination of the Government that, despite our rigorous control of public expenditure, the higher education ratio has now 1101 reached one in three. I share with the Leader of the Opposition an enthusiasm for expenditure on education, but I would respect him the more if he gave occasional credit for the scale of the achievement by the higher education sector over the past 18 years.
Earlier this week, I attended a rather scrappy conference put on by some bishops, about what they called the forgotten 30 per cent. I mean no disrespect to the hon. Member for Newham, North-East (Mr. Timms), who spoke there, when I call the conference scrappy. That description is a reflection of its unfocused format.
I am proud that the Government have increased public expenditure per pupil by 50 per cent. in real terms over the past 18 years. I hope that, in the coming years, the increased spending on schools in the present plans will lead to an improvement in performance by the bottom 30 per cent., to match the advances by the top 30 per cent. that I have just mentioned.
Sadly, the commonplace objection to selection in schools—that it condemns many to secondary modern education—has not insured us against an unsatisfactory level of performance among the bottom 30 per cent. in comprehensive schools.
In Northern Ireland, where there is 34 per cent. selection, deliberate attention to the bottom 30 per cent. achieved, at least for a period, an improvement in that sector swifter than any such improvement in Great Britain. That proves that improvement at that level can be effected by the application of intelligence and effort.
I have one last thing to say about the present public expenditure plans. I realise why my right hon. Friend the Chief Secretary finds it necessary to cut public expenditure in small Departments in the same way as in large. Large Departments would complain if he did not. But value for money is a key motivator of the Government, and my right hon. Friend will recall his time at the old Department of Education and Science, which I mentioned earlier.
I do not know about my right hon. Friend, or, indeed, about my hon. Friend the Member for Wantage, but during my time there, my detailed knowledge about expenditure in the area of my responsibility was far greater than it could ever have been when I was Secretary of State for Northern Ireland. I dare say the same might have been true when my right hon. Friend was at the Ministry of Agriculture, Fisheries and Food, or at the Department of Health.
Because of the greater familiarity with what one is spending, and thus the ability to be much more in control, in a small Department, I share the unhappiness of some of the clients of small Departments, because cutting those Departments causes them disproportionate damage, yet makes very little difference to the greater sum of things.
Having been rigorously objective about the Government's plans, I shall allow myself a moment of self-indulgence to comment on the public expenditure plans of Her Majesty's loyal Opposition. I appreciate that "plans" is an imprecise word to describe the aims and aspirations to which Opposition Front-Bench spokesmen periodically allude.
1102 Earlier tonight we heard the deputy leader of the Labour party, the right hon. Member for Kingston upon Hull, East (Mr. Prescott), deliver an exegesis of his views on eye tests. As Lewis Carroll wrote: 'When I use a word', Humpty Dumpty said in a rather scornful tone,`it means just what I choose it to mean'". It is noticeable that some of the pledges from which the Opposition claim that they have resiled have been repeated not once but twice, many of them since November last year, when they originally alleged that they had not been pledges at all. We cannot reasonably be blamed if we recall the words of the Bellman, another of Lewis Carroll's characters: What I tell you three times is true". The line that clear statements about the Opposition's intentions, with clear spending implications, were simply jeux d'esprit, or thoughts collected in a ramble through the woods, does not retain credibility if the risk-laden words are spoken time and again. Nor is disingenuousness about public accounting rules, as in the case of council house receipts, halfway to being an amulet. Labour spokesmen may convince themselves that they are protected by Humpty Dumpty definitions, but it is certain that the financial markets would exact an instant punishment for such disingenuousness.
Of course I acknowledge the fact that Treasury Ministers must make assumptions. Conservatives see virtue in learning from the past. In 1974, the Labour Government made assumptions that underestimated by £4 billion, in 1974 sterling, the level of their public sector borrowing requirement, on which they built their spending plans. From that, so many of their subsequent difficulties flowed. It is unreasonable of the Opposition to deny the Government the right to make assumptions about the Opposition's stated intentions of substance.
The Labour Government did not learn from their mistakes. After everything that they had done between 1974 and 1976, their public expenditure White Paper dated February 1976 began: we intend broadly to stabilise the level of resources taken by expenditure after 1976/77". Those words are worth recording in the light of what happened later that year, and worth measuring against the pious words that the shadow Chancellor has latterly been uttering about his present intentions.
My right hon. Friend the Deputy Prime Minister referred to the privatisation of London Underground. The responses of the Opposition on the day that my right hon. Friend the Secretary of State for Transport announced that were embarrassing. They were inept, irrelevant and primaeval. However, all was explained within a week, when Conservative Members received a letter from Mr. Jimmy Knapp explaining why he was against the privatisation. His very opposition has implications for the public finances.
The vacuum on health policy in the Labour party is equally embarrassing, and this time it cannot be covered up by promises about increasing public expenditure. The vacuum has been there a long time, but it was previously concealed by public expenditure promises. As was once said of Mr. Asquith: his well known lucidity of style was a positive disadvantage when he had nothing particular to say". 1103 As for pensions, the Opposition's knee-jerk reaction to the announcement by my right hon. Friend the Secretary of State for Social Security was the vividest of demonstrations that, to mix my metaphors, beneath the skin-deep pieties, the leopard has not changed its spots.
The Opposition will say that, despite their policy vacuum, they enjoyed the confidence of the electorate in the Wirral. They have paid us the compliment of adopting, hip and thigh, the commanding policies of the Government on economic management—but their attitudes to markets remain profoundly ambiguous.
The Opposition's imprecise statements about public expenditure have smacked of a communitarianism from the other side of the Atlantic, and of Michel Albert's propositions from this side of it, with their moral feel-good factor. However, the trouble with those theories is the fact that they blunt the rigour of markets, and are incapable of accurate calibration.
I appreciate the fact that those theories are, in part, a reaction to the wilder intellectual propositions of the new right in the United States. Forty years ago, in a course at the Harvard business school entitled, "Business Responsibilities in American Society", I was brought up to believe in the tenet that a private corporation has responsibilities to customers, to employees and to the community at large, as well as to shareholders. All hon. Members have in their constituencies hundreds of companies that pursue exactly the same policies, from many motives, of which intelligent self-interest is not the least.
It is, I fear, the miasma of communitarianism towards which a patently under-prepared Opposition seek to seduce the country. That is why this debate, and the Deputy Prime Minister's powerful exposé, has been so valuable.
When I was in the Treasury, we had a saying that that which could not be measured did not exist. That proposition was once put to the test by the Foreign Office, which we all know and love, when there was concern about whether Mr. Ernest Bevin, who was then Foreign Secretary, would be able to get through the doorway between the main spare bedroom and the main spare bathroom in the Brussels embassy.
A telegram was sent to London saying: Please verify diameter of Secretary of State". The reply demonstrated what many of us had long feared—that the Foreign Office is more literate than numerate: Unable verify diameter but circumference is 60 inches". An inability to measure precisely is a hazard in the public finances, too. I quoted earlier the Bellman in "The Hunting of the Snark"—whose ending the House will recall. It is because the Opposition are pretending to be a Boojum, but we suspect that they are really a Snark, that we shall revisit this subject time and again before polling day.

