§ 3.54 p.m.
The Minister of State, Privy Council Office, and Minister for the Arts (The Earl of Gowrie)
My Lords, with the leave of the House, I will now repeat a Statement that is being made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:
"It is now clear that public expenditure is running at a significantly higher level than is consistent with the 1983–84 planning total of £119.6 billion announced in the Public Expenditure White Paper (Cmnd. 8789) presented by the then Chancellor on 1st February. Some adjustment is clearly needed; and I have therefore decided that immediate action must be taken to bring about savings that will bring total spending closer to the planned path. It is both more efficient in terms of departmental management of programmes, and more effective, to take this action straightaway.
"Accordingly, the cash limits for the current year willl be reduced. The effect will be a 1 per cent. reduction in respect of the pay and central Government adminstrative element, and a 2 per cent. reduction in the remainder. The new cash limit figures will be announced as soon as possible.
"The total provision for the external financing limits of the nationalised industries will similarly be reduced by 2 per cent. This reduction will be allocated in proportion to their turnover.
"The effect of these measures will he to remove at least £500 million of overspending beyond the planned spending total.
659 "In addition, the programme of asset sales during the current year will be increased by a further £500 million.
"Finally, I am also taking the opportunity to introduce some improvements in expenditure control. In particular, a scheme of end-year cash limits flexibility will be introduced. This will permit some carry-forward of underspend on central Government capital programmes. Such a change has of course long been advocated by departments, such as defence, with substantial capital programmes involving expenditure stretching over a number of years. The change, I believe, is fully justified on managerial grounds, but introducing it as from this financial year should in practice, by reducing the end-year surge, reduce expenditure in the current year by some £100 million: the effects in future years will be taken into account in the forthcoming public expenditure survey. I am satisfied that parliamentary control of expenditure will not be diminished.
"The overall effect of the savings and other measures which I have announced will be to reduce this year's likely public expenditure out-turn by over £1 billion. They do not imply any reduction in the total, as published in the February White Paper: rather they are designed to bring spending closer to the course laid down in my predecessor's White Paper.
"I told the House on 29th June that, in order to maintain the right balance between public borrowing and interest rates, we intended to maintain firm control of public spending. I also made clear my determination to take action should our objectives be endangered. Our economic strategy has brought about low inflation and a quickening recovery. We are determined to ensure that unplanned overspending does not deflect our course, and put the recovery at risk".
My Lords, that concludes my right honourable friend's Statement.
Lord Bruce of Donington
My Lords, the House is grateful to the noble Earl for having repeated the Statement made in another place. We ought perhaps to make it quite clear from this side of the House that we regard the Statement as a preliminary unveiling of the Conservative Party's unpublished manifesto.
The noble Earl said, repeating the concluding words of the Statement, that he did not want to put the recovery at risk. Many of us in all parts of the House, supported by the latest report from the Bank of England, question whether the recovery which is patchily taking place at the moment is in anything but a precarious state. On this side of the House we regard the further adoption of deflationary policies as being likely—if, indeed, the recovery is taking place on the lines that noble Lords opposite are led to believe—to result in a very serious set-back.
The current Statement is purely a blanket one. We are not told within the Statement that has been made this afternoon, or from the percentage figures that have been given within it, on which items the cuts will fall; or whether some items of expenditure may increase 660 and others may decrease substantially, so that the effect, in toto, may be a 1 per cent. cut. Surely the Government and the noble Earl must know by this time that the policies initiated by the noble Earl's right honourable friend in the Treasury before his departure to the Department of Energy were a recipe for disaster and have involved British industry in one of the biggest catastrophes that it has ever experienced. There can be no justification for the continuation of this economic idiocy which has been inflicted on us by the Ministers opposite, whose theories have a long time ago been completely discredited. At such a time, if there is indeed such a recovery on however tenuous a basis and on whatever expectations, surely the objective should be to allow public expenditure to roll along with the event. To cut it at this time may inflict mortal injury.
I observed from the Statement that asset sales during the current year will be increased by a further £500 million. Will the noble Earl give us the particulars of the total that asset sales are now expected to realise, and will he also explain within what standard of current good business practice it has now become policy to use the sums realised from the sale of assets for ordinary public expenditure? Is the noble Earl aware that the country knows by now that the amount of fixed expenditure, which the Government will not change except upwards, particularly on defence, is such that were we to reduce our expenditure on armaments even to the same level as Western Germany expressed as a percentage of the gross domestic product, we could at least save £5,300 million?
