HL Deb 27 October 1970 vol 312 cc47-75

4.35 p.m.


: My Lords, it may be convenient if I now repeat a Statement which has been made by my right honourable friend the Chancellor of the Exchequer in another place. Before doing so, I should like to tender two apologies to your Lordships. The first is for the length of the Statement, which I fear is considerable; and the second is for its timing. I think that my right honourable friend has been on his feet for a considerable period of time. The reasons for the timing will become apparent to your Lordships towards the end of the Statement which I shall be repeating. This is the Statement which my right honourable friend has been making:

"Mr. Speaker, with your permission and that of the House I should like to make a Statement on new policies for the public sector, public expenditure and related matters.

"2. Her Majesty's Government have begun a fundamental reform of the role of the Government and public authorities. Our object is to concentrate their activities and their expenditure on those tasks which they alone can perform; and to enable the individual citizen to keep more of the money he earns, have greater incentive to increase his earnings and have greater freedom in how he spends or saves his income.

"3. The public services, thus redefined, will still have a vital role in the life of the nation. Yet they must be subject to firm control to secure economy and efficiency.

"4. We intend to adopt a more selective approach to the social services. There will be increases in expenditure on the basic structure—schools, hospitals and payments to those in need. But we aim to confine the scope of free or subsidised provision more closely to what is necessary on social grounds.

"5. Many arrangements which might have been appropriate a generation ago have now been overtaken by economic and social progress.

"6. The same principle will be applied by the Government in its relations with private industry. Government Departments and other bodies have spread their activities too widely, drawing in resources and skilled manpower which ought to be more productively engaged in private industry or commerce.

"Our object is to lessen Government interference and reduce Government subsidies; to extend the opportunities for profitable enterprise; to widen the area within which industry rather than Government will take decisions.

"7. The review of Government activity and involvement will be a continuing process. The proposals announced recently by my right honourable friend the Prime Minister on the reorganisation of Central Government are designed to increase the efficiency of the whole public sector and to make the control of public expenditure more effective.

"8. A thorough review of the functions of Central Government Departments is now in hand. It is important that local authorities should approach their expenditure planning in the same spirit, and in the negotiations for rate support grant we shall assume that they will improve their efficiency.

"9. The effect of the policies which have been applied in recent years is all too clearly seen in the way the national income has been used. In 1964 the public sector accounted for 44 per cent. of the gross domestic product. By 1969 that proportion had risen to 50 per cent.—exactly half our national output. In our view this trend is unacceptable.

"10. I now summarise the main policy changes resulting from our review. All the figures I give are in terms of 1970 prices and incomes.

"Defence and Overseas Relations

"11. I start with defence and overseas relations. In accordance with our Election pledges we intend to maintain a United Kingdom military presence in South-East Asia as part of a Five-Power defence arrangement. We shall also be expanding the Territorial and Army Voluntary Reserve, and taking various other steps to strengthen the country's defences. But defence, like all other public expenditure programmes, has been rigorously examined.

"12. The House should know that, when we took office, we found that the long-term costings of the previous Administration's defence policy were considerably in excess of the figures which had been published in their last White Paper on Public Expenditure (Cmnd. 4234). Nevertheless, despite the Government's additional commitments, defence expenditure will be contained.

"13. In 1971–72 it will not exceed £2,327 million at 1970 prices—the same figure (allowing for pay and price changes) as that published by the previous Government in their last White Paper on Public Expenditure (Cmnd. 4234). This is after taking account of the additional expenditure which must necessarily flow from the new commitments which we shall be assuming.

"14. In 1974–75 defence expenditure will not exceed £2,300 million at 1970 prices. This will represent a net saving of over £130 million on the long-term costings total for that year. My noble friend the Secretary of State for Defence will be giving fuller details in a White Paper to be published tomorrow.

"Passport charges

"15. The fee for a new passport will be raised to £5 and other related charges and consular fees will be increased. These measures will yield an additional £5-£6 million in 1971–72 and £6 million a year thereafter.

"Overseas Aid

"16. The previous Administration provided for an expanding programme of overseas aid up to 1973–74 as further steps towards the UNCTAD 1 per cent. target. Our policy is to maintain that programme and to continue the progress to £340 million in gross cash terms in 1974–75. My right honourable friend announced last week in the United Nations that we will do our best to reach the 1 per cent. target by 1975, in the expectation that private flows will be able to make a substantial contribution.


"17. I come next to industry. Public expenditure on trade, industry and employment—exc1uding investment grants and excluding the nationalised industries—is at present costing some £650 million a year. Much of this should be provided by industry itself, and not by the taxpayer.

"18. We will wind up the Industrial Reorganisation Corporation. After meeting existing commitments, a sum estimated at £20–30 million, which otherwise would have been drawn in 1971–72, will remain undrawn. Of even greater consequence, this decision will mean that we shall avoid a liability to find up to an estimated £40 million extra a year which would otherwise have been incurred in the years ahead.

"19. The regional employment premium costs about £100 million a year. We do not regard it as a sufficient stimulus to regional development to justify its cost. We will continue the arrangements made by the previous Administration to maintain these payments up to September, 1974, but they will be discontinued from that time.

