§ 4.2 p.m.
§ The Chancellor of The Duchy of Lancaster (Lord Cockfield)
My Lords, with permission, I will repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:
"With permission, Mr Speaker, I should like to make a Statement.
"As my predecessor did last year, I am laying before the House today an Autumn Statement which brings together certain matters customarily announced at this time of the year. The Statement contains the Government's outline public expenditure plans for 1984–85, proposals for national insurance contributions for next year, and the forecast of economic prospects for 1984 required by the Industry Act.
"In response to firm monetary policies, the past year has seen falling inflation, renewed growth and solid evidence of our continuing recovery from world recession. Progress both on inflation and on growth this year has been better than expected at the time of the Budget.
"Since the low point of the recession in early 1981, output has grown by about five per cent., inflation has fallen from double figures to around 1386 five per cent., and there have been significant gains in productivity, competitiveness and profitability. Employment appears now to be rising, and unemployment to be levelling off.
"Output this year is expected to be about three per cent, higher than in 1982, and the Industry Act forecast points to continuing growth next year. Recovery in the rest of the world, so far hesitant outside North America, is now widely expected to show some improvement. With higher exports offsetting some slow-down in the growth of domestic demand, overall United Kingdom output is forecast to rise by a further three per cent, in 1984. With inflationary pressures remaining weak, inflation is likely to edge down again next year to a rate of around four and a half per cent, by the fourth quarter.
"Downward pressure will continue to be exerted on public borrowing. Despite the measures I announced on 7th July it is clear that this year's PSBR is likely to be above the £8.2 billion expected at the time of the Budget. The outturn is of course still uncertain but is now forecast to be £10 billion, mainly as a result of public expenditure running higher than expected, as I indicated to the House on 7th July.
"For next year, 1984–85, the forecast makes the conventional assumptions that the direct taxes and excise duties are both revalorised inline with prices, and that the PSBR is held next year to the £8 billion assumed at the time of the last Budget in accordance with the Medium Term Financial Strategy. On this basis the forecast implies the need for some net increase in taxes in next year's Budget. As the House will recognise, this is, of course, at this stage, subject to a wide margin of uncertainty, and will need to be reviewed, with other relevant factors, in the light of more up-to-date information, before I come to make my Budget judgment.
"Following this year's public expenditure review, the public expenditure planning total for next year, 1984–85, will remain at £126.4 billion. The House will recall that that was the provisional figure for 1984–85 published in the public expenditure White Paper in February this year. It is also broadly the same in real terms as the likely outturn for this year, 1983–84. So, with the economy expanding, public expenditure should continue to fall as a percentage of GDP next year.
"Within the unchanged total for 1984–85 there have inevitably been changes in both directions in individual programmes. The details are contained in the Autumn Statement itself. In broad terms, it shows increases in spending for health and personal social services, education, law and order, agricultural support, arts and libraries, and for a number of other programmes. Social security spending will also increase, although there will be reductions in the coverage of help with housing costs, particularly housing benefit. The social security programme provides for an up-rating in November 1984 based on the rise in prices in the 12 months to May 1984.
"These increases are offset by higher receipts from the sale of council houses and the like, and by a reduction in planned spending on home 1387 improvement grants, defence, employment, trade and industry, and several other programmes —including the aggregate external financing limits of the nationalised industries. Net receipts from special sales of assets are forecast to increase by some £400 million reflecting, among other things, the fact that the privatisation of Enterprise Oil is now expected not this year but in 1984–85.
"As the House will be aware, the February White Paper provided for a provisional contingency reserve of £3 billion. That figure remains intact.
"The 1983 review of expenditure plans has, of course, also covered 1985–86 and 1986–87. Details of the plans for both those years will be published in next years Public Expenditure White Paper.
"The Government have also reviewed their manpower requirements for the years up to 1988. My right honourable and learned friend the Chief Secretary to the Treasury is today publishing details of our new plans for a continued steady reduction in the size of the Civil Service. Numbers will come down to 593,000 by 1988, a fall of six per cent, below the existing target of 630,000, which we expect to be achieved on or before 1st April 1984.
"I come, lastly, to national insurance contributions. As the House knows, these are reviewed every autumn in the light of advice from the Government Actuary on the prospects for the National Insurance Fund in the coming financial year.
"As usual, the earnings limits will need to be increased. The lower earnings limit will rise to £34 a week, in line with the single rate retirement pension, and the upper earnings limit will rise to £250 a week, broadly in line with the increase in prices and earnings. The taxpayers' contribution to the fund—the so-called Treasury Supplement—will be reduced from 13 per cent, to 11 per cent. Finally, in each of the last four years we have had to increase the Class I national insurance contribution rate itself. I am glad to say that we shall not need to do so for 1984–85. So the full Class I rate will remain unchanged at nine per cent, for employees and 10.45 per cent, for employers.