Is the noble Earl also aware that the country views with ever-increasing anxiety the apparently fixed expenditure, which cannot be changed, in support of a common agricultural policy which the Government themselves have roundly condemned and which they cannot do anything about? Is he aware that, if he needed to save £1,000 million, the means of achieving that £1,000 million saving could be found without recourse to the vital social services of the country which are now under threat and which form part of the country's essential infrastructure?
We shall await the announcement of the details of where the proposed cuts will be made, but we cannot help but express our dismay that, at this time of all times, there should be a persistence in policies which have proved so disastrous in the past and which have largely produced the state of the nation in which, unfortunately, we are at the present time.
§ 4.3 p.m.
§ Baroness Seear
My Lords, we on these Benches should also like to thank the Minister for repeating the Statement. I should like to begin by saying that there is one item, one item alone, in this Statement with which we heartily agree and that is the reference to the increased end-of-year flexibility. It seems extraordinary that this has not been done very much earlier. If it is going to save (I think the figure is) £100 million because of what we are all aware of as being the anxious necessity to get rid of money by the end of the year, whether you need to buy things with it or not, because you know perfectly well that if you do not spend it you are going to lose the money, then it is quite extraordinary that this ridiculous state of affairs 661 has gone on as long as it has. However, since it is an error which is being corrected, we can only welcome it, however belatedly.
Like the noble Lord, Lord Bruce, I must say that this Statement gives us very little of the information that we really need to have. What is meant by "the remainder" where there will be a 2 per cent. cut? To what extent, for example, is the cut to affect the National Health Service; and, equally important, to what extent is it coming on capital projects? What is thought to be the effect on employment of these cuts on the remainder? Similarly, what will be the effect on employment of the cuts in the nationalised industries? If the Government are cutting 2 per cent. from the nationalised industries' budget, why do they persist in refusing to allow the nationalised industries to go to the market to raise money for the capital development that they need? This has always seemed to us on these Benches a most extraordinarily perverse view on the part of the Government which insist on regarding money so raised as part of the PSBR. One would have thought it was entirely in keeping with the Government's principles and outlook that they should encourage the nationalised industries to raise the money that they need on the market. We must also say that we on these Benches would like to see some of the money at any rate coming from a reduction in the defence expenditure on the totally unnecessary (in our view) Trident project.
The Earl of Gowrie
My Lords, of the two noble speakers from the Opposition who have spoken, the comments of the noble Baroness are obviously more welcome to me than the comments of the noble Lord, Lord Bruce, so perhaps I may take them in reverse order. I am very glad that the noble Baroness welcomed the end-of-year flexibility, which, I agree, is a thoroughly desirable innovation. Like many good innovations, people like herself will be wondering why it was not done previously. The 2 per cent. reduction is on the cash-limited expenditure. I repeat that that is only to bring it into line with what was previously planned. No one is talking about cutting the total of public expenditure but merely keeping it in line with what was announced earlier this year.
The effects on employment would therefore be no different from the employment totals which were projected at the time of the Budget and previously. The position there has not changed. On the question of the nationalised industries being able to go to the market, the real difficulty is that the markets themselves will not treat the nationalised industries as outside Government control unless they are genuinely privatised. That is one of the reasons why in the Statement, as part of permanent policy, my right honourable friend and his colleagues are anxious to continue with the vigorous programme of privatisation. Then of course there will be no difficulties whatsoever in going to the market.
Coming to the statement from the official Opposition, I notice that the noble Lord, Lord Bruce, suggested that public expenditure should "roll along with the event". That would be a recipe for a drunken lack of control. It is precisely to remain sober and not to endanger recovery that my right honourable friend has taken a mid-year (as it were) correction. As to the 662 point that the noble Lord made about an unpublished manifesto, I cannot see how this could be valid. We are only trying to trim public spending back to what was planned well before the election and which was known by all, Parliament and public, to have been the planning total some months before the election.