"20. Further economies will be made in expenditure on support for industry. These economies will rise to some £70 million in 1974–75. This will affect a wide range of activities, existing or planned. Throughout this field we will apply strict criteria as to what are proper functions and activities for Government to carry out or finance, and what should be eliminated, reduced or undertaken by industry itself.

"21. The scheme of grants and loans to hotels will be brought to an end when it reaches the time limit under existing legislation. Commitments under the existing scheme will be honoured, and will be in excess of the previous forecast. There will be a new limited scheme of assistance to tourism projects in the development areas. There will also be additional expenditure on other selected activities, including new industrial training projects. The grant to the British Productivity Council will be phased out, and that to the Consumer Council will be discontinued.

"Research Councils

"22. Public expenditure on the Research Councils is now running at £110 million a year and is rising at the rate of 5–6 per cent. a year in real terms. This programme will be cut by £2 million in 1971–72 rising to £5 million in 1974–75. This field of expenditure is now being critically reviewed to establish whether activities are being carried on which might more appropriately be financed by industry, and whether there is duplication of effort.


"23. Next I come to agricultural support. We intend to introduce a system of import levies so as to improve the method of agricultural support and reduce the cost to the taxpayer. This involves international negotiations. We hope that the result of these negotiations will have a beneficial effect on the agricultural support bill as early as 1971–72, but it is too soon to be precise about the amount of the savings for that year. They could be substantial. In the longer run we expect to make a major saving on the deficiency payments of the order of £150 million by 1974–75. In addition to this the Exchequer will also benefit from the proceeds of the levies themselves.

"Nationalised Industries

"24. Existing plans for the capital expenditure of the nationalised industries would require about £1,600 million next year, rising to some £1,900 million by 1974–75. These estimates now appear too high by £25 million and £50 million respectively after considering latest estimates of shortfall. We shall save £30 million in 1971–72 and £10 million in 1974–75 by not proceeding with nationalisation of the ports. Furthermore the programmes of the nationalised industries have been examined afresh and the consequent savings will result in an additional reduction of the total programmes by £42 million in 1971–72, rising to £73 million in 1974–75.


"25. I come next to housing. The present system of subsidies, rents and rebates will be entirely refashioned. Instead of the present indiscriminate distribution of subsidies, help will go where it is most needed. My right honourable friends the Secretaries of State for the Environment, for Scotland and for Wales will shortly give a full account of the Government's proposals. They will also be undertaking the necessary consultations with the local authorities. By the middle years of the decade this reform will be transforming housing finance and should lead to a saving in public expenditure of £100-£200 million a year as compared with the level of expenditure which would have flowed from the policies in operation when we took office.

"Local Authorities

"26. There is scope for saving on the capital expenditure programme of local authorities, for instance by reducing the part played by local authorities and new towns in financing commercial and industrial development outside development areas; I am counting on £10 million a year from this source.

"Roads and Transport

"27. Expenditure on the main road programme, including motorways, is due to rise from £394 million this year to £552 million in 1974–75. There will be no change in the motorway and trunk road programme but some other works of relatively low priority are being deferred. The allocations for capital works by local authorities on minor roads, where the general standard is good, will be restricted. More stringent criteria will be applied to new transport infrastructure schemes in cities.

"28. As a result of these measures total expenditure on roads and transport will be some £13 million lower than previously planned for 1971–72, and £43 million below the figure implied in existing plans for 1974–75.

"29. The level of grants to the railways for unremunerative but necessary passenger services is being reviewed. Among other measures the grants to the London area commuter services will be eliminated by 1973. This will reduce the level of grant by £10 million in 1971–72 and £15 million a year thereafter. Port modernisation grants are also being reviewed.

"Social Services

"30. I now come to the social services. Here we shall establish more sensible priorities. We shall expect that, where the user can afford it, he should bear more of the cost and the taxpayer less; but we shall give more help to those who need it. At the same time we intend to add substantially to the resources devoted to the basic structure of the health, welfare and education services and to introduce a new social security benefit.

"31. This shift of the burden from the general taxpayer to the user will be achieved partly by the abolition of subsidies and partly by new or increased charges, but with exemptions and better remission arrangements for those who are poor or who have special needs. Many services are subsidised to an extent which is unnecessary and out of date in our present society.

"32. In the health and welfare field, cheap welfare milk, now subsidised by the taxpayer to the extent of 6d. a pint, will cease to be available: but the present arrangements for free welfare milk will continue unchanged.

"33. We shall in due course introduce measures to relate prescription charges more closely than now to a proportion of the cost of the individual prescription, but with a ceiling on the amount of the charge: in the meantime, the existing flat rate charge will be raised to 4s. per prescription item, the arrangements for exemptions remaining the same.

"34. For ophthalmic and dental services, tests and examinations will continue to be free, but charges for dental treatment will be related to approximately half the cost of the service actually provided, and charges for spectacles will be increased so as broadly to include the cost of dispensing: the present exemption arrangements will remain unchanged, except that in due course the upper exemption limit for dental charges for young people will be reduced from 21 to 18.

"35. In the field of education, the charge for school meals, which is at present 1s. 9d., will be raised by two stages, next year and in 1973, towards the actual running cost, which is at present about 2s. 10d.

"36. The supply of free milk to pupils over the age of seven will be discontinued, although they will continue to receive it until the end of the summer term following their seventh birthday. However, pupils up to the age of 12 who have a medical requirement, and pupils in special schools will not be affected by this change. The practical arrangements will be discussed with local education authorities.

"37. We shall also discuss with those authorities, in England and Wales, increases, from next September, in the fees charged in further education establishments for nonvocational courses and for vocational courses for those already in employment: but we do not intend that there should be any tuition charge for students under 18 attending full-time courses.

"38. Also, in common with most other countries and with the private sector, we shall introduce charges for admission to the national museums and galleries.

"39. Finally, in the field of social security, we have concluded that higher wages and benefits together with better provision through sick pay and redundancy payments have rendered anachronistic the present arrangements under which flat rate unemployment, sickness and injury benefit is paid for the first three days of absence from work, provided that the claimant is unemployed or sick for a period of twelve days or more. In future no benefit will be paid for the first three days of absence. Legislation will be introduced to end this entitlement.

"40. I have already mentioned the arrangements which will continue to exempt altogether large numbers of people from the social service charges, including people who are on supplementary benefit, and of course there is a system of refunds available for those who, though not exempt, are unable to afford the charges. In future the gross income levels for entitlement to free welfare milk and to exemptions and refunds of the new charges will be raised by amounts up to about 30s. a week, so that the remissions will, in future, cover more families.

"41. In this way we shall extend protection to those with incomes above the supplementary benefit level, but still too low to bear the increased charges. We shall also intensify Government publicity for the entitlements of those with low incomes, to ensure that as many as possible of those who can properly claim exemptions and refunds, do in fact do so.

"42. The timing of all these measures will depend on the completion of the statutory and administrative arrangements, including consultations where necessary, but in no case will any new or increased charge have to be paid before 1st April 1971.

"43. I come now to the other half of our policy for the social services. As I said earlier, having achieved savings by transferring more of the cost to those users of the services who can afford it, we intend to switch part of these savings, first, to giving more help to those who need it, for example through the higher remission limits, and second, to improving the services themselves.

"44. In the health and welfare field, we have decided to allocate, over the years 1971–72 to 1974–75, an additional £110 million to provide new resources for the further development of these services, including hospital facilities, particularly for the elderly and mentally handicapped.

"45. In the field of education, in that same period, we shall provide for additional expenditure on educational building amounting to £28 million. This will enable local education authorities to make a substantial increase in their school building programmes for 1972–73 and in particular—as we promised in our Manifesto—to make faster progress in replacing and improving old primary schools.

"46. In the field of social security, my right honourable friend the Secretary of State for Social Services will tomorrow be introducing, as an immediate step in tackling family poverty, a Bill to provide a new cash benefit, to be paid from August, 1971, to be called the family income supplement. This will be additional to existing family benefits, and will be paid to poor families with children where the wage earner is in full-time work, using a simple test of income. It will provide maximum benefit of £3 for the poorest families of all, tapering to a minimum benefit of 4s. at income levels roughly equivalent to supplementary benefit levels. Full details will be in the Bill.

"Investment Incentives

"47. In our Election Manifesto we declared that we would abolish the present scheme of investment grants and replace it with tax allowances or reductions.

"48. Accordingly, investment grants will not be paid in respect of expenditure incurred after 26th October, 1970, unless the applicant satisfies the Secretary of State for Trade and Industry that the expenditure was incurred under a contract made by him on or before that date. Legislation will be introduced in due course.

"49. The ending of the investment grants scheme will yield substantial savings in public expenditure amounting to £670 million at constant prices by 1974–75, subject to the residual grant payments arising from existing contracts.

"50. But the present level of company profits and liquidity makes it desirable that a large part of these savings should be channelled back to the corporate sector, and this will be achieved through the tax system.

"Tax Allowances

"51. I believe that a system of depreciation allowances which permits a rapid write off of expenditure on plant and machinery is the best way of encouraging effective industrial investment. For the country generally—I will deal with development areas in a few minutes—the new system of depreciation allowances will combine an improved rate of initial allowance with improved and simplified annual writing down allowances.

"52. Under the new system there will be a new first-year allowance which will enable 60 per cent. of the expenditure to be written off for tax purposes in the year in which the expenditure is incurred, and a standard rate of writing down allowance which will enable 25 per cent. of the reducing balance of the expenditure to be written off successively in later years.

"53. The new system will apply to expenditure incurred after 26th October, 1970, on plant and machinery, except for expenditure on motor cars not now eligible for initial allowance and on assets in respect of which an investment grant is paid under the transitional arrangements to which I have referred.

"54. I also propose to simplify the rates of writing down allowance for expenditure incurred before November. 1962.

"55. In addition to concentrating as much as possible of the benefit of capital allowances at an early stage these arrangements will represent a simplification of the present allowances system. Provisions to implement these arrangements will be contained in the Finance Bill 1971.

"Development Areas

"56. In our Manifesto we declared that there would be differential arrangements in favour of the development areas. To encourage the location and expansion of manufacturing industry in the development areas, certain forms of capital expenditure for industrial purposes in those areas incurred after October 26, 1970, will receive free depreciation.

"57. The assets covered will include immobile plant and machinery used in all forms of industrial processing, together with mining and quarrying, and construction and civil engineering.

"58. Free depreciation will not apply where an investment grant is paid under the transitional arrangements. The service industries in development areas, together with mobile plant and equipment, will receive the new allowances I have already outlined for the country generally.

"59. The House will remember that in this year's Finance Act the initial allowance for new industrial buildings and structures was raised to 40 per cent. in the development and intermediate areas, and 30 per cent. elsewhere but that these increases were limited to the period of two years ending April, 1972. I have decided to retain indefinitely the 40 per cent. allowance for industrial buildings in the development and intermediate areas instead of allowing it to fall back to its earlier level in 1972 as this year's Finance Act provides.

"60. On top of free depreciation for industrial investment in the development areas, we have decided on a number of measures to extend assistance to those areas by grants and loans under the Local Employment Acts. In particular the rates of building grants will be raised by 10 points to 35 per cent. and 45 per cent. and greater use will be made of infra-structure schemes assisted by grants under these Acts.

"61. We will proceed with these measures without delay, so as to give an early stimulus to growth in the development areas. The additional expenditure which they involve is estimated to build up to £25 million a year.

"62. The total value of all these differential arrangements is, as nearly as can be judged, no less than the total value of the differential arrangements at present in force. But we are confident that the new arrangements will prove more effective. We have thought it right to set these measures in train now, and we are, of course, continuing with our review of longer-term regional policies.


"63. The termination of investment grants, except in respect of existing contracts, will apply to ships as to other assets. Capital expenditure on ships will retain the free depreciation which it already enjoys but on 100 per cent. of the cost of a new ship instead of on the cost net of grant. Ships will in fact, along with capital equipment for scientific research, be the only assets which will qualify for free depreciation outside the development areas.

"Agriculture and Fisheries

"64. The proposals I have outlined will have implications for the proposed farm capital grant scheme and the horticultural improvement scheme on which my right honourable friend will be making a separate statement. The rates of grant for fishing vessels which were increased when investment grants were introduced will revert to their previous levels. Free depreciation for fishing vessels will continue.

"Northern Ireland

"65. The Government will be discussing with the Northern Ireland Government the implications of these changes for matters within their responsibility.

"Result of changes so far announced

"66. I now sum up the results of all the changes of policy which I have outlined to the House.

"67. The net effect on the public expenditure plans for the next financial year, 1971–72, as they stood and were costed when we took office, is a reduction of about £330 million.

"68. Some of the policy changes require extensive consultation and negotiations and time will therefore be needed to work out their full implications for expenditure in later years. But so that the House may have some measure of their significance, I should tell the House that by 1974–75 the total reduction in public expenditure which we expect from these changes is nearly £1,600 million, including the saving from the abolition of investment grants. After allowing for the increased tax allowances for industry which I have announced, there will be a net saving to public funds of nearly £1,100 million. This means that our plans will be achieved within an average annual rate of growth in public expenditure, excluding investment grants, between 1971–72 and 1974–75 of 2.8 per cent., as compared with a rate of 3.5 per cent. which previous plans would have implied.

"69. Two White Papers which will be available in the Vote Office when I sit down summarise the public expenditure results for 1971–72 and 1974–75, and the proposed changes in capital allowances for industry."

May I interrupt my repetition of the Chancellor of the Exchequer's Statement? I think I am correct in saying that the White Papers are now available in the Printed Paper Office.

"Further detail for the whole period will appear in the next annual series of White Papers on Public Expenditure.

"Monetary Policy

"70. This Statement has been concerned primarily with public expenditure and taxation, but I must also refer briefly to another matter with which I will deal at greater length in the debate next week.

"71. In the period ahead, it will be necessary for a firm grip to be maintained on the growth of money and credit. I will not detain the House further with this now. But I want there to be no misunderstanding about our resolve to take the necessary measures to this end.


"72. The changes which I have announced and which will now progressively be put into effect will mean that, instead of facing the depressing need to increase tax rates to finance the public expenditure programme, we can now look forward to the prospect of tax reductions.

"73. So far as companies are concerned, both the C.B.I. and the T.U.C. have expressed to me their concern about the prospective level of investment; and it is the case that the trend of company profits has been downwards, and that in some sectors there is an inadequate cash flow.

"74. It has been suggested that the most effective way of dealing with this situation would be to reduce company tax liabilities which will generally fall due on January 1 next. These liabilities arise in respect of trading profits of the financial year 1969 for which the rate of corporation tax was fixed in this year's Finance Act at 45 per cent. I propose to reduce the rate to 42½ per cent. This will be the first reduction in the rate of corporate taxation for 11 years.

"75. In cases where corporation tax for the financial year 1969 has already been paid at the old rate of 45 per cent. this reduction will be put into effect by way of repayment in due course. The net result of this reduction will be to improve the financial position of industry and commerce by £60 million this financial year and £90 million next year.

"76. Before I sit down there is one other matter to which I must refer. I am very conscious that it is now 11 years since there was a cut in the standard rate of income tax. I have this afternoon announced a reduction in public expenditure which will total £330 million in 1971–72. As a consequence—and all my colleagues share the credit for this—I have decided that, with effect from the earliest practicable date, April 6 next, the standard rale of income tax will be cut by 6d.

"77. The House may remember that when a change in the rate of income tax is made in an April Budget it takes between two and three months before the change is reflected in the pay packet. In order, therefore, to ensure that tax deductions can be made at the new rate from the very beginning of the next income tax year a short Bill will be introduced next week. The same Bill will make provision for the cut in corporation tax.

"78. A cut of 6d. in the standard rate will cost the Exchequer about £315 million in the first year and £350 million in a full year. The reduction in income tax and the reduction in public expenditure, taken together, will, therefore, be broadly neutral in their effect on demand in 1971–72.

"79. It is, as I have said, 11 years since there was last a reduction in either the rate of corporate taxation or the standard rate of income tax.

"80. I believe that the whole House will agree that it is right to take action to break out of the depressing cycle of high taxation and low growth which has bedevilled our country in recent years. These measures are designed to give the British nation new impetus, new opportunity and new hope for the future.

"81. My right honourable friends and I ask for the support of the House."

That concludes the Chancellor of the Exchequer's Statement.

5.8 p.m.


My Lords, I should like to thank the noble Earl for reading so clearly such a complicated paper. Perhaps the noble Earl has lost something; has he not another little tax concession to offer for all the cuts he is making in the social services? I find this a most depressing, not to say shocking. Statement. Certainly it has been received with great depression on this side, and it does not seem to have been received with much enthusiasm—but it may be lack of comprehension—on the Benches opposite. It represents the most old-fashioned type of philosophy.

I thought the Tory Party were advancing from this idea about Government interference: this argument that the I.R.C., for example, is Government interference. The noble Earl knows as well as anyone that there was no Government interference from the I.R.C. He also knows, as I know—having talked to various industrialists lately—that there there will be a pretty gloomy reaction at the removal of an instrument which was calculated to do something about restructuring British industry. Improving cash flow through a reduction in corporation tax is not going to solve this problem, especially since there seemed to be remarks which suggested that there were going to be even tighter squeezes on credit.

It appears that a number of cuts—and it is very difficult to evaluate them—in social insurance, the Health Service, school meals and milk, have been made, and so far as I can see this is the direct swap for sixpence off the income tax. I should like to know how far the noble Earl is satisfied in these matters that in the promises to the Child Poverty Group, for instance, the Conservative Party are honouring some of the undertakings given in the course of the Election. I find the philosophy behind this Statement a travesty of the representation of the real needs of this country. It seems to me that what we have is a series of attacks on agriculture, on industry, on the poor, on travel, on culture. They have searched everywhere to find cuts which do nothing to help the basic problems, although the Conservative Party promised that they would bear directly on prices. There is not a word of that.

I should like to ask the noble Earl one or two questions. Clearly, this is such a big subject that we shall, in one or more debates, have to probe very much further. If the noble Earl cannot answer all my questions now, I sympathise. He had quite a mouthful to absorb. The Statement is a ragtag of mixed things thrown together to achieve certain notional figures to get 6d. off income tax and the 2½ per cent. alteration in corporation tax. Those changes were based on the curious belief, which still seems to be widely held in the Tory Party, that this country is more heavily taxed than its principal competitors, which it is not. We are going to have a debate on defence. The noble Earl made a remark about long-term costing. I hope it was fair. And there was a rather curious remark about further commitments. He mentioned one, but are there other commitments involved? We shall have an opportunity, perhaps in a week or two, to consider this question further. There was a reference to maintaining and perhaps improving advancement towards the 1 per cent. United Nations' target of overseas aid. Last year's figure, largely backed up by private flows, was practically 1 per cent. I think I am right in that. Is there also to be an increase in direct Government aid, or are they, as I understand it, going to rely primarily on private flows? Again, how much of the direct aid would be by grant? These are big subjects and we shall want in due course to test the validity of the argument put forward.

I should like to know about the undertaking on selective employment tax. This after all, as I understood it, was a major Election promise. It was something that was going to be jolly easy to do right away. He has money to deal with it, so why has the Chancellor not dealt with S.E.T.? Of course, he has removed certain offsets to S.E.T. which the previous Government introduced—help for hotels in certain areas and regional premiums. These are to go but S.E.T., apparently, is to stay. Or is there a prospect of its going in future? We have heard a lot about increased efficiency in local government in order to contain expenditure. Of course, the Government threw away the best method of achieving efficiency in local government when they dropped the proposals of the previous Government for major local government reform. That would be a far more important contribution to efficiency in this country than what the Chancellor is manfully trying to do in his Department, where incidentally we have done a good deal already. What kind of cuts are there going to be in the research councils? Will they be in the medical field or in the field of pollution, on which the Government seems to be publicly keen? On what level will this new £3 tapering to 4s. poverty family grant bear? What is regarded by the Government as the appropriate level of income for a poor family in order for them to qualify?

Finally, I should like to ask the noble Earl a question on depreciation allowances and investment grants. What is he going to do to help the small manufacturing business which is threatened? The great strength of the investment grant was that it was helpful particularly to the small and enterprising business. Withdrawal of grants and substitution of allowances will be helping those who are making very large profits already. But the new dynamic small business is going to lose through this change. What is the calculation with regard to that? The truth is that there is so much in the Statement that we shall have to look at. So much is involved that at present it is not possible to ask all the questions we should like to. Undoubtedly your Lordships' House, and perhaps my noble friend Lord Beswick, will want to know a great deal more about the proposals for agriculture. My Lords, I congratulate the noble Earl on the way he delivered the Statement, but I cannot believe there has been a more unpleasant or unsatisfactory Statement that any Leader of your Lordships' House has had to make.

5.15 p.m.


My Lords, I wonder whether the noble Lord the Leader of the Liberal Opposition will excuse me for replying now, because the noble Lord the Leader of the Opposition has asked me a question or two. I must congratulate the noble Lord on a good Party political answer. I should like to make just one or two points. For example, he said that what was being done by way of charges in the social services was designed merely to secure a reduction in income tax. May I remind the noble Lord that if he listened carefully, as I am sure he did, to the Chancellor's Statement which I repeated he would know that one of the great advantages of bringing our social services on to a more modern and more selective basis is that the general standard of those services can be improved. It is our intention to make substantial improvements and to allot substantially greater funds to the hospitals, for example. It is also our intention to allot a substantially greater expenditure to improving our primary schools. What is more, in order to ensure that the impact of the increased charges docs not bear on those who are least able to afford them, they will be protected from that impact not only by the raising of the ceilings of exemption but also by the new family income supplement, the Bill for which will, I think I am correct in saying, be laid in another place tomorrow. So far as the level of exemptions at which that Bill will operate is concerned, I hope the noble Lord will forgive me when I say that I think it would be sensible to await the terms of this Bill which will be available tomorrow.


My Lords, I am sorry to interrupt the noble Earl, but I do not think it is very sensible to give the details without giving the wider aspect and the actual meaning of the measure.


My Lords, the Bill will be available to the noble Lord tomorrow and he will find it all there. I am afraid I may not be able to answer all the points that have been raised—I may not have got all the points—but I should like to take up straight away those which I did jot down, although I must say that I very much agree with him that this Statement should be debated in your Lordships' House. It may well be considerably more than a day's debate. I would lend myself very readily to any mutually satisfactory arrangement made through the usual channels for the debate of this Statement.

On defence, the noble Lord the Leader of the Opposition asked me about additional commitments. There was of course the collaborative defence arrangement for South-East Asia which was covered by that for the increased role of the volunteer forces and other steps. Here again—and I do not wish to shelter behind this—there will be a full Statement tomorrow by my right honourable friend the Secretary of State for Defence, and this will emerge perfectly clearly. I think the noble Lord will then recognise that the point about long-term costings—and we bandied long-term costings around rather ad nauseam in the last Parliament—is an absolutely fair one. It is not meant in any tendentious way at all, and I am making no accusations in that respect against the previous Government.

On overseas aid, we intend to stick firmly to the UNCTAD target and in our aid efforts official assistance will represent a substantial proportion of the total. On selective employment tax I would merely state that here, as elsewhere, what the Government said when we were in Opposition, and to what in Opposition we were committed, will be discharged now that we are in government. I would merely ask the noble Lord to wait and see in that respect.

My Lords, I am aware that there are a number of questions which I may not have covered in my reply. All I would say, in answer to the accusation made by the noble Lord, the Leader of the Opposition, that this Statement represented a "ragtag", is that I doubt whether that will be the feeling of the country as a whole. There may be many people in the country who may object to specific parts of this Statement, because in many respects it is a rigorous Statement; but I suggest that it is not a "ragtag"; it represents a coherent, considered and comprehensive programme of government.

5.21 p.m.


My Lords, I should like to thank the noble Earl for his marathon performance, which he discharged as brilliantly as ever. I do not think this Statement is a "ragtag", but I do not think it can be claimed that it is a fundamental reform of the science of government. It seemed to me more like an elementary exercise on the calculating machine, and we shall want time to study all the miscellaneous points that are contained in that particular Statement. Of course there will be a welcome for the reduction in tax, but I have very grave doubts about some of the economies in social services which have been proposed and which seem to me to be of very dubious morality indeed. And when we come to debate the Statement we shall want to know what are the likely long-term adverse effects, particularly on the children of this country, of some of the savings that have been proposed.

I want only to ask one or two questions. Has any calculation been made of the increase in the cost of living to the people of this country over a full year? Secondly, what is estimated to be the reduction in the staff employed in the Civil Service and the public sector as a result of these economies? Presumably there must be quite considerable reductions, and we ought to know what those are. On the subject of S.E.T., so far as I can understand from the Statement, if the expenditure cuts roughly balance the tax concession, as is claimed, there cannot be any intention to abolish S.E.T. without raising a similar amount in new taxation, and the House must be told this. We are entitled to this information.


My Lords, I am grateful to the noble Lord, Lord Byers, for echoing the welcome of the noble Lord the Leader of the Opposition, for the way in which I read this marathon Statement. All I would say at the moment is that this is only a first instalment of a fundamental reform; and, what is more—and I am sure the noble Lord will agree with this—I think it should be read in conjunction with the fundamental and basic restructuring of Central Government which was foreshadowed in the recent White Paper and which we shall be discussing very shortly.

As for the reduction in the number of civil servants, that is a matter of great interest to both the noble Lord the Leader of the Opposition and myself, but at this stage I would not wish to be held to any specific figure. And I would also make the point that when one makes the application of services more selective this can on occasions lead to increases in manpower.


My Lords, may I interrupt the noble Earl?—because there is a specific statement in regard to releasing manpower, and particularly skilled manpower, to industry. He cannot have it both ways.


My Lords, I shall be happy to debate this question of public service manpower both with the noble Lord, Lord Byers, and with the noble Lord the Leader of the Opposition, but perhaps not by way of quick question and answer across the Floor of the House.

The noble Lord, Lord Byers, asked about the total effect of this package on the retail price cost of living. I can give him the information, broadly speaking, with reference to the retail price index, and that is that the total effect of the social service charges, the interim levy scheme with present market prices continuing, and London rail fares would be of the order—and this is necessarily very approximate—of one half of one percentage point by 1973.


My Lords, may I ask the noble Earl two questions? One relates to the reduction in the agricultural support prices. He gave an estimated saving there of £150 million by 1971/72. But this of course means that the cost of food will go up by £150 million by 1971/72. Can he say which commodities will bear this increase, and by how much? Secondly, he speaks of a saving on the expenditure of nationalised industries of £42 million. Does this mean that their capital investment programme must be cut by that amount; and, if so, which of the nationalised industries are held to be non-essential and are to be cut?


My Lords, may I ask the noble Earl whether the Government have taken into account the additional cost of entry into the Common Market?


My Lords, may I tell the noble Lord, Lord Shin well, that I am not altogether surprised by his question, and that my answer to the noble Lord, Lord Byers, was concerned entirely with the impact on the cost of living of what is contained in the package Statement which I have just read. I am not absolutely certain about the questions which the noble Lord, Lord Beswick, asked me, but on the capital investment programme (and here I am not speaking from the book) I can assure him that the investments of the British Steel Corporation will not be touched. The impact is elsewhere in the nationalised industry sector. I am afraid that I should need notice of the question of the actual agricultural commodities to which the levy will be applied, but I shall be glad to write to the noble Lord, either this evening or tomorrow, on that question.


My Lords, on the second point, can the noble Earl at any rate confirm that this saving to the Government of £150 million is £150 million extra on the budget of the housewife? Secondly, on the nationalised industries, I did not ask the noble Earl which of the nationalised industries are to retain their development programmes: I asked on which of them the £42 million economies will fall.


My Lords, the economies will fall on the gas and electricity industries: I have not the precise figures in my mind at the present time. They will not fall on the steel industry.


My Lords, as I believe that the school milk and school meals services are of supreme importance to the children of this country can the noble Earl develop this point? Am I to understand that no child over the age of seven will get free milk, irrespective of the income of the parents? And can the noble Earl say which age groups will get free meals?


My Lords, I speak subject to correction here, as this is not an area about which I know as much as perhaps I should. But it is the children under seven who will continue to receive free milk, and under the new arrangements the income of an average family with two children will be able to rise by 30s. a week next April, and about £2 a a week when the price is raised again in 1973, before they cease to qualify for free meals. The present qualification level will be raised in that way.


And for free milk?


My Lords, free milk will still be provided for those children who are medically in need of it.


My Lords, may I ask the noble Earl whether he is aware that this is a most retrograde step? It is quite impossible, in a classroom of little children in Lancashire and the North, to decide which child needs free milk. All those children need it.

5.31 p.m.


My Lords, may I ask the noble Earl two questions which have a medical bearing, because it is the only kind of subject on which I have any right to speak in a discussion of this kind? In the first place, with regard to the Research Councils it seems to me that the proposals are simply for a sweeping reduction by—was it?—£2 million within the next year or two, and after that £5 million. I wonder whether Her Majesty's Government are aware of the fact that the cost of medical research, at any rate, is always rising. The result of this is that if the budget of a body like the Medical Research Council is suddenly even fixed at its present level all it can do is go on paying for a certain amount of the research in being: it can take on no new projects whatever without new money.

The other question I wanted to raise was this. I thought the noble Earl said that the cost of a prescription would be related to the cost of the drug. At first sight, this seems to me to be quite ridiculous, because the cheap drugs are the kind of things which people take when they have a little pain in the head and which, for the most part, they would be better off without; the really expensive drugs are the life-saving drugs. This is only a generalisation; I am sure coble Lords could point to exceptions. But in general this statement struck me as very extraordinary.


My Lords, may I follow that point and ask the noble Earl why especially those most seriously ill are now likely to be penalised? There is a case to be made for inscribing the actual cost of the prescription, simply to point out to the patient what benefits he is receiving from the National Health Service; and I am all in favour of that. But why use it as a means of simply adding to the cost of the prescription to the patient?


My Lords, if the Government are very anxious, as I understand they are—and I have said it over and over again until it is called my ritual dance—and if they are appalled, as they should be, by the high cost of proprietary drugs, surely the right way to go about it is not to say to the patient, "We will make you pay for those", because the patient, sitting by the doctor, does not know what is a proprietary drug and what drugs are on the National Formulary and much cheaper. He just sits there and watches the doctor scribble the prescription. Now the Government are saying that when this expensive proprietary drug is taken from the chemist the patient will pay. Surely the right approach is to penalise the doctor who insists upon prescribing proprietary drugs instead of the available alternative which is in the National Formulary.


My Lords, I wonder whether I may first go back to make the position clear with regard to free school milk—whether or not I carry the noble Baroness with me. The proposal is that it should be discontinued for pupils at the end of the summer term in which they become seven but should continue for younger children and for certain children with special needs. That is the proposal.




On the point which the noble Lord, Lord Platt, put to me about the Research Councils, I would merely remind the noble Lord, who of course is extremely experienced in this area, that even after the proposed cuts the Research Council expenditure will rise from £115 million in 1971–72 to £129 million in 1974–75. Therefore, even with the cuts, to which he referred quite correctly as being £2 million in the first period and £5 million in the second, there will still be a substantial increase in Research Council expenditure. So far as prescription charges are concerned, I should like to make it clear that the present exemptions and the arrangements for repayment certificates will continue unchanged. There is therefore no reason why the new charges should cause hardship.


My Lords, I wonder whether the noble Earl the Leader of the House could clarify one point on which some of us may not be quite clear. Did his reference to welfare milk indicate that the cheap milk now available to expectant and nursing mothers and their infants is to stop, and that they will in future have to pay the full market price of the milk. If that is so, what general benefit does he think will flow from such a decision?


My Lords, the short answer to the noble Lord is that where the mother concerned can afford it the answer is, Yes; but not otherwise.


My Lords, may I ask about agriculture? If agricultural support is going to be cut by £150 million, quite obviously the cost will have to be paid by the consumer. Did I understand the noble Earl to say that in addition the Government propose to impose import levies on agriculture?—because I thought he did say that; and he said that of course the Treasury would benefit by those levies. But quite obviously the consumer will again have to pay the cost. So it is quite obvious there are going to be substantial rises in food prices.

May I ask one further question about milk? If the supply of free school milk is to be completely cut off to every child over seven, it is obvious that this is going to be another large increase in the cost of living for working-class families. Can he tell me just how much will be saved by making these children pay for their milk? Moreover, if this milk is not going to be used, there is a further factor—we had this from the Tory Party in the past: that it could make things all that much more difficult for the fanner. What is he going to do with the milk, I should like to know from the noble Earl, as a result of this cut in milk to the schoolchildren of our country? In fact it will mean a fall in the income of dairy farmers.


My Lords, the noble Lord, Lord Hoy, heard me quite correctly. It is Her Majesty's Government's intention to introduce a system of import levies, and I am surprised that that struck him with such surprise; it has been made clear for the past three or four years that this was Conservative Party policy.


Yes, my Lords, and I am asking what it is going to bring to the Treasury, because it will have to be paid for by the consumer.


My Lords, the effect depends on the level of market prices and also, of course, on the course which the international negotiations on which we are embarking in this respect take. As the noble Lord will see from a study of the White Paper, the substitution of the import levy system for deficiency payments will have an effect of something like £150 million a year. It is of that order. On school milk, I think the position is that the anticipated saving arising from the new proposed arrangements will be of the order of £9 million a year.


My Lords, may I take this just a stage further, because it will have an effect on the farmer? Doubtless the noble Earl will not deny that. What I want to know is what it will represent in a fall in a dairy farmer's income. Because the difference between the price of milk consumed as a liquid and the price of milk that has to go for manufacture represents a tremendous sum of money which obviously must be reflected in the price that the farmer receives. I should like to know from the noble Earl what the Government estimate the fall in dairy farmers' income will be as the result of this announcement, because I think they must have taken that matter into consideration.


My Lords, doubtless they have, but I need notice of that particular question. All I can say is that the noble Lord is assuming that because some children will not be eligible to receive free milk in future, those children will not be drinking milk at school. That seems to me to be a very rash assumption.


My Lords, does the noble Earl think that a saving of £9 million on school milk for children over seven is worth while when he is talking about a possible reduction in expenditure of £1,000 million by 1974–75? Could we not have this milk restored to children over seven?


My Lords, in answer to the noble Lord, may I say that these are all matters for possible debate. I am quite prepared, to the limit and the best of my ability, to go on answering noble Lords' detailed questions, and I shall be glad to do so, but, generally speaking, I should have thought it more consonant with our usual procedure, and far better, if we were to debate these various aspects fully and examine them in that way.


My Lords, while fully accepting that suggestion, could we have just one small voice from this side of the House? I should like to ask the noble Earl the Leader of the House one quite general question, because I do not think it is suitable at this stage to go into detail. May we have a general assurance from the Leader of the House that the development areas will not suffer unduly from the changes which he has just announced? I think it is true to say that the two things which benefit the development areas most are incentives to new industry and assistance to the tourist trade. I think it was generally known R.E.P. was coming to an end in any case under the previous Government, and one can argue quite a lot about the difference between investment grants and depreciation allowances. All I am suggesting is that perhaps the Leader of the House could give me a general assurance that the Government have gone into this matter and that they can say that the development areas will not suffer unduly from these necessary changes. Finally, may I say that I do not entirely agree with the noble Lord the Leader of the Opposition, in that I think many people in this country will welcome a reduction of sixpence in income tax.


My Lords, without going into the details of investment grants and depreciation allowances I can, of course, give my noble friend the assurance for which he asks. Indeed, I would go further, because it is my conviction that the wellbeing of the development areas cannot be considered apart from the general health of the economy of the United Kingdom. It is our belief that these measures, taken as a whole, and the further measures of the Government's developing policies, will materially strengthen the economy of this country, and that quite apart from the impact one way or the other these changes will be for the good of the development areas.


My Lords, I think that the noble Earl has struggled manfully with a very wide subject, but it does not make it any more acceptable to us. Indeed, I am more depressed than I was a little while ago. I think we shall have to consider carefully whether we ought not to put down a censure Motion.