"As is customary, my right honourable friend the Secretary of State for Social Services will this afternoon announce details of the changes in the Social Security (Contributions, Re-rating) Order and will lay before Parliament the accompanying report by the Government Actuary.
"As my right honourable friend the Leader of the House has already announced, the House will have an opportunity next week to debate the Autumn Statement, which is now available from the Vote Office.
"Mr Speaker, for the first time for many years we are now enjoying low inflation combined with steady growth. This is a winning combination. Our task is to keep that winning combination by sticking to—and indeed reinforcing—the policies which have brought it about."
My Lords, that completes the Statement.
§ Lord Barnett
My Lords, I should like to ask the noble Lord to convey my congratulations to the Chancellor of the Exchequer on having taken creative accounting to new heights, despite his past criticism of my own modest efforts in this direction. Your Lordships will want some time to study this lengthy Statement and, indeed, the public expenditure White Paper to which it refers; but I hope that I shall be allowed to ask just a few questions.
First, can the noble Lord tell us what assumptions have been changed, and why, in order for the Government to arrive at the figure they first thought of? Secondly, with regard to the receipts from the sale of public assets—which I see are scheduled to increase by some £400 million—can we be told whether at least some of this money might be used to increase capital investment above the 6 per cent, that it was planned to increase it by in 1984–85 over and above the 1983–84 level? While I recognise that, under our somewhat quaint accounting principles, the Chancellor can quite properly treat an energy price increase as a public expenditure cut, would the noble Lord care to explain the difference in resource terms between a price increase and an indirect tax increase? For example, although I wish to make it quite clear to your Lordships that I do not advocate an increase in VAT, or the imposition of VAT on energy prices, would that not have at least two advantages: first, not to increase industrial costs; and, secondly, to be rather more honest?
Given the increased burden that the higher fuel costs will mean, in particular to those on the very lowest level of income—and one notes that pensioners will not receive their increase until November 1984, whereas the heating and other energy increases will come into force some months prior to that—will the Minister and the Government consider providing some help with energy costs to those on the lowest levels of income, including pensioners?
Finally, does the repetition by the Minister of this optimistic Statement by the Chancellor—with which I assume he agrees, since he remains a member of the Cabinet—mean that the Government Actuary has been given a lower assumption for unemployment next year; or, is it not true that, even if the most optimistic forecast that the Chancellor is making were to be continued throughout the whole of this Parliament, unemployment would not significantly fall? Indeed, would it not also be the case that output would be lower than it was in 1979, while all this would have been achieved by the very opposite of Government policy; namely, by a reduction in personal savings, and by allowing the nation to live beyond its means from the bonanza of North Sea oil?
§ Lord Diamond
My Lords, is the noble Lord the Minister aware that when I say I am grateful to him for repeating this long and important Statement it is no mere repetition of a tradition, but is sincerely meant? It is a very important Statement. It is absolutely right that since the Statement affects matters such as social services, this House should have the fullest opportunity of dealing with it. I say this because, of course, it was the noble Lord himself who said on an earlier occasion that these matters were mainly I matters for another place. I understand that, and I am 1389 grateful to the noble Lord—and I repeat my gratitude to him—for repeating the Statement. It is long, it is vitally important, and I have no doubt that we shall come to debate it in the not too distant future.
Therefore, at the moment one must ask those questions which occur immediately and which will enable us to form a better understanding of the Statement in advance of the debate. I should like to ask the noble Lord the following questions. In the Statement there is reference to the out-turn for the current year being uncertain, but the public sector borrowing requirement is now forecast to be £10 billion. The Statement says that this was mainly a result of public expenditure running higher than was expected. Can the noble Lord explain that? We had all understood that, in order to keep the PSBR figure the same as that originally budgeted, the Chancellor introduced his reduced cash limits on 7th July. Is it the case that those reduced cash limits are no longer being kept? What is the explanation for this substantial 25 per cent. increase in the PSBR, notwithstanding the 7th July Statement?
The Statement says that there might be a need for some net increase in taxes in next year's Budget. Can the noble Lord say whether we are correctly informed that the present total level of taxation in relation to the gross domestic product in this country is the highest it has ever been in our history?
May I also ask him a question with regard to that part of the Statement which refers to a fall in the percentage of public expenditure next year, which we fully understand—a fixed figure of public expenditure set against an increased figure of output? Could the noble Lord tell us what, in terms of percentage, it amounts to for the year under discussion, and what the policy of Her Majesty's Government is for the following years so that we shall have an idea whether, as was announced by the previous