Public Spending

HC Deb 23 July 1998 vol 316 cc1244-7

5. Mr. John Smith (Vale of Glamorgan)

If he will make a statement on the priorities for public spending set out in the comprehensive spending review. [50491]

18. Mr. Jim Dobbin (Heywood and Middleton)

If he will make a statement on his priorities for public spending for 1999–2000. [50505]

The Chancellor of the Exchequer (Mr. Gordon Brown)

The statement on 14 July 1998, Official Report, columns 187–94 and the White Paper on spending set out prudent spending plans which will achieve a falling debt-to-GDP ratio and a current surplus over the next three years and will invest in reform of the public services and reallocate 50 per cent. of new money to two priority areas—the national health service and education. We shall invest £19 billion in education. We shall renovate or build 2,000 classrooms and employ 6,000 extra teachers to cut class sizes, and we shall have half a million more students in higher and further education.

Mr. Smith

We on the Government Benches welcome the emphasis in my right hon. Friend's comprehensive spending review on capital spending, especially on the doubling of capital investment in our schools, which will be music to the ears of the mums and dads in the Vale of Glamorgan whose children's education had suffered for so long under the Tories. Is not the only way to get the high-quality public services that the public clearly want through increased investment, something that the Conservative party totally opposes?

Mr. Brown

Capital expenditure on schools will double in this Parliament, to the benefit of thousands of school pupils. Also, 6,000 schools are already benefiting from the new deal for schools, which was paid for by the windfall levy on the privatised utilities—something that was also opposed by the Conservatives. We have made our investment in education; it is now time to hear the policies of the other parties.

Mr. Dobbin

Does my right hon. Friend agree that the serious under-investment by the previous Government prevented the modernisation and improvement of the British infrastructure? Will he outline what levels of investment will be going into the public sector when we set up the investing in Britain fund?

Mr. Brown

All hon. Members will welcome the improvements that will be made in their constituencies as a result of the investing in Britain fund. It will double capital investment over the next three years from 0.8 to 1.5 per cent. of GDP. At the moment, 1 million school pupils are being taught in classrooms built before the first world war; two thirds of our hospital blocks are hand-me-downs from the days of the voluntary and charity hospitals; and everyone knows that our roads and the transport infrastructure have been under-maintained. As a result of the investing in Britain fund, I should like to see signs in every constituency that the Government have invested in this country's future.

Sir Peter Tapsell (Louth and Horncastle)

Does the Chancellor recall that, under each of the previous five Labour Governments that this country has had to endure, unemployment has always been significantly higher when they left office than when they assumed it? Has he noted the report by Ernst and Young—the largest accountancy firm in the world—which states that his comprehensive spending review is going to send unemployment soaring towards 2 million?

Mr. Brown

The hon. Gentleman should read the report. The first thing of which I remind him is that unemployment increased by 50 per cent. under the previous Government. Secondly, the Labour Government have created 400,000 jobs in their first year. Thirdly, the new deal for young people, which the hon. Gentleman's party also opposed, has already involved 60,000 young people. We are determined to end the problems of youth and long-term unemployment. It is about time that we heard a Conservative party policy that would cut unemployment instead of increasing it.

Sir Michael Spicer (West Worcestershire)

Does the Chancellor accept that next year will be the last in which Conservative expenditure totals apply, and that, after that, expenditure as a proportion of GDP will be out of control, in the sense that he does not have the foggiest idea what the GDP will be beyond that, given that he himself has produced two totally different central forecasts for GDP in the past four months?

Mr. Brown

First, the forecasts that we have put before the House of Commons have been absolutely consistent since the November statement and the Budget, so I hope that the hon. Gentleman will reconsider the point that he made on that. Secondly, in respect of prudence in public spending, our golden rule means that, over the cycle, revenues will pay for current spending. In other words, the Budget will be in balance. Under the Conservative Government and in the last economic cycle, there was a deficit of 1.5 per cent. of GDP, averaging £12 billion every year on current spending. So I ask the hon. Gentleman to consider who was prudent and who was imprudent.

As for our spending plans, the Conservative party had better wake up to the fact that we are getting the debt-GDP ratio, which we inherited at 45 per cent., down to 40 per cent. and below. Therefore, we are running a prudent policy—[Interruption.] I am not going to take lectures from the party that doubled the national debt and left us with public borrowing at £23 billion, which we had to reduce to £8 billion, and debt interest payments that were more than the budget for education. That is the record of the Conservative Government.

Mr. Derek Foster (Bishop Auckland)

Is my right hon. Friend aware that his comprehensive spending review statement was the defining moment for the Government? It reminded the British people why they voted Labour last year. My right hon. Friend has identified the productivity gap as crucial to the success of his economic and financial policy. In view of the overvalued pound and earnings rising at 5.4 per cent., will he now ensure that the Government devote sufficient resources to deal with the problem?

Mr. Brown

I understand the concerns of exporters about the pound, but, more than anything else, they are concerned about the possibility that we shall return to the policies of the previous Government. We are engaged in a process of moving the economy from the stop-go, low productivity and instability of the past 20 years under the Conservatives to an economy that is capable of sustained and steady growth with high investment and productivity. I believe that most businesses and industrialists do not want a return to the boom-bust years of the Conservatives, and we shall not be diverted from a policy for long-term growth in the economy.

Mr. Francis Maude (Horsham)

Why did the Chancellor abandon the commitment made in his March Budget statement to balance the Budget in cash terms by 2000?

Mr. Brown

No commitment was made. We said that we would publish three scenarios about the future growth of public expenditure, all of which would meet the golden rule. If the right hon. Gentleman looks at what I have said in past years, he will see that I said two things: it is prudent in economic policy first to meet the golden rule and secondly to have a sustainable debt-GDP ratio. When we published the projections in March, they included, under the old public sector borrowing requirement, zero in one year. In the projections that we published in June, under the net borrowing requirement, we reached zero in one year.

However, the whole purpose of our policy is not to pursue the balanced budget policy that the right hon. Gentleman's party pursued but always failed to meet, but to pursue two rules in public expenditure: the golden rule and the sustainable investment rule with debt to GDP being at a prudent ratio. I must now ask the right hon. Gentleman, who said a week ago that he would cut spending, now that every other Opposition spokesman is saying that they would raise spending, whether his policy is now to cut spending, raise spending or leave it the same. Will he tell us the answer?

Mr. Maude

The Chancellor's defence to the charge that he has abandoned his commitment is that he has changed the definition. It is almost the same explanation that the Paymaster General gave for his failure to disclose his interests—that he signed false accounts instead. Will the Chancellor now correct the Prime Minister's gravely misleading statement yesterday and accept that his own forecasts are now much more optimistic than any others?

My hon. Friends have quoted the Item Club report and the report by NIESR. The Item Club says: the fiscal arithmetic is dangerously prone to recessionary shocks which hit welfare spending and tax revenues. The NIESR report says: The sharp rise in Government spending will keep interest rates higher than would otherwise have been the case and delays their eventual reduction. What does manufacturing industry have to say about that? Has not the Chancellor shown in a few short weeks what a sham his reputation for prudence and caution was? Has he not blown it all in a calculated bid to wrest control of the Labour party from his neighbour, trying to spend his way into the Labour party succession?

Mr. Brown

The shadow Chancellor has no reputation to worry about. The average of Treasury and independent growth forecasts is 2.2 per cent. We have said that growth will be within a range of 2 to 2.5 per cent. Far from being out of line with independent and City forecasts, we are in line with them.

The shadow Chancellor quoted from the NIESR review. Let me tell him what it says instead of him pretending what it does not say. On page 6 it says: the inflation outlook remains benign On the same page, it says: We expect…growth at 2 per cent. this year and 1½ per cent. next year". Further on, it says: our forecast shows the government's fiscal plans being broadly met. I expect the Conservatives to read that before trying to give selective quotations from City and independent forecasters.

Our forecasts for the economy last July, last November and in the Budget are broadly being met. It is time that the Conservatives faced the challenge of moving the economy from stop-go, which we had under them, to stable and sustained growth. That is why we made the Bank of England independent. Would the right hon. Gentleman keep the Bank of England independent?