§ Mr. Stephen Timms (Newham, North-East)
I am pleased to be following the right hon. Member for City of London and Westminster, South (Mr. Brooke). I was 1104 pleased, too, that he drew attention to the conference that he and I attended at Central hall, Westminster, earlier this week, which addressed the issue of the forgotten 30 per cent. Whatever the defects of its format may have been, it directed attention to a proper concern about the state of our nation.
The stark central fact facing the next Government, as they consider their policies for public expenditure, will be that Britain is more unequal today than it has ever been this century. The very rich have done brilliantly since 1979, but the hardest-up 10 per cent. are 17 per cent. worse off. That inequality is getting worse. Britain is becoming more divided and more troubled every day. At the coming election, the question facing every voter is whether to let that situation carry on getting worse, with the Conservative promises to scrap inheritance tax and capital gains tax—which are paid overwhelmingly by well-off people—or to elect a different Government who will put fairness first and will stop the huge handouts to the rich.
There is no doubt about the size of the task that we face. Study after study has found a growing gulf between the wealthiest and the poorest in Britain. The Institute for Fiscal Studies found in 1994 that the gap between the highest and the lowest wages in the United Kingdom was the biggest since records began. It reported that the wages of the top 10 per cent. of male earners rose from 1.67 times the median wage in 1979 to twice the median in 1993. Meanwhile, the wages of the lowest-earning 10 per cent. fell over the same period from 69 per cent. to 58 per cent. of the median.
Since 1980, earnings inequality has risen faster in Britain than in any other industrial country apart from the United States. We have the third highest proportion of low-paid workers after the United States and Canada. The top 20 per cent. of earners take 67 per cent. of total income, while the proportion taken by the bottom 20 per cent. has fallen from 14 per cent. to 9 per cent. The bottom 10 per cent. take just 2.5 per cent. of total income.
In a survey last year, 90 per cent. of people, including a majority even among the highest-earning groups, said that they believed that the gap between the highest and the lowest incomes was excessive. People know that that inequality is wrong. The Catholic bishops' recent document, "The Common Good", pointed out that a society in which the gap between the top and the bottom is so great is not meeting the common good. Having engineered the conditions in which inequality flourishes, the Government have stood aside and watched, refusing at times even to admit what has happened.
The Government's policies on public spending over 18 years have left a deeply divided nation. Crime flourishes as legitimate economic opportunities become scarcer and young people turn to other means to earn a living. The Deputy Prime Minister said—12 years ago, admittedly—that Against a background of high unemployment, the invitation to crime becomes more appealing. Idleness becomes a resentment that gives crime an indefensible normality. He was right. I hope that he is as concerned as I am that in my borough of Newham in east London, 39 per cent. of young people under 25 are without a job and 45 per cent. of households contain nobody in employment.
The heart of my argument is that that yawning inequality harms everybody, not just those at the bottom of the scale. Through our taxes, we all pay for 1105 unemployment and the price of economic failure. We all suffer if people are scared to go out at night because they think that they might be mugged. We all have to pay for the extra security to protect our homes from burglary. It is a remarkable fact that, whereas in 1979 we spent twice as much on education as we did on the costs of unemployment, today we are spending more on unemployment. We must shift that priority back. The central objective in our public expenditure policy must be to address the deepening inequality.
I was interested to see an article in Monday's Financial Times by a former United States Secretary of Labor. Under the heading, "The menace to prosperity. Widening inequality poses a threat to the US and other societies", he rightly pointed out that there is no escaping the underlying moral question, which is also a political one … Are we, or are we not, still in this together? I have three central criticisms of the Government's public expenditure policy over the past 18 years, which has brought us to the position that we are in. First, too little has been spent on investment and too much on consumption. Secondly, too much has been spent on welfare and too little on education. Thirdly, in a rather different category, there has been too much secrecy around the decisions on how Government finances are spent.
There is a striking graph in last month's Bank of England inflation report, showing the proportion of gross domestic product committed to fixed investment in each year since the 1950s. It shows that since 1992, the proportion spent on fixed investment has been at its lowest levels since the mid-1950s. We have a desperately bad record on investment.

§ Mr. Brooke
I realise that the hon. Gentleman is talking in absolute sums, but I am sure that he would be the first to acknowledge that the absolute sum does not necessarily determine the return on the money.

§ Mr. Timms
I entirely accept that. My point is that the proportion of our GDP that goes in investment has been very low, particularly since 1992. That has made a big contribution to the problems that I am describing. My right hon. Friend the deputy leader of the Labour party pointed out—I think that I heard him correctly—that we are 19th out of 19 for investment in the OECD.
That is particularly true of public expenditure. The point has been made tellingly recently by Yvette Cooper of The Independent. Although the overall level of public spending as a proportion of GDP has not changed much in the past 20 years, the composition of it has. We are spending far less public money on investment—that can be explained only in part by privatisation having reduced the need for public investment—and far more on current consumption.
Yvette Cooper points out: Such low levels of investment (in both public and private sectors) are brewing up problems in the long term. Across the board from physical infrastructure to teenagers, from council houses to social insurance, money that could have been invested to give a return has been diverted to current expenditure instead. Sooner or later that was bound to cost us more. On privatisation, she goes on: when assets were sold income streams were lost too, yet the money raised was not invested. Privatisation proceeds were used for tax cuts and to meet current spending bills instead. The gap between the value of the state's physical assets and its financial liabilities … has deteriorated badly as a result". 1106 After what has happened, it is no wonder that Britain has had trouble meeting its bills and that the Government have been forced to raise taxes significantly since 1992.
The Government's principal response to the problem of inadequate publicly sponsored investment has been the private finance initiative. There are many questions about the way in which that initiative has been implemented and its effects so far. I have a number of questions for the Chief Secretary to the Treasury. The Treasury Committee said in January that it was sceptical about whether the £2.5 billion due to be spent under the PFI in the coming financial year would be achieved, given that by December only about half that amount had been committed. How much of that £2.5 billion has now been committed? According to the Red Book, even assuming that that figure of £2.5 billion is achieved, total publicly sponsored capital spending is due to fall by £300 million next year. Will the figure be even lower, because the £2.5 billion of PFI expenditure will not be achieved?
Another problem with the PFI is the undue secrecy that surrounds the deals. I shall come back to that point later when I talk more generally about the way in which the Government conduct the economy. I believe that hon. Members need to see the details of the deals that have been done, to establish the extent to which value for money has been achieved and to scrutinise properly the spending of taxpayers' money. The excuse for withholding the details from Parliament on the ground that the negotiating position of Departments' future deals would be compromised, is a licence for unnecessary secrecy.
I wonder whether the Chief Secretary will be able to say more about how the Government can justify that defence for secrecy. Will he confirm that the details of the Treasury building PFI redevelopment project will be released as soon as the final contract is signed? Many questions are being asked about that project.
In an earlier intervention, the Chief Secretary haltingly confirmed that not one of the major hospital PFI projects that have been announced has completed the financing deal. At the same time, transport projects under the PFI are surging ahead and apparently yielding 15 per cent. savings, which I welcome. That raises a concern about the extent to which spending priorities are being distorted by the PFI process. I wonder whether the Chief Secretary is concerned that some Departments where projects are well suited to the PFI model, such as Transport, are able to grab the lion's share of investment, while other key Departments are left starved of the necessary investment.
I am also concerned about the monitoring of future PFI commitments. The Department of Health said that it is not collecting the details of PFI commitments incurred by NHS trusts. If that is so, how are the commitments being monitored?
The fundamental problem with the PFI is that far too many square pegs are being bashed into round holes. We need a well-defined set of project types for which private finance is appropriate and those for which it is not—it must be understood by contractors and Departments—instead of the present assumption that everything should be privately financed unless it proves impossible to do a deal.
Another failing to which I want to draw attention is the fact that we spend too much money on welfare and too little on education. In 1978–79 we were spending 1107 6 per cent. of our GDP on education and training and 2.5 per cent. on income-related benefits. Last year we were spending 5.6 per cent. on education and training and 5.5 per cent. on income-related benefits. Given what was said about education by the right hon. Member for City of London and Westminster, South, I believe that it is important to emphasise that the proportion of our GDP being spent on education has fallen. This year, we shall be spending more on income-related benefits than on education and training. Those figures eloquently make the case for a windfall tax. We need to make a serious investment to shift people off welfare and into work, so that we can reduce the amount of GDP being spent on benefits and increase the amount going to education and training.
My third criticism is about the undue secrecy in the process. I believe that I am right to say that it was the current Secretary of State for Defence who announced in 1992 the process of fundamental expenditure reviews. We have only the haziest idea about what has happened to those reviews since that time. Very little has been published. The Treasury has published the results of its review and I congratulate it on doing so. The Department of Social Security has published a couple of background papers from its review, but beyond that, hardly anything has appeared.
There are big choices to be made about the future of our nation. We need a debate about what should be funded through taxation. Why are such debates permitted only in a closed Cabinet Committee? That is in nobody's interest. The Chief Secretary agreed with me yesterday in the Treasury Committee that there should be material in the public domain from the fundamental expenditure reviews, but it has not happened.
The next Government must do things differently and be much less secretive about such processes, because better policies will result. We could avoid such half-baked proposals as those which emerged yesterday on pensions. Pensions is a topic on which there needs to be consensus, not the bouncing about of semi-finished proposals.
I hope that we can go further and employ techniques such as citizens' juries or surveys using new communication technology and the world wide web. In that way, we can solicit proposals and views, to ensure that our policy proposals on spending are balanced, well thought through and, where appropriate, based on consensus.
Geoffrey Hulme of the Chartered Institute of Public Finance and Accountancy proposed recently that there should be the publication in early summer of information on departmental spending performances and plans. It could include information on how much average households in different income bands contribute to taxation and what they receive in services. Select Committees could comment on how the priorities should be adjusted.
It would be a bold step to publish the key elements of the dialogue between the Treasury and spending Departments, but discussions between the Chancellor and the Governor of the Bank of England are now published, which would have been unthinkable a short time ago. I hope that the new steps that I have suggested could be taken, because there would be great benefit from wider parliamentary and public discussion.
1108 The problems that I have identified with Government public spending policy are that we have had insufficient public investment and too much consumption, too much spent on welfare and not enough on education and far too much secrecy in decision making on public spending. The consequence of those problems is the deeply divided Britain that we have today. We need to set a new course for public spending policy, so that we can start to repair the damage that has been done.

§ Mr. Alistair Darling (Edinburgh, Central)
I am grateful to my hon. Friend the Member for Newham, North-East (Mr. Timms), who delivered a typically thoughtful speech. I shall return to one or two of his comments later.
As many hon. Members, at least those from the Opposition, have observed, today has been another Conservative Opposition day. Two weeks ago, we had the Prime Minister debating our policies on the constitution—a debate in which we were happy to join—and this week it is public spending. Next week, we were to debate another Opposition policy, that on pensions. It is an indictment of the Government that, rather than debate their policies, their record or their proposals if they were to secure a fifth term, in the dying days of this Parliament and possibly the dying days of this Government, they are reduced to debating our policies.
The fact that the Deputy Prime Minister opened the debate speaks volumes about the Government's current negative approach to politics. One might have thought that the Chancellor would expound the Government's position on public spending, but we got the Deputy Prime Minister instead. A good proportion of Ministers was with him—not in their Departments running the country or preparing for the future, but as part of a crowd scene, a large doughnut for a tired and uninspiring performance.
It is no surprise that, over the past few months, the nation has been treated to the sight of a tired lion lying down on a poster: clearly, the picture was taken in Conservative party central office where the lion had listened to what was going on and, having drawn its own conclusions, was simply waiting for the Conservatives to fade into opposition. They have given up and are fading away.
The contribution of the right hon. Member for Epsom and Ewell (Sir A. Hamilton), who is sadly no longer here, was perhaps typical of the Conservatives' attitude: they simply deny the past and deny their record. Perhaps the right hon. Gentleman took his lead from an article that the Prime Minister wrote in the Financial Times about 10 days ago. The article was not by a Tory Back Bencher or a junior member of the Government, but by the Prime Minister, no less, yet it simply denied the past and the Government's record to try to claw back some ground.
The Prime Minister said that we had a low-tax environment, even though the Government have increased taxes on 22 occasions since the last general election. He had the gall to say that he had broken the trend towards big government, yet, as we have heard many times this evening, the share of Government spending has remained remarkably constant over the past 18 years at 42 per cent. of gross domestic product. He went on to say that he had put the growth of social security benefits on a downward path, yet they have increased by 88 per cent. since the 1109 Government took office. He said that the debt burden was under control, yet he has doubled debt since becoming Prime Minister.
The Prime Minister then repeated the same old bogus Conservative allegations about our proposals and said that we had not denied or withdrawn them. He knows full well, as does the Chief Secretary, that the bogus allegations about our policies have been denied right from the start, because they are nonsense, and the Tory party knows it.
My understanding is that the Tories' starting point was to get a figure that they could use against us and then to look around for a way of validating it. That is typical of the way in which they attack us. Last November, they had a figure of £30 billion; it dropped to £12 billion 10 days ago; and now it is back up to £30 billion. Their attacks have no credibility and their entire credibility is flawed because no one believes what they say on tax or about their own spending record. It is not surprising that no one believes the Conservatives when they attack our record.
My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said in an excellent speech that we do not have to use our imaginations or to fantasise because we know the Conservatives' record. To use his phrase, a load of facts are there for everyone to see. Let us compare what the Government said in the past about public expenditure with their record.
In 1979, the Conservative election manifesto said: The state takes too much of the nation's income; its share must be steadily reduced. The share that the state takes today is 42.5 per cent. and it was 42.25 per cent. when we left office.
In 1996, the present Chancellor pledged that he would get public spending down. He should examine his record: he has never achieved that aim. The only time that the Government reduced the share of public expenditure was during the three years of the unsustainable Lawson boom of the late 1980s.
In a rare moment of candour—I understand that it was a semi-private occasion—the Prime Minister said in Chelmsford last October that the economic blot on the horizon that concerned him was the size of the fiscal deficit. That is a problem. Indeed, it is a problem. All the evidence shows that to be true. The under-performance of the economy has pushed up the cost of social security and other public spending programmes associated with economic failure. That is why the share of public spending is almost exactly the same as it was 18 years ago.
As my hon. Friend the Member for Newham, North-East said, public investment programmes, which are essential to underpin a successful economy, have been cut to stave off an even worse deterioration in the public finances. The private finance initiative—the partnership between the public and private sectors, which I and my right hon. Friend the deputy leader of the Labour party so warmly endorse—has not effected a reduction in public spending because of the Government's failure to manage the programme.
The result of that failure has been that the tax burden has grown. On present plans, it is set to rise up to the end of the decade. The surge of borrowing in the 1990s over 1110 which the Prime Minister has presided has left us with a legacy of vastly increased debt service costs. My right hon. Friend the Member for Ashton-under-Lyne, during his excellent chairmanship of the Public Accounts Committee, has drawn attention not only to economic failure, because of the failure of Government policies, but to a legacy of Tory waste.
My right hon. Friend gave some examples, and I want to draw the attention of the House to one or two about which we did not hear much from the Deputy Prime Minister. The BSE crisis cost the taxpayer £3.5 billion. The poll tax cost nearly £4 billion in administration alone. The Chief Secretary to the Treasury has something to say about that. I understand that one of the ways in which he worked himself back into favour with Lady Thatcher was by being one of two Ministers who were willing to write out on the back of an envelope a replacement for the rates system. We got the poll tax.
The British public had to pay for those failures, whether in agriculture, taxation or the cones hotline, which perhaps sums up the Prime Minister and will be his enduring contribution. That is a testament to the failure of the Prime Minister and to the inability of the Conservatives to control public spending or manage it appropriately. Imagine, a cones hotline that resulted in each telephone call costing £5,000; what an indictment of the Government.
Capital spending also suffered. It is worth reflecting that, under the last Labour Government, £1 in every £6 was spent on investment. Under the Tories, investment has accounted for only £1 in £13. That is an indictment of the Government, because public sector capital spending is one way in which Government can assist economic activity. In 1992, the former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), claimed that he was protecting capital programmes, despite cuts in other expenditures. However, the Government's record shows that he did not live up to his promises. Publicly sponsored capital expenditure will be 12 per cent. in real terms, below its peak in 1992 and 1993.
The Government have broken their promises on investment and we are paying a heavy price for it, because the cost of economic failure has to be met by higher taxation and higher borrowing. The Government have no positive proposals on that. Instead, in the brief moments that we touched on our proposals to get people off welfare and back into work, which must be good economically and socially, the Government would not engage in the debate. They are not interested; they are prepared to write off a generation and pay the cost of that failure; or rather they expect the British people to pay it.
The cost to the country has been dear. Our borrowing has increased substantially. As my right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) said, it is worth bearing it in mind that the Government have had to borrow £66 billion more than they promised to borrow at the time of the last general election. In each year since that election, the Government have failed miserably to meet their borrowing targets. No wonder people do not believe their promises on borrowing, taxation or spending. That is a testament to failure.
I admire the right hon. Member for City of London and Westminster, South (Mr. Brooke) for his loyalty, which is no more than one would expect from a senior Member of 1111 his stature. However, if he cared to look at the Government's record over the past few years, he would see that we are paying a heavy price for the failure of their economic policies. The interest on Britain's debt means that we are spending more on servicing debt than on defence. What an indictment of a Conservative Government.

§ Mr. Brooke
Will the hon. Gentleman give way?

§ Mr. Darling
In a moment. Perhaps the right hon. Gentleman will attend to this question as he faces the electorate, as I believe that he intends to. How will he explain to electors that each household in his constituency is paying, on average, more than £1,100 to service the debt that his colleagues have run up over the past few years?

§ Mr. Brooke
Given the comparison that the hon. Gentleman made between debt and defence, does he recall that, under the last Labour Government, more people were employed by the Inland Revenue than by the Royal Navy?

§ Mr. Prescott
That is even truer now.

§ Mr. Darling
As my right hon. Friend says, that is probably truer now, especially as the largest cuts in the defence budget were made by the Conservatives. Despite everything that they have said about defence being safe in their hands, rather like the national health service, they have sliced into the defence programme.
The right hon. Member for City of London and Westminster, South must know that probably the second largest demonstrations in the past 18 years—the largest were those against the poll tax in places such as Tunbridge Wells—were those against the cuts in the regiments. I particularly remember those in north-east Scotland. He did not answer my point about debt. The Government's failure to keep their promises on spending has resulted in increasing borrowing, increased debt servicing costs and, of course, a major increase in taxation.
In the old days—when I first became a Member of the House and, I am sure, when my right hon. Friend the Member for Kingston upon Hull, East became a Member—whenever a debate took place on the economy, the one thing about which every Conservative Member spoke was tax. We have not heard a word about it tonight. No wonder, because taxation has become rather an awkward subject for the Conservative party.
In 1992, the Prime Minister said that the difference between the two parties was clear; the Conservatives would cut direct taxes. That did not happen. He said, in a memorable phrase: We have no plans and no need to increase the impact of VAT", but VAT has now been imposed on domestic gas and electricity. No wonder people around the country take with a large pinch of salt the Government's claim that they do not want to extend VAT to food or anything else. At the last election, they said that they would not extend VAT, yet they did.
The Prime Minister said that he did not see any need to increase the burden of taxation. Yet the House will recall that he admitted the day after the election to his 1112 closest circle of colleagues that, within 12 months, the Tory Government would be deeply unpopular. He knew it because he knew that the prospectus on which the Government had fought the election would not stand up. He knew that they would have to put up taxes. Yet the Government did not tell people that that was what they proposed to do.
The Government's own Red Book confirms that the burden of taxation has risen since 1979 when they took office from 35 per cent. to 36.25 per cent. this year. Indeed, most people earning less than £70,000 a year will be paying more tax under the Tories. The tax bombshell that the Tories were proud to warn about at the last election has blown up in their faces. That is one of the reasons why they are losing by-elections and heading for defeat at the next election. They stood explicitly on a platform of cutting taxes, yet they increased taxes. More tax on income, more tax on spending and more tax in total. After 22 Tory tax rises, a typical family is paying more than £2,000 more in tax.

§ Mr. Bernard Jenkin (Colchester, North)
Will the hon. Gentleman give way?

§ Mr. Darling
The hon. Gentleman has not been in all night. As he has taken the trouble to come in for the closing speeches, perhaps he would like to get his name in the credits.

§ Mr. Jenkin
Does the hon. Gentleman support the European social democratic model?

§ Mr. Darling
My right hon. Friend the Member for Kingston upon Hull, East made the important point that if one compares Britain's growth record in the past 18 years with that of other countries in Europe, one sees that many of our competitor countries have done much better than us. As my right hon. Friend acknowledged, France and Germany have particular difficulties at the moment. We had particular difficulties four or five years ago. What people in Britain find dispiriting and depressing is how much Conservative Members now gloat about the difficulties that other European countries have.
I remind those Conservative Members who are still here that we trade with the rest of Europe. It is not in the interests of Britain to see Europe remain in recession. The sooner it recovers, the better it will be for Britain. What sort of a Government are so torn by internal fighting within their ranks that they invite the British people to delight in the misfortunes of other countries? What sort of outward-looking country is that?
Let us return to tax. Those of my colleagues who served on the Standing Committee which considered the Finance Bill will recall that we were deeply disappointed that the Chief Secretary to the Treasury did not see fit to join us this year. As I did not see him around the House and found that he was not included by the Tory party chairman in the line-up at press conferences called to denounce us, I took the trouble to smoke him out. I went to his constituency to try to find him. He was not there. They were all crying out, "Where's Wally?" There was no sign of the Chief Secretary.
I did find something. I found the last copy of the Chief Secretary's manifesto from the last election. It is a collector's item. It is so valuable that I have brought only 1113 a copy into the Chamber. The original is now in a safe. There is only one copy because he has retrieved them all. I know why he did that, because his comments at the last election typify the difficulty that the Tory party has got itself into. The House will recall that, then, all the Conservatives said that they would cut taxes, but the Chief Secretary went a little bit further than that. He said not only that tax would be cut but that it would be cut with 5 pence more to come". How wrong can one get it? The Government put taxes up by '7p, so to get tax down by 5p more, they would have to make cuts for many a year. That typifies the Government's attitude—promises lightly given, with no intention of delivering them.
Although the right hon. Member for Epsom and Ewell referred to the high penal rates of taxation over which Governments of the past of both political colours have presided—very much in the past—he had little to say about the high penal rates of effective taxation that face people coming off benefit into work. Is there not a contrast between the unfunded pledge of the Tory party to abolish capital gains tax and inheritance tax at a cost of £4.5 billion, with half the gain going to fewer than 5,000 people—that is the Government's promise to the British people—and our objective to lower the starting rate of income tax to reduce the barriers in order to get people off benefit into work? That is good for them and extremely good for public finances because people will stop claiming benefit, and start paying tax. That makes for a better and more efficient country.
The costs of economic failure are substantial. The deep feeling of insecurity which permeates all levels of society, no matter how people are placed and no matter what their earnings, is having economic as well as political effects. Nearly 11 million people have had a spell of unemployment since 1990. People know that they should worry about their future, partly because the Government are simply drifting along with no clear sense of where they are going or what their role is, let alone the role of the country in the future.
Of course people are quite right to be worried about the Government and what they would do if they carried on creating economic failure. Before Christmas, the Chief Secretary and I took part in a television programme when the right hon. Gentleman said: There's no secret that the Conservatives, right back to 1979"— have preferred to raise tax through indirect taxation. The lessons are quite clear.
As for the future, the Chief Secretary is, as ever, helpful. No doubt the House will be familiar with the interview he gave to "Milton Keynes on Sunday" a short while ago. The reporter asked: Are you going to tell us: 'Read my lips; no new taxes?' Mr Waldegrave said: 'No, I won't do that. One cannot tell what may happen which would need some action.' He has learnt since the last election—no more promises of 5p more to come. Now he says that he cannot tell what may happen—indeed he cannot, because he knows the Government's record. He also knows something else. We have heard a lot about spending commitments, and it is worth reminding the House that the Tory party has been making a number of spending commitments, but it cannot say where the necessary funding will come from.
At the end of January, the Prime Minister announced what he called a "sharematch" initiative, which is meant to extend employee share ownership. I support that, 1114 but where will the £50 million come from? He has also said that he intends to reduce the uniform business rate, but that could cost anything between £500 million and £1.5 billion. The Government's decision on the royal yacht told us a lot about their strategy and their attitude to public spending. That decision was designed, as the Secretary of State for Defence said, to wrong-foot the Opposition, but that was something else that blew up in his face. The Government want to extend the number of cadet corps in schools, but that will cost £1.5 billion. Where will the money come from? [Interruption.] The Chief Secretary says that they have given no costings for that. The Government are always attacking us and claiming that we have given no costings.

§ Mr. Waldegrave
Will the hon. Gentleman give way for a second?

§ Mr. Darling
Do not worry, it will be just for a second, but in a moment. Will the right hon. Gentleman tell us the exact cost of implementing the proposal to extend the number of cadet corps in schools? Where will that money come from?

§ Mr. Waldegrave
It is not that it has not been costed, but that we have made no new policy in that area.

§ Mr. Darling
It was in The Daily Telegraph. The Government have made no secret about it; it was all over the news outlets. Talk about hinting, giving an impression and failure to deny. The Tory party was quite happy to give the impression that it wanted to extend cadet corps. Perhaps it is an aspiration. Perhaps it is an aim. Whatever it is, we do not know the cost of it.
That is typical of the Government's attitude to tonight's debate. The Deputy Prime Minister, the Chief Secretary and the Prime Minister have on numerous occasions on television and radio made bogus allegations against us, yet when we ask them where money is to come from—for example, to fund pensions with a cumulative cost of £150 billion, to fund the royal yacht, or to extend all the schemes that the Conservatives come up with and will continue to come up with between now and the election—they cannot tell us. In their heart of hearts, they know that the game is up and that no one will ever ask them again where the money will come from. They know that what awaits them after the election is not running the country but squabbling among themselves and fighting for the succession to whatever is left.
I was surprised that the Deputy Prime Minister did not treat us to his usual exhortations and encouragement, saying that we face the best economic prospects for a generation. I do not know of what that generation is—a normal generation is 10 or 15 years, but he might be talking about a generation of fruit flies for all I know. The fact is that, when we compare this country with others in Europe and the rest of the world, we realise that we are not doing as well as the Conservatives would have us believe.
We have one of the highest inflation rates in Europe—our long-term inflation rates are higher than most of our competitor countries. Yes, unemployment has been falling, but only one person in three coming off the unemployment list has actually found employment. The Conservatives claim that living standards are rising, yet 1115 the Chief Secretary admitted last year that people's take-home pay had fallen over the previous few years. In addition, there is the overlay of job insecurity—it is only the President of the Board of Trade who says that that is simply a myth. We are told that we have the fastest growth rate in Europe, yet if we look at the record for the Conservatives' period in office, we see that growth has been less than was achieved by the last Labour Government. A substantial part of inward investment comes, not from new companies coming in and setting up, but simply from takeovers of privatised utilities.
By staging this debate, which has now petered out, the Government have demonstrated their bankruptcy of thought. They have nothing more to say. They continue to make wild allegations and empty promises, but they are doing so before an increasingly sceptical public who know that their record on growth, inflation and borrowing is one of failure. After 18 years, people are entitled to a change: they are looking for a Government who have a clear idea, not only of the role of the Government, but of the role of the country in Europe and in the world; a Government who are prepared to end the drift; a Government who are prepared to enter into partnerships between public and private sectors; and, above all, a Government who have at heart the interests of the many, rather than the few. People do not believe the Conservatives and they do not trust the Conservatives. They are looking for a change and that is what they will get with a new Labour Government.

§ The Chief Secretary to the Treasury (Mr. William Waldegrave)
The hon. Member for Edinburgh, Central (Mr. Darling) overran his speaking plans by about 85 per cent., which I suppose will be the sort of overrun in the expenditure plans if he ever becomes Chief Secretary, so I shall not emulate him in that respect. He might profit by reading the speeches and articles of his hon. Friend the Member for Birkenhead (Mr. Field) on the truth about security of employment and pensions—a subject to which I shall return later. The hon. Member for Birkenhead has the sense and the courage to recognise that the measures introduced yesterday are basically right.
My right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) made the point that the fundamental shift that has occurred during the course of this Government is that the worsening cycles that took place during the 1950s, 1960s and 1970s have been reversed. In every one of those cycles, unemployment was higher at the worst point and inflation was higher at the subsequent recovery point than in the previous cycle. In 1975–76, Mr. Peter Jay, the then son-in-law of the then Prime Minister, wrote a series of famous articles in The Times warning that if that worsening widening of the cycle continued, we would face catastrophe. I believe that his then father-in-law began to pay attention, because there was a change in atmosphere towards the end of that Government—a change in which the present Chairman of the Public Accounts Committee, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), probably played a part.
1116 Since then, that worsening series of troughs and peaks has steadily evened out. I agree with the hon. Member for Edinburgh, South—

§ Mr. Darling
Central.

§ Mr. Waldegrave
I beg the hon. Gentleman's pardon. I agree with the hon. Member for Edinburgh, Central that we should take no delight in the problems on the continent of Europe, our major trading partner. The quicker that a recovery is found there, by a return to the roots of liberal economics on which those countries established their success after the war, the better for all of us. They now find themselves in the position in which we found ourselves once upon a time: each trough is deeper in terms of unemployment, each recovery higher in terms of inflation. We have reversed that trend in this country. It is part of my argument that part of the reason for that is that we have turned round the trend in the growth of public expenditure.
The hon. Member for Edinburgh, Central is extremely skilful at focusing on the short term. I want to direct him to the wider picture. As my right hon. Friend the Member for City of London and Westminster, South said, under Labour and Conservative Governments in the 1950s and 1960s, the trend of public expenditure was up, as it was in other countries. It works equally well whether one measures that growth from peak to peak or trough to trough or draws the average line. The peak in the 1950s was 37 per cent., that in the 1960s was 42 per cent., that in the 1970s was 47 per cent., that in the 1980s was 45 per cent. and that in the 1990s was 43 per cent. The troughs reveal the same pattern. Unquestionably, there has been a long-term turn-around in that trend line.
Other European countries marched in step with us upwards and continued upwards after 1979. That is why they now find themselves with public expenditure as a proportion of gross domestic product at 50 per cent. and in some cases 60 per cent., with the big countries at 50 per cent. or slightly higher, whereas we have separated from that pack and have returned to a clear trend line, which will be continued if a Conservative Government are returned to power.
Through the 1980s, the underlying level of spending fell by about 4 per cent. of GDP—about £28 billion. The hon. Member for Gordon (Mr. Bruce), the spokesman for the Liberal Democrats, laid before us a strategy on these matters. It may be my fault, but it was the first time that I had heard it. It was a clear strategy—relatively clear, at any rate. He said that he wanted to hold the growth rate of all public expenditure programmes, except two, below the trend growth rate of the economy. If the growth rate of the economy is about 2½ per cent., which may be slowly but surely increasing, most programmes should be kept below that. The hon. Gentleman would finance the remaining two—health and education—with higher taxes, but their trend growth should be higher.
Broadly, I take it—I may be simplifying slightly—that the hon. Member for Gordon believes that the proportion of GDP spent by the public sector should be broadly in tune with overall growth in GDP as a whole, with some programmes growing more slowly but two programmes growing faster. I may be putting words in the hon. Gentleman's mouth, but perhaps that means that Liberal Democrat policy is that public expenditure should broadly 1117 shadow the growth in the economy, so it should stay at about 42 per cent. That is a perfectly legitimate policy; I shall posit some arguments as to why it is not a good one, but it is at least a policy.
As usual, the Labour party obscured things. Labour Members made brilliant debating points on the short term—brilliant knockabout stuff about what someone said on Tuesday that was contradicted by someone three years before, and so on—but presented no underlying policy.
The hon. Member for Kingswood (Mr. Berry) has a policy all right, because he, I believe, is a proper socialist. I guess that he wants the public sector to take a bigger role. I do not think that I would be putting words in his mouth to say that. [Interruption.] I just happened to notice the hon. Gentleman there, and I thought that I would record for his constituents the fact that he was there. I suspect—I may be wrong—that he is someone who actually believes in the public sector.
Nobody knows what the policy of the Front Bench is. [Interruption.] The hon. Member for Gordon says that the hon. Member for Kingswood is deeply offended at being accused of being a socialist. I apologise for that. The hon. Member for Edinburgh, Central, however, has no policy. He did not match the commitment of the hon. Member for Gordon. He did not say that he thought that the share should be roughly what it is now, that it should go up, that it should go down—he did not say where it should go. We are, as usual, at sea with regard to the fundamental philosophy and principle of the Labour party on this matter, as on practically every other matter.
Our policy is clear, and I will state it. We will continue what we have undertaken since 1979. We will continue with that downward trend in public expenditure. Of course the hon. Member for Edinburgh, Central can point out that at a certain point in the cycle it will be higher than at other points, but there is a clearly downward-trending line.

§ Mr. Darling
Can the Chief Secretary tell us the percentage of spending that he is aiming for? That would be helpful.

§ Mr. Waldegrave
I shall return to that. There is a difference between short-term targets and what one intends in the future, but I would hope that the growth of public spending could be kept below the growth of the trend rate of the economy as a whole over time.

§ Mr. Miller
What percentage?

§ Mr. Waldegrave
That depends how far ahead one looks. The hon. Member for Edinburgh, Central thinks that he is being frightfully clever by trying to prove a difference between me and the Chancellor. He thinks, rightly, that I said that it would be splendid if we could achieve 35 per cent. whereas the Chancellor spoke about 40 per cent. next year. There is nothing clever about that. We will achieve 40 per cent. and then we will go on with the trend line.

§ Mr. Darling
I am not trying to be frightfully clever, as the Chief Secretary puts it. He will recall that two or three years ago he said that he was one of those in the Tory party who believed that the figure that should be aimed at was about 35 per cent., and that the Chancellor 1118 referred to those people as being from the slash and burn school. There is a significant difference between 35 per cent. and 40 per cent. We are entitled to hear from the Chief Secretary where he wants to get to in percentage terms. Does he still adhere to his figure of 35 per cent. or not?

§ Mr. Waldegrave
It is not rational to talk about a fixed end target. One must examine the growth of the economy over time, and the relationship. I am speaking the same sort of language as the Liberal Democrats, who were not trying to score silly points, but were setting out a policy.

§ Mr. Miller
rose—

§ Mr. Waldegrave
I was going to refer to the hon. Member for Ellesmere Port and Neston (Mr. Miller). We have heard two kinds of speeches. We heard thoughtful and interesting speeches about the nature of public expenditure and the relationship between public expenditure and the economy—for example, from the hon. Member for Newham, North-East (Mr. Timms), but outstandingly from my right hon. Friend the Member for City of London and Westminster, South and from my hon. Friend the Member for Wantage (Mr. Jackson), who is no longer here and has explained to me why he cannot be present.
The hon. Member for Ellesmere Port and Neston, if I may say so, made a more old-fashioned speech. He took two areas of spending which he likes and lobbied for them. He said that he wanted more spending on science. We have a good record on spending on science. It will encourage him to know that research and development expenditure in the United Kingdom is 2.19 per cent. of GDP. The figures are from 1994, which is the last year for which the comparative figures are available for all the other countries. The UK figure was above the Organisation for Economic Co-operation and Development average of 2.15 per cent. and above the European Union average of 1.91 per cent. Spending on the science base has been protected and has increased in real terms.
The speech of the hon. Member for Ellesmere Port and Neston was a bid for more local authority spending and more science spending. Fine. It showed the difficulty that the hon. Member for Edinburgh, Central would have if he ever found himself in my office, because no one speaks from his Back Benches, as my right hon. and hon. Friends do, with an instinctual commitment to the control of spending. All his Back Benchers speak for lobbies and for increased spending—quite honourably, but that is what they came into politics to do.

§ Mr. Miller
I hope that the right hon. Gentleman will read my speech in -Hansard. My argument in the context of the Roslin institute is that the Government structure for that institute means, first, an increase in health costs; and, secondly, other problems such as unemployment. The key to the institute's success must be creating the right financial infrastructure that allows the public and private sectors to work together successfully. That structure has not been established, yet we are seeing cuts now.

§ Mr. Waldegrave
As always, the hon. Gentleman's argument requires more money. If he were to sit in my chair for a week or two, he would find that every spending 1119 bid was couched in those terms—I expect that the right hon. Member for Ashton-under-Lyne remembers that. When I was in the private sector, my company used to sell things to the Government. We would argue, "If you don't buy our products, people will be unemployed and it will be more expensive for you." That seemed to be a jolly good way of trying to sell our products. However, the Labour Government at the time were not much convinced by our arguments, and I am afraid that the Opposition would remain unconvinced by the hon. Gentleman's assertions.
Our belief in cutting spending does not derive from the advice of our public relations people. Labour's PR people have advised it that Labour lost the last election because it was perceived as a high-spending party, so Opposition Members now try to disguise their underlying beliefs. Our belief in low spending derives from our fundamental philosophy: we believe that the index of spending by Government is a good indicator of whether the balance between Government and the individual and Government and private institutions is correct. When spending gets too high and goes on growing, we believe that it damages individual liberty and independent institutions.
We believe also that it is economically beneficial to diminish the weight of public spending, and there is increasing evidence in support of that view. An interesting paper published by the International Monetary Fund in 1996 showed that the best and safest way of balancing budgets was achieved not by increasing taxes, but by cutting spending. That delivers longer-term balance to fiscal affairs, with all the attendant benefits. A separate IMF study—I shall be happy to send these publications to any Labour Members who wish to read them—made the more fundamental point that small Governments exhibit greater regulatory efficiency and inhibit less the functioning of labour markets, the participation in the formal economy and the innovativeness of the private sector. To put it in ordinary language: they produce more jobs.
I agree entirely with the hon. Member for Newham, North-East, the bishops and everyone else that job creation lies at the heart of the debate about the proper way to run an economy. My right hon. Friend the Deputy Prime Minister completely demolished the Opposition's old-style, subsidised jobs proposal. The hon. Member for Edinburgh, Central claimed that we would not debate that issue, but it was debated to such good effect this afternoon that my right hon. Friend demolished the Opposition's argument totally and there was no comeback possible from the deputy leader of the Labour party on that point.
In the first half of my political life, I watched Labour Governments trying to subsidise jobs and creating long-term unemployment. The trick did not work then, and it will not work now. The Opposition argue that they would somehow miraculously turn history upside down and tax one group of companies—which would inevitably destroy jobs in those companies—in order to invent subsidised jobs elsewhere. They could not do that. They would go down the social chapter route, destroying jobs with the minimum wage—as the deputy leader of the Labour party had the honesty to admit—and destroying jobs by joining in a whole range of job-destroying 1120 initiatives that come from central Europe. They would end up with higher unemployment, and thereby the central core of Labour's argument would be destroyed.
The argument as to who is better at creating jobs is almost being proven experimentally—in so far as we could ever have such an experiment. We watched countries in Europe—especially Germany—lead the way after the war with good, basic liberal economics, as the deputy leader of the Labour party said. That is what Ludwig Erhard said and what he stood for. However, when asked about this matter at the end of his life, he said that he regretted confusing the issue by talking about the social market. He said, "I wish I had not said that, because markets did the magic in Germany," and that is true.
Germany has now got itself into a cycle where it has placed such weight on its employers and put such costs on employment that it is destroying jobs, not creating them. The head of the German BDI—in the presence, I think, of the leader of the Labour party—made a famous speech contrasting the difference between the Government in Germany and the Government in Britain, to the favour of the latter. He knew very well what the situation was. Herr Henkel said: One of the Governments,"— the United Kingdom Government— has steadily reduced state influence. The other,"— Germany— has done no such thing … In Germany, the ratio of public spending to GNP has risen to 50 per cent. In Great Britain, it has fallen to 42.2 per cent … In Germany, average taxes on retained profits are 64.9 per cent. In Great Britain the figure is 33 per cent. My right hon. Friend the Member for Wirral, West (Mr. Hunt), in an eloquent speech, made those points extremely well.
Labour has a fundamental misunderstanding. It has an extraordinary capacity to pick up the wrong ideas at the wrong time. When there was real danger to this country from enemies, Labour Members were pacifists—the present leader of the Labour party came in on the Campaign for Nuclear Disarmament ticket—but when there are no such immediate threats, they become very brave warriors, and they are now very much in favour of nuclear weapons, the armed forces and so on. When the German model was working, they were against it. They did not care for it then, but now it has stopped working, and because it has gone wrong, with their absolutely compelling eye for picking up the wrong idea at the wrong time, they are in favour of it.
I am afraid that that is the story of Labour's policy on almost every principal area. Labour Members pick up yesterday's ideas just when they have stopped working.

§ Mr. Dalyell
If the Chief Secretary imagines that the Germans will abandon the social chapter and they do not, surely the time will come, sooner or later, when our partners will say that the British cannot go on having their cake and eating it, and there will be consequences in our relations with our trading partners that may not be very comfortable.

§ Mr. Waldegrave
I am not entirely sure that I understand the hon. Gentleman's point, but if he is saying that the European compulsion on the Germans would be such that they could not liberalise their markets in the way 1121 in which they now know they must, so that instead they put the same costs on us, there would indeed be severe difficulties. It is thanks to the opt-out that the Prime Minister negotiated that that danger is greatly minimised.
Happily, powerful forces are at work in Germany—arguing quite the contrary to what the Labour party thinks that they are arguing—and beginning to say, like the head of the BDI, that they have to liberalise their markets, that they have to lift the costs off industry, and that they have to make Germany competitive again, and then Germany will once again become a formidable competitor. I have no doubt about that. The quicker that happens, the better, because competitive trade is a positive sum game. We all benefit if the German economy grows fast.

§ Mr. Darling
Will the Chief Secretary give way on that point?

§ Mr. Waldegrave
Briefly.

§ Mr. Darling
This is a debate that the Government chose to hold, so let us have a debate.
Does it not strike the Chief Secretary and the right hon. Member for Wirral, West (Mr. Hunt)—whichever bit of the Wirral that we did not win—as a contradiction that the social chapter has nothing whatever to do with the rigidities in the labour market of which many people in other member states are critical? Nobody wants to import those rigidities. Indeed, the whole thrust of what the Chief Secretary and his right hon. Friend were saying is that many people in Germany, France and Spain recognise that those rigidities have to be addressed to make those countries competitive. Does not that suggest that, far from writing them into the social chapter, there is a movement in Europe to recognise that the competitive threat in the future will come not from intra-Europe but from other parts of the world? Nobody wants to import those unnecessary rigidities into this country.

§ Mr. Waldegrave
The hon. Gentleman has made—with his customary style but on this occasion without his usual intelligence—my exact point: the Labour party is probably signing up to that policy just when it is falling to pieces in the hands of the people who invented it. I thought that that was what I had just said. Perhaps the hon. Gentleman would like to think about it a little.
We have managed to follow a policy that has brought the long-term spending trend down at the same time as protecting our principal priorities for spending. Spending on health has gone up in real terms every year since 1979. That did not happen under the last Labour Government. One year, Lord Barnett was compelled to make a real cut in the NHS budget. As has been pointed out, spending per pupil in nursery, primary and secondary schools has risen in real terms by 50 per cent. since 1979. Spending on law and order has doubled.
Although my hon. Friend the Member for Wantage is not in his place, I must comment on his most interesting speech. He gave us some extremely wise advice. He gave Front Benchers a warning that I hope we will all heed—that we should rule out nothing before the Dearing committee reports, as we may need to make fundamental changes in the financing of higher education.
The Labour party has opposed all the reforms that have enabled us to match the expenditure increases with a declining trend of public spending. My right hon. Friend 1122 the Deputy Prime Minister spoke about privatisation, so I shall not cover the issues again. There was a touching moment when an Opposition Member spoke about the selling of income streams. That applied in one or two cases, but mostly it was the selling of loss making. There has been a huge turn-around. There is now a benefit to the taxpayer of about £2.5 billion a year in tax receipts whereas there had been a huge burden on the taxpayer. Of course, Labour opposed all those measures.
The civil service is smaller. For the first time since the second world war it is now below 500,000. There has been a range of positive reforms, including the single regeneration budget challenge funding principle which the hon. Member for Ellesmere Port and Neston did not much like—or at least I took that to be his argument. Those methods of challenge funding have led to far greater productivity, as has the partnership between central and local government in the projects in which they are investing.
Our plans are sustainable. The plans in the Red Book maintain spending increases of about the same level over the next three years as those we have achieved in the past three. There is not the slightest chance that Labour could match them.
As we have already pointed out, Labour Members pretend not to understand the difference between our counter-arguments in respect of £12 billion and £30 million. In the first two years in which Labour has allegedly committed itself to our figures, there is a hole in expenditure and income which would leave a Labour Government £12 billion adrift. If Labour introduced any additional spending plans in those years, the gap would be worse.
I believe that £30 billion over five years is a perfectly reasonable estimate. One of the more independent commentators, Peter Riddell of The Times, took me to task on that issue. He said that I was exaggerating the extent of Labour's spending commitments and that the figure was nothing like £30 billion. He estimated that, over five years, a Labour Government would probably spend about 3 per cent. of GDP more than the Conservatives. As 3.5 per cent. of GDP would amount to £30 billion, we do not seem to be in any disagreement.
Labour has opposed every one of our major saving measures, including the criminal injuries compensation scheme which saves £200 million, measures relating to asylum seekers which save £300 million, housing benefit reforms which save £600 million and measures affecting benefits for single parents which save £200 million. Labour denounced all those reforms, often virulently.
The Leader of the Opposition gave us a rather good example of how the Opposition operate in these matters. On "The World At One" he was asked whether he would stick to our plans to make savings of £200 million—

§ Mr. Malcolm Bruce
Will the Minister give way?

§ Mr. Waldegrave
If the hon. Gentleman will let me finish the argument, he may wish to comment on what the right hon. Gentleman said.
When he was asked whether he would stick to our plans that save £200 million by the end of the period, the Leader of the Opposition said no. Reasonably enough, we took that to be a pledge that he would replace that spending. 1123 Labour then issued a piece of paper headed, as so many of them are, "Lies". It said that the latest lie put out by the Conservatives was that Labour will spend £170 million on stopping changes to lone parents' benefits. It does not seem unfair to me that if the Leader of the Opposition answered that question no, we should assume that his answer carried some weight. The only person who appears to be lying, although that is inconceivable—the person accused in that Labour document, at any rate—is not me but the Labour leader. That is how Labour operates: it has one answer for one audience, and another answer for another audience.

§ Mr. Bruce
Does the Chief Secretary not acknowledge that it is perfectly reasonable for Opposition parties to oppose a change but not necessarily be committed to reversing it? After all, they are trying to prevent the change from being made in the first place.
Given the vast expenditure on consultancies that has ballooned under the present Government, to which the Chairman of the Public Accounts Committee drew attention—more than £1 billion—and the massive increase in spending on publicity and advertising, does the Chief Secretary think that it might be more appropriate for those people, rather than single mothers, to take a little of the spending cut?

§ Mr. Waldegrave
The hon. Gentleman makes a fair point. I cited the change that the Labour leader mentioned only because he said in public that he would reverse it.
I find what the hon. Gentleman said—and what was said by the distinguished Chairman of the Public Accounts Committee, the right hon. Member for Ashton-under-Lyne—very encouraging. As Chief Secretary, I know that there are plenty more savings to be made. That is why we can implement our plans: that is why the plans in the Red Book are realistic. That is why there should be no doubt that we will continue our record of the last three or four years of maintaining the growth of public spending well below the growth of the economy.
People are beginning to accept that Labour will tax and spend more highly. The hon. Member for Oldham, West (Mr. Meacher) let the cat out of the bag, supported by the deputy Chief Whip, and, yesterday, by a distinguished contribution from that wise man and good friend Lord Barnett, whose speech I read very closely. He knows what will happen if there is a Labour Government: they will tax and spend more. Of course, he would probably welcome that, because he has probably stuck to his old principles.
The fact that there are so many other taxes, as well as income tax, that a Labour Government could put up led the hon. Member for Oldham, West to say that the position was less bleak than it seemed. I found that most enjoyable. In the more robust and ordinary language of The Sun, 1124 Mr. Brown still has a lot to tell us. Like where the money for his colleagues' spending pledges will come from. The truth is that we have won the argument about how to manage economies. Labour Members have broadly accepted our argument: they do not understand it, but they no longer argue against the liberal economics that most of them came into politics to oppose. We have won the argument about spending, and the argument about the economy. As The Guardian put it, There is no doubt that if Mr. Blair wins the election he will inherit the most healthy economy any Labour Government has ever had. This time it won't be possible to blame the previous administration for any subsequent failures"— although the Labour party is attempting to use the alibi of the books' not being open, and so on.
Lord Desai wrote: Labour's biggest obstacle is the economy. It is in great shape. There is steady growth and low inflation. When the "Today" programme put that quotation, or a similar quotation, to the right hon. Member for Dunfermline, East (Mr. Brown), he said, "Oh well, Lord Desai is only a Lord." That is not Lord Desai's fault; it was the Labour party that made him a Lord.
The battle of ideas has been won by the Conservative party. Now, interestingly, we are also winning the battle on pensions. Let me remind Opposition Front Benchers—who are talking more nonsense to the square minute about pensions and the future of the welfare state than I would have believed imaginable—of what Whistler said to Oscar Wilde. When Oscar Wilde said, after Whistler had said something witty, "I wish I'd said that," Whistler replied, "You will, Oscar, you will." I predict that, in six months, a year or two years, the Labour party will be following us down the path to funding the old-age pension.
The debate has been fascinating for the dearth of ideas offered by the Opposition. The only contributions of any intellectual merit that we are hearing from Labour on these matters come from the hon. Member for Birkenhead, and not, I fear, from Front Benchers. Nevertheless, we have enjoyed debating with them today. Nothing is more enjoyable that debating with the right hon. Member for Kingston upon Hull, East (Mr. Prescott)—although I thought today that he was not quite at his best. He was in no danger of being criticised in the words of the quotation about Asquith that my right hon. Friend the Member for City of London and Westminster, South produced. It was said that Asquith's elegance of style—or was it his clarity of style?—made it difficult for him when he had nothing to say. The right hon. Gentleman did not find that the clarity of his style made it difficult for him to say nothing. This has been a good debate which, intellectually and on every other level, has been won by the Conservative side of the House.

Mr Richard Ottoway (Lord Commissioner to the Treasury)
I beg to ask leave to withdraw the motion. Motion, by leave, withdrawn.