As to his point about recovery being endangered, I am glad to be able to say that the shortfall was not primarily a problem of revenue and that the modest recovery is continuing. We do not have a shortfall on revenue; but expenditure is beginning to run ahead of what was planned; and, if it should continue to do so, that modest recovery would of course be put at risk. He asked me about the sales of assets. I want to remind the House that this is very much part of a permanent policy; that is to say, even if there were no financial necessity the Government would seek to be transfer ring to private ownership wherever they could. We would hope to see assets in excess of £1 billion achieved in this way through asset sales.
I can say to both the noble Lord and the noble Baroness that defence will take its share with a contribution of about one quarter of a billion pounds. I am taking that figure from memory; the precise details would have to be worked out. I am not surprised that the noble Lord, Lord Bruce, wanted us to take rather more. We are very proud in this Government at having been able to meet our NATO commitments and to meet them in real terms.
Finally, I can say that the social services, particularly in respect of the National Health Service, should not cause any great difficulty because, even after the cuts in cash limits, we are still left with real growth in health expenditure as a whole of nearly 1 per cent. over the past year. There will be no overall cuts in the health service. However, because the family practitioner service now looks like overspending, it will be necessary to reduce the cash limits for the hospitals service; but the total effect on that service will, in fact, be nil.
§ Lord Diamond
My Lords, does not the Statement which the Government have made, in which it is made clear that it is necessary to reduce likely expenditure by over £1,000 million in order to get it back on the intended path, make it clear that expenditure under this Government is totally out of control and that the Government are guilty of complete mismanagement of the funds that Parliament has voted?
My second question is: what does the Statement mean when it says:It is now clear that public expenditure is running at a significantly higher level",than planned? Is it not the case that the Government look at expenditure at least monthly? Was it not just as clear at the beginning of June, which happened to be before polling day, as it is at the beginning of July, that public expenditure was likely to be well in excess of the planned figures, having regard to the present figure, to which I have already referred, of over £1,000 million between now and the end of March?
The next question is: by what possible logic do the Government think they are doing a sensible job by cutting cash limits affecting expenditure by 1 per cent. flat and 2 per cent. flat? What logic is there in that? 663 What possible relevance can this have to the needs of the various services, some of which will be able to bear a 1 per cent., 2 per cent. and perhaps 3 per cent. cut without intrinsic damage and others may need to have no cuts at all? Is this the way the Government manage our social services and public expenditure generally?
My final question is in relation to the claim made by the Government that:Our economic strategy has brought about … quickening recovery".By what logic do the Government claim, when we have an enormous increase in unemployment, for example, that it is due entirely to world events, but when we have the most modest improvement in trade recovery and economic recovery it is due entirely to the Government's control?
The Earl of Gowrie
My Lords, there is no question of public spending being out of control. But it might get out of control if this sensible corrective measure was not taken; and that is precisely why we have taken it. As to the political point made by the noble Lord; regrettably perhaps, public spending does not follow a political cycle unless, for venal electoral reasons, you arrange that it should do so; and we did not so arrange. There was no increase in the rate of spending engendered in this current year by any election commitment. We did, as I say, publish our public spending plans well before the election was called and we are remaining firmly within those published plans.
When the noble Lord talks about tailoring expenditure to need, I certainly discover the old socialist Adam showing through the rather more attractive social democratic Eve in his case. One cannot tailor expenditure to need: one has to tailor expenditure to revenue. In terms of both national and international recovery, it would endanger any such recovery if interest rates had to move up sharply as a result of an overspend in the Government's planned total.
§ Lord Thorneycroft
My Lords, is my noble friend aware that there are many on this side of the House who are delighted to see that the Government are not, in the words of the noble Lord, Lord Bruce of Donington, "allowing public expenditure to roll merrily along" as things go on? That comment was partly supported by the noble Lord, Lord Diamond. Is my noble friend further aware that action is being taken by the Government to deal with these matters early, firmly and in the right direction?
The Earl of Gowrie
My Lords, given the office which my noble friend has held and given the quiet revolution in public spending that he initiated when he resigned and which bore fruit, I think, some years later, I am extremely grateful for what he has said.
My Lords, on the point of the end-of-year flexibility—which I believe, with the noble Baroness, Lady Seear, to be perhaps the one feature of this Statement which is to be welcomed—would this not be of potential advantage to such an organisation as the Overseas Development Administration, which, I recall, did have the problem of bunching projects towards the end of the financial year? On the other hand, is there not a danger, if money is authorised in 664 one year and then comes to be expended in the next year, that that money, although it has been authorised earlier, will itself be the subject of new cuts? Is there not a danger, therefore, that funds will be decreased? I think I detected a phrase in the Statement assuring the House that this would not be the case. Would the Minister care to say something more on that point and indicate how such an eventuality can be guaranteed to be avoided?
The Earl of Gowrie
My Lords, I am grateful for the relatively warm welcome to that part of the Statement from the noble Lord on the Benches opposite. I think we would all agree that the end-of-year surge has been a damaging and expensive thing and also that it distorts later programmes in an undesirable way. I am certainly at one there with the noble Lord, Lord Oram. I think that the sentence he was bothered about in the Statement reads as follows:The effects in future years will be taken into account in the forthcoming expenditure survey.I do not think there is anything sinister in that. Obviously the amount of funds available to any given programme in relation to agreed policies within that programme has to be taken into account when future moneys are allocated. That would only be to say that these programmes operate in the real world of money and arithmetic rather than in some imaginary one.
§ Lord Hatch of Lusby
My Lords, is the noble Earl not conscious that his Statement reveals an unacceptable degree of contempt by the Government both for the people of the country and for Parliament? Is he not aware that during the election many of us pointed out that by their own standards the Government were allowing the money supply to rise far above their target and at the same time by their own policy increasing credit in this country in a pre-election boom, obviously designed to gain votes?
Is the noble Earl not also conscious of his own responsibility and that of his noble friend Lord Cockfield? Does he not agree that, if this Statement this afternoon were put beside speeches they both made in the debate last week on the economic aspects of the gracious Speech, it would make nonsense? The speeches made by the noble Earl and by the noble Lord, Lord Cockfield, gave no hint of this kind of mismanagement or, as I would put it, deliberate management of the economy for electoral purposes. This was not hinted at in either of their speeches. Is it not showing a contempt for Parliament to come one week later and virtually to contradict a great deal of what both of them said in the debate just a week ago?
The Earl of Gowrie
My Lords, I am really astonished at what the noble Lord, Lord Hatch, has said. I have my speech on the humble Address here, and your Lordships will be relieved to hear that I am not going to read it out for a second time. But the whole burden of the speech, and indeed of that by my senior colleague and noble friend Lord Cockfield, was the great importance of not jeopardising recovery by adding to inflation or by easing up on counter-inflationary pressure. Our judgment is that there would be a severe chance of interest rates going up if this corrective action were not taken, and it therefore seems wholly sensible to take it.
§ Viscount Eccles
My Lords, is it not a fact that the result of the election showed in no uncertain terms that the people of this country want expenditure controlled, whereas the arguments put forward by the noble Lord, Lord Hatch, and his friends were for more and more expenditure and they were rejected by a very large proportion of the voters? I am entirely for restricting expenditure, and I am very glad that the new Chancellor of the Exchequer has taken a firm grip on it. But may I ask whether there is any information about what is happening to the revenue; because those of us who know a little about business do not take the gloomy view of noble Lords opposite, as we know that our businesses are picking up and, therefore, the revenue must be picking up. How is that going?
The Earl of Gowrie
My Lords, I am most grateful for what my noble friend has said. I certainly agree with him that the people of this country are well aware that if Government look after their budgets there will be more for them and also more for the businesses with which they are involved or which employ them. I was glad to be able to say in my first supplementary answer that the shortfall and the overspend, which were causing some problems, were not primarily due to revenue factors; that is to say, revenue is holding up well as the modest recovery—and I stress that it is modest all over the world—is taking place. Our problem was that our own expenditure was rising at an immodest rate, and, therefore, we have delicately veiled it with these reductions.
§ Lord Jenkins of Putney
My Lords, the noble Earl will be aware that, in the arts, what is needed is not any cut but a further increase in public expenditure. What assurance can the noble Earl give us on that point?
The Earl of Gowrie
My Lords, this will indeed be extremely difficult for the Minister, like myself, wearing another hat. But as I have constantly said, the great interest of the arts in this country is to have a more vigorous and a more successful economy. Higher inflation and higher interest rates hit small budgets like the arts budgets just as badly as they do everybody else.