Public Expenditure

HC Deb 16 July 1998 vol 316 cc592-671

[Relevant documents: Minutes of Evidence taken before the Treasury Committee on Wednesday 15 July (HC 960-ii).]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pope.]

Madam Speaker

I understand that many right hon. and hon. Members wish to speak in the debate. For that reason I have announced that Back-Bench speeches will be limited to 15 minutes.

4.48 pm

The Chief Secretary to the Treasury (Mr. Alistair Darling)

This is the first opportunity that the House has had to debate the Government's public expenditure plans. I shall set in context the announcement made by my right hon. Friend the Chancellor of the Exchequer on Tuesday, which represented a further step by the Government in implementing their manifesto commitments.

In his first two Budgets, the Chancellor had to deal with the structural problems that we inherited. Last month, he set out his fiscal strategy in the economic and fiscal strategy report which laid out a prudent and cautious approach to public spending that was widely welcomed. This week, he set out our spending strategy—increased investment, but money in return for modernisation. Investment is conditional on reform. Every Department will be bound by an agreement to deliver key outcomes on which it will be judged.

The Government's central objectives are high and sustainable levels of growth and employment and sustainable public services, built on a platform of long-term stability. We have put in place two fundamental long-term economic reforms to ensure that we get long-term sustainable economic growth, and to ensure that public spending is affordable.

First, we had to deal with the previous Government's failure to deal with inflation, which was left rising out of control, so we gave independence to the Bank of England, with the result that our long-term interest rates are the lowest that they have been for 33 years. Secondly, to impose a new framework of financial discipline, we have adopted fiscal rules that achieve a current budget balance and a prudent level of debt to national income.

It is interesting to note that even the most pessimistic of the 45 independent economic forecasts that we surveyed show that our strict rules will be met over the next three years. We have kept to the two-year spending limits that we promised at the election while we sorted out the mess that we inherited. We have imposed a significant fiscal tightening—£25 billion—which is some 3½per cent. of national income.

We have reduced the borrowing that we inherited. During the 1990s, national debt doubled. As a result, we were faced with a bill of £25 billion a year just to service that debt. That was the golden economic legacy to which the Opposition keep referring. We inherited a situation of boom and bust. Under the Conservatives, interest rates reached 15 per cent., and inflation doubled in two and a half years to almost 10 per cent. in 1990. We will not repeat the mistakes of the late 1980s—the Lawson boom—the economic miracle of the 1980s that became the economic nightmare of the 1990s, when the shadow Chancellor was at the heart of the Treasury.

Over this economic cycle and for the first time in decades, Britain is set to have both a current budget in balance and a sustainable approach to debt. Over the three years 1996–97 to 1999–2000, public sector net borrowing will fall by 3½ per cent. of national income, just as set out in the Budget figures. The ratio of net public debt is projected to fall below 40 per cent. of GDP.

Although we are boosting spending on capital, which we believe is important, we plan that the debt ratio will remain below 40 per cent. Our approach is among the most prudent of our G7 partners, and far more prudent than that of the Government from whom we took over.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

I am grateful to the right hon. Gentleman for giving way. Many definitions have been changed. Can he confirm that, on the basis of what was called the public sector borrowing requirement, the Government are running a PSBR of £4 billion next year, £5 billion the following year, and £6 billion in each of the two years after that?

Mr. Darling

That is the point that the hon. Gentleman put to the Chancellor yesterday at the Treasury Select Committee. My right hon. Friend made it clear that, unlike the situation under the previous Government, we are determined to reduce the amount of borrowing so that we can have sustainable public finances in the future.

In the economic and fiscal strategy report that we published last month, the hon. Gentleman will have seen that we have a far stricter and more open discipline than ever existed under the previous Government. There is a further innovation. The new regime breaks with the old-fashioned culture of short-termism and uncertainty. We believe that moving away from the annual negotiating cycle and the annual spending round, and introducing fixed three-year budgets, will give Departments, and therefore the public service, far more certainty than they ever had in the past.

The Government have set tough new long-term fiscal rules. To ensure that those are met and to ensure long-term investment in our infrastructure, we have separate current and capital budgets for each Department, which will ensure that capital investment is sustained.

The fiscal rules that we have adopted are rigorous. Over the economic cycle, they will bring the current budget into balance. To meet our fiscal rules, and in line with cautious and published assumptions, we plan current surpluses in the next three years of £7 billion, £10 billion and £13 billion.

We have adopted an approach that is cautious and prudent, in contrast to the previous Government's approach. In the last economic cycle, the average current budget deficit was more than 1½per cent. of GDP—the equivalent of £12 billion a year.

Mr. Francis Maude (Horsham)

If, as the Chief Secretary says, the Government intend to reduce borrowing, why does he plan to increase it?

Mr. Darling

I explained to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) that, under the Conservative Government, over the economic cycle there was a current deficit equivalent to more than £12 billion a year. We have taken a deliberately prudent and cautious approach and budgeted for a surplus in each of the next three years. That demonstrates this Government's commitment to being prudent and cautious, which is in complete contrast to the position adopted by the previous Government, who even in the good times, ran up debts that were unsustainable.

Sir Michael Spicer (West Worcestershire)

What is the point of the right hon. Gentleman banging on about a current surplus, when the total figures add up to a deficit? Every newspaper that the Government spin to says that we have a surplus, but the surplus is in the current spending. The total figures add up to a deficit.

Mr. Darling

We are budgeting for a current surplus because we believe it is important that current expenditure is covered by taxation. That was not happening under the previous Government. They were running up debts far greater than they could ever reduce. We believe that if we are to have sustainable public finances, current expenditure ought to be financed by taxation.

With regard to investment and capital expenditure, we believe that the Government should be prepared to borrow, because the benefit will come over a number of years. Even so, the total amount that the Government borrow will reduce. That is in contrast with what happened over much of the previous 18 years.

Mr. Maude

How on earth does the right hon. Gentleman arrive at the conclusion that he is reducing borrowing, when his own plans, based on very optimistic assumptions, show borrowing going up every year and the absolute size of the national debt increasing every year? Let him not mislead the House in this way.

Mr. Darling

As I was explaining to the hon. Member for West Worcestershire (Sir M. Spicer), the Government believe that we should be prepared to borrow when we are investing for capital, but we believe that current expenditure ought to be covered by taxation. Conservative Members are in no position to lecture us. Because of the irresponsibility of the previous Government, we were left huge levels of debt, which we have had to reduce.

As for the remarks of the right hon. Member for Horsham (Mr. Maude) about optimistic forecasts, we have taken a deliberately cautious and prudent approach to how much the Government can spend over the next few years. I know that there are some who wanted us to spend more, including, it seems, some Tory spokesmen. However, we are determined to take a prudent and affordable approach.

It is only because we are taking that approach and setting ourselves a tough framework that we can take the necessary action to reverse the chronic under-investment in our country's health, education, transport and housing infrastructure. As I said, the key difference from the past is that we are making additional investment, but we are demanding reform in return for that.

All new resources will be conditional on the implementation of essential reforms. We have set ourselves a clear target for modern, efficient and effective services. The House will see that in each chapter of the White Paper, departmental objectives are set out. It is money for modernisation. Every Minister knows that he or she is working to deliver those objectives. There are new targets for each area of public service, new standards of efficiency that will have to be met to ensure that every penny is well spent.

Mr. Quentin Davies (Grantham and Stamford)

Does not the right hon. Gentleman realise that he is deceiving himself when he says that his projections for deficit and debt are based on prudent forecasts? They are not at all. If the forecasts for growth—the right hon. Gentleman knows that such projections are extremely sensitive to growth assumptions—are those set out in the Red Book of 1.75 per cent. this year, 2 per cent. next financial year and 2.25 per cent. in the following two years, they are extremely optimistic. They are desperately over-optimistic at a time when the economy is turning down and manufacturing is already in recession.

Mr. Darling

The hon. Gentleman should be aware that we have taken a more pessimistic view than the Government whom he used to support. We are not taking credit, for example, for asset sales which the previous Government assumed and never had any intention of realising. I do not know whether the hon. Gentleman was in the Chamber earlier when I made the point that there have been about 45 independent economic forecasts in the past few weeks, and that in respect of every one of them we shall meet the objectives set out in our fiscal rules. We are taking a cautious and prudent approach, which stands in stark contrast to what happened—

Mr. Gibb

rose—

Mr. Darling

No, I shall not give way at the moment.

Our approach stands in stark contrast to what we had for 18 years. Something else that the hon. Member for Grantham and Stamford (Mr. Davies), who I think is now a member of the Opposition Front Bench team, should bear in mind is that although the Conservative party is criticising us and suggesting that we are spending too much, a number of Opposition spokesmen and spokeswomen—for example, the Opposition spokeswoman on health—are demanding that we should be spending more. They cannot have it both ways. However, I note that the shadow Chancellor of the Exchequer had a go at that. Yesterday, on the "Today" programme, he was asked: Mr. Maude, can you really have it both ways—asking for increased spending but opposing overall increased spending? The right hon. Member for Horsham replied, "Of course we can." The truth is that the Opposition cannot have it both ways. We are either spending too much or too little. The Opposition should work out which side they are on.

Mr. Alan W. Williams (East Carmarthen and Dinefwr)

The interest payments on the national debt are about £25 billion, and that sum is based on present interest rates. What if over the next two years interest rates fall from 7.5 per cent. to 7 per cent. and perhaps to 6 per cent? Does that mean that the £25 billion devoted to interest payments will fall to less than £20 billion? If so, does not that mean that an extra £5 billion could be released and made available again for public expenditure?

Mr. Darling

My hon. Friend should be aware that we believe that we shall be spending about £5 billion less a year in servicing debt as a result of the programme that we have set out than we would have been if we had just left the situation as we inherited it.

I was referring to the importance of securing reform in return for investment. I shall give a couple of examples of what I mean. First, let us take health. As my right hon. Friend the Secretary of State for Health made clear in his statement earlier this afternoon, we are increasing investment in health but in return for that we are looking to improve the value that we derive from spending on medicines. We are looking for improved efficiency. Already £1 billion of savings over the Parliament will be transferred from red tape, following the abolition of the internal market, to front-line patient care.

Mr. Tim Boswell (Daventry)

Will the Minister give way?

Mr. Darling

In one moment.

It is worth noting that some hospitals are 20 per cent. more efficient than others. We want to ensure that that discrepancy in the performance of national health service trusts is tackled so that we get the best possible value for the money that we are spending.

As for education, in 1996 only 57 per cent. of 11-year-olds met literacy standards while only 54 per cent. met numeracy standards. We set new and higher targets to be delivered by the year 2002. That is a clear example—

Mr. Robert Sheldon (Ashton-under-Lyne)

Will my right hon. Friend give way?

Mr. Darling

I am about to give way to my right hon. Friend.

In education there is a clear example of where we are increasing investment but demanding a far higher return and higher standards in return for it.

Mr. Sheldon

My right hon. Friend is right to draw attention to the importance of making sure that we get value for money before we release further moneys. That turns on how previous investment has been progressing. I note that there will be a Cabinet committee to deal with these matters, presumably chaired by my right hon. Friend the Chancellor of the Exchequer. Will my right hon. Friend say something about this committee? It is obviously going to be a very important committee and something akin to the Star Chamber committee that we had under Willie Whitelaw. How does that leave my right hon. Friend the Chief Secretary in connection with such a powerful committee? I know that my right hon. Friend's position will not be diminished because I expect him to move to many higher things. However, will he say something about the process itself?

Mr. Darling

I am grateful to my right hon. Friend. I will not speculate on where the Chief Secretary may be left after all this. That is for somebody else. The important point that my right hon. Friend makes relates to the audit of what happens to the additional investment. During consideration of the comprehensive spending review the Public Expenditure Committee, which my right hon. Friend the Prime Minister had set up, came to the view that if we were to increase spending, especially where there was to be quite a significant increase, as in health and education, it was crucial to ensure that we obtained some real benefit and real gain from it.

There have been occasions in the past—Conservatives may point to this—where expenditure was increased on health, for example, but it did not necessarily result in a better outcome in terms of improved health care. Indeed, part of the increase in spending on health under the Conservatives was to set up the internal market. We want to keep investment under review, which is why my right hon. Friend the Prime Minister has agreed that there will be a committee, chaired by my right hon. Friend the Chancellor, that will carry out a constant review of performance so that we will see that we are getting the value for money that we want and all the reforms that have been set out. That is something that Governments in the past have neglected. It is very important that we are satisfied that if we increase spending, as we are doing in health and education particularly, as well as across the board, we can see some gain from it.

Mr. Malcolm Bruce (Gordon)

rose—

Mr. John MacGregor (South Norfolk)

rose—

Mr. Darling

I hope that the hon. Gentleman and the right hon. Gentleman will not be put out if I give way first to the hon. Member for Daventry (Mr. Boswell).

Mr. Boswell

As the right hon. Gentleman sets great store by investment and as he has said, plausibly enough, that he wishes to receive greater benefit from public investment, will he tell the House what his estimate is of the increased annual rate of return that he is seeking from a marginal increase in investment?

Mr. Darling

The hon. Gentleman will be aware that each Department is responsible for delivering the improvements in standards and so on that have been set out. [Interruption.] As my right hon. Friend the Chancellor made clear, the public service agreements that have been reached between the Treasury and the Departments will be published. At that time the hon. Gentleman and the entire House will be able to see the nature of these agreements and then judge the progress that Departments make.

Mr. MacGregor

When the public service agreements are published, I hope we shall see that they are quantified in considerable detail. If that is the position, what will happen in the proposed committee's reviews if a Department fails to meet the targets? Will money actually be withdrawn from that Department?

Mr. Darling

As my right hon. Friend the Chancellor made clear, in both health and education money will be released only if the Government are satisfied that we are getting the returns that we want. One of the advantages of having a constant review of expenditure is that it should be possible at a far earlier stage than in the past to identify if we are not getting the reforms and improvements that we want to see.

Mr. Malcolm Bruce

That sounds as if the Chancellor of the Exchequer has the right to claw back money if things go wrong. I wanted to press the right hon. Gentleman on why the Government will not give an inflation-proofing guarantee. They are very confident in their forecasts, but if things go wrong because of inflation, that is outside departmental control. They can do nothing about inflation. The Prime Minister said that the forecasts were good, irrespective of the economic circumstances, but the Chancellor told me that these are cash limits and there will be no change even if inflation goes outside the forecast. Why will the right hon. Gentleman not give a guarantee on things that Departments cannot control?

Mr. Darling

The hon. Gentleman might have started by congratulating us on giving a significant, above-inflation increase to investment in health and education. The health service will receive a £21 billion increase while the Liberals wanted an increase of only £2½ billion. They wanted £6 billion for education, and we have increased expenditure in that area by £19 billion. The point that my right hon. Friend the Chancellor was making to the hon. Gentleman yesterday, I think, at the Select Committee on Treasury Affairs, is that Departments have been given their departmental expenditure limits and they are expected to live within them. Certainly in the cases of health and education they have a significant increase in expenditure, and that allows them to plan their provision for the next three years. They are real-terms increases.

Mr. Kenneth Clarke (Rushcliffe)

Will the right hon. Gentleman clarify that he meant what he appeared to be saying to my right hon. Friend the Member for South Norfolk (Mr. MacGregor)? Put in practical terms, did he mean that the Treasury will withdraw the promise of additional funds for the health service and reduce provision to it if the Chancellor's Committee discovers that health waiting lists have gone up and the Secretary of State has not achieved the reductions that he is promising?

Mr. Darling

I was not suggesting anything of the sort, as the right hon. and learned Gentleman well knows. I said that we have made it clear that the sums that we have allocated to health and to education will be released in return for reform. The point of the Committee is to ensure that we are making steady progress in reducing waiting lists, among other things. One of the advantages of considering these matters constantly, and not waiting until the end of an annual review, as in the past, or a three-year period, is that problems, for example in reducing waiting lists, can be dealt with far earlier and more effectively.

The right hon. and learned Gentleman, who was Secretary of State for Health some years ago, knows that many things contribute to reducing waiting lists in the health service—not only money, which is clearly important, but management, because performance can vary substantially between different hospitals and trusts. Over the past few months, my right hon. Friend the Secretary of State for Health has, among other things, been using some of the additional money that we have already allocated to identify management failures and administrative problems in getting waiting lists down. The point of having a Cabinet Committee to review these things is to ensure that we can take action to achieve improvements where performance is not coming up to the mark.

My point in respect of the modernisation fund is about incentive. We can effectively encourage hospitals to improve standards if they know that they can get additional funds to improve their performance. We have been doing that over the past few months, and it has worked extremely well.

Mr. Andrew Tyrie (Chichester)

Will the right hon. Gentleman give way?

Mr. Darling

No, I want to make progress. I shall try to give way to the hon. Gentleman later, but Madam Speaker has said that many hon. Members want to contribute and Back Benchers tend to complain if Front Benchers take up most of the time. [HON. MEMBERS: "Hear, hear."] I have sensed the mood of the House quite well.

It has struck us over the past year that many Departments could be far more efficient than they have been in the past. On defence, there are savings to be gained from improved procurement measures, and the agreement on targets will enable the Ministry of Defence to do that. The Government have not only put in place firm spending disciplines, but will ensure that they deliver the results that we want to achieve.

We have considered whether resources are targeted effectively, and over half the additional resources have gone to our priorities, health and education. We are getting rid of assets that we do not need and the MOD, for example, is selling property in central London so that resources can be diverted to the front line. The Foreign Office is to sell property that it does not need to finance services elsewhere, and we are making increasing use of the national asset register which, for the first time, showed what the Government own.

Far greater emphasis has been put on prevention, because it makes sense to tackle the causes of crime and the causes of poor health rather than leaving the public purse to pick up the pieces. We are helping young children to get the best possible start, we have introduced a new crime prevention strategy and we are dealing with the problems of drug misuse.

In addition, public spending has an important role in raising the rate of sustainable growth. In the global economy, the skills and training of the work force will mark Britain out as a place to invest. As we have shown, our priority in education is absolutely clear: we have achieved a record 5.1 per cent. average increase in spending over the next three years, which contrasts extremely favourably with the previous Government's record.

To deliver a more efficient economy, we need to invest in a first-class science base. As my right hon. Friend the Chancellor made clear, the Government have increased science spending by £1.1 billion and we have set up a public-private partnership with the Wellcome Trust to create a pool of £600 million which will be available to further scientific research. That is, of course, in addition to the £50 million challenge fund announced in the Budget, which will bring science and industry closer together so that good research ideas can be converted into good business ideas. That clearly demonstrates the Government's commitment to the future.

Mr. Mike Hall (Weaver Vale)

My right hon. Friend will be aware that the Daresbury laboratory is in my constituency. Since 1993, I have been pressing Governments to invest in the next generation of synchrotron radiation research, and £100 million of expenditure has been announced to replace the synchrotron radiation source at Daresbury. We have not yet convinced the Government that the next £100 million should be invested at Daresbury, but I press on my right hon. Friend the fact that that investment is needed. If it comes to my constituency, I shall be absolutely delighted.

Mr. Darling

My hon. Friend is right to stress the importance of scientific investment, and he will no doubt press my right hon. Friend the President of the Board of Trade on that point.

Mr. Tam Dalyell (Linlithgow)

Will all the Wellcome funds be independently refereed? Will the Treasury exercise such pressure as it can to get rid of the dreadful system of short-term, postgraduate contract research posts, which are causing such agony? People spend their lives going from year to year on such contracts, without knowing what their future will be. If pressure could be applied to do something about that, it would be a great help and vastly more efficient in terms of science.

Mr. Darling

My hon. Friend knows that I represent a city that has three universities, and I am well aware of the problems to which he refers. I hope that my right hon. Friend the President of the Board of Trade will be able to make a further announcement in due course. I cannot promise that all the problems that have been visited on us will be resolved, but most people working in the scientific field will welcome the additional investment here.

Also important is the need to invest not only in education, but in transport. My right hon. Friend the Deputy Prime Minister will publish his White Paper on transport—the first for a generation—next week. It will set out the importance that the Government attach to public and private sector partnerships, which will increase investment in public transport. We are also increasing investment in housing repairs. Each Department will draw up an investment strategy by early next year, and they will be published so that people can see the difference that the investment will make.

Dr. Lynne Jones (Birmingham, Selly Oak)

Will my right hon. Friend give way?

Mr. Darling

Once more, then I shall make giant strides towards the end of my speech.

Dr. Jones

On Tuesday, I said that the Government deserved to be praised through the roof for the extra money for science, but I am a little disappointed on housing. I am concerned about the amount of investment that is going into housing, and I have figures from the Library showing that we spent £4 billion on housing investment in real terms in 1985–86. In the current year, even with the capital receipts, the total is about £2 billion—half that figure. What will be the figure next year? Will it get up even to the poor showing of 1985–86?

Mr. Darling

May I acknowledge my appreciation of my hon. Friend praising the Government? It is perhaps worth a few moments of silence to savour that. It was perhaps too much to hope that my hon. Friend would sit down without going on to make a further point.

There are two points to be made in respect of housing. First, as in all matters, the Government had to start from the point at which they took over—investment in public sector housing had reduced substantially. Secondly, we have to be consistent with the fiscal rules to which I referred, so that growth in current expenditure and in capital investment are sustainable and affordable. I believe that the increase in housing investment is affordable and will be sustainable. It will be very much welcomed, not only by local authorities and housing associations, but, more important, by those who live in local authority and housing association property. There are major renovation and improvements initiatives and increased maintenance. I appreciate that my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones), on this and other matters, might like to have seen much much more, but the Government had to take a view on how much they could afford across the whole pattern of Government spending. The £3.6 billion increase over the period will be widely welcomed.

I want to deal with welfare reform to which the Government attach a great deal of importance. We have introduced the new deal, we have reformed the Child Support Agency and student finances and we are reforming legal aid. We said two things in our manifesto. We said that we would increase the share of national income spent on education—we have done that—and we said that we would reduce the bills for economic and social failure, which we are doing. By any view, the rate of increase in the amount that the Government will be spending on social security will be half that of the previous Government. By the end of this Parliament, it will be lower as a proportion of national income than the level we inherited.

I find the Conservative party's attitude rather curious. Yesterday—no doubt it will be the same today—Conservative Members criticised us because they said that social security spending would be increasing by £27 billion. We should look at where that increase is going. Help for pensioners accounts for over half the increase, help for the disabled and the provision of sickness benefit is taking up about a quarter and the increase in child benefit accounts for the bulk of the rest.

If Conservative Members say that we are spending too much, what would they cut? Would they cut pensions, disability benefits or the extra money for child benefit? There is a distinction between spending on pensions, disability payments and on child benefit for children most in need and the money we have been spending in the past because we have had far too many people on the dole when they could have been in work. The new deal, which the Conservative party opposes, has seen 60,000 young people go into work or take up other opportunities and nearly 40,000 lone parents are now in work rather than being dependent on benefit.

Mr. Tim Loughton (East Worthing and Shoreham)

Will the right hon. Gentleman give way?

Mr. Darling

Not just now.

The number of lone parents on benefit is now below 1 million for the first time in many years. We have tackled the waste that we said we would tackle. In our manifesto we promised to do more for families in need and that is why we increased child benefit by a record amount. At the same time, we have been able to improve the position of many pensioners, which is something else that we promised in our manifesto.

Conservative Members cannot have it both ways. If they think that we are spending too much on pensions, child benefit and on helping the disabled—all the things we said we would do—they have to say what they would cut.

That is not the only thing that Conservative Members have to explain. Conservative Members are saying that we are spending far too much money—that is the view of the shadow Chancellor—while, at the same time, some Opposition spokesmen and women are saying that they want to spend more on health, education, pensions and defence. They must explain which view is right. Do they want more or less money to be spent? I am inclined to believe the view of the shadow Chancellor because he is an extremely important person in the Opposition and because the Leader of the Opposition was saying the same yesterday.

Mr. Loughton

Will the right hon. Gentleman give way?

Mr. Darling

Not just now.

Over half the increase in spending is going on health and education. If we are spending too much, we are entitled to ask which schools and hospitals, up and down the country, the Conservative party would close. If Conservative Members believe that we are spending too much on pensions, by how much would they reduce that spending? If we are spending too much on child benefit, would they cut that? The shadow Chancellor and the shadow Chief Secretary have to explain how they can reconcile their criticism about us spending too much with the fact that during proceedings on the Finance Bill they moved amendments which would cost £6 billion to fund. How on earth can they justify that?

The Opposition are beginning to make their position clear. The shadow Chancellor, and the Leader of the Opposition yesterday, showed that the Conservative party is again lurching further to the right. Last year at the Tory party conference fringe the shadow Chancellor said: When a right of centre party moves to the right, it can become more popular. I do not know whether that view is shared by the right hon. and learned Member for Rushcliffe (Mr. Clarke), but it is clearly the way that the Front Bench representatives of the Conservative party want to go. The shadow Chancellor has made it clear that public services should depend more on charity and private provision. He sees a reduced role for the Government and the state in providing a decent service in the NHS or an education service that gives every child the opportunity it deserves.

We believe in public services because education is the key to our country's future. We believe that the NHS is the mark of a civilised, decent and fair society. We believe in the value of public transport because it is good for people, good for the environment and good for the country. We believe that the Government have a role to ensure that we do everything we can to reduce crime.

The comprehensive spending review has shown how the Government have been able, against a sound and prudent fiscal background, to provide for sustainable public finances in the future. It has also shown how we can divert finances to our priority areas so that we can build a strong and fair society and so that we can have spending based on long-term economic stability and affordable public services. The comprehensive spending review has also shown how the Government, step by step and line by line, are delivering on all their election promises.

5.25 pm

Mr. David Heathcoat-Amory (Wells)

We can always tell when the Chief Secretary has lost the plot, because he returns to completely phoney allegations about what we are alleged to have done during the Finance Bill proceedings. We make no apologies for resisting Labour party tax increases. If the right hon. Gentleman cannot distinguish taxation from expenditure, it explains a lot about the mess he got into over the comprehensive spending review.

On Tuesday, the Chancellor of the Exchequer announced the biggest increase in public expenditure ever contemplated by a peacetime Government. Spending, particularly spending other people's money, is the easy part of politics. The difficult task is to increase and improve the productive potential of the economy or, perhaps at the same time, to find offsetting savings to match areas of expenditure that need to be increased in line with changing political priorities. That was the task that the Government should have set themselves and it was the task they failed.

Instead, the comprehensive spending review is not really a review at all; it is a comprehensive spending increase. The Government have locked into the expenditure for three years hence and, at the same time, they are taking a huge and unnecessary risk with the performance of the economy.

To be fair, the Government showed considerable ingenuity in dressing up the figures.

Mr. Geraint Davies (Croydon, Central)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall give way in a minute, but I should like the hon. Gentleman to listen to this point.

As much is concealed in these figures as is revealed by the document. Spin doctoring has given way to spin accounting. That is hardly surprising, as the Paymaster General—[HON. MEMBERS: "Oh."] Oh, yes. The Paymaster General is quite happy to publish accounts showing disbursements, but then somehow the payments never get made. That is not my view; it is the view of the Committee on Standards and Privileges. Perhaps the same thinking suffuses the documents before us. Perhaps the accountancy figures will never be paid. Perhaps the public services will never see the money supposedly allocated to them on Tuesday.

The other big disguise was over what is perhaps the central failure, which was to find those offsetting savings in welfare reform—I shall return to that.

Mr. Mike Hall

If the right hon. Gentleman thinks that the social security bill is too high, will he tell us what parts of it he would cut?

Mr. Heathcoat-Amory

I shall come on to welfare reform specifically and come back to the point raised by the hon. Gentleman.

The Government have put up a smokescreen of changed definitions and accountancy changes which is designed to make comparisons difficult. We have had to enlist the help of the Library to find out what is really happening to the public accounts. Ingenuity in presenting the figures is not enough. The Chancellor has committed himself to a three-year programme of expenditure just as the economy is faltering. It is beyond dispute that manufacturing and exporting are going into recession. The growth projections in the Government's documents, the strategy report and others are a fantasy for those sectors.

Mr. Geraint Davies

Does the right hon. Gentleman accept that the long-term growth rate for the past four years was 2.3 per cent. and that the growth rate in the past year was 3 per cent. above the 2.25 per cent. medium-term forecast? Does he also accept that the assumed rate for 1998–99 is 1.75 per cent., which is not particularly high, and that the following year it will rise to 2 per cent. and then go to 2.25 per cent? Record inward investment last year created 46,000 new jobs and retained 100,000. That shows that we are in good shape and that the Government's assumptions are prudent and cautious. What is more, they will lead to a current account surplus of £30 billion in the three years.

Mr. Heathcoat-Amory

I suggest that the hon. Gentleman ask some manufacturing firms in his constituency whether they will grow by 2.25 or 2.5 per cent. this year. They will tell him, as they are telling us, that they are already in recession. The projected growth figure of 2.25 per cent. is for them already a fantasy, and we have not even begun the three-year period. On that matter, the Government are going wrong already.

As I have said, manufacturing and exporting are in recession. That will get worse, because there is a growing mismatch, a conflict, between the Treasury's tax and spending decisions, which by and large are inflationary, and the Bank of England's tight monetary policy, which is designed to get down to the inflation target of a Government who have raised interest rates and the value of the pound.

Mr. Andrew Miller (Ellesmere Port and Neston)

I cannot understand what fantasy land the right hon. Gentleman is living in. Why has Vauxhall in my constituency just taken on 1,000 new workers? In two weeks, members of the royal family will visit the latest major investment in my constituency. I cannot see where the right hon. Gentleman's logic is taking us. In the real world, there are real jobs. Why does he not get back to the real world?

Mr. Heathcoat-Amory

The hon. Gentleman has probably noticed that the claimant count for unemployment has started to go up. That will soon affect his constituency: it has certainly started to affect mine. If he does not believe the figures that I have quoted, perhaps he will agree with those that have been produced by the Office for National Statistics, which has reported that the manufacturing and exporting sectors of the economy are now in recession and that output has fallen for two successive quarters. Does the hon. Gentleman accept those figures, which emanate from his Government?

Mr. Oliver Letwin (West Dorset)

Does my right hon. Friend agree that, if the hon. Member for Ellesmere Port and Neston (Mr. Miller) does not believe the statistics, he could ask the hon. Member for Bolsover (Mr. Skinner)?

Mr. Heathcoat-Amory

Yes, they should sort it out between themselves. The Opposition are entitled to rely on official statistics that have been published by the Office for National Statistics. They confirm beyond doubt that those sectors of the economy are in recession. If that has not hit the hon. Gentleman's constituency, all that I can say to him is, "Watch out," because it soon will.

It is not an opinion but a fact that the economy is distorted and manufacturing is affected by the high pound and high interest rates. Meanwhile, the extra spending that is signalled in the review will add to pressures on the Bank of England. A looser expenditure policy will cause interest rates to remain high for longer than would otherwise have been the case and it may increase them further. The increases that were signalled by the Chancellor on Tuesday could drive the economy further into recession.

Mr. Christopher Leslie (Shipley)

I am trying to grasp the right hon. Gentleman's meaning. The Opposition say that public expenditure is too high. Which of the public services of health, education and anti-crime policy would the right hon. Gentleman cut?

Mr. Heathcoat-Amory

Perhaps the hon. Gentleman will contain himself until I come to deal with the details in the public expenditure document. At this point in my speech, I am setting out the economic background and showing that the entire strategy rests on foundations that the Government are removing one by one.

It may be unfashionable to rely on the claimant count as a measure of unemployment, but it is an arithmetic fact that that count has risen for two months. Even if the Government dismiss that as being an accurate estimate of unemployment, the increase is already adding to expenditure from the social security budget. Under the Government, social failure bills are going up. It is remarkable that the Government's strategy report assumes no increase in unemployment. That is not just unusual; it is extremely foolish. Page 42 of that report states: Unemployment is assumed flat at its April level. The Government assume that, throughout the three-year period, unemployment will remain at what might be the all-time low that was achieved in the spring or summer of this year. That is a totally unrealistic assumption, and it means that the social security projections in the documents are already unrealistically low.

Mr. Geraint Davies

Does the right hon. Gentleman accept that alternative statistics show that, in the past three months, the claimant count has gone down by 54,000? What is more, when the previous Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is in his place, carried out this analysis, instead of assuming stable unemployment he assumed that it would fall. [Interruption.] The right hon. Gentleman should ask his right hon. and learned Friend. It is true. The Conservatives say that we are imprudent. When they were in government, they were imprudent.

Mr. Heathcoat-Amory

We bequeathed to the Government a golden economic legacy of sustainable growth, steady inflation and falling unemployment. It is an arithmetic fact that the claimant count has started to rise, and that adds to the Department of Social Security bills.

Sir Michael Spicer

What conclusions would my right hon. Friend draw if unemployment went up in the way that he suggests just as the new deal came into play?

Mr. Heathcoat-Amory

Of course, the new deal is yet another burden on the social security budget. I shall come to that. All the Government's welfare reforms have cost money, and that one is no exception. Despite the promises by the Prime Minister and others before the election that all the extra expenditure on health and education would be paid for by social security reforms, those reforms have all cost money and have not saved it.

It is not just growth and unemployment that are already going wrong under the Government. Savings are a vital component in the economy if expenditure is not simply to be paid for by increased taxation. The Red Book that was published in March shows that the savings ratio is due to fall from its record level in 1997 when we lost office. It shows that it will fall in 1998 and that it will fall further in 1999 and further in 2000.

The Office for National Statistics recently published its arithmetic, which shows that the four-year fall in the savings ratio has been achieved in less than one year. That is not surprising. We warned the Government that, if savings were taxed, savings would fall. That is not a complicated matter: it is easy to understand. In their first Budget, the Government carried out a £5 billion raid on pension funds. When one adds to that the abolition of personal equity plans and tax-exempt special savings accounts, the two most successful savings vehicles of all time, it is hardly surprising that people save less. That was recorded in the Red Book. What we did not know at the time was that that four-year fall would be achieved in less than 12 months.

It is not just savings that are falling; investment is down as well. There was much hype about public sector investment in the Chancellor's statement, but, again, we have only to go back to the Red Book—which is, after all, only three months old—to find that, despite everything that the Government are trying to do, investment in the whole economy is due to fall again next year and to fall further the year after. Business investment has fallen from its peak in 1997, when we lost office, and is due to fall further this year, next year and the year after, so the Chancellor has locked into this three-year expenditure programme while knocking away the foundations on which that economic revenue depends, and it is irreversible.

The Chief Secretary told us about some marvellous new Cabinet Committee, which will get all this money back if Departments do not perform. If class sizes fail to fall, all the money will be clawed back from the Department for Education and Employment. If waiting lists go on rising, the Department of Health will be punished by having to return the money to the Treasury, so this is a recipe not for prudence, but for ruin. What we are faced with, and what the Government should worry about, is unemployment already going up, manufacturing output coming down, savings coming down, investment coming down and debt going up.

The Chief Secretary got into a most awful muddle about debt, but I think that he did finally admit that debt is going to rise. He was perhaps somewhat confused by the fact that, in the Red Book that was published at the time of the March Budget, projected debt was due to fall over the medium term—that was promised on page 121—but, a few months later, all that was thrown away and replaced by what one might call the Blue Book, which stated on page 43 that public sector net borrowing was due to go up every year. I think that we did finally get him to understand that, but that rise contrasts sharply with the record of the previous Government, who, at a similar time in the economic cycle, repaid massive quantities of debt.

I have not even mentioned the balance of payments. The Chancellor certainly did not mention it during his statement, but it is again a fact that the balance of payments is now going into alarming deficit. The Red Book did at least have the grace to note that the balance of payments was moving from a surplus of £4.5 billion last year—when we were in office—to a deficit of £6.5 billion next year, so that is another thing that is going wrong for the Chancellor and the Chief Secretary, just at the moment when they are making these irreversible commitments for up to three years hence.

Who will pay for all this? One group is public sector workers. Their pay is already lagging behind. Average earnings in the public sector in the year to April—again, I rely on the Office for National Statistics for these figures—rose by 2.8 per cent. In the private sector, they rose by 6.2 per cent.

Mr. Leslie

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I will not give way to the hon. Gentleman again because I am going to come to his point. I know that he is very excitable, but, if he will just contain himself, I will come to the point about expenditure on the health service and social expenditure generally.

In the face of that distortion, the Government have announced that their so-called independent review bodies will now tie that same group of workers to a 2.5 per cent. inflation target. The Government are missing their target, but they want the public sector to be paid as though they had met their inflation target. In each Budget, and we have had two already, the Government will go on putting up duty on tobacco, drink, road fuel and heating fuel; all those will be increased way above inflation. Then up will go the cost of borrowing and of mortgages. Up will go council tax. All those will increase by far more than 2.5 per cent. The Government are putting up the prices, and it is public sector workers who are expected to accept wage increases of 2.5 per cent. That is a true reflection of how this Government value the public sector.

Mr. Darling

I am sure that public service workers will be very grateful that comrade Heathcoat-Amory is riding to their rescue. If I understand his argument correctly, he is saying that public service workers should be paid more and that the Conservatives welcome the spending on health and education, yet the whole thrust of his argument is that we are spending too much. Will he now tell us how much less he would spend and what he would cut?

Mr. Heathcoat-Amory

That distortion in the economy is entirely of the Government's making. It was they who put up prices in their Budget. We had two Budgets in the space of eight months which increased indirect taxes way above inflation, and now they have the brass neck to say to public sector workers, "We missed our target and we want you to be paid at the rate of the inflation target that we missed."

Mr. Leslie

rose—

Mr. Heathcoat-Amory

I am coming to the hon. Gentleman's private obsession, which is the public services, and health and education in particular.

We did find extra money for those priority services, particularly health and education, throughout our time in office, and we do welcome the fact that the Government are belatedly trying to keep their promises over class sizes and waiting lists, which they broke in their first year of office. They have a good deal of ground to make up because, last year, real expenditure fell below what our plans were: they inherited and kept to our cash totals, but higher inflation in the public services meant that real expenditure on health and education fell below what we had planned.

In addition, we know that the extra money that we are glad the Government are putting into the priority services will be soaked up by the damage and destruction that have already been caused in those services by, for example, the abolition of compulsory competitive tendering, the abolition of tax relief on private health insurance, the introduction of the minimum wage, and so on. Therefore, we know that the money that is going in will not all go towards patient care—[Interruption.]

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order. The hon. Member for Somerton and Frome (Mr. Heath) should not be reading a book in the Chamber.

Mr. Heathcoat-Amory

rose—

Mr. Darling

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I give way.

Mr. Darling

I am listening to the right hon. Gentleman's argument, even if Liberal Democrat Members are not. So far, the right hon. Gentleman has said that he welcomes our increased spending on health and education. He wants more pay for the workers, so what is he going to cut if we are spending too much overall?

Mr. Heathcoat-Amory

I am coming to that next.

We did increase expenditure on priority areas, but in the context of an affordable and disciplined total. We did not draw cheques on the future three years hence and just hope that something would turn up. Our spending reviews—this answers the right hon. Gentleman—were genuine, finding money from one programme to spend on another.

That is what the Prime Minister himself promised. It was he who spotted that he was going to have difficulties if he won an election, so he said: as we get the welfare bills down … then we can release more money into education and health". That could hardly have been clearer. Not only did he promise to get the welfare bills down, but he made it clear that the order of things was that that had to happen before he released more money into education and health.

Not only have the Government now got that the wrong way around—they are spending money on health and education before they have touched the reform of the welfare state—but the Prime Minister is wriggling off that promise about welfare reform. In Prime Minister's Question Time yesterday, the right hon. Gentleman started to temporise and to say that he did not mean to cut anything or do anything nasty like reducing anything; he just meant that he wanted to study everything and perhaps to increase spending—by a little, or possibly a lot. That is exactly what he is doing.

The splendid glossy document which I have here—the comprehensive spending review—and which was published on Tuesday gives us a glimpse of what is really happening to welfare and social security expenditure. One has to look hard for the figures and it is odd that by far the biggest item of public expenditure—nearly one third of the total—is relegated to near the back. Sandwiched between the Department for Culture, Media and Sport and the cross-departmental review of provision for young children—both titanic items of expenditure—we find out what will happen to nearly one third of public expenditure. Just as we suspected, it will go up and up. Once all the fiddles and changed statistics are added back in, it will increase by £37.5 billion.

That was not an easy calculation for the House of Commons Library to make, but it was done by adding back the tax credit that had been reclassified. If one adds back the 80 per cent. of working families tax credit, one arrives at an increase that is almost as great as the total extra that the Government plan to spend on health and education together—the extra was disguised as an accounting adjustment.

The Chancellor and the Government more generally make great play of their commitment to transparency. A few months ago, they published a ludicrous document entitled "Your Right to Know"; they talk endlessly about accountability and openness; and they said that all the figures were to be transparent and easy to understand. However, buried in the accounting adjustments we find working families tax credit and the true picture emerges if that is added back.

Mr. Mike Hall

To demonstrate the transparency of the right hon. Gentleman's policies to the House, will he say which part of the benefit bill he will cut?

Mr. Heathcoat-Amory

The Prime Minister and his Ministers promised to reform the welfare state, but I have a suggestion for the hon. Gentleman: the Prime Minister should carry forward the reforms that we implemented. If the hon. Gentleman glances at the figures, he will see that, in the past three years, spending on social security increased in total—not year by year—by only 1.5 per cent. in real terms. That budget was virtually flat. If the Government are serious about welfare reform, why did they not take over the reforms and the spending profile that we bequeathed them? Because of the savings, which we were implementing and not merely talking about, we were able to spend on other priority areas, such as health and education.

The Government have failed on a central plank of their expenditure strategy. The true picture is of a colossal and continuing failure to reform the welfare state. As a result, the Government have embarked on a three-year commitment to spend money that they do not have and to pledge to the public services money that may never be earned.

The comprehensive spending review was billed as a Budget—it was that important. If so, it is the fourth that the Government have presented in a year. We have had the July Budget last year, a pre-Budget in November, the March Budget this year and now the spending review. Each time, the Government have increased their spending commitments and weakened the ability of the British economy to deliver the money on which those depend. Now they will have no chance of repaying national debt—they will not even balance the budget. They are going on a four-year spending spree with the public's money and, as usual, the public will end up paying.

5.54 pm

Mr. John Hutton (Barrow and Furness)

I am grateful to have the opportunity to make what I hope will be a short contribution to the debate. I must first warmly welcome the conclusions of the comprehensive spending review, which sets out a sensible direction for the Government to take in meeting their objectives of promoting social cohesion, maintaining strong public finances, investing in modern and effective public services, and ensuring real value for money for the taxpayer by new disciplines over public spending, with proper efficiency targets and effective monitoring of public service outcomes.

The prudent decisions that we have taken on spending in the first two years, together with our actions to get public borrowing under control, have helped to lay the foundations for the new three-year spending plan announced on Tuesday by my right hon. Friend the Chancellor. The Government's spending plans are based on cautious estimates for economic growth, which is right. It is good that the fundamental assumptions that underpin the comprehensive spending review have been verified by the National Audit Office, which will give them considerably more weight than previous Government attempts to predict economic trends. Labour Members certainly came to treat with extreme caution the figures of the previous Government in all those areas.

I also have no doubt that the new spending plans fully reflect the priorities of the British public, who want our national health service to be put on to a secure, long-term growth trajectory, and our schools and colleges to be modernised and brought up to date with the best technology, teachers and facilities. The British public want a better deal for Britain's pensioners and improvements in our public transport infrastructure.

My constituents, in particular, want the Government to renew and redouble their efforts to deal with the problems of economic regeneration in those areas that have suffered through major job losses in traditional industries. We also want major improvements in our housing provision, in particular social housing, which was deliberately allowed to fall into decline by the previous Administration.

Those are the public's priorities, and, at long last, they are also the priority of the British Government. It is the measure of public support for those proposals that is the root cause of the Opposition's present difficulties. Their response to date can be described only as chaotic. They have three main arguments against the proposals in the comprehensive spending review. First, they allege that spending is too high and will propel us into a recession—that was the view of the shadow Chancellor on Tuesday. Yet, secondly, the Tories want to claim that they support the extra spending on the national health service and schools. As my right hon. Friend the Chief Secretary to the Treasury said clearly from the Dispatch Box, they cannot have it both ways. Their third line of argument is that the new spending plans are all a con. I understand that the shadow Health Secretary was yesterday trying to persuade lobby correspondents that the £21 billion of additional expenditure for the NHS amounted only to four shillings and nine pence, that we were fiddling the figures and that they could not rely on our estimates.

The Opposition cannot have their cake and eat it. If they are claiming that the figures are fiddled and that we are spending less, how can they be propelling us towards recession? To add insult to injury, the Conservatives are also claiming that their spending record was better than ours and that they spent more than we are proposing on all those key areas. Those arguments simply do not add up.

The Opposition could best be described as going through some sort of collective psychotic episode about the figures, which has been marked by hallucinations and delusions. They cannot separate fact from fiction. In truth, they are in a complete mess. They do not know whether to support the additional spending or oppose it.

If my arithmetic is correct, the shadow Chief Secretary was asked on three occasions tonight to say where he would cut the expenditure that we are proposing. He simply failed to answer the question. The Conservatives cannot agree among themselves whether we are spending too little or too much, and they are attempting to deny any personal responsibility for the dire state of many of our key public services, despite the fact that they formed the Government for 18 years.

Mr. Loughton

Will the hon. Gentleman give way?

Mr. Hutton

No. This is a serious debate, so I have no intention of giving way to the hon. Gentleman.

The Conservative party's behaviour has been an unedifying display, providing further vivid confirmation—if any were needed—of the wisdom of the electorate's decision on 1 May last year to throw it out of office. I am sure that when the Conservatives begin their listening to Britain exercise, the public will spell out their support for the measures that the Government have announced. In that way, the Conservative party will be able to undergo the necessary therapy and counselling that it so obviously needs. Given its record in office, I cannot think of one good reason why we should listen to any of its criticisms of the comprehensive spending review.

On the detail of the review, I particularly welcome the additional spending on education, the national health service and the science base. The new money is an investment in our future as a modern, healthy and prosperous society, and I look forward with great anticipation to seeing how the new policies will bear fruit in my constituency.

The new commitments on further and higher education are also very good news, and I am glad that the cap on students entering higher education has been lifted. I particularly welcome the additional £200 million for further education. Further education colleges have a major role to play in helping to develop local economic regeneration initiatives—that has certainly been the experience in my constituency. I pay tribute to the excellent work of both Furness college and Barrow sixth-form college in helping people in my constituency to come to terms with the economic shock wave that hit us a few years ago. During that difficult period, both the colleges provided new opportunities and career options to hundreds of my constituents. They have done a fantastic job, and the new money should make the services that they provide even better.

On economic regeneration, the Government's new deal for communities initiative, under which a further £800 million will be invested in economic support to areas of high deprivation over the next three years, will be welcomed across the country, as will the proposals on the single regeneration budget. That is a hugely important area of Government responsibility, which will promote social cohesion and social inclusion—it goes right to the heart of what we should be doing in government.

My constituency suffered especially badly between 1990 and 1995 owing to the rundown in defence spending under the previous Government and the latter of the two Tory-inspired recessions. Over that period, 13,000 jobs were lost in the Furness area—in more stark terms, one in three of the work force in the area lost their jobs. Parts of my constituency remain unemployment black spots, particularly Barrow island, Hindpool and Central wards, where unemployment is almost twice the national average. That is totally unacceptable.

Barrow scores highly on the Department for the Environment, Transport and the Regions measurement of economic deprivation. The Department's figures reveal serious social and economic problems, which we must begin to tackle effectively. In the 1998 DETR ranking of deprivation, Barrow and Furness came 55th out of 354 local authority areas; in 1991, it had been 94th. The 1998 figures show that Barrow is the most economically deprived part of Cumbria and that it is in the 15 per cent. of most deprived areas nationally.

I believe that the new spending priorities in the comprehensive spending review will allow us to make a new beginning. I fully understand the case for tying the new resources to innovative and well-focused initiatives, and I entirely agree with the proposals on money for modernisation. I believe that local agencies in my constituency will be able to participate actively in successful regeneration programmes—we have an established track record of doing so. Like many of my hon. Friends, I look forward to hearing details of the pilot scheme for the new deal for communities; I understand that we shall hear them from my right hon. Friend the Deputy Prime Minister next week.

My constituency is directly concerned with the defence procurement budget; everything that the Government spend on defence directly affects its economic well-being. I am absolutely delighted with the conclusions of the strategic defence review. In particular, I think that the decision to proceed with a replacement for the Invincible class of aircraft carriers—two new 40,000 tonne aircraft carriers will be built—is exactly right. It will allow Britain to continue to deploy forces around the world in support of the United Nations and our NATO allies or, if the need arises, independently. It will also allow the current amphibious capability of the Royal Navy to be fully effective; I remind the House that, in my constituency, we are building the replacement amphibious landing ships for the Royal Marines. When the carriers come into service, the Royal Navy will once again have a truly effective, modern and capable amphibious force.

I also strongly welcome the decision in the strategic defence review to proceed with the procurement of two new Astute class hunter killer submarines. I appreciate that difficult decisions have had to be made about the Royal Navy—I am thinking in particular of the decision to reduce the number of strategic submarines nuclear from 12 to 10. I understand why the Government found it necessary to make that decision, but it is hugely important that the reduction is not made at the expense of a new and capable class of submarines. We should by all means consider taking out of commission the older SSNs, but the Government would have made a serious mistake if they had decided not to proceed with the procurement of the two new submarines.

Taken together with the existing order book, the decision to build the new carriers and submarines means that my constituents who work for GEC Marine at Barrow can look forward to 15 years of job security and stability. That is in stark contrast to what happened under the Conservative Government, when two thirds of the work force at GEC Marine lost their jobs, because the Government had no long-term commitment to the future of shipbuilding and had a completely ineffective strategy on procurement decisions. Many of the key procurement decisions that my constituents were waiting on were delayed and delayed, but I am now absolutely confident that my right hon. Friend the Secretary of State for Defence and his colleagues in the Ministry of Defence will take the decisions on time and in a competitive context, so that my constituents can look forward to the solid future that they were denied by the Conservative party.

I believe that the comprehensive spending review will provide the Government with a solid platform on which we can build a modern, fair and decent society. It has my very strong support.

Mr. Deputy Speaker

Before I call the next hon. Member to speak, I remind the House that Madam Speaker has set a 15-minute limit on all Back-Bench speeches. Of course, hon. Members do not need to take the full 15 minutes.

6.6 pm

Mr. Malcolm Bruce (Gordon)

I welcome the Chancellor's Tuesday statement, particularly the extra funds for the national health service and for education. I do not think that the Chief Secretary was expecting me to say that, but I said it on Tuesday and I am very glad again to put it on the record. I also said on Tuesday that I knew that the Chancellor would eventually find the war chest if only he had the will to look for it.

I believe that the Chancellor is right to leave a current budget surplus over the next few years until the outlook for economic growth is clearer, and I accept the Government's case for adopting a more cautious forecast. However, there are many uncertainties and some real clouds on the horizon, as today's chambers of commerce report confirms. The Government must take seriously the threat to British competitiveness and the possibility that investment will leave the country because of the strength of the pound. I hope that the Chancellor will avoid the boom-bust approach to financing public services, which is bad for our schools, hospitals and economic stability.

I suspect that the Chief Secretary would not expect me to concentrate on areas of agreement; constructive opposition requires me to focus on some of the statement's deficiencies and on what I believe the Government could and should do. The Government's use of cumulative cash figures and their blind eye to the effects of inflation must delude no one about what is really going on.

Overall, current Government spending will rise only 1.4 per cent. in this Parliament. That is half the 2.7 per cent. rise under the Tories in the previous Parliament, so it is no bonanza, and I have no idea what the Tories are talking about when they accuse the Government of profligacy for proposing half the increase that they delivered—which did not exactly secure re-election.

The fact that no extra money was announced for 1998–99 tends to be overlooked in the euphoria. It is no foregone conclusion that progress will be rapid on class sizes and hospital waiting lists this year. There is certainly no jam today, and perhaps not even tomorrow. The supertanker may prove extremely slow to turn round.

In the light of the extra money allocated, it is surprising that the Government have not been able to promise more solid service improvements. We are told that the extra £40 billion for health and education will allow the early pledges to be delivered. Well, I hope so, but I seem to remember that that was supposed to cost a mere £100 million for each service. We do not seem to be getting very much for our money.

The Liberal Democrats would like a cut in class sizes for eight to 11-year-olds, in which age range 40 per cent. of children are in classes of 31 or more; a target of reducing maximum average primary school class sizes to 25 or fewer; early-years education for all three-year-olds whose parents want it—I acknowledge that the Government have made some commitments on that; a cap on hospital waiting times of six months; and the abolition of all eye and dental check charges. I am sorry that more of those substantive policies did not find their way into the Chancellor's statement or emerge from the Departments.

The Government publication, "Modern Public Services for Britain", promised 4.7% a year, above inflation, for three years for the NHS, and an increase of 5 per cent. a year on average above inflation between 1998/99 and 2001/2002". for education.

Mr. Geoffrey Clifton-Brown (Cotswold)

I assume that the hon. Gentleman's wish list represented new Liberal Democrat spending commitments. Will he be kind enough to tell us what those would cost and what the overall spending target would be if his party ever got anywhere near power?

Mr. Bruce

Yes, I will, as I always do, when we produce our alternative Budget and our annual statement. Indeed, we published a statement on spending a few weeks ago, but it has clearly not yet reached Conservative central office.

Yesterday, the Prime Minister said that Labour's promises held good, whatever the economic circumstances, and even if inflation went up. That is misleading, because the Government have promised cash figures based on their 2.5 per cent. inflation forecast, which may be overshot, as it has been for the past two years. An overshoot of only 1 per cent. would wipe out £5 billion of health and education spending over the three years.

Many economists, including those who advise the Government, think that inflation will overshoot. In the economic and fiscal strategy report, the Treasury promised that extra cash would be available to compensate for inflation, if inflation varies substantially from forecast"— what "substantially" means is unclear—but yesterday, in the Treasury Select Committee, the Chancellor told me that there would be no more cash, no matter how much inflation went up. With respect, that means that the Government's pledge is so much pie in the sky. It also means a potential for more black holes to open up in the Government's spending promises.

As the Government's nominal revenues are boosted from higher inflation, and given the sorry state of education and health funding, which we are now trying to remedy, I believe that the Chancellor should protect those two areas from the consequences of higher inflation during this Parliament.

Mr. Leslie

On the subject of black holes opening up in finances, the hon. Gentleman will remember that the Liberal spokesperson on tax, the hon. Member for Kingston and Surbiton (Mr. Davey), said that their party would increase the personal allowance for income tax to equalise it with capital gains tax, which the Library has costed at £17.5 billion, equivalent to 8p on income tax. How would he pay for all his promises?

Mr. Bruce

The hon. Gentleman is new to the House and he is a bit repetitive. I knew that it was a mistake to give way to him. My party produced a costed manifesto, acknowledged by independent people as the most honest and objective account of party intentions from any party, and his party did no such thing. We will do what we always do and produce an annual alternative Budget and a clear, costed programme.

The Government have only small reserves to accommodate any need for more cash: a mere £1.5 billion for departmental budgets next year, out of a spending total of £175 billion. I only hope that we do not have another BSE crisis, never mind an overshoot on inflation. I am registering a genuine, serious concern about the Government's ability to deliver, and I hope that they will think again.

This has been an incredibly secretive, centralised and non-consultative process. On Tuesday, the Chancellor announced the allocation of £1 trillion of public money, without so much as a sniff of consultation with the House, the public, or even the Labour party. Indeed, as far as I can tell, half the Cabinet were not consulted.

The outcome was presented in reverse. We were not told what the costed policies were; we were told how much will be allocated, and the policies will come later. Apparently, what the people think has already been quietly digested in secret. We believe that the performance contracts, which are in principle a good and interesting development, should be with Parliament, not with the Treasury, and that there should be much more public consultation on spending priorities and departmental targets. It is our money and we, the public, have a right to some say in what the priorities should be.

The Government seem to be taking a very restrictive attitude to public sector pay, but that is not the current inflationary threat, as pay rises in the public sector are at 2.5 per cent., below inflation, whereas private sector rises are at more than 6 per cent., yet the Government say that pay review bodies must take into account the need for efficiency savings; the need to hit the Government's 2.5 per cent. inflation target; and affordability against budgets. Public sector workers appear to be being used as the Government's shield against fears that there is too much loosening of policy.

The practical concern is that good education, for example, depends at least as much on attracting and retaining good teachers as on replacing dilapidated buildings. We accept that the Government must be responsible about pay, but responsibility also implies that we must encourage some of our best people into the public services and not end up, as I fear we will, in a vicious circle of lower pay and lower than desirable standards.

Let us consider some of the Government's specific boasts. The Secretary of State for Health was certainly being boastful on the radio this morning. The increase in spending on health of about 4.75 per cent. over the next three years will take the average real rise over this Parliament to about 3.7 per cent. a year, assuming that the Government stay within their inflation target. That compares with 4.1 per cent. in the previous Prime Minister's first five years; 3.3 per cent. over his entire premiership; and 3.1 per cent. on average over the 18 years of Tory government. It is healthy growth, but it is not unprecedented, as is being claimed. Indeed, in the three years from 1989–90 to 1992–93 average health spending rose by 5.5 per cent. per annum, yet waiting lists rose during that period, although the number of people waiting for more than a year fell. Therefore, the Secretary of State for Health is misleading us when he says in his press release that this is the biggest cash injection in the history of the National Health Service. In the only meaningful terms—real money—the right hon. Member for Huntingdon (Mr. Major) did better seven or so years ago.

The budget on education will rise by 3 per cent. a year in real terms over the Parliament, with 5 per cent. rises over the next three years. During the last Prime Minister's first five years, the rise was 2.6 per cent. a year on average or 1 per cent. over the entire period in office. Therefore, this rise is much better, but it is certainly not a bonanza.

Yet again, the Government are paying the price of two years of going backwards on standards. I remind the Chief Secretary what the Secretary of State for Education and Employment said on 11 April 1994 when he was in opposition: It is a scandal that over a million of our children in primary schools are taught in classes of over 30. Since then, the percentage in such classes has risen from 28 to 34.8 per cent., and to 40 per cent. in the eight to 11 age group. If inflation rises by more than the Government forecast, these real rises, impressive as they look initially, will soon melt away.

Mr. Darling

I wonder what the leader of the Liberal party meant when he said in the debate on the Queen's Speech: If we tighten our belts now, we have a real opportunity to get to grips with the huge hangover of debt left behind by the Conservatives."—[Official report, 14 May 1997; Vol. 294, c. 74.] That seems to be a rather different story from the one advanced by the hon. Gentleman today.

Mr. Bruce

Absolutely not. What my right hon. Friend said then and what we said in our manifesto was that we had to start investment in health and education on day one of this Parliament. That is what we 46 Liberal Democrats have been elected to fight for, and that is what we are doing. Of course, we are in favour of ensuring value for money and agree that it is necessary to finance, not borrow, the extra expenditure. That is why we committed ourselves to putting an extra 1p on income tax, which the other parties were not prepared to do.

You, Mr. Deputy Speaker, the Chief Secretary and I all have an interest in what happens in Scotland. According to the Government's own figures, the Scottish departmental budget will be 1.5 per cent. lower in real terms in 2001 and 2002 than it was in 1994–95 when Ian Lang was Secretary of State for Scotland. He was not conspicuously popular. Over the entire Parliament, the real budget for the Scottish block will grow at an anaemic 0.6 per cent. a year in real terms. That is a fraction of the 4.7 per cent. annual real growth rate in the first five years of the last Prime Minister or even the 2.9 per cent. real rate through his entire period in office. That is no bonanza for Scotland.

Can the Chief Secretary confirm that the health budget in Scotland will rise by only 2.8 per cent. in real terms this Parliament, compared with an average 3.1 per cent. during the 18 years under the Tories? As I said in the House on Tuesday, that is not John Major plus, but John Major minus.

On other occasions, I have raised issues relating to my constituency. I live in an area of strong population growth where, for example, we need a new secondary school—a new Garioch academy—and new primary schools in growth points such as Kintore. I hope that the Government's injection of funds will allow those projects to come to fruition. So far, we have made only limited progress. In the small town of Ellon, the health board promised more consultant clinics in the town, but it has not been able to find the resources to deliver that, let alone resources for the community hospital that the majority of people in the town think is necessary.

It is on such specific performances that the Government will be measured, not on the billions of pounds or on comparisons of who invested more and who less. It is on what will translate into real, measurable terms. Naturally, we welcome the public sector boost that was announced on Tuesday. However, we are entitled to say that there is a big difference between attractive headlines about big numbers and the real palpable transformation of Britain's public services. We will not be impressed by the former until the Government make real progress on delivering the latter, and I am sure that the British people will give the same verdict.

6.24 pm

Mr. Andrew Miller (Ellesmere Port and Neston)

Before I come to the substance of my remarks, I cannot help but comment on the speech of the hon. Member for Gordon (Mr. Bruce). Given that the Liberal Democrat and Conservative parties have been screaming for months about when the review was to come, if they had something of substance to say in the context of the review, it would have been helpful if they had submitted it to the Treasury.

Mr. Malcolm Bruce

We did.

Mr. Miller

If so, what is the complaint about? How can the hon. Gentleman say that he had no opportunity to comment? Obviously, he has commented, but now whinges because he has not got exactly his way. It is hardly surprising that we did not follow the Liberal Democrat party's advice, as the intervention by my hon. Friend the Member for Shipley (Mr. Leslie) made clear.

It is clear from Conservative Members' comments that there is a fundamental lack of understanding about prudent investment in the public sector. It is clear from constituencies such as mine how a lack of prudent investment in the public sector has led to social exclusion, which in turn has increased costs to the public purse. That was clear throughout the term of the previous Administration.

There was an investment programme in housing estates constructed in the pre-cast reinforced concrete—PRC—style which was designed to modernise them and bring them up to a decent standard, but the Conservative Government stopped it. As a result, some houses run the risk of having to be demolished. That was a crazy, short-sighted approach to public expenditure. Since my right hon. Friend the Deputy Prime Minister released some capital receipts as part of his commitment to public sector housing, that programme is back on track. As a result of the programme, we have citizens living in decent homes and the housing stock will have a longer life expectancy. That is prudent use of public money.

I do not entirely blame the previous Administration for the decline in employment because some job losses were technology driven. In my constituency, massive numbers of people who previously worked in the vehicle and petro-chemical industries found themselves unemployed and, under the Conservative Government, unemployable. No attempts were made, except for the occasional Mickey Mouse scheme, to get people back into real, permanent jobs. As a result of this Government's initiatives, starting with the new deal and including the many steps to integrate programmes across departmental boundaries, people are getting back into real jobs. That is prudent use of public money.

I am thinking, in particular, about a discussion I had with THI, which is developing a large leisure complex in my constituency adjacent to one of the poorest communities. The developer is already prepared to work with public sector partners—training and enterprise councils, schools, further education and the Employment Service—to ensure that the jobs that emerge from its investment will benefit people from the poorest part of the community. It is responding positively because it is clearly to its advantage to have people trained locally to meet its needs. It is responding to an initiative by this Government which, again, reflects prudent investment.

I intervened earlier to touch on my lack of confidence in the Conservative party's description of what is happening to the real economy. The investment that I have just spoken of will create 900 jobs next year, and enormous strides have been made in partnership with the local authority and the Department of Trade and Industry to create many other jobs in the area.

I am particularly encouraged by a photograph on the front page of my local paper, which bears a remarkable similarity to that rotten and misleading Tory party poster of 1979, "Labour isn't working". That was the lie then and that is the lie now. The photograph shows people willingly queueing up to apply for jobs available at Vauxhall Motors in my constituency—jobs that have come to Britain as a result of the Government's prudent public investment.

Had the Conservative party's analysis of what is happening to the economy been accurate, those jobs would have gone to Russelsheim in Germany, to Belgium or to Spain. That did not happen. They came to the United Kingdom as a result of the Government presenting the best case in partnership with the company, the local authority and many other private sector players. Again, that is prudent use of public money.

Mr. Oliver Heald (North-East Hertfordshire)

Tell that to Dunstable.

Mr. Miller

I remind the hon. Gentleman that, as a result of the Government's initiative, the plant at Luton has been saved. Under the Conservative Administration, the Dunstable van plant closed. The hon. Gentleman should get his facts right.

I come now to the substance of my remarks and, in particular, the aspect of the comprehensive spending review that gives me a great deal of pleasure—the reference on pages 77 and 78 to investment in and promotion of science and innovation.

Under the previous Administration, since about the mid-1980s, there has been a gradual and systematic decline in investment in research and development in Britain. There is no doubt about that. The House discussed that earlier this week when debating a report from the Select Committee on Science and Technology. The Chairman of that Committee, the hon. Member for Rayleigh (Dr. Clark), set out the case succinctly.

As a result of the comprehensive spending review, there is a massive commitment to British science, something for which the Labour party has been pressing for many years. We are delighted with that investment because we believe that it will be the seedcorn for future investment in Britain

My hon. Friend the Member for Weaver Vale (Mr. Hall) referred in an intervention to the Daresbury laboratory in his constituency just down the road from me. I was delighted to see £100 million being committed to synchrotron radiation in the comprehensive spending review. My hon. Friend has pressed for that investment since 1993. It did not happen under the Conservatives, but as a result of the comprehensive spending review, subject to the business case, and as we are talking about prudent investment, we shall now see that investment.

The case for that investment is solid. This is the laboratory that helped Dr. John Walker to win the Nobel prize for molecular biology last year. He worked from Cambridge, but he used the X-ray facilities of the Daresbury laboratory. That is the business case for the laboratory, and I hope that when the Department of Trade and Industry and the science councils consider that programme, the project will promote science in the north-west of England. I hope that my right hon. Friend the Chief Secretary will pass those comments on to his right hon. and hon. Friends in the DTI.

Mr. Peter Brooke (Cities of London and Westminster)

Before the hon. Gentleman goes overboard with euphoria about the injection of money into university research, will he accept that, until we see the small print, we shall not know what matching funding will be required and, therefore, what distortion may also occur in research into the humanities?

Mr. Miller

I was not referring to university research; I was referring specifically to the Daresbury project. I hope that the right hon. Gentleman understands that that project creates a three-way partnership between the research councils, the universities and the private sector, producing not only an expansion of knowledge in pure science for Britain, but massive results that are transforming themselves into innovation—just the sort of thing that the Government are seeking to promote. I hope that the right hon. Gentleman will support my comments in that respect.

All those developments—the local ones relating to investment in housing and jobs, the crossing of boundaries bringing together social services and health and new deal partners in the poorest parts of my community, what is happening in the manufacturing sector in my constituency and the seemingly esoteric research which is, in reality, the practical way of rebuilding Britain—are examples of the prudent use of public money. I am delighted to see commitments towards the continuation of such programmes in the comprehensive spending review. I am sure that in my constituency and in the north-west of England, we shall see substantial benefits as a result of that review.

6.36 pm

Mr. Kenneth Clarke (Rushcliffe)

The Chancellor of the Exchequer and his Treasury team, including the Chief Secretary, are proving increasingly incompetent in discharging their main role, which is to provide a stable economic background against which the country can achieve a reasonable level of growth without excessive threat from inflation or other shocks. We should always judge the economic statements made by a Government to the House by the likely impact in the medium term on the ability of business men to manage the growth of their businesses, and the effect that they will have on job creation, job security and living standards in the country.

That point is always emphasised in most of the speeches by Treasury Ministers, but I become ever more doubtful about whether they will achieve it. Ministers who frequently use the word "prudence" in every speech that they make are proving ever more imprudent in practice. They talk about a stable, medium-term view of economic policy, but now we have the fourth set of figures—the fourth policy announcement—presented as if it were a Queen's Speech, with the most surprising lurch of policy and tone that we have seen so far.

The iron Chancellor has gradually moved nearer to being an open-handed man, but the transformation to Santa Claus shows that there has been a dramatic change of direction, and that is what we criticise. It is imprudent, it will be regretted before the end of the Parliament and it is time that the House addressed it, as Conservative Members are, from a serious standpoint, rather than joining in the inevitable celebrations that take place on the Government Back Benches when largesse is being handed out to every lobby in sight.

Let me make clear precisely my position about some of the welcome increases in spending. There has never been a Chancellor or Chief Secretary who did not come here with some announcements that increased spending. It is the totality of public spending that we are criticising. There has not been an adequate choice of priorities. To commit to an excessive total over three years enables all the numbers to sound like telephone numbers, but it is reckless to do so regardless of what economic circumstances may bring.

Labour Members have asked for our position. Let me deal first with the priorities. The Chief Secretary should have used the comprehensive spending review to make hard choices on the priorities about which the Prime Minister talks. The Government's first priorities are health and education. Not surprisingly, I welcome that; they have been the first priorities of Governments for as long as I can remember—they were for the previous Government. Increased spending on the national health service is welcome, and I trust that it will be delivered over the next three years. I also welcome increased spending on education, including higher and further education, and I and my right hon. and hon. Friends trust that that, too, will be delivered.

I listened carefully to exchanges earlier between the Secretary of State for Health and my right hon. Friend the Member for Maidstone and The Weald (Miss Widdecombe). She did not demand that less be spent on health, but she put the spending increase into proportion. As the hon. Member for Gordon (Mr. Bruce) has rightly said, the figures were grossly exaggerated by the way in which they were presented. They are, in fact, fairly normal. The Secretary of State was wrong to claim that his increase was unprecedented, unless he was simply claiming that there had never before been a three-year increase. The growth in real terms that he announced is lower than the level during my last year as Secretary of State for Health, and lower than in the following year, when my successor, William Waldegrave, was Secretary of State. There have been previous increases just as large, as there should be when health is the priority.

Nor are the education figures exceptional. The Government have just about managed to deliver their election promise—I congratulate them on that—of increasing the proportion of gross domestic product spent on education. However, they have done so by a tiny fraction. I do not go along with the hon. Member for Gordon when he takes over from the left of the Labour party by demanding more big spending, but he was right to say that by the end of the Parliament, education will creep just above the proportion of GDP spent by the previous Government. The Government have just about delivered that pledge.

No one on the Conservative Benches—unless some particularly hard-line colleague is yet to speak—is going to demand that we spend less on the NHS or education. However, the rest of the Government's spending makes the review difficult to contemplate. We, too, gave priority to education and health, and our record bears comparison with the Government's new figures. However, we examined other priorities, and we restrained the growth of other Departments so that it was affordable. That has not been done in the comprehensive spending review.

It is easy for Government Back Benchers to welcome every increase. Most propositions advanced by spending Departments are desirable. The duty of the Treasury team—particularly the Chief Secretary—is to decide which of them we can afford this year, which to postpone and where more efficiency savings can be sought. That is what happens in an annual spending review, particularly in a fundamental review. The comprehensive review is not a new idea; when Michael Portillo was Chief Secretary, he and I produced big increases for health and education from a comprehensive review, but we also produced what turned out to be the beginning of control of public expenditure. That produced a steady decline in excessive borrowing during the last years of the previous Parliament. The control established then is now being thrown away.

Scarcely a Department of State has failed to get a pretty good settlement. Only the Ministry of Agriculture, Fisheries and Food appears to have done badly, and that is mostly because of the ending of compensation payments for BSE. Total expenditure over the next three years is due to rise by 2.75 per cent. in real terms above the rate of inflation. That is a tremendous loosening of public spending, and it bears no relation to what the Chancellor and the Chief Secretary said when they launched the CSR. It certainly does not resemble all the prudence that we were told about before the election, when we heard that new Labour would abandon the old high-spending approach and would no longer throw money at every problem. The rejoicing on the Labour Benches is because new Labour is doing exactly that.

It is almost impossible for the Chief Secretary to defend the 2.75 per cent. figure. Only three months ago, while he was in the middle of his comprehensive spending review, the Red Book revealed that the Government planned a much lower growth in public spending than they have been able to deliver. The increases are not some great economic breakthrough, but a total relaxation of what was intended to be controlled public spending.

The Government clearly know that that is so. They are trying to present their review in such a way as to minimise the impact on the outside world of their spending. The documents that we have received have reduced the amount of information available to the House about future spending. The Government have taken over our well-advanced move to resource accounting, and have taken the opportunity to change many definitions and seek to obfuscate what is happening.

The biggest increases are in accounting adjustments. No Labour Back Bencher has yet leapt to his feet to praise the massive increase in accounting adjustments, but I do not doubt that we shall hear from one sooner or later. The reason for that is the working families tax credit, which has quite wrongly been tucked away in the accounting adjustments. That is an attempt to reduce the otherwise appalling impact of a huge increase in the welfare budget. I was extremely critical of the working families tax credit during the Budget as I believe it to be inferior to the family credit that it replaced, and which used always to count as social security. It will prove a nightmare to apply working families tax credit. In America, it has proved extremely expensive, and it is easy for people to obtain it fraudulently. When the Government first announced the credit to the House, they had not done their sums properly. Now they have discovered the real costs, and they have tucked the credit away into the books, just as they have with other matters.

I welcome private finance, having helped to develop the private finance initiative during our last three or four years in office. I am increasingly suspicious about the Government's approach to the PFI, however, as they are going in for off-the-books accounting. Risk transfer is not being given the importance that it was given previously. How can the Chief Secretary justify not including the guarantee for the channel tunnel link as public expenditure? We are talking about £3.75 billion. No previous Government have regarded a guarantee for a debt—a taxpayers' guarantee—as not counting as a liability in public expenditure.

There is also talk of finding more areas in which receipts can be netted off against expenditure, which means not counting taxation as taxation, but using it to reduce the apparent costs of providing public services. Assumptions are being made about fraud, and about asset sales, which I do not think will be realised. The books have been altered to try to reduce the impact, and to bring the increase down to 2.75 per cent. in real terms over three years.

I was impressed by an article by David Smith in The Sunday Times on 12 July about the effect of changing definitions for apparently purposeless reasons when presenting spending. He gave more detail than I have time for, but the most important point is that the Government have given up what we used to call the control total, our principal instrument for controlling public expenditure. We left out cyclical social security expenditure because we could not control it, but we bore down on the rest of expenditure, which was within the control of Departments.

Of course the Government have abolished the control total. In this year alone, it is going up by 1.2 per cent. in real terms. Over the next three years, the control total, which we used as our principal instrument for controlling public expenditure, is set to rise by 3.4 per cent. each year over and above inflation—in other words, in real terms. That is a relaxation of total public spending at an extraordinary time.

Why are we concerned? Most politicians are happier when they are spending money, our constituents are happier when we are spending money, and it has never been part of my approach to life to wear a hair shirt too readily. However, as I said, I am concerned about job security, living standards and the state of British business and commerce, which ought to be our principal concern. They will be the Government's concern before long, because the position is deteriorating. The Government have taken the extraordinary decision to abandon their control over public spending when everybody knows that the economy is slowing down fast and when there is increasing sign of pain.

Mr. Miller

indicated dissent.

Mr. Clarke

I am glad that things are fine in Ellesmere Port, but one does not have to go far from Ellesmere Port to find engineering and manufacturing firms that are having a hard time.

Mr. Miller

He is talking down Britain.

Mr. Clarke

I am not talking down Britain. I want Britain to be a successful enterprise economy, but it will not be if it is run incompetently by the Treasury team.

Our constituents will understand why we ask where the money is coming from. That is a sensible question, which has been asked of Governments in the past and which we have asked when we have been in opposition. What do we get by way of an answer? The answer now is the same as Harold Wilson used to give—it is all going to come from economic growth—but it comes when people are more worried about economic growth than they have been at any time since the Labour Government took office, and they are right to be worried. The Government are anticipating a not terribly spectacular level of growth, and I agree with all my right hon. and hon. Friends who have spoken so far in believing that the Government are counting their chickens before they are hatched. That is an extremely reckless thing to do in economic policy.

I am by no means sure that the Government's forecasts will be achieved. I have no time to go into my usual arguments about why I think monetary policy is slowing down growth too fast. I agree with Dr. DeAnne Julius that, at the very least, policy should now be going into neutral. I think that the economy will slow down more than the Bank suggests and more than the Government suggest. Once the impact of the Asian crisis has arrived, it will slow down extremely rapidly. The result will be that the Government cannot pay for what they are promising today unless they tax more and borrow more. It is no good talking about the golden rule—borrowing, which is planned to rise now, will go up to a level that will cause the Government great political difficulties.

6.51 pm

Mr. Paddy Tipping (Sherwood)

I am extremely pleased to follow my neighbour, the right hon. and learned Member for Rushcliffe (Mr. Clarke). I join him in recognising and praising the importance of a Government who are going to deliver on their election promises. The right hon. and learned Gentleman might not be sitting on the Opposition Back Benches now if he had been a member of a Government who could persuade people that they meant what they said and delivered what they promised. The comprehensive spending review and the document "Modern Public Services for Britain—Investing in Reform" give the Labour party an opportunity to forge a new contract with the people—a Government who deliver on their promises.

I start by praising my right hon. Friend the Chief Secretary for one promise that has had no publicity at all: in opposition, we made the promise that we would stop the large-scale sale of Forestry Commission woodland. Under the Conservative Government, a third of a million acres of woodland was sold; that environment declined, and public access opportunities were lost all over the country. When we came to power, we imposed a moratorium, and the Government have now made it clear that large-scale sales of Forestry Commission land will cease. That will enhance the environment and improve the landscape.

That decision has been generally welcomed, but the review goes further. I am pleased that a middle way has been found for the Forestry Commission. The lodges where people stay on holiday are to be refurbished and brought up to modern standards by using private sector finance. We are enhancing the environment and giving people more and better recreation and leisure facilities.

Much of the debate on the spending review has concentrated on the extra spending—the inputs on education, health, crime and disorder measures and transport. The shadow Financial Secretary acknowledged that this was the biggest spending bonanza since the war, but he did not seem clear about where he stood; he was not sure whether he was for it or against it. I liked the tack he took—talk about the cavalry charging down the hill to protect and enhance the pay of public sector workers. Cleaners and dustbin men will remember the 18 years under the Tories, and will never see them as saviours.

Unlike my colleagues, I want to focus on the processes in the comprehensive spending review, because it is apparent that it contains several measures that are good public and economic policies. When the glitz and presentation has been cut away, what is left is a spending plan over three years that brings consistent and steady growth to public services, especially education and the health service, of about 4 per cent. a year in real terms.

That does not sound like a lot, but head teachers, hospital managers and people who work in the public services acknowledge that there is light at the end of the tunnel. What they cannot live with is uncertainty, so having a planning framework of steady, cumulative growth over three years is important to them. Of even greater importance would be to try to ensure that the three-year spending plans were constantly rolled forward, so that there is always a third indicative year. People would then have the opportunity to plan to take on new staff, to take decisions about capital expenditure, and to engage in long-term planning, rather than 12-month planning.

I also welcome the set of cross-departmental reviews, on the under-fives, asylum and immigration, crime prevention and the justice system. Those are important, because they show that the Government engage in joined-up thinking and joined-up government. We shall do more of that, and continue to pull Departments together, so that, in crude terms, by adding value to each Department, we get better bangs for our buck.

I am delighted that the comprehensive spending review speaks of a regeneration budget, new deals for communities and a revamp of the single regeneration budget that will bring extra resources to our most deprived areas. I say to the Minister: look closely at coalfield communities and at the coalfields task force, which has made 80 recommendations for Departments across Government. Let us use that as a vehicle to bring real change, new investment, new jobs and a new future to coalfield communities.

As well as inputs and extra spending, outputs and outcomes are important. I look forward to seeing the detail of the spending agreements and to there being some, shall we say, creative tension among the centre, the Treasury, and the spending Departments. I hope that we will look to spending Departments to make savings, and give them the opportunity to keep some of those savings, because the language of government is the language of priorities. We need to acknowledge that not all public spending is good public spending; we need to ensure that public spending is modern, and goes to the areas of most need.

That is why I am keen that we set targets not only for Departments, but for public spending all the way down the scale. I hope that we shall have local contracts between divisional police commanders and their communities, and between head teachers and the community that uses the school, so that people know who is accountable for the services. Targets and timetables should be set, and questions should be asked if they are not delivered.

The citizens charter made a good start on that, but the measures were not very sophisticated. They included the number of rings of a telephone and how quickly a report could be produced. We should get out and talk to people about the public services they demand and aspire to—and, what is more, pay for. We have an obligation and a responsibility to provide better services than people are receiving at the moment.

I hope that we shall ask hard questions, for example, of police authorities. How many of us, in the Chamber or outside, can name the members of the police authority that shapes our community? Very few of us can do so. We must identify stakeholders and the providers of public services, and set them hard targets.

We must also examine mistakes. I have mentioned the police. A great deal needs to be done to make our police force modern. I am ashamed at the amount of sickness in many police forces in this country. It cannot be right that, on any one working day, 1,500 police officers in the Metropolitan police are on sick leave. It cannot be right that there is so much early retirement, not only in the police but in the education service. We need to examine that problem, and manage it much more forcefully than we have done in the past.

I sometimes think that public servants are good at managing problems. The issue is our lack of social and public service entrepreneurs—charismatic figures who can find solutions. We must strive to identify the people and organisations that can implement good practice. We need to praise good public services and contrast them with the worst. The problem in recent years is that we have picked on the worst services—we have named and shamed—but we all respond better to praise and reward. I want us to examine public services, reward and support the best, and make them beacons for change. Public services in this country would then be transformed.

That leads to implications for the inspectorate—the people who monitor our public services, such as the Audit Commission and the Office for Standards in Education. I have great praise for the Audit Commission, and it does not need to hire a lobbyist to find that out. It is very good at identifying problems, putting forward solutions and suggesting outputs, but it is not good at delivering outcomes. We must set up organisations that support people, love public servants and give people who can achieve the opportunities to do so, such as seminars, extra training and extra resources for their organisation. By praising the best, we can enhance the rest.

Ofsted has a great deal to achieve. I note that one of the documents accompanying the comprehensive spending review sets out aims and objectives that Ofsted has set itself, including the objective of getting Investors in People status. I hope that it can move from a negative, Lone Ranger, destructive approach to school inspection towards one that considers and enhances the good aspects and acts as an agent for change.

I believe that public services are important, and the public agree, but they must be persuaded that those services are theirs, that they meet their needs and that they are stakeholders in the services. I praise the comprehensive spending review, because it is investment for reform and an opportunity to achieve modern public services. It is a challenge for change. I hope that we shall meet that challenge and make that change.

7.4 pm

Mr. John MacGregor (South Norfolk)

Before I come to my main theme, I want to address an issue of great interest to me as a former Chief Secretary. It is dealt with in section 4 of the comprehensive spending review, which is all about efficiency and modern public services. The Chancellor spent a good deal of time talking about that in the early part of his statement on Tuesday. The document says that new public service agreements for Departments will include their new objectives and measurable efficiency and effectiveness targets. I had a great sense of deja vu when I heard the Chancellor's speech and read the document, because when I was Chief Secretary we had documents saying exactly the same things—we were measuring not by inputs but by outputs. We were having annual reports and checks.

Throughout our period of government, we took huge strides forward in efficiency measures and cost savings in the civil service and the delivery of services. There is absolutely nothing new about that, although the document tries to claim that there is. It is a huge travesty in its treatment of the 18 years of our Government. There was substantial capital investment, not least—indeed, particularly—in transport.

The Chancellor referred on Tuesday to an education system that advanced only the ambitions of the few".—[official report, 14 July 1998; Vol. 316, c. 190.] He gave the impression that that is what we had done. Our period in government was one in which the numbers of people going into higher education were greater than ever before and there was a huge extension in the opportunities for higher education. When we took office, one in eight people went into higher education; when we left office, the figure was one in three.

The health and education measurements that are so heavily emphasised in the document are precisely those that our Government introduced, which were frequently criticised by the Labour Opposition. Labour now relies very heavily on the reforms that we put in place. I do not object to those reforms—they are good Tory measures, so I welcome them. However, the Government should not suggest that they are new, or that they will revolutionise public expenditure programmes.

That brings me to my point about public service agreements. I want to understand their significance, and I hope that the Financial Secretary will deal with this point in great detail when she replies. The emphasis is on measurable objectives. I do not know what the new public service agreements will be. I certainly hope that they will not use the objectives set out in this document—very often in the light blue passages at the beginning—because most of them are too unclear to measure, and many are pious hopes. They are certainly not quantified. I hope that the objectives will be quantified.

That brings us to the key question: what will the Government do if the targets are missed? We are told that the services will be regularly monitored, not annually but much more often. Are the Government saying that they will not give more money over the three-year programme to various Departments if they miss a particular target—we understand that the targets will be not only quantified but timetabled—and if so, do they really believe that that is realistic?

As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) pointed out in an intervention following a question that I asked, if the health service targets for waiting lists are not met, will that mean that the money for the health service will be reduced? If class sizes are not met, does that mean that the education budget will be reduced? That is not realistic, so I wonder what the reform amounts to.

There is a likelihood of increased expenditure in other parts of the Government's programme and of unexpected further expenditure requirements, so, if the Government are relying on such an approach to make compensating savings when Departments do not meet their targets, all I can say is that I do not believe they will deliver their pledges.

The early auguries are not good. One of the delivery measurements listed is requiring outstanding reviews to deliver against tight timetables". A number of reviews have missed tight timetables by a mile, so there has not been a good start. On efficiency, I notice that one of the biggest increases—in cash terms—in all the programmes is the social security running costs administration programme. That is not a sign of tight control, either. I want to know how it will work, and whether it will lead to major reform.

I come now to my main theme. Like other Conservative Members, I believe that the Chancellor has thrown caution to the winds, and is taking a huge gamble. His departure from caution is the increase in average annual spending to 2.75 per cent. in real terms. However, I believe that it is more than that. If one takes into account the private finance initiative and accounting changes to which my right hon. and learned Friend the Member for Rushcliffe referred, the figure is more than 3 per cent. in real terms, measured like for like with the past. That figure is way beyond the Chancellor's earlier prudent statements.

The gamble is that economic growth in the next three years will be able to sustain that figure, which is above the long-term growth rate of the economy, and is unlikely, in the view of most in the worlds of industry and commerce, to be achieved in the next year or two. Like my right hon. and learned Friend, I always get suspicious when the word "prudence" appears so often in a statement—I think that it was used 14 times in the Chancellor's statement in June. I become even more suspicious when he starts to drop the word and it appears only rarely. That is the gamble, and I shall concentrate tonight on what I see as the traps facing the Treasury in this area.

The first trap—which I shall deal with briefly, as others have referred to it—is the relationship with growth in the economy. Table A6 on page 113 of the comprehensive spending review reveals the record of past expenditure. It shows that public spending as a proportion of gross domestic product came down fastest and moved to its lowest level on the chart during my period in office as Chief Secretary and shortly after I had left. That rate was achieved because, although it was a time of economic buoyancy, we kept strict control over public expenditure increases, because we did not want to anticipate future growth.

The public sector borrowing requirement and public expenditure as a proportion of GDP have decreased sharply because of the strong economy—a legacy from our period in government—because of revenue buoyancy, and because of Labour's adherence to our strict public expenditure limits. However, history has shown that that situation could change quickly. The swing-around on the current account surplus and the PSBR could be very substantial if some of those factors change. The Chancellor has let go a key element by agreeing to very substantial increases in total public expenditure over the next three years, irrespective of the development of the economy. That is trap No. 1.

Trap No. 2 follows from that: the fact that the programme will span three years instead of one. If one compares tables in the comprehensive spending review with previous public expenditure tables, one will see that they look very similar. The Conservative Government also had three-year programmes, but there were two crucial differences.

Under our programmes, only the first year was absolutely key. Years two and three were indicative, and spending did not increase as substantially as we see in this document. We also had a substantial reserve in years two and three. We see here a substantial increase in years two and three in order to boost the size of the total programmes on health and education. Those figures have been lumped together in order to give what appears to be a much larger figure. However, I notice that the reserve in years two and three is also very slim and small. That is one of the particular dangers facing the Government.

Every Chief Secretary knows that there are always large, unpredictable demands during the year. In this case, they will occur over three years. If the limits are to be kept, where will the money come from? The reserves are not big enough, so it seems inevitable that there will be a clawback from elsewhere, or the figures for years two and three will rise unless savings are made in the existing three-year programmes. I have a feeling that this is a reform—like giving independence on interest rates to the Bank of England—that the Government may regret in due course. I warn that I think that the reserves are too small.

Trap No. 3 is the social security budget, which is outside the three-year programme. As some of my right hon. Friends have pointed out, on a basis of like for like and taking the working families tax credit and other factors into account, the increase in the social security programme is actually £37 billion. That is the big increase in the programme—it is much larger than education and health combined.

The Prime Minister's comments before the election—to which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) referred—bear repeating. The Prime Minister said: We have said as we get welfare bills down, then we can release more money into education and health services. It is no good the Government's indicating where they would make cuts; the point is that, in order to demonstrate their prudence, the Government planned to increase education and health spending when the welfare bills were reduced. We all know that the reverse has happened: the welfare bills will increase substantially. That was the Government's policy, but it has been abandoned.

The situation is even worse than that. I believe that, if unemployment rises, that £37 billion will rise considerably—and it is still part of the overall total. I note that the Chancellor confirmed to the Treasury Select Committee yesterday that his forecasts were based on stable levels of unemployment. When those levels rise, the social security bill will also rise considerably.

Trap No. 4 is public sector pay. I was amused to hear the Chancellor say on Tuesday that there would be new developments in public sector pay. He cited three new responsibilities: affordability, inflation and efficiency. As I am sure my right hon. and learned Friend will confirm, in giving the Treasury or Government view to various pay review bodies, the previous Conservative Government always emphasised precisely those points; so the Government's developments are nothing new.

The Chancellor said on Tuesday that the Prime Minister had spoken to the chairmen of the pay review bodies, and he was satisfied that they would take those issues into account. As Chief Secretary, I remember talking to the chairmen of pay review bodies and emphasising precisely the same points. They then advanced what they regarded as powerful arguments for ignoring my views entirely. I believe that the Government will find a similar outcome.

We all know that there are serious recruitment and retention problems in relation to nurses and, increasingly, general practitioners and teachers. Recent surveys that I have seen show an alarming drop in the number of students entering teacher training, particularly in areas such as physics. Therefore, I am quite sure that, over the next three years, pay review bodies will believe that they should put greater emphasis on recruitment and retention. That will blow another hole in the three-year programme.

Trap No. 5 is asset sales. Quite a large part of the public sector net investment—or what I would regard as capital expenditure—which is quite low at 1.4 per cent. of the total, is dependent on asset sales. Those asset sales are highly unpredictable. The Conservative Government knew that we could deliver with the many asset sales and privatisations that we undertook. I am very much in favour of privatising National Air Traffic Services, but I doubt whether it will be achieved easily. That dependence on asset sales is another danger.

When the Chancellor abolished advance corporation tax, he expected that it would encourage the private sector to invest substantially. That was part of the rationale behind his move. A survey produced by the Confederation of British Industry and the Association of Consulting Actuaries revealed that only 2 per cent. of companies thought that ACT changes would increase the amount of capital available for investment. Look at the damage that that measure has caused to pension funds and pensioners, and it has not produced the desired result. The same could happen with asset sales.

Trap No. 6 involves how the Government will pay for the programme if they cannot hold to their figures, or if they find that revenue buoyancy disappears. The Government have probably exhausted all the tax squeezes—such as the ACT measure—in order to bring in big extra revenue, so which tax pledges will they have to reverse? Will the strain be taken by higher borrowing and higher interest rates?

I believe that old Labour is back. It was old Labour that applauded the Chancellor on Tuesday. Perhaps that is why the Prime Minister appeared so strained and tense during that session, and why this review will be short-term gain for long-term pain.

7.19 pm

Mr. Jim Cunningham (Coventry, South)

In this debate we have heard the old Tory tales of woe—it was tales of woe when they were in government, and it is tales of woe now that they are in opposition. Phrases such as "incompetence", "people are not in charge", "people are too much in charge" and "we have always done better in government" have punctuated Tory speeches tonight, but we all know that their stewardship of the British economy during the past 18 years does not bear comparison with our stewardship of the economy. I should have thought that the last thing that those gentlemen over there would want to do was to talk about their stewardship and to compare their stewardship with ours.

Let us remind ourselves of some of the things that those people across from us got involved in during the past 18 years. Let us examine their record. Who remembers the negative equity under those people over there? Do you remember how the previous Chancellor had to try to devise a scheme to help those in negative equity? There is no talk about that tonight. Do you remember the record of unemployment, at 4.5 million? No one knew the accurate figure.

We also remember, in the area that I come from, Coventry and the west midlands, how the industrial base was eroded. There is no talk about that tonight. Do you also remember the record number of bankruptcies? That was the economic record that the Tories foisted on the British people. Do you remember the speedy withdrawal that they had to make from the exchange rate mechanism, and the devaluation of the pound? Do you remember when interest rates reached 22 per cent.? Again that was their record.

Mr. Deputy Speaker

Order. Some of these things I remember, some I do not, but it is best not to ask me what I do or do not remember.

Mr. Cunningham

I am actually asking the House, not you, Mr. Deputy Speaker. I am sure that my honourable colleagues will remember some of these things.

I am sure that colleagues will remember a generation of young people who never had a job, who were probably unemployable. We must now start to pick up the tab for that and try to train them and get them employment.

Do you remember record crime levels? I am sorry, Mr. Deputy Speaker; I hope that the House remembers the record levels of crime under the Tories.

We also remember the fact that the Tories created a situation in which people were being paid poverty pay. We also had the 22 tax increases. What did people get out of that? The Tories squandered North sea oil revenues. They do not want to talk about their economic record.

The Tories talk about public sector workers. I seem to remember that, in one Budget, the previous Chancellor talked about zero increases, but said that if there were to be any increases, they had to be allied to increases in efficiency. Does the House remember? Perhaps I am wrong. I shall give way to the right hon. and learned Member for Rushcliffe (Mr. Clarke) if he wants to put me right.

I welcome the comprehensive spending review because it frees the British people from recession and stagnation. In other words, it offers them hope after they have had 18 years of no hope. Among the things that I welcome is the £21 billion over the next three years for the national health service. That will help us to honour our commitments, not only to start shortening waiting lists, but to start to deal with the capital investment that the national health service needs.

We shall spend £19 billion on education over the next three years. Remember the overcrowding in classrooms? In addition, more than a million kids still have to be educated in schools that were built before the first world war, in the conditions that that implies.

I especially welcome the Government's commitment to pensioners. Obviously, one of the commitments is to provide a better health service but, more important, we are removing for pensioners the iniquitous eye test charges that the previous Government introduced. Some Conservative Members opposed the introduction of those charges; I remember talking to some of them at the time.

I welcome the transport White Paper. I hope that it is published very soon indeed, because one of the most contentious items for us in the west midlands and for people throughout the country has been the fact that some authorities pay for free transport for pensioners and some do not. One often finds that Tory areas do not.

I welcome the cut that was previously made in VAT to help, not only pensioners, but some of the most needy families in Britain, on the poverty line, to pay their fuel bills. Equally, I welcome the further announcement made by the Secretary of State for Social Security that further funds will be provided to help pensioners with their fuel bills. About 1.7 million pensioners are on the poverty line in this country.

The Secretary of State for Social Security will also announce that, by next April, every pensioner will have a minimum pension guarantee. That is very important because many pensioners feel that they do not get an adequate pension.

The £2.5 billion set aside for tax guarantees means that pensioners will be allowed to retain up to a certain level of any income. We are still waiting for an announcement of what the taxation might be beyond that level, but at the moment many pensioners feel aggrieved by virtue of the fact that, if they take a part-time job to supplement their pension, they very often find that it is taxed away.

I welcome the commitment to do something for third-world debt. Colleagues will remember that, in our election manifesto, we committed ourselves to an objective of devoting 0.7 per cent. of gross national product to alleviating third-world debt. The Chancellor's announcement shows that we are halfway there. I believe that very many people will welcome that. We also committed ourselves to consider the whole issue of third-world debt and third-world poverty. There certainly will be some negotiations, but under the previous Government, the amount devoted to alleviating third-world debt actually fell by 2 per cent. a year.

The £21 billion funding for the national health service will certainly start to shorten waiting lists. There will be a 50 per cent. increase in capital investment in buildings and equipment, and £5 billion will be made available for national health service modernisation, which will give us the largest building programme of the past 50 years.

Other hon. Members, like myself, will know of drug abuse problems in parts of their constituencies. In my constituency, we have major problems with drug abuse. Allied to that, in certain instances, we get crime, but more important, we get murder associated with crime. We also get intimidation, if not murder, and that creates major problems for our young people. Unlike the previous Government, we shall increase by about 25 per cent. the budget for the unit that deals with drugs and crime.

I welcome the fact that we shall spend about £3.6 billion to renovate 1.5 million homes and, equally, to help the homeless. Some hon. Members probably spend at least one night a year sleeping out, to draw the nation's attention to the fact that hundreds—probably thousands—of people are homeless, destitute and without hope.

This is a Budget of hope. It shows fairness, but equally strength. I believe that it is a Budget that sets us on the road to enhance our reputation in the world

7.26 pm

Sir Michael Spicer (West Worcestershire)

Later in my speech, I shall ask the hon. Member for Coventry, South (Mr. Cunningham) whether he remembers the run on the pound and the Government going with a begging bowl to the International Monetary Fund.

First, I shall turn my attention to the word "prudent". It is a rather recycled word, because it has been bandied around the Treasury for some time. My friend, Norman Lamont—we shall very soon call him Lord Lamont—often used the word "prudent". The question is, what does it mean?

The present Chancellor has defined the word strangely. He has defined it in terms of the golden rule, by which one is prudent on the capital account but can be imprudent on the current account. That is a strange concept. Professor Buiter of the Monetary Policy Committee has rubbished the idea of the golden rule in that context—certainly in the context of trying to define prudence. He has pointed out the relationship, which has existed since time immemorial, between capital expenditure and current expenditure. In the public sector it is difficult, in many cases, to define what is capital expenditure and what is current expenditure. Is road maintenance capital or current? It happens to be defined as capital expenditure, but it might just as easily be defined as current expenditure. Everyone knows that, the more capital expenditure one has, the more current expenditure one has, so it is a nonsensical distinction.

As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) said yesterday in the Treasury Select Committee, it is doubly nonsense in the context that we are discussing at the moment. I noticed on the front page of The Times today that old canard, the effect of spin, in the sense that the front-page article spoke of surpluses ahead, defining the surplus merely in terms of the current account. I do not know whether the author of the article realised that.

The actual position is very different. If we are considering prudence, we need to consider affordability. That is partly a political perspective. I have a view about the affordability of public spending in terms of the need for limited public expenditure which allows the private sector to flourish and generate the products that allow the public sector to spend. That is a political view.

Another aspect of affordability that interests both sides of the House is the management of the macro-economy. Affordability is directly related to fiscal policy, which must be seen in terms of its relationship with monetary policy. Given the Bank of England's independence on monetary policy, if public spending rises out of control, as may well happen, and if inflation is the outcome of the expenditure release, interest rates will go up. That will result in a conflict of policy for the Government, with inevitable implications for affordability.

The Government's programme and their claim of prudence must be judged against the facts. Total public expenditure will rise by 2.75 per cent. Under the Government's own projection for the next three years, gross domestic product will go up by 2.5 per cent.—that is, less than the projected level of public expenditure. Public spending as a percentage of GDP will therefore rise. There are no ifs and buts about that: it is a fact.

As my right hon. and hon. Friends have pointed out, the Government's assumptions are extremely optimistic. The growth rate figures are substantially different from the growth rate figures produced in the Budget just four months ago. The projections in the Budget ranged from 0.75 per cent. to 2.25 per cent. The central projection of the Government's latest programme assumes a rate of 2.5 per cent. I asked the Chancellor yesterday what enormous changes had occurred in the economy over the past four months to produce such a substantive change in the Government's assumptions about GDP for the future.

The Government's forecast is optimistic in other respects as well. Unemployment figures appear to be almost static. If that turns out not to be the case, the effect on public expenditure in terms of unemployment benefit and so on would be much greater than is implied. That is why the Government's figures show public expenditure as a percentage of GDP rising from 1999 onwards.

When I asked the Chancellor about that in the Select Committee yesterday, he spent a long time talking about the fact that next year the figure would go down. He failed to mention a pretty fundamental point—that next year is the last year in which the Conservative expenditure totals will apply. After that we will see Labour's true colours and the Government's real programme, in which public expenditure as a percentage of GDP increases.

We are getting back to business as usual on the political scene. The old-fashioned Labour-inspired vicious circle is emerging in the management of the economy. As my right hon. Friend the Member for South Norfolk (Mr. MacGregor) mentioned, high expenditure must be followed by higher taxing, unless there is to be the printing of money and higher borrowing. Higher taxes will mean higher interest rates than are good for the economy, which will lead to inflation or higher taxation to pay for the higher expenditure, which will then have to be paid for out of higher taxation.

We are leaving the good old days of sensible Conservative budgeting and moving, after 1999, into the classic Labour territory of high tax and high spend. Those of us who were Members of Parliament when a Labour Government had to suffer the humiliation of going cap in hand to the IMF know that it was those policies that led to that result. If we are going down memory lane, let us go back to the last Labour Government, who had the same economic policies as the present Government. The prospect of a run on the pound and of the Government eventually having to seek help from the IMF are not fantasies. That is the logical outcome of what always happens under a Labour Government.

The Government are leaving behind the anchor of Conservative policies, which they accepted. The controls will apply next year, but we know from the Government's own figures that after that, public spending as a percentage of GDP, and therefore taxation, will rise. They have boxed themselves in by making the Monetary Policy Committee independent, no doubt because they did not trust themselves on the matter. The concomitant interest rate rises will make matters more difficult for the Government and the country.

The electorate was warned at the last election, but was not in a mood to accept those warnings. It was as clear as day that, despite all the froth and the spinning that went on at the beginning, as long as the Labour Government kept to Conservative policies, we were in fairly safe territory. They promised the country at the time that Conservative expenditure controls would be maintained for a year or so. We foresaw what would happen, but the country was not in a mood to accept it.

I expect that it will not be long before the mood in the country changes, as people recognise what they will get from a Labour Government. It is a great irony that just as the Government's new deal—a typical Labour programme for spending money on trying to overcome the unemployment problem—comes into effect, unemployment will begin to rise inexorably. No doubt there will be all the interventions that we get from a Labour Government, and certainly higher taxes. There is misery ahead for the country under this Administration. The quicker they are changed, the better.

7.37 pm

Mr. Neil Gerrard (Walthamstow)

I shall begin with some general comments about the comprehensive spending review and the Government's approach. It is not always easy to question where money is spent and whether it was spent on the correct priorities in the past. The review has tried to do that and has come up with some different answers. We should all welcome that.

I shall not dwell on specific outcomes. Everyone is aware of the extra money for health, international development, science and so on. I am particularly happy about the extra money to be spent on education, much of it on capital programmes in schools. The condition of buildings is not the only aspect that matters, but it is important. After years of cuts, the increase in spending will do much for teachers' morale. If my right hon. Friends at the Treasury want to finish the job of improving teachers' morale, perhaps they will suggest to my right hon. Friend the Secretary of State for Education and Employment that he rapidly terminate the contract of Her Majesty's chief inspector of schools.

Further education will have an extra 8 per cent. funding. I used to work in further education area and I very much welcome the increased funding. That sector has been grossly undervalued. There is low morale among those who work within it and a need for recovery. If we are to deliver on our training objectives, we must improve on what is happening in FE.

I very much welcome one of the smaller items in the comprehensive spending review which relates to further education—the piloting of an education maintenance grant for 16 to 18-year-olds, with the purpose of improving the staying-on rate among students from poorer families. I am sure that the pilot will work and that we shall thereafter extend the grant nationwide. I gently suggest to the Government that the principle of maintenance grants to help poorer students go into education is one that they might consider for higher education as well as further education.

Housing is another part of public spending where many important decisions still need to be made. That links with the welfare benefits review. A housing inspectorate is being set up to oversee management in local authorities. Clearly there is nothing wrong with improving standards of management; tenants deserve good management. However, I question whether we should focus only on management in local authorities. My experience of increasing contact with housing associations is that some are very good, but the management practices of others leave quite a lot to be desired. I do not believe that the Housing Corporation provides effective oversight of associations' management practices. There is a gap in public accountability, especially as increasing amounts of money are going in that direction.

Housing is not only about good management. Clearly we cannot provide a good-quality physical housing environment without money, without investment. We know—it has been mentioned earlier—the appalling record of housing investment over the past 10 to 15 years. Investment is now far lower than it was 20 years ago. There is an appalling problem of supply in the social housing rented sector, especially in large cities. The situation in London is probably the worst of all. The problem of supply cannot be met by better management. It cannot be met without money, without investment.

Of course I welcome the £3.6 billion that will be put into the social housing rented sector, but I have the impression that it will be very much targeted at refurbishment. There is obviously a job to be done in refurbishment—there are extremely serious problems of disrepair—but that approach will not fundamentally affect the supply side of the equation. Oddly, it could make things worse in the short term. My experience of large-scale local authority and housing association refurbishment schemes is that often they require a decant—tenants being moved. Often these schemes take away part of the supply which might be used for other purposes.

There is nothing wrong with refurbishment, but there is still the question of what public expenditure is directed to the supply side. We know that it is not just a matter of throwing money at these projects. All the evidence suggests that we cannot engage successfully in refurbishment and redevelopment without proper tenant involvement and support. That was mentioned specifically in the statement made by my right hon. Friend the Chancellor of the Exchequer on Tuesday. If tenants feel ownership of an improvement scheme, the scheme is much more likely to be successful.

There are clear limits on spending in the new deal. It has been announced that £800 million will be spent on regeneration. That can be a good way of creating employment and training opportunities if it is tied in with housing regeneration. There is real scope, with imagination, for having housing regeneration linked to training and employment.

Other unresolved housing cost issues relate to public expenditure on housing benefit—about £11 billion—and rent levels. There is much evidence that rents are a major consideration in people's minds when they are considering whether they can get off benefits and move into work. I recall what was said in my right hon. Friend's statement on Tuesday about the minimum guaranteed income for pensioners. That implies a close look at the links between, for example, pensions, the tax system and the benefits system. It seems to me that the same approach is necessary when looking at people's housing costs and whether public money is spent in the best or the right way, whether we are getting the best value for that money and whether it fits in with other Government objectives. We need the comprehensive spending review and the benefits review, when it comes along, positively to interact with housing costs. That relates to social housing rents and subsidies.

The working families tax credit improves matters. There is no doubt that a taper of 55 per cent. compared with one of 70 per cent. for family credit is a big improvement; it means that the poverty trap will not be so deep. Such reforms will substantially reduce the numbers of households that pay high rates of marginal tax at the stage when they are getting into work. However, the improved incentives for tenants on the current proposals will depend critically on their rent levels. Tenants at the lower end of the rent scale will be taken out of housing benefit and council tax benefit. The higher the rents, the more extensive the overlap will be, as things stand, between tax credit and existing housing benefit tapers. That is because the tax credit scheme is more generous than existing schemes, extending further up the earnings scale.

We could end up with—we end up with this under present housing benefit systems—a wider overlap that extends much further up the income range, where significant marginal deductions occur. When we come to the benefits review, that needs to be addressed in relation to what is done under the comprehensive spending review.

Rents relate to public expenditure on subsidies. We know what the previous Government did. Their policy was quite simple: cut subsidies and force up rents in social housing. That was a clear policy. As a result, we have seen some developments, especially housing association developments in big cities such as London, become virtual ghettos. Tenants cannot afford to continue living in them unless they receive housing benefit. They are virtually dependent on that benefit.

In the private rented sector, where cuts were made in housing benefit by the previous Government, there was the ridiculous philosophy that tenants would somehow be able to bargain with landlords about their rents. Certainly in the big cities, tenants in the private sector, such as elderly people and people from minorities, are often the most deprived and the least likely to be able to bargain. They live in awful conditions. We need to examine how some of the £3.6 billion that will be spent on housing improvement will reach some of the people who live in terrible private rented conditions as well as the people on major estates.

That is another challenge for the use of social exclusion money. It may be true that larger estates have major concentrations of youth unemployment and deprivation, but many other deprived people are living, scattered, in the private rented sector.

I return to the issue of rents. It could be argued—I am sure that there is some truth in the argument—that merely lowering rents is not a panacea; in other words, lowering social housing rents does not solve all the problems. Of course it does not, because that does not do anything to address the condition or supply of housing. Increased rents, however, would conflict with other Government intentions, and we need to consider that carefully within the context of the comprehensive spending review. We do not want welfare to work or policies to combat exclusion to be affected adversely by what is happening to people's housing costs.

Housing costs matter because they are up-front costs and people do not always appreciate the impact of in-work benefits such as housing benefit. Housing costs are at the forefront of people's minds when they consider whether they can afford to get off benefits and into work or to take a particular job.

Those are areas of unfinished business surrounding the comprehensive spending review and forthcoming announcements. There has been a great deal of good in this week's announcements, but I hope that the Government will consider those other issues and, as further announcements come, take great care to ensure that they fit in with the good intentions in the comprehensive spending review proposals.

7.50 pm

Mr. Tony Baldry (Banbury)

A number of hon. Members want to participate in the debate, so I shall try to be as brief as possible.

In 15 years as a Member of the House, this is the first time that I have felt compelled to take part in an economic debate. As my hon. Friend the Member for West Worcestershire (Sir M. Spicer) said, the debate is an occasion of some importance, because it marks the end of the Labour party at least paying lip service to some sort of financial rectitude and responsibility and the start of a classic Labour binge.

My constituency in north Oxfordshire is classic middle England, and I am concerned that middle England is simultaneously conned and ripped off—conned, because people are led to believe that far more money will be spent on health and education than will actually be spent; ripped off, because, as a consequence of the Government's obvious failure to control public spending overall, taxes will inevitably rise. I shall make a number of predictions, and will be happy to be tested on them at the next general election: as a consequence of this failure of a spending review, taxes and interest rates will be higher than they need be and higher overall. Mortgage interest rates will also be higher, as a result of higher interest rates.

We can test the Labour Government by their own words. What is clear beyond peradventure is that they have already failed to control social and welfare spending. Before the general election, we heard a lot from the Labour party about its intention to cut welfare bills by getting people off social security and into work. It also said that it would reduce the proportion spent on the welfare bills of social failure. In a comprehensive spending review at this stage in the Parliament, one would have expected an attempt to be made to show some kind of control over welfare spending. After all, each and every person in work spends £15 a day on taxes for welfare spending. That has not happened; indeed, every single item of welfare spending in the review increases social security spending.

In 1992, in the depths of the previous recession, when unemployment was 50 per cent. higher than now and thousands of home owners were receiving help with mortgage repayments, the social security bill was £60 billion. After six years of economic growth and increasing economic prosperity, the bill is £100 billion. In two years, it will be £120 billion. Health and education will supposedly receive an extra £40 billion over three years from the increase in public spending. Social security spending alone will take an extra £20 billion in only two years, and those figures would increase if unemployment returned on any scale.

The Labour Government have already completely failed to tackle welfare spending and the social security bill, and they have clearly acknowledged that. When the Prime Minister was challenged on that yesterday, and when other Ministers have been challenged, they have simply said to us, "What would you reduce?" The Government were elected on a manifesto that said that they would reduce spending on social security, but the review will substantially increase such spending, and that new Labour would be wise spenders, not big spenders, but the review totally fails to control spending.

The image that the Government present is that we can achieve the improvements that we want in health, education and every other area without having to dig deeper into our pockets for taxation, but history shows that that just does not happen. If the Government are to spend more money, it will inevitably come from higher taxes and higher interest rates—binge now and bill later.

As every commentator has pointed out, the public spending review is based on the assumption that there will be continuing high rates of growth. I do not know where Ministers have been recently, but, as a member of the Trade and Industry Committee, I have been out visiting businesses up and down the country and talking to business men. Ministers may not have noticed, but I should have thought that the hon. Member for Coventry, South (Mr. Cunningham) would tell the House that there is already recession in large parts of the United Kingdom—for example, in manufacturing industry in the west midlands.

The high level of sterling has made life extremely difficult for exporters and for other sectors of the economy. The idea that we shall have high economic growth on the most optimistic figures that will continue year on year is a pipe-dream, but we do not have to look far for Labour party pipe-dreams. Before the general election, we were told of two early pledges. We now learn that the word "early" means not that they will be delivered early, but that they were made before other pledges. How much can one trust a party that plays that sort of word game?

Two impressions were given to my constituents and to people up and down the country. The first was that class sizes in primary schools could be reduced to 30 or below by abolishing the assisted places scheme. That has clearly been shown to be nonsense, hence the rush to give the impression that extra money is being given to education. The second was that national health service waiting lists could be reduced by 100,000 by removing general practitioner fundholders and some of the administration that goes with that. That has been shown to be bunkum, as waiting lists have increased substantially.

My constituents are being conned, because the impression is being given that health and education are receiving a bonanza in new spending, but the rise in NHS spending is only little more than is needed to maintain existing standards of provision. There has been quite a lot of triple counting and taking no account of inflation. As this Parliament proceeds, there will be increasing pressures in health and education as people begin to appreciate that the amount of money put into those two services is not as great as the Government spin to us and would have us believe.

What is especially significant is that those two areas are dependent on the people who work in them. Nowhere in this spending review has any proper account been given to how to deal with public sector pay, except to say that public sector pay review bodies will have to have regard to spending targets. I will make another prediction that, between now and the next general election, as their growth targets are not met, we will see the Government seeking to meet the shortfall in health and education spending, by putting the squeeze on those who work in health and education. That will be dispiriting for them.

When all the froth of the public spending review is settled and people have really had a chance to look carefully at the figures, they will see that many people are in danger of simultaneously being conned and ripped off. Conservative Members are determined to ensure over the coming months and years that people appreciate the extent to which they are in danger of being conned and just how much they are ripped off. We will ensure that, at the next general election, people really appreciate that the Government have sold out on the economic management of this country in a way that is greatly to the detriment of every citizen in our land.

8.1 pm

Ms Rosie Winterton (Doncaster, Central)

I am glad to have an opportunity to speak because I want to reflect the widespread support felt in my constituency for the Chancellor's statement on Tuesday. That support comes because of the clear commitment to invest in public services. My constituency is in the heart of South Yorkshire and has suffered from years of decline in the coal, steel and railway industries and from years of undermining of public services by the previous Government.

As we all know, massive industrial decline leads to poverty and social exclusion. Providing a decent education for young people is vital if we are to give them any hope of overcoming the problems that go along with industrial decline. That is why the extra resources announced in the last Budget were so welcome. It meant that £5 million went to schools in the Doncaster area. That put into reverse years of cuts and years of reductions in teacher places. Schools were able to pull themselves out of the crisis that had been created by the nursery voucher scheme. When we put the money available then together with the money announced on Tuesday, it will make a real difference to so many young people in my constituency.

The regeneration of an area such as Doncaster depends on good public transport. Put simply, many of my constituents cannot afford a car and depend on public transport to get to work. About 40 per cent. of them do not have access to a car and investment in public transport Is vital for them. The Government have already given the go-ahead for a new transport interchange in Doncaster, but the announcement of a further £1.7 billion to invest in public transport will improve the employability of many people in my area and will provide much-needed jobs.

My hon. Friend the Member for Walthamstow (Mr. Gerrard) talked about the need for accountability in housing associations. We also need to ensure that we have accountability in the provision of bus services, which are important in my area if people are to get to work. Services need to be planned and dependable, and there needs to be accountability. At the moment, companies often withdraw services without any consultation with local people and that can put jobs in danger because people cannot always get to their workplace.

I know that many hon. Members have talked about housing, and I want to touch on that. The announcement of a further investment of £3.6 billion to improve council housing stock has been greatly appreciated in my area. Nothing better illustrates the Chancellor's principle of money in return for modernisation than housing. The release of capital receipts that has already taken place has meant that we have been able to rewire 503 properties in the Doncaster area. A total of 834 properties will have central heating installed, and 571 will have double glazing put in. That means that more than 2,000 properties will be modernised, and 2,000 families will have their lives directly improved by the actions of this Government. Also, as those properties are handed on to others, the effect will become more widespread.

There is more to be done. We have a housing stock of 29,000 of which more than 7,000 still have no central heating, more than 500 still have outside lavatories, nearly 18,500 need rewiring and nearly 25,000 do not have double glazing. We must give emphasis to modernising housing because we all know that poor housing leads to poor health. Rundown estates suffer high levels of crime and drug problems, as was mentioned by my hon. Friend the Member for Coventry, South (Mr. Cunningham). People give up hope and opt out of society. Whole estates can become isolated and those who live on them have no hope.

Investing in housing not only improves people's lives directly, but improves their health and provides jobs and skills training. That is why the Government's move, which will be carried out in partnership with local government, is so welcome. We are looking at how we can regenerate those areas.

My hon. Friend the Member for Sherwood (Mr. Tipping) talked about the report of the coalfield communities task force. The task force was set up by my right hon. Friend the Deputy Prime Minister. Its report shows how important it is to co-ordinate departmental initiatives if we are properly to regenerate areas of industrial decline. Improving the housing stock leads to better health, reduced crime and more jobs. Raising educational standards and developing skills means that young people are more employable and that breaks the cycle of despair that has been only too prevalent in my constituency over the past 18 years.

The Chancellor's statement on Tuesday was important because it recognised the importance of integrating all the different areas of Government responsibility and how we can bring about regeneration through Government action. It was not a piecemeal approach. It put the pieces of the jigsaw together and the picture it presented was one of a much brighter future for many people in my area who have suffered for too long. That is why I welcome the statement and why it has been so welcome in my constituency.

8.9 pm

Dr. Vincent Cable (Twickenham)

There has been much discussion of the comprehensive spending review's arithmetic. I should like to return to some of the issues that were raised helpfully and lucidly by the right hon. Member for South Norfolk (Mr. MacGregor). They are what could be called the chapter 4 issues relating to public sector management.

In many respects, the Government's contribution in that area has been positive in the paper and more generally. In some areas, we strongly endorse their actions; the first of those endorsements is for the adoption of fiscal responsibility targets. The Government have committed themselves to fiscal objectives that may ultimately prove embarrassing for them, but the fact that they have openly accepted them is credible and sensible.

There are good examples in the document of inter-departmentalism. Chapter 21, which has not so far been mentioned, deals with the way in which children's concerns will be meshed across Departments. That is exemplary. At this stage, it is rhetoric rather than delivery, but the principles are good. Such positive thinking is taking place on the problem of domestic violence. The third and most positive aspect is that the Government have adopted medium-term financial planning in the public sector.

I used to prepare comprehensive spending plans for the private sector, and it was often difficult to persuade colleagues that it was desirable to escape from the constraints of the short term. People said that, as the future could not predicted, we should not make plans. The result was living from hand to mouth with spurts of expenditure at the end of each financial year and massive inefficiency. It is good practice in the private and public sector to have the kind of medium-term planning that the Government have introduced.

In some ways, success is likely to be marred by two failures. The first of those is excessive secrecy and the other, which is more important and has not been discussed, is over-centralisation. My hon. Friend the Member for Gordon (Mr. Bruce) spoke about secrecy in the context of the democratic principle. There have been good examples of consultation, one of which was the Independent Schools Information Service paper, where public consultation led to response and improved policy. In this debate, we are dealing with an issue on a vastly greater scale that has simply sprung out of the Government machine and been presented as a final product. That is not a good way to conduct public business.

As a result of such introverted decision making, the Government have created for themselves more problems than are necessary. For example, the credibility of the comprehensive spending review depends on a single-line Government forecast of the future. There was no reason for the Government to box themselves in like that. If inflation or output are worse than expected, the Government's programme will be difficult to sustain. One way of dealing with the public would be to discuss, in a spirit of open government, the logic of some of the future scenarios and possibilities. That happens in good public and private sector organisations. The Government could rehearse some of the problems that may arise if there is higher inflation or lower output. They could state how they would deal with it, whether through taxation, borrowing or by reduced expenditure.

We have been pressing the Government to make it clear that the spending targets are inflation-proof and recession-proof. Of course we want them to be, but it is right to be clear about whether that is implied in the review. It is essential that those who will work with the public expenditure figures should be clear about the assumptions on which they are based. Secrecy does not help the process, and it is unnecessary and damaging.

In terms of centralisation, the Government have drawn many of their ideas about public sector contracts from New Zealand. We welcome that and, indeed, advocated it because New Zealand is a good model. There are many useful lessons, but New Zealand is a different country. It not only has more open government but is small. It is smaller than Scotland or London and in a country such as Britain it is important for public sector management to be much more decentralised.

Most of us who deal with councils are aware of the problems that will arise because of the relationship between a centralised system of public sector contracts and a highly constrained, capped local council. I have a vision of how the system will be driven. Bright, young people, probably technocrats, in the Treasury will set broad targets rather like those that are set by inspecteurs de finance in France. They will be set at the top with little participation from the grass roots. I shall give a few examples of how that top-down system of public sector planning goes wrong.

I am sure that hon. Members have experience, as I have, of a council that takes education seriously and tries to raise its game and meet or exceed the Government's objectives. The council hits capping limits and tries to draw resources from other parts of its budget such as social services. Because that budget has been drawn down, the problems of bed blocking in the local hospital are increased. The Government's answer is to point to the section in the review that says that social services and the health service will pool and co-ordinate resources. However, while councils are constrained by tough capping limits, it will be impossible to build in such flexibility.

The other problem with over-centralisation is that all the output targets, which sound plausible in conceptual terms, become crude when applied locally. We favour moving away from the idea of a public sector that is driven by inputs of money to one that thinks about service output. However, that must be considered locally in a way that responds to the market and the local environment. I shall give one or two local examples of what goes wrong when centralised targets are used as the basis for public sector planning.

To improve their standard assessment test ratings, many schools are increasing school exclusions. School performance is improved because people are driven by targets, and the troublemakers are put out on the streets. That is understandable, but kids on the streets get into petty crime and that fouls up the local police performance targets. The police make arrests, clear up the problem and the kids go into a young offenders institution. The school and the police are happy, but the kids may be learning a life of crime. In my area, an institution that was doing valuable preventive work was closed. It worked with families and tried to stop the problems that lead to social exclusion in the first place. Because the output of such institutions cannot be measured and because they are not high priority bits of the bureaucracy they are being cut.

Exactly the same is happening in the health service as a result of top-down, centralised directives. We all support the objective of cutting waiting lists. Sometimes, there are directives from the regions or from the Secretary of State to hospital trust managers to cut waiting lists. The careers of those people will be impaired if they do not succeed, so they shuffle the pack and acute cases are pushed further down the line. The funding for local family planning clinics, which have a low priority and no measurable output, may be cut instead.

The underlying problem in public sector management is over-centralisation and targets driven from the top. Such problems were extreme in the Soviet Union, but they have been produced even in this democratic, market society. The Government must think more clearly about how the management of the public sector—many of their ideas are admirable—is to be decentralised.

The right hon. Member for South Norfolk hit on a valuable point when he spoke about the growing difficulties of the public sector labour force. There is particular experience of that in London. I think that the hon. Member for Dagenham (Ms Church), who is Chairman of the Select Committee on Education and Employment, produced some devastating figures on the shortage of teachers in London. There are growing problems over the shortage of nursing staff because nurses are being attracted to much more lucrative occupations.

Over the past few days, I have discovered that there is an acute, chronic recruitment crisis in the police force. That can be met only by recognising that the labour market in the public sector operates in different ways throughout the country. There has to be flexibility. The system must be decentralised. Different occupations and different regions have to be able to offer different returns. As long as public sector pay, as well as other sectors of public sector management, are driven from the top and are over-centralised, the system is simply not going to work.

8.19 pm

Mr. Keith Darvill (Upminster)

I congratulate my right hon. and hon. Friends and the Government on the comprehensive spending review, and on the emphasis on raising standards in schools, rebuilding the NHS, improving public transport and tackling crime. I am tempted to say that those are the people's priorities. They are certainly my constituents' priorities, and were the priorities on which I campaigned in the general election.

I believe that the priorities are right and are what the electorate voted for in May 1997. They have been planned and introduced in the review soundly and, yes, prudently. By announcing three-year spending plans, agencies that are involved in delivering public services can plan to improve those services—a more sensible approach than hitherto—and aim to deliver the modernisation that is required.

There have, of course, been many notable achievements by the Government in the first 15 months. Notwithstanding those achievements, one of the outstanding aspects of the Government and their policies is that they are laying down firm foundations for the future. Their policies are for the medium and long term, in stark contrast with the Conservative party, which was almost entirely short-termist when in government, to the detriment of us all. In fact, the only long-term aspect about it was its 18 years in power—18 wasted years.

How good it is to have a Government who will deliver improved public services and are delivering on their manifesto pledges, providing much-needed resources and addressing infrastructure requirements. However, while heaping praise on the Government, I should like to express a concern that derives from my experience as a new Member and from the close observation of the circumstances of a sizeable minority of my constituents. The one concern that I have is in relation to social housing; it is shared by my hon. Friends the Members for Walthamstow (Mr. Gerrard) and for Doncaster, Central (Ms Winterton).

What I am about to say is not a special constituency plea, although I will not object, of course, to any particular help being given to my constituents. I raise the issue because I believe that it is important throughout the nation. It has got out of hand largely because of policies that were pursued by the Opposition when they were in government. We must start to address it urgently.

I recognise that the Government will provide extra investment of £3.6 billion to begin to tackle the backlog of investment in council housing inherited from the previous Government. More than 1.5 million council houses will, I read, benefit from that additional investment. I welcome those additional resources as well as the housing inspectorate, and the obligations on local councils to account for their investment decisions, and to give tenants more say in how their homes are managed and maintained. However, my concern is that those welcome measures may not go far enough. If the problems that undoubtedly exist are not dealt with, other public expenditure may be required which could, if the right decisions are made now, be avoided.

Upminster has more than 6,300 local authority houses. More than 90 per cent. of them were built immediately after the second world war, largely in Harold Hill, a London overspill estate that was planned and built cheaply by London county council. Many of the houses are now privately owned—about 60 per cent. of the original stock has been sold under the right-to-buy scheme, leaving the council with a depleted stock with which to address social needs. There is only minimal provision from housing associations.

More than 2,000 people are on the London borough of Havering housing waiting list for transfers and accommodation, usually because of growing families. About half of those on the waiting list are my constituents, and the others are shared between my hon. Friends the Members for Hornchurch (Mr. Cryer) and for Romford (Mrs. Gordon). Of the issues that are referred to me in my advice surgeries, approximately 60 per cent. are housing related. Most of the issues of social exclusion, crime and poor health have at their root inadequate housing. I have no doubt about the need to improve social housing stock.

For far too long, the links between poor housing and poor health have not been not officially recognised. As my right hon. Friend the Secretary of State for Health said last year in a speech to the London Housing Federation: anyone with a shred of common sense knows that housing affects people's health". Housing conditions affect both mental and physical health. Dampness, condensation, cold housing, mineral fibres, carbon monoxide from gas appliances, infestation and poor layout and design all contribute to poor health. In the UK, an estimated 1.6 million homes—one in 14—are officially unfit for human habitation.

Recent research referred to in the July edition of London Age, the magazine of Age Concern in London, and undertaken in the London borough of Hackney provides very good evidence of that. It showed that improvements in a particular housing estate in that borough resulted in residents making 30 per cent. Fewer visits to general practitioner surgeries and in more than 20 per cent. fewer attendances at hospital out-patient departments. On a Stepney estate, more than 60 per cent. of residents considered their illness to be housing related.

It is estimated that 169,000 households in London are overcrowded. Much of the housing stock is also old, with 65 per cent. of houses built before 1945. London has the highest figures for homelessness, continually escalating social housing waiting lists and an increasing number of old people living alone. There is also proportionately less residential care than elsewhere in the UK, yet investment in the capital's social housing is rapidly decreasing. The London housing survey suggests that there are more than 99,000 households in which older or disabled persons require some form of adaptation to their property.

Apart from health and social exclusion, the consequences of inadequate housing go further. It is obvious from crime statistics that poor housing often leads to increasing crime rates and, obviously, an adverse knock-on effect on public expenditure. The launch of the new regeneration package to tackle the multiple problems of the most deprived areas will help, but I am unsure whether the new focused single regeneration budget will reach areas such as Harold Hill where it is needed most. If areas such as those that I have described do not benefit from the SRB and do not receive a sufficient share of housing investment, I foresee difficulties and, indeed, an adverse effect on public expenditure.

I warmly welcome the comprehensive spending review, but I felt it right to flag up, with my hon. Friends, the concerns that I genuinely hold, in the hope that further consideration will be given to those issues. If long-term investment is made in housing, it will have positive benefits for other sectors of public expenditure. Therefore, I am sure that it will be worth while not only for those who directly benefit, but, in the long term, for all taxpayers.

8.27 pm

Mr. John Swinney (North Tayside)

In many ways, I welcome the direction of the Chancellor's statement on Tuesday. I should like to concentrate on the impact of his announcements on Scotland, and to raise several issues consequent on the announcements by the Secretary of State for Scotland on the impact of the comprehensive spending review on Scotland.

May I begin with some compliments for the Government. I am sure that the Economic Secretary to the Treasury will be horrified to hear that, but I assure her that it will not last for the entirety of my speech. First, I compliment the Government on the three-year spending plans. They will give some stability to planning and allow an eye to the medium term in programme development for a variety of Government Departments. Local authorities will be able to see over the medium term the impact of the Government's financial settlement, which has a substantial bearing on the income of local authorities. However, issues are raised by three-year spending plans and commitments. Many indicators need to remain on track for Departments and local authorities to gain the full value of those three-year spending commitments.

There is a need for some protection against unexpected or higher than expected inflation. Some guarantees should be given to protect the hopes that have been raised by this spending settlement, a point that was raised by the hon. Member for Gordon (Mr. Bruce) in his contribution. Perhaps it should lead to an increasing emphasis on building a reserve to ensure some protection against the benefits of the spending plans being undermined if inflation were higher than expected.

Obviously, a heavy caveat to the settlement is the controlling of public sector pay. Investment in health and education is welcome, but for it to be effective, the nurses and teachers who are the backbone of our health and education systems must share the benefits. I am concerned that the programme may be based on an element of pay constraint, which will further undermine the confidence of public sector employees.

The final point that must be borne in mind about the three-year plan is the basic condition of the economy. Failure to deliver the economic growth implicit in the assumptions behind the comprehensive spending review will undoubtedly lead to pressure on the package of proposals. Higher interest rates, a more severe impact on our economy as a result of the Asian financial crisis and the impact of the strong pound could all undermine economic conditions. A fall in tax revenues and an increase in the benefits bill will put pressure on those welcome public expenditure statements.

My second compliment to the Government is on the direction of the additional public expenditure that has been made available. On education, the Scottish National party supported the commitment to provide a nursery place for all three-year-olds in Scotland during the 1997 general election. We welcome the appointment of up to 5,000 classroom assistants to assist in developing standards in our schools. However, much of the explanation of the announcements given by the Scottish Office depends on the application of a better adult-to-child ratio in our schools, which is somewhat different from the pupil-to-teacher ratio that we had tended to consider. However, if the proposal can succeed in raising standards in our schools, it is to be welcomed.

The commitments on health expenditure to reduce waiting lists guarantee that the pressure will be on to ensure that the Government's pre-election commitments are honoured during their term of office. Like other hon. Members, including the hon. Member for Upminster (Mr. Darvill), I think that the commitments on housing expenditure are important because of the desperate amount of work required in that sector. In many Scottish authorities, it is predicated on the volume of housing debt carried, from which it is difficult to escape.

Undoubtedly, the new spending is welcome, but it must be put in the context of what has happened to public expenditure in Scotland in recent years. We have had four consecutive years of real-terms cuts—two under the Conservatives and two under new Labour. Clearly, the public voted for a renaissance of public services in the general election last year. It has taken some time for that to be forthcoming from the Government. It will start in April 1999, at the beginning of the next financial year, when all the commitments will come into effect. Of course, the Scottish Parliament will be elected in May 1999, so we shall have to await the impact of the proposals on the electoral fortunes of our various parties in those elections. The key is that public services have declined in the past four years in Scotland as well as in other parts of the United Kingdom. The Chancellor has recognised the need to invest in those public services—and the fact that investment was unavoidable.

I have a couple of concerns about the Government's announcement within the context of the past four years of real-terms cuts in public expenditure in Scotland. Page 109 of the White Paper on the spending review, which was issued on Tuesday, gives comparative data on departmental expenditure limits in real terms from 1993–94 to 2001–02. In that period, Scottish public expenditure reached a high point of £13.8 billion in 1994–95 and a low point in the present financial year of £12.7 billion. In the next three financial years of the comprehensive spending review, it will climb to £13.1 billion, £13.4 billion and £13.6 billion. Even by the end of the period covered by the review, 2001–02, Scottish public expenditure will still be £200 million lower than it was in 1994–95 in real terms, when Ian Lang was Secretary of State for Scotland.

When I checked through the parliamentary record of the announcement of the 1994–95 public expenditure settlement in Scotland, I was amused to find that the opening words of the right hon. Member for Hamilton, South (Mr. Robertson), who is now Secretary of State for Defence, but who was at the Dispatch Box opposite Ian Lang then, were: When we look behind the figures, expose the creative accountancy and blow away the blizzard of hype, the truth is a whole lot different and much nastier."—[Official Report, 8 December 1993; Vol. 234, c. 313.] We have heard many such sentiments from the Conservatives about the creative accountancy of this settlement, which shows that that can be said by both sides of the House.

I must also compare the Scottish Office departmental expenditure limit with the total limits for the United Kingdom. The Scottish Office level in the table was 7.97 per cent. of the UK total in 1994–95. In the following year, it rose to 8.04 per cent., but in every year since, it has fallen. At present, it stands at 7.74 per cent., next year it will fall to 7.71 per cent., and in following years to 7.63 per cent. and then to 7.53 per cent. in 2001–02. Year by year, Scottish Office public expenditure is steadily eroded in comparison with the total for the United Kingdom. I assume that that is due to the impact of the rigorous application of the Barnett formula, which is often misrepresented in the House. As we all know, rather than being beneficial, it is an expenditure-reducing formula in Scotland and it is population driven, but the Economic Secretary may want to say something about that in her reply.

I can offer the new spending a straightforward welcome because it is welcome in our public services, but we must acknowledge that the Government, in making difficult decisions, have come to conclusions about public services in Scotland that may not all be beneficial. First, the budget available in the Scottish Office to support industry and enterprise will be cut in real terms next year by £56 million or 9 per cent. At a time of rising unemployment, when business confidence is uncertain, I am far from sure that such a cut in enterprise support is appropriate.

An article in The Scotsman on Monday by Jeremy Peat, the chief economist of the Royal Bank of Scotland, assessed where the manufacturing sector, which is fundamental to the Scottish economy, is. He writes: The total economic picture is the sum of disparate parts. For the 20 per cent. plus of the economy that is represented by manufacturing, the picture is clear. After many moons of expecting major problems, as a result of strong sterling, Asian chaos and the like, these are now with us. Whether you take historic official data or forward looking survey data from the CBI or chambers of commerce; whether you look at the domestic scene or exports, output or orders, the trends are stagnant at best and downwards overall. If that is the assessment of one of the foremost economists in Scotland of the economy there, I wonder about the wisdom of cutting the budget for industry and enterprise.

When a 15 per cent. cut in that budget was rumoured in 1995–96, under the Conservatives—it transpired to be 7.5 per cent.—the hon. Member for Dumbarton (Mr. McFall), who was a Labour spokesman at the time, asked: how can we deliver economic prosperity, jobs, and training with such a savage cut? It can't be done. I was reminded of those sentiments today.

My second concern is the impact on the agriculture budget of a 10 per cent. cut in real terms. I suspect that the cut is due to the BSE factor. We will need to look into other concerns in detail, such as hill livestock compensatory allowances. I see a member of the Select Committee on Agriculture, the hon. Member for South Derbyshire (Mr. Todd), on the Labour Benches. As we all appreciate, the rural economy, which is integral to my constituency, has suffered immensely in recent years.

I welcome the investment in public services, but we must recognise that we need to invest in people as well as in services. The introduction of independent review bodies to regulate public sector pay was welcomed by all parties; the Labour party used to attack any restraint on their recommendations.

In Scotland, one in 10 employees operate in the public sector. In the past year, pay increases have, on average, been 2.6 per cent. in the public sector, whereas they have been 5.6 per cent. in the private sector. However, the Prime Minister's comments on the obligations of the pay review bodies—that they must operate on a basis that is fair, affordable and within Government spending limits—mean, I suspect, that the bodies' independence will be constrained; that is also what I infer from the Chancellor's statement on Tuesday. I fear that the bodies will be limited in their ability to reward public sector workers for the important tasks that they do.

I reiterate that the new money that is being invested in public services is welcome. In the past few days, commentators and journalists have done the public a great service by probing the Government's largesse and dismantling the cumulative expenditure totals to try to explain the phenomenally large telephone-number increases that the Government have suggested. I believe that we are, especially in this debate, getting to the nub of the real impact of the spending. However, there is a real-terms increase, which is welcome in some key areas.

As I said, I am concerned that Scottish departmental expenditure will not reach its level under the Conservative Government. The settlement has been made possible by cuts in public services, and I fear that those cuts will undermine our economic base. Time will tell whether the statement represents a success.

8.41 pm

Mrs. Helen Brinton (Peterborough)

Most hon. Members—certainly all Labour Members—and many more people in the country will have welcomed the Chancellor's spending announcements on Tuesday, which contained generous resources for health and education. That is excellent news for my constituents. I particularly welcome the allocation of £3.6 billion to renovate 1.5 million homes, and the new programme for home energy efficiency.

However—this is a gentle nudge to the Front Bench—I look forward to hearing more from the Chancellor about what we are assured is the Government's commitment to the environment. I am sure that the House is aware that both the first and second reports of the Environmental Audit Committee, of which I am a member, praised current excellent progress, but urged greater speed in fulfilling the Government's pledge to put the environment at the heart of policy making. Yes, a large boost for transport has set us on the right road. Moreover, home energy efficiency will play an important role in achieving sustainable development, not only in environment protection and improvement.

Two other strands of sustainable development will also be promoted by home energy efficiency: the economic strand and the social strand. On the economic strand, jobs will be created and household budgets will be eased, which is especially important for people on very low incomes—such as those in parts of my constituency—and for those who are more confined to their homes, such as disabled people and elderly people. The social dimension will also be enhanced, as homes become warmer, healthier and more pleasurable places in which to live, rather than merely to exist.

Energy efficiency is only part of the story, however. To achieve the development we want, we must not only reduce the use of non-sustainable forms of energy, but promote the development and use of renewable forms. Financial measures are necessary to encourage not only efficiency, but renewables. Last autumn, as hon. Members may recall, I asked the Prime Minister to make a statement on Government policy on solar energy.

I welcomed the announcement of the United Kingdom target that 10 per cent. of our electricity needs would be met from renewables by 2010. According to the most recent figures that I have seen, however, only 0.7 per cent. of our needs are met by renewables, which is the lowest percentage in Europe. Friends of the Earth has estimated that 18 per cent. is a realistic target.

I look forward to the Green Paper on renewable energy, which is due to be published shortly. I understand from a recent parliamentary answer by my hon. Friend the Minister for Science, Energy and Industry that the Department of Trade and Industry is considering what support the Government could give to encourage the development of all forms of renewable energy, including solar power. Believe it or not, the United Kingdom has a significant solar energy resource.

Like hon. Members from, I am sure, both sides of the House, my concern is that we may do too little, too late. In Britain, we have not only enough sun—given the weather during the past couple of weeks, that may be difficult to believe—but the expertise, and industry now has major opportunities. We lead the world in combined heat and power; we could lead in solar power Business in solar energy is booming worldwide but, while other countries—including the United States, Japan and Germany—are busy priming the pump, we are in danger of missing out, not least in jobs and exports. Solar energy will be particularly important in currently underdeveloped regions where there is no access to a national grid.

Moreover, consumers are paying more than they need for energy; as I read recently, it is already cheaper to heat a house with solar power than with gas—if householders generate excess solar power, they can sell it back to the grid. Local grid systems are an attractive option, which would increase local accountability. By failing sufficiently to exploit solar power, we are losing out on a major way in which to meet our renewable energy targets—up to a third of our needs could be provided by solar energy.

The Government could adopt a variety of measures to encourage the development of renewables, especially solar energy. However, investment will be essential, and time is not infinite. We all sign up to wanting a healthy environment. In the comprehensive spending review, the Government have made an excellent start in creating one, with resources for transport and home energy efficiency. I look forward to—indeed, I expect—further progress along the lines that I have suggested. If the Government—any Government—invest in the environment, they not only protect the present, but safeguard the future, which is what I believe we all want.

8.47 pm

Mr. Andrew Tyrie (Chichester)

I welcome some of the spending increases, especially those on the health service, which was, after all, a Conservative priority for 18 years—spending increased steadily throughout our period in office. I have strong doubts about the affordability of the Chancellor's announcement, but I shall not dwell too much on that; I want instead to talk about the economic credibility of the economic numbers that lie behind the spending forecast.

That credibility depends on two things: first, whether the economy performs as the Chancellor hopes it will; and, secondly, the plausibility of the arithmetic that the Treasury has used to derive the detailed tax and spending numbers. The forecast is optimistic to say the least. It predicts growth falling to 1.75 per cent. and then going back to trend and running at 2.25 per cent. in subsequent years; steady unemployment, when all the indications are that it will rise, with added costs; and inflation steady at 2.5 per cent. The forecast suggests a very soft landing. The Government have made very little provision for the eventuality of a downturn. They are spending money before they have it.

The contingency reserve, at just over 1.4 per cent. of general Government expenditure, is far smaller than the reserve set for the outer years by any of the previous six Chancellors; in fact, it is less than half the average that they provided. I have asked the Library to check whether it is the lowest reserve for the outer years since Denis Healey's first Budget, and I think that the answer will be yes.

The forecast ignores the business cycle: the Government talk as though they have abolished it, with their references to an end to boom and bust, but of course they have not. The cycle certainly continues to exist, and may well come back to bite Labour. When I asked the Chief Secretary a few weeks ago whether Britain was in an upswing or a downswing or at a turning point, he had no idea. Far too little consideration is being given to the effects of the cycle. We need to examine the cyclically adjusted level of spending to determine whether the plans are affordable.

To give the forecast an air of respectability, the Government have asked the National Audit Office to comment on some of the assumptions. That sounds like a good idea, and some people, including myself, have argued for it for several years, but we should not be deceived: the NAO is merely being asked to look at a few assumptions behind the forecast, and has no remit to look at the forecast itself. For example, it does not analyse what a change of, say, 0.5 per cent. in nominal gross domestic product might do for spending and unemployment, or whether the Government have calculated roughly the right figure for it.

At present, the NAO is not even remotely equipped to try to take on such work. It is not an economic forecasting service, and it is not experienced in the field. No wonder it has come up with little more than vague phrases in its reports. It says that the assumptions are broadly consistent with past relationships or reconcilable with the available evidence", and no more. That does not lend any credibility to the forecast.

If anyone is in any doubt that the NAO is merely scratching the surface of the job of vetting the forecast, it is worth looking at what resources it is employing to do the job. I asked the Comptroller and Auditor General that question in a Select Committee recently, and he told me that it was spending between £20,000 and £30,000. A fortnight ago, I asked him what resources he would need to do a proper job of vetting the forecast and examining the Treasury's arithmetic behind the assumptions. He will write to me with the answer, but he made it clear that it would be many times the resources that he employs now.

Doing a proper job means doing some of the work that the Treasury undertakes at present, so a fortnight ago I asked the Economic Secretary how much the Treasury spends on that. The answer is nearly £500,000. I have been in touch with the Bundesbank, which vets the German Government's fiscal forecast, and gives its views internally, with the president of the bank sitting in on German Cabinet meetings. The bank spends between DM1.5 million and DM2 million—a little bit more than the Treasury spends—on the task. I asked a consultancy firm, London Economics, what resources it would want to employ to do a proper job of vetting the forecast, and it said that it would take many hundreds of thousands of pounds.

If the NAO is to be prayed in aid to make the Treasury figures look respectable, it needs to be given a much wider remit, and the resources to do the job well. In the meantime, I sincerely hope that we can have an end to all the nonsense that we have been hearing from the Government about the forecast being somehow beyond reproach because the NAO examines it.

Only yesterday, the Prime Minister, in what I consider a disgraceful fashion, went as far as saying that the economic forecasts "have been agreed" by the NAO. That is complete nonsense. The NAO has been asked to examine not the forecast itself but only the assumptions that lie behind it, and it has never alleged otherwise. It has also never said that the forecasts were "careful and cautious", as the Prime Minister said. That is shameful nonsense from the Prime Minister.

If the NAO got to work on the detailed numbers, it might uncover quite a lot. For example, it might challenge the credibility of the golden rule, which, as my hon. Friend the Member for West Worcestershire (Sir M. Spicer) said, has been comprehensively rubbished by Willem Buiter, the Government's own appointee to the Monetary Policy Committee.

The House may be interested to learn that the definition of the golden rule has been the subject of a Supreme Court case in Germany, which forced the Government to make more effort to define what it meant. Apparently, the court concluded that the concept was too vague for the Government ever to be accused of breaking it. That tells us something about its credibility. The German Government have now come up with a more detailed definition, but still very few commentators in Germany take it seriously. A senior member of the Bundesbank recently described it to me as completely meaningless.

I would not mind all this hogwash from the Chancellor and the Prime Minister about auditing the accounts, if they described it as making a start, and if they were making a real bid to bring more transparency to the Government's accounts; but that is not what was in the statement.

When it comes to transparency, the spending review document is inexcusable. The Government have hidden the true treatment of the increases in social security spending in an annexe, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out.

Several definitions have been altered without proper explanation. A most basic definition, general Government expenditure—it sits in importance alongside the control total, which my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) was talking about earlier—has lain at the heart of Government accounts for a long time, but now we have to grapple with a new concept: total managed expenditure.

Does anyone—the Economic Secretary, perhaps—know the difference between the two numbers? Can she tell me now? Can someone from the Box tell her? I cannot find the answer in the Government's publication; it may be hidden there somewhere, but I have not been able to find it in the past 48 hours. I note that no one is rising to answer my questions. Far from enjoying increased transparency on these crucial numbers, we now have to peer through a fog of changed definitions.

We might be at a defining moment in this Parliament. In the past few weeks, the air of moral superiority has been dealt quite a blow by allegations of cronyism. In the past few days, a big divide has opened up between the parties on tax and spend. We on this side of the House believe in affordable spending and lower taxation. On the other side, they believe in higher and higher spending.

Labour has now rolled the dice. A recession may come before the election or after it, but there will be no going back to what amounts to the beginnings of a spending binge. Quite the opposite: spending Ministers will want more before long. The puny reserve that I described earlier will shortly be exhausted, and, with cash limits also swept away, Departments will not even try to absorb inflation. They will just bid for more if inflation rises.

This week may also be a defining moment in a political sense. The Chancellor of the Exchequer is staking a claim to lead old Labour. Perhaps his announcements on eye testing and his references to Nye Bevan had something to do with that. His was a rallying call to all those on the Government Benches who find the crony-ridden behaviour of the modernisers somewhat distasteful. It was a call to those who have never been wholly comfortable with the apparatchiks who surround Tony Blair. If the statement was partly the Chancellor's bid for the soul of his party, it was also a gamble on the economy and with our public services—a gamble he need not and should not have taken. I think that he will probably regret it.

8.59 pm

Mr. Mark Todd (South Derbyshire)

I want to confine my remarks to a dry subject—the methodology of reviewing and controlling public expenditure, rather than the outcome itself. That is partly because, like the hon. Member for Twickenham (Dr. Cable), I made my way in the private sector, in a smaller way than he, doing that task.

I spent some time in the early stages of the comprehensive spending review attempting to establish a framework for how that review would operate, at least in my own mind, and seeking—and being courteously treated by Ministers—to get those messages across to the Government. I want to share some of those thoughts with the House this evening.

First, it is critical in a review of this kind to establish clear, demanding targets for the review process. I fear that in this particular case that has been lacking and I commented on it right at the start. Secondly, it is important to define the assumptions and forecasts on which the review will be based. This debate has shown how some of the issues around those assumptions and forecasts might be questioned. Thirdly, it is necessary to decide on the criteria for the process: what is in, what is out and what the fundamental guiding philosophies are of the process itself. The Government ran into difficulty with this at an early stage and fortunately corrected it, for example, on issues relating to charging for visits to doctors and speculation along those lines.

It is necessary to establish clear leadership and decision-making processes for the review. The Government succeeded in that in the end. The Prime Minister and the Chancellor of the Exchequer clearly owned the task of ensuring that the outcome was delivered and that was critical. There needs to be a clear division of the activities of Departments into programmes and processes—the things that are spent and the ways in which that spending is supported. It is necessary to analyse those processes into shared processes that run across more than one Department and common processes which are individual to each Department but identical in each place. It is necessary to look at the customer and client base—the people who are to be served through the services and programmes defined—and to decide whether some are impacted in several different ways by different programmes and different processes, and whether there is a need for coherence. Again, the Government's initiative to identify a range of programmes that clearly fit the bill precisely is to be welcomed. They include attention to asylum seekers and dealing with children in care.

It is necessary to establish joint teams on the shared processes between Departments. I met with considerable resistance there on the understandable grounds of the need to protect departmental independence in the review of spending decisions. I shall briefly return to that later. It is necessary to establish joint teams on the programmes serving the same customers and that has been done. There are several initiatives of that kind—I should have liked to see more—which are welcome and look as if they will deliver substantial gains.

It is necessary to use the people who are closest to the customers and taxpayers who are being served. I have always believed it fatal to delegate a task of this kind to a senior management team who are remote from the end result. They are often keenest to protect the hierarchies that lie between. That may have happened in some instances. It is difficult to identify people lower down the chain who can provide the expertise in serving the individuals we want to reach with the programmes.

Those people need to be empowered. It is a hard job to do that because they are remote from the hierarchy above them who are often concerned about the kind of things that they will propose in terms of spending reviews.

Finally, one needs to establish clear ways to monitor the outcomes and criteria for deciding on the success of those outcomes. Again, the Government have made good progress there, certainly greater progress than I have seen in the evidence of other spending reviews, to try to define how to test whether what one says will happen has happened and what one does about failure.

There is much to applaud, but further work needs to be done to review public spending, in the ways that I have outlined, to achieve more rigorous control of the spending process.

Deferring to Departments to manage their own reviews will fail to identify all the key shared points of process and programmes. Expertise and commitment is unevenly spread between Departments, and it is particularly critical that non-core bureaucracy identifies opportunities for savings. It is easy to dismiss bureaucrats as being unhelpful and a waste of resources, but they are critical to the process, and how to motivate those individuals to deliver what is needed is an important task in establishing a review.

Respect for departmental primacy seems curious when we are so free with the mergers and demergers of Departments. After all, the processes that serve our citizens last a lot longer than the departmental structures that we chose to impose upon them.

Information technology has been used as a mantra in this review, as it has elsewhere. IT plays a critical role, but one that must be based on rigorous and harsh adherence to basic rules. First, we have to modernise processes and review programmes based on them before buying new systems. Secondly, we need core common processes which should use core common IT systems. It is criminal to invest in new information systems when an existing package will do the job just fine with amended human processes in the Department concerned.

I have found examples of investment in new payroll systems in Departments. Payroll is a commodity process and a commodity system in IT terms and to invest in new systems, in some cases developed by an IT department within the Department itself, would be prima facie evidence to me of poor management judgment.

We establish common methodologies for managing IT projects and we operate within a clear strategy on data, software and technology. How often in the House do we hear Ministers blame incompatible systems and data for delays in delivering programmes? I have heard that two or three times already in my brief period as a Member of the House, and I am sure that many others have heard it far more often than that.

I have concentrated purely on how reviews might work and how spending should be managed. Other hon. Members have rightly paid tribute to the achievements in terms of delivery of resources to key policy objectives. That is the goal that we all seek, but I hope that my suggestions will help us to build on what has been done.

9.7 pm

Mr. Geoffrey Clifton-Brown (Cotswold)

This evening we have seen the new Labour iron Chancellor ravaged into the old Labour poodle of his party. Every Labour Member who has spoken this evening has called for higher expenditure or welcomed these expenditure announcements. One even called it craven; they were craving for higher expenditure. Here we have it. We will hold the Government to account.

We will see whether the higher expenditure achieves its results. Will it result in lower class sizes and shorter hospital waiting lists? So far, under the Government, the number of those on hospital waiting lists for more than 12 months has doubled and, as for class sizes over 30, the number of five, six and seven-year-olds has risen by some 450,000. So far, the results are not encouraging.

We thought that new Labour was taking on some of our philosophy, and that wealth creation, small and medium enterprises, low inflation and low taxation were among their new ideas. However, the comprehensive spending review is, in truth, a comprehensive spending increase. Time after time, Labour challenges us on the level of public spending. Well, prudent economics demands that the national economy should be able to afford what we spend. We shall increasingly see that Labour's announcements are unsustainable. Interest rates will rise, borrowing will rise, inflation will rise. The economy will begin to run down.

Not everything was wonderful in the 18 years of Conservative Government. Fundamental problems remain to be addressed, such as productivity, which is 20 per cent. below that of the United States, and 30 per cent. lower than that of Germany. I expected the CSR to deal with such matters, but it did not. Every economic decision that Labour has taken since coming to power has been wrong. The Government gave monetary policy to the Bank of England, but asked it to control inflation with only one economic lever. The Bank has not been given an overall economic remit.

Had we been in control of monetary policy, we would have raised interest rates sharply after the election instead of doing it in dribs and drabs. Our two Budgets would have raised taxes. Monetary policy and fiscal policy would have been tightened a year ago, and we would not have the inflationary pressures that are affecting our economy, or pressure to raise interest rates at a time when manufacturing industry is going into recession, and when world demand is slowing down. Labour's policy will lead us into deeper recession.

Anyone who speaks to those who run manufacturing businesses will know what the Government's economic policy has done to them. Many of them have told me during the past couple of weeks that the last quarter has brought a sharp downturn. Interest rates are too high, resulting in a pound that is too high. Exports have dried up, and our balance of payments is rising. The picture is not good.

We cannot ignore the world macro-economic situation. The world's second largest economy, Japan, has run into general recession, and that is bound to affect our economy. First, it will weaken demand for our goods, which are difficult to export at the best of times. Secondly, as the far east recovers, huge currency devaluations of up to 40 per cent. will give a big competitive advantage to export goods coming into our markets. In reaching their assumptions, the Government have not taken into account the recession in manufacturing industry and the world economic position.

Labour has challenged us on how we would reorder spending. Total managed expenditure will rise from about £330 billion to roughly £389 billion. However, the social security budget will increase by a staggering £37 billion, to rocket through the ceiling of £100 billion for the first time. I calculate that to be £20,000 for every man and woman next year. If the Government's assumptions on unemployment or inflation are wrong, the amount will be even larger. Many benefits are linked to the retail prices index, so any increase in RPI will increase social security costs. If the assumption that unemployment will not rise is incorrect—I fear, sadly, that unemployment will rise—unemployment benefits will also go up. Here we have a comprehensive spending review that is said to be based on prudent economic assumptions, but I am not at all sure that it is.

We have watched a golden legacy inherited by the Government slowly being squandered. I want the economy to continue to perform and our country to continue being one of the world's leading manufacturing and industrial nations. I do not want us to be shackled by the bureaucracy coming out of Europe, because I want us to have a real enterprise economy. However, I am afraid that, because of the monetary and fiscal policy adopted by the Government, that will not happen.

Today, consumer demand is still very high and inflationary pressures are strong. The Government could have choked off that demand by proper and prudent fiscal and monetary policy, as I have described, but they have failed to do so. They have failed to encourage saving and the savings ratio is falling alarmingly. In the last Budget, measures were introduced to abolish PEPs and TESSAs and to replace them with the bureaucratic ISA regime. For the long term, that was not a good Budget, and this is not a good comprehensive spending review.

The Government recognise that their assumptions are not robust. At page 48 of "The Economic and Fiscal Strategy Report 1998"—the new blue book, as I call it—paragraph 4.3.7 states: the demand for public spending can vary unpredictably due to evolving needs and opportunities. That is an admission that the Government are not sure that their assumptions are right. At the end of that paragraph, they add: However, unexpected shocks due to other influences, such as developments in the world economy, will continue to impact on the British economy. The Government are not certain that their assumptions are robust. If growth rates are not maintained at the extremely modest levels assumed, if inflation targets are not met and if unemployment starts to rise, the economy will suffer a serious slow down. As has always happened with every single Labour Government of the past, the economy will be in a mess and the new incoming Conservative Government will have to sort it out and recreate the enterprise culture of the world.

9.16 pm

Mr. Tony McNulty (Harrow, East)

I congratulate the hon. Member for Cotswold (Mr. Clifton-Brown) on having brought some passion to our proceedings. For much of the evening, and certainly during the contributions from Opposition Members, I thought that I had stumbled into an accountancy seminar at KPMG, or something just as boring. Sadly, most of what the hon. Gentleman said was arrant, albeit golden, nonsense, but at least it was delivered with a degree of passion.

It struck me as interesting that, when the right hon. Member for Wells (Mr. Heathcoat-Amory) opened the debate—it feels like that was three days ago—he spent about half an hour ranting on, but never, unless I missed it, mentioned schools, pensions, hospitals or health; his speech was just a miserable little rant. Let me ask the right hon. Gentleman and the hon. Member for Cotswold this question: what should we cut? Do not come here with jargon about dampening this or that down—let us put it in front of the people who matter, the electorate in our constituencies, and ask them, "What, of all that my right hon. Friend the Chancellor announced on Tuesday, would you not do?" Would they halve the billions spent on education, or the billions spent on health? When it comes to the detail and what matters to real people, the Opposition suddenly fall quiet.

I do not want to be overly unkind. It might appear that I castigate Opposition Members, but I do this more in sorrow than in anger. What we have seen over the past couple of days is an attempt by the Conservative party to understand where we are coming from, but they do not understand the language, because they have never been here before, and it is alien to them, so it is not entirely their fault. Perhaps, as my hon. Friend the Member for Barrow and Furness (Mr. Hutton) said, we should suggest a degree of therapy for them and castigate them gently, rather than in detail.

The Conservatives are not used to the language of priorities, the language of prudence, not profligacy, or the language of reform and modernisation. To be fair to them, they have not missed the plot; they never knew what the plot was in the first place.

The Conservatives do not understand the plot because it is not about stop-go, the quick fix, short-term vandalism for political expediency, splurging—as an hon. Member said earlier at Question Time—or making the poor pay, which is their usual trick. It is about the long term and more resources for modernisation throughout government, which is crucial, with reform at every stage.

There are—I do not say this glibly—59 billion solid reasons why people should be happy about all areas of public spending. Interestingly, the right hon. Member for Wells chose not to mention any of them. They include health, pensions, services for children, social services and education. We have had no substantive response and no answers from the Conservatives—just, God bless 'em, utter confusion. It is not spend, spend, spend; the Conservative response, rooted in that confusion, is whinge, whinge, whinge.

The Opposition's response is chaotic. We listen to one Conservative Member and the response is that the comprehensive spending review is, "An irresponsible electoral binge, and the country cannot afford it." We listen to another, and the response is, "It is not real. It is all smoke and mirrors. It is all hype." One group is saying that we are spending far too much money and the other that we are not spending money at all because there is no money. Even the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), who bores the world with a column in Accountancy Age every month, has no idea.

Some Conservatives Members say that too much money will cause major economic difficulties, but their hon. Friends say that there is no money, so how can too much money cause economic difficulties? Some Conservatives Members say that there is not enough money and we should spend more. Depending on which radio interviews one listened to, they have probably spent another couple of hundred billion pounds in their responses since my right hon. Friend the Chancellor sat down on Tuesday. So there is no money at all, just smoke and mirrors, but the smoke and mirrors are being spent and causing inflation. How does one spend smoke and mirrors?

Opposition Members say that we are spending too much on welfare, but they never tell us which aspect of welfare spending they would cut—child benefit, pensions or disability benefits. We get no answers.

Mr. Clifton-Brown

Will the hon. Gentleman give way?

Mr. McNulty

No, time is short, so I shall not. If the hon. Gentleman wants to tell me later what he was going to say, I will have a cup of tea with him.

At Prime Minister's Question Time, the right hon. Member for Richmond, Yorks (Mr. Hague) could not answer—which is not unusual—when asked what cuts he would make in welfare spending.

I know that the people of Harrow, East will be listening carefully to Opposition Members. The 21 per cent. of my constituents who are on income support will be listening, but they will hear no answers. The 16 per cent. who are over retirement age will have heard nothing from the Conservatives about pensions today, yesterday or the day before. The 23 per cent. of households in my constituency that are pensioner only—a very high figure—will not have heard the Conservatives welcome a single aspect of the review.

The 21,000 people in my constituency who have a limiting long-term illness—also a significantly high figure—will benefit from our spending on health, social services and pensions, but Opposition Members have offered them nothing. What does the Conservatives' response to the comprehensive spending review offer the 22,000 carers, the 4,000 refugees and asylum seekers and the 37 per cent. ethnic minority population in my constituency? Their only response was to raise vacuity and fatuousness to an art form, not only in stereo but in triplicate or quadruple—

Mr. Leslie

It was quadrophonic.

Mr. McNulty

I thank my hon. Friend. "Quadrophenia"—I should have remembered that.

The people of my constituency will welcome the comprehensive spending review and how it fits in with earlier pronouncements. The people of London will welcome the statement. The streets of London are not paved with gold and it is not all milk and honey. Members on both sides of the House have implied that London has had it far too good and been cosseted recently. According to the 1998 index of social deprivation, 14 of London's boroughs are in the 20 most poverty-stricken local authorities. They will benefit considerably from the comprehensive spending review. London contains some of the richest and poorest areas of the country, but far too often Members forget about the poorest. Even Harrow, which is supposedly an affluent suburban borough, has its pockets of serious relative deprivation.

Mr. Edward Davey (Kingston and Surbiton)

Will the hon. Gentleman give way?

Mr. McNulty

No, I am afraid not. I have been wound up all night and now I am winding down.

I am convinced that London will receive its fair share from the comprehensive spending review and we shall see the spending and investment that both this great city and the country need. The comprehensive spending review will be a success precisely because it is rooted in modernisation and the reform of public services. It is grounded in caution, prudence and efficiency and underpinned by a sharp reality and a vision and strategy that Opposition Members cannot comprehend because they do not understand where we started from. Perhaps they will disavow that notion later.

Mr. Davey

I thank the hon. Gentleman for giving way. I agree that many people believe that London has been feather-bedded in the past, and he is correct in saying that they are wrong. Will he comment on reports that, following the comprehensive spending review, the Government are examining the additional educational needs index and standard spending assessments? The reports suggest that London will lose £200 million from school spending. Will the hon. Gentleman join me in condemning those reports and agreeing—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman is making a mini-speech. That is quite sufficient.

Mr. McNulty

I was about to ask the hon. Gentleman to give way, but then I remembered where we were. That is another issue to discuss over a cup of tea afterwards, but I urge the hon. Gentleman not to believe all that he reads in the Evening Standard. I am afraid that I cannot take any more interventions, as I must wind down my remarks.

The Opposition simply do not understand our starting point. They do not understand what we are trying to do and they do not understand the desperate need for this comprehensive spending review. They do not understand those things because this is not about their spiv economy, with candyfloss short-term plans before each election, followed by singing in the bath with no regrets afterwards and hoping to struggle through to the next one.

The Opposition can listen for ever—they started to do that this week. They can be Billy Whizz on tour, but they will find that no one wants to speak to them. Happily, not least because of the comprehensive spending review, for Conservative Members yesterday beckons.

9.26 pm

Mr. Peter Brooke (Cities of London and Westminster)

The hon. Member for Harrow, East (Mr. McNulty) was as colourful, vehement and Harrovian as ever. I am sorry that he was disappointed by the speeches of Conservative Members, but I think that they will stand the test of time better even than his own.

My late noble father was the first Chief Secretary to the Treasury. When Harold Macmillan offered him the job, he made it clear that he wished to offer it to someone who had run a great spending Department before. John Boyd-Carpenter, who died in the past week, was the second Chief Secretary. That tradition was not maintained for the next 30 years until my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) had the great intelligence to suggest that Mr. William Waldegrave should become Chief Secretary to the Treasury in the closing period of the last Government.

I do not hold it against the incoming Government in 1964 or the incoming Government in 1997 that they did not follow the same procedure, because it was obviously not within their power to do so, but the tradition of control of public expenditure is continuous and has some eternal verities. In reverse alphabetical order, there was continuity between Plowden and Pliatsky. In the far-off days, when Charles James Fox was the Member of Parliament for my constituency, the poet William Blake—who was not of a Conservative disposition—was his constituent. Among the latter's literary works was the "Proverbs of Hell" and, among those proverbs, is the line: Prudence is a rich, ugly, old maid courted by Incapacity. I am not wholly surprised that the Chancellor of the Exchequer has retired her from his retinue. I noted another line that is not far away in the same "Proverbs of Hell". It states: The road of excess leads to the palace of wisdom. The sad thing about this Government is that they never needed to leave the palace of wisdom. They borrowed our policies, but they should have borrowed too from our philosophy: the past can inform and illuminate the present and the future.

In that context, I shall quote briefly from Lord Barnett's book about his time as Chief Secretary in the last Labour Government. Referring to 1974, he writes: We did not know at that time how often the forecasts would prove to be inaccurate. On this first occasion, the figures that proved to be disastrously wrong were company liquidity, which was vastly overstated, and the PSBR, where the margin of error turned out to be a colossal £4bn short of the real figure. I remark parenthetically that that figure was in 1974 sterling.

In both cases there can be little doubt that different decisions would have been reached had the forecasts been less wide of the mark. When I entered the House, in March 1977, those on the Government Benches were still reeling from the effect of the cuts that the Chancellor had had to impose in 1976. I have a strong suspicion that, as a result of the announcements that have just been made, we shall in due course see the same reaction on the Government Benches this time.

Because the Chief Secretary again quoted the mantra about national debt in the 1990s, I conclude with a comparison between general Government net debt as a percentage of gross domestic product in 1978–80 and 1995 in the following countries: Austria, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom and the United States. In only two of those countries was the debt ratio down between those years. One of those countries was the United Kingdom; the other was Japan, which is a special case because of the real assets in the Japanese social security arrangements. Those figures give the lie to the frequent quotations that the Chief Secretary gives us.

9.30 pm

Mr. Michael Fallon (Sevenoaks)

I declare the interests recorded in the Register of Members' Interests.

The debate has been lop-sided. From the Labour Benches, a succession of speakers either ignored the condition of the economy or were complacent about it. The hon. Member for Ellesmere Port and Neston (Mr. Miller) had not even heard of the manufacturing recession. A series of speakers asked for more public spending than they were given on Tuesday. The hon. Members for Upminster (Mr. Darvill), for Doncaster, Central (Ms Winterton) and for Peterborough (Mrs. Brinton) each demanded yet more public expenditure than was allocated on Tuesday. Not one Labour Member showed any understanding of how that spending will be funded.

By contrast, in forming its judgment on the balance of the spending review, the House had the benefit of the advice and experience of three former Treasury Ministers from the Conservative Benches.

My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) condemned the spending total as "reckless", exposed the various fiddles on which it was constructed and asked the key question, "Who pays up if growth falters?" My right hon. Friend the Member for South Norfolk (Mr. MacGregor), with the additional authority of having served as Chief Secretary to the Treasury, pointed out that there was nothing new about the search for efficiency savings. He, too, asked an important question about public service agreements and the sanctions that would be available if they were broken. Finally, my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) gave us, from a filial stance, an historical perspective on the importance of that office.

During the past two days, it has become even clearer that the comprehensive spending review was not a serious review. It was not a root-and-branch examination of public spending. It was not the reordering of spending priorities that one would expect from a new Government, switching spending from one Department to another. In fact, the review was called off. This was an old-fashioned spending splurge—fiddles, fudges and a great deal of hope, the spraying around of extra billions, every Department turning out to be a winner.

Several of my hon. Friends mentioned one casualty of the spending review. We heard a little less of poor old Prudence. She had been paraded in public and pushed forward in every photo-opportunity. She had been sent out to escort the Chancellor on every trip down to the square mile. Now it is all over. These days, we read of high-profile romances being ended by fax. Well, poor old Prudence was dumped by press notice on Tuesday. Now she is just another ex. With her goes all the rest: the reserve, as my right hon. Friend the Member for South Norfolk pointed out, is shrunken away in years 2 and 3; cash limits are now flexible again, as we see from page 116; repayment of debt, promised in March, is already forgotten by July; and there is no balanced Budget. The Government stated: By 2000, the Budget is forecast to be in balance."—[Official Report, 17 March 1998; Vol. 308, c. 1099.] Just three months later, that promise, too, is abandoned.

Even on the Government's own figures, not in the spending review but in the earlier economic and fiscal strategy report, as my hon. Friend the Member for West Worcestershire (Sir M. Spicer) well illustrated, the public sector net cash requirement is shown at upwards of £4 billion for every year after 2000. We are back to extra spending and old-fashioned borrowing, all held together by the fiddles, fudges and heroic assumptions that underline the document presented to us.

I begin with the fiddles. A number of my hon. Friends have pointed out the absurdity of classifying working families tax credit as tax forgone, rather than the benefit that it replaces. That is not a view endorsed by the Office for National Statistics; on the contrary, the ONS has contradicted the Government. It will allocate working families tax credit as a benefit in the national accounts.

The fiddled figures are all tucked away. At the back of the document, on page 107, we read: Accounting and other adjustments rising from £13.4 billion this year to £20 billion in 2001. "Accounting and other adjustments" is now the fourth-biggest spending line, higher even than the Department for Education and Employment, whose budget received such attention yesterday, and higher than the budget allocated to the Scottish Office. Perhaps it is to be a Department of State, all on its own. There is certainly a candidate to run it—the Paymaster General himself. If he can magic away £200,000 in remuneration, who knows?—with a little extra tuition, he may be able to magic away £20 billion of accounting adjustments.

All that comes from a Government who promised us openness and transparency. A rather excited press release on Budget day stated: For too long, economic policy-making has been conducted behind closed doors". A few weeks after that, the permanent secretary resigned, allegedly because policy making was indeed being conducted behind closed doors—behind the closed doors of the Grosvenor House hotel by the Chancellor and his spin doctors.

So much for the fiddles. I shall deal with the assumptions on which so much of the spending review depends. It depends on efficiency gains, which are not yet delivered. The Government have made it all the more difficult to realise those gains, by abolishing the compulsory competitive tendering that we set in place across the public service.

The spending totals also depend on savings from fraud busting. We were much mocked by the Prime Minister for claims that there was £2 billion worth of fraud. We were told that that was an Alice in Wonderland figure. In March, the Government gave the figure of £4 billion. On Monday, by a happy coincidence, the day before the spending review, the Minister for Welfare Reform totted up £7 billion of fraud, and none of it busted yet.

As my right hon. Friend the Member for South Norfolk said, a large part of the Government's assumptions depends on asset sales not yet realised, with all the uncertainty of the commercial property market lying ahead. My right hon. Friend told us from his experience that asset sales usually take years.

Above all, the delivery of all the Government's extra spending depends on the savings from welfare reform to which they were originally committed. They said that they would cut the bills of social failure. Instead of cutting welfare spending, they have increased it. They have funked the radical reform that they promised. They have fudged the firm controls on its growth. They have postponed the reviews that they have in hand of housing benefit, the state pension and disability benefit. Above all, they are now gambling with all our futures. Every external commentator has now pointed out—this was done by the Chairman of the Treasury Select Committee in his question to the Chancellor of the Exchequer—that everything depends on the level of growth that the Treasury assumes. I shall quote just one external commentator, the leader writer of The Independent: How often before have we heard spurious claims that spending is to be financed out of growth? By tying the public finances to a three-year plan he is banking on today's economic prosperity lasting for at least another 36 months. Many sober judges argue that this is at best unlikely. That is the verdict of The Independent.

When the Chancellor appeared before the Treasury Select Committee yesterday, he, too, had to admit that his figures do not take account of the recession. They do not take account of rising unemployment, and they will not take account of falling tax revenue.

We are faced with a huge gamble. For all the cheap applause now for the triple-counted figures bundled together into three-year totals to give us this billion pound bonanza, it is becoming clearer that sooner or later the Chancellor will have to borrow or he will have to tax.

The spending review has been a failure. It takes us back to old-fashioned Labour public spending. I shall answer the question that was put earlier. Of course we welcome any new money for schools and hospitals. If there is still confusion about this, let me put it even more explicitly. Genuine extra spending for schools: good. Genuine extra spending for hospitals: good. A three-year locked-in overall spending total: extremely reckless. There it is, clear as a bell.

By locking us in to three-year fixed totals without the savings or the reforms to finance them, the Government are putting at risk the future of the public services, by which they set so much store, and the future of the economy as a whole, on whose success those public services depend.

Mr. Miller

Let us just be clear. The hon. Gentleman is in favour of what I think is about £40 billion of expenditure, but he is not in favour of all the rest. What would he cut? Be straight, what would the hon. Gentleman cut?

Mr. Fallon

The hon. Gentleman's Government came into office pledged to cut welfare spending. We have pointed out tonight that any genuinely additional spending for schools and hospitals is thoroughly welcome. It is the overall spending total, locked in for three years without the savings and the reforms to fund it, that we think is endangering not only the economy but the future of those very public services that we support.

Mr. Leslie

Will the hon. Gentleman give way?

Mr. Fallon

I have sat down.

9.42 pm

The Economic Secretary to the Treasury (Mrs. Helen Liddell)

It is quite easy to understand now why the hon. Member for Sevenoaks (Mr. Fallon) was sent by the electorate previously to spend more time with his family. We began with a declaration of interest by the hon. Gentleman, which tempted us to all to check his interests, one of which is a directorship of Just Learning Ltd. I think that it has been proved this evening that the only things that he is learning to read are the diary columns. The hon. Gentleman has not managed to get round to any independent economic analysis.

My hon. Friend the Member for Harrow, East (Mr. McNulty) summed up what we have seen from the Opposition Benches this evening—vacuity. Opposition Members do not know whether they are coming or going. Even the right hon. and learned Member for Rushcliffe (Mr. Clarke), who I admit is a gentleman I admire because he is in the round in his activities in the House—and I am not talking about his avoirdupois; he is a true renaissance man of independent mind—began by saying that we were being reckless. Then he said that we were not spending enough.

Obviously, the shadow Chancellor has taken a leaf out of the book of the right hon. and learned Member for Rushcliffe. On the "Today" programme yesterday, the shadow Chancellor was asked whether he could have it both ways about whether we would be spending more or less. The only thing that he could say was that he could have it both ways. That is the man who is pretending that he knows how to run the country.

The right hon. Member for Wells (Mr. Heathcoat-Amory) most displayed the complete lack of imagination and credibility of Conservative Members. They have had since Tuesday to work out their line on the comprehensive spending review and tell us what they would cut. They have not told us what they would cut.

Mr. Kenneth Clarke

Will the hon. Lady give way?

Mrs. Liddell

I shall give way to the right hon. and learned Gentleman in due course.

The hon. Member for Cotswold (Mr. Clifton-Brown) gave the game away, because we discovered from him what Conservative Members would cut—pensions, child benefit and help for the disabled. From this day on until the next general election, we can point to Conservative Members and say that they are the ones who will cut pensions, cut help for the disabled and cut child benefit. We see the true, right-wing members of the Conservative party on the Opposition Benches.

Mr. Clarke

Following the hon. Lady's kind remarks, I shall try to give an intervention in the round.

I welcomed the spending on health and education, although I said that the total was too much, and I mentioned the working families tax credit, which I opposed when it was announced in the Budget. After the Budget, it turned out that the Government had underestimated its cost by £18 billion over this Parliament. Now they are tucking it away in the accounting adjustments to try to get rid of its cost. What kind of welfare reform brings in an innovation that costs far more than the Government intended and which has to be secreted away in the books?

Mrs. Liddell

What kind of former Chancellor cannot make his mind up about whether we are spending too much or too little? The working families tax credit is aimed at getting people from unemployment into work. [Interruption.] From a sedentary position, the right hon. Member for Horsham (Mr. Maude) says that I cannot listen. Conservative Members are supposed to be listening, but they did not listen on 1 May when the electorate said that they were a shoddy apology for a Government, who had betrayed the people of this country for 18 years.

Tonight, we have seen—[Interruption.] From a sedentary position, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) says, "It's a disgrace." The disgrace is the performance of Conservative Members throughout the debate. Time after time, we asked, "What will you cut?" Time after time, we were told that that is not relevant to the debate. The people of this country want answers.

Mr. Clifton-Brown

Will the Economic Secretary give way?

Mrs. Liddell

Perhaps the hon. Gentleman will explain how much he wants to cut from pensions, child benefit and the disabled.

Mr. Clifton-Brown

The Economic Secretary has totally misrepresented what I said, which was that I would control the social security budget better and that I would control the £7 billion of fraud that takes place—that is £150 for every man and woman in this country. What will she do about that?

Mrs. Liddell

We had 18 years of government by the Conservative party; to use an expression of my own Lanarkshire, "They couldn't run a menage." The right hon. Member for South Norfolk will understand what that means, coming from where he does. Conservative Members should be telling us where money could be better spent in the economy—they had 18 years to come to their conclusions.

The hon. Member for West Worcestershire (Sir M. Spicer), who seems to be suffering from short-term memory loss, talked about the mid-1970s and the International Monetary Fund. My hon. Friend the Member for Shipley (Mr. Leslie) pointed out that he was two at that time. The short-term memory loss of the hon. Member for West Worcestershire causes him to forget what happened on black Wednesday, which showed how good Conservative Members were at running the economy.

In a pointed speech, my hon. Friend the Member for Coventry, South (Mr. Cunningham) referred to the failures of Conservative Members. One critical failure is their loss of short-term memory about their time in office: manufacturing output fell by more than 7 per cent., investment in the whole economy fell by 16 per cent., business investment fell by 20 per cent. and manufacturing investment fell by 27.7 per cent. Do they really want me to go on with their catalogue of failures?

Mr. Gibb

Will the hon. Lady give way?

Mrs. Liddell

I am not prepared to give way any more.

We have heard many views from Opposition Members, and I shall deal with some of the remarks made by the other opposition parties. The hon. Member for Gordon (Mr. Bruce) recognised that the Labour Government are living up to the commitments we made during the general election. The comprehensive spending review has meant that we have delivered benefits that are three times greater than the Liberal Democrats were talking about at the general election. He cannot acknowledge that.

The hon. Gentleman went on to discuss the situation in Scotland, which is something in which he and I have a common interest. I seem to remember that, during the referendum campaign, the hon. Gentleman joined the Labour party in supporting the Barnett formula, but his arguments tonight were against the operation of that formula.

I should tell the hon. Member for North Tayside (Mr. Swinney), that the Barnett formula is not about cuts but about convergence. It is about the convergence of the economies of the less prosperous parts of the United Kingdom with the economies of more prosperous parts of the United Kingdom.

The right hon. Member for Wells said that the comprehensive spending review does nothing to improve the productive potential of the economy. The hon. Member for Cotswold condemned his own Government for their failure to act to increase productivity.

This Government are improving the productivity potential of the economy by investing in education, skills and infrastructure and by our strong belief in value for money. All those things will enhance the productive potential of the economy significantly. When Conservative Members were in government, they should have been doing that. If they had, our manufacturing industry would not be experiencing some of the difficulties it is experiencing now.

Another example of short-term memory loss concerns the fact that sterling had appreciated by 66 per cent. on 1 May last year—before the general election. The right hon. and learned Member for Rushcliffe is very quiet about that. The hon. Member for Cotswold said that we should have seen an increase in interest rates 18 months ago. Who was in government then? We know that it was the Conservatives.

Mr. Clifton-Brown

rose—

Mrs. Liddell

I want to make some progress.

The right hon. Member for Wells accused us being inflationary in our tax and spend policies. How so? If we look at the current surplus figures and the debt-to-GDP ratio for the next three years, and we consider net borrowing and the net cash requirement, we can see that they are all extremely prudent. Prudence has been much maligned tonight, but prudence can be found within the economic and fiscal stability report, which was published a month ago, and within the CSR.

A key aspect of the paucity of Opposition Members' arguments is that they have completely failed to address the real issues contained within the comprehensive spending review.

Mr. Tyrie

Will the hon. Lady give way?

Mrs. Liddell

In due course.

If the Opposition really cared about the operation of the UK economy, they would not be sitting whingeing as they have tonight, but would be entering into a constructive dialogue to see how the benefits that will accrue in health and education—[Interruption.]

Mr. Gibb

Will the hon. Lady give way?

Mrs. Liddell

Will the hon. Gentleman shut up? He spent all his time in the Finance Bill Committee trying to find ways to ensure that £6 billion of revenue would be left out of the Exchequer. That money would go in tax cuts and would be taken away from the pensioners, the disabled and from child benefit.

The hon. Member for Chichester (Mr. Tyrie) did some of his more interesting arithmetic gyrations. I commend to him page 116 of the CSR which will set out for him the difference between total managed expenditure and central Government expenditure. I will not take up time now going through something that the hon. Gentleman should have had time to read.

Mr. Tyrie

rose—

Mrs. Liddell

No, I will not give way. I want to make some progress.

The right hon. Member for Wells talked about the Tories' golden economic legacy—

Several hon. Members

rose—

Mrs. Liddell

I am not giving way.

That golden legacy is fool's gold. They gave us boom and bust. The hon. Member for Chichester accused us of ignoring economic cycles. Our economic policy is designed to even out the worst impacts of those cycles on ordinary men and women who suffered because of the economic illiteracy of the Conservatives during their 18 years in government. We inherited a history of excessive Government borrowing and rising public debt. Public investment was neglected. The true benefits to the economy will flow from investment not just in our infrastructure but in our people.

The Conservatives say that they are a listening party, but they cannot listen. They are afraid that, if they listen, some of the errors of their ways may come back to them. They should have invested in Britain' s infrastructure and in its people. The Labour Government will do that. I shall now deal with the ratio of GDP to debt.

Mr. Tyrie

Will the Minister give way?

Mrs. Liddell

No. I do not intend to give way again.

Mr. Maude

We want constructive dialogue.

Mrs. Liddell

The right hon. Gentleman has not been here for much of the debate. All he can do is shout from the sidelines rather than contribute.

The hon. Member for Gordon spoke about monetary policy and inflation. He, of all people, should recognise the reason for our changes to the Bank of England. Some of his hon. Friends recognised the wisdom of those changes to ensure achievable inflation targets and a consistent monetary policy. How many times did the previous Government manage to achieve their targets? We have been in government for 14 months. The Conservatives were in government for 18 years and their governance was a saga of missed targets.

During debates on the Finance Bill, the hon. Member for Gordon and his hon. Friends proposed amendments that would have led to an 8p increase in income tax. That would have been ludicrous. He claims that there was no consultation on the comprehensive spending review. The parameters under which it was conducted were announced by the Government, and there was adequate opportunity for him to make known his views. He asked how we chose our priorities. The people elected us on specific manifesto pledges and Tuesday's historic statement means that, for the first time in 18 years, Britain has a Government who live up to their manifesto pledges.

Mr. Malcolm Bruce

Will the Minister give way?

Mrs. Liddell

No. I am running out of time and there are other points to which I would like to respond.

The right hon. Member for Wells complained about welfare spending, again revealing that that is what the Conservatives would cut. We are cutting the impact of economic failure, thus freeing the money that will allow us to give a decent living to our pensioners, pay decent child benefit and provide decent help for the disabled. The Opposition know little about that.

The right hon. and learned Member for Rushcliffe spoke about the net cash requirement and how it differed from that of the previous Government. They called it the public sector borrowing requirement. In 1992–93, it was 6 per cent. of GDP; in 1993–94, it was 7 per cent.; and in 1994–95, it was 5 per cent. Under this Government it will be 0.4, 0.4, 0.3, 0.5 and 0.5 per cent.

The right hon. Member for South Norfolk spoke about public service recruitment and retention. That is rich from an Opposition Member. Does it not occur to the Opposition that the fact that they made public sector workers pariahs had some impact on public sector morale? We will not take any lectures from them about public sector pay. The right hon. Member for Wells had the audacity to complain about the level of public sector pay, although his Government were responsible for it, and in the next breath he attacked the national minimum wage. The Opposition do not know whether they are coming or going.

Mr. Leslie

Is my hon. Friend aware of the example set by the shadow Chancellor as a director of Gartmore shared equity trust? This year, he awarded himself on the board a pay rise of 13.3 per cent. in one year.

Mrs. Liddell

There is no answer to that. I think that that reveals the hypocrisy of Conservative Members.

Mr. Swinney

Will the hon. Lady give way?

Mrs. Liddell

I am sorry. I have less than a minute left, but I will turn to the point that the hon. Gentleman made. He criticised the settlement for Scotland. That settlement will deliver outputs that are three times better than his party offered in its manifesto.

Mr. Swinney

rose—

Mrs. Liddell

I do not have time to give way. This is the hon. Gentleman who believes that economic policy should be based on crossing one's fingers and hoping for the best.

I commend the comprehensive spending review to the House.

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put, pursuant to the Standing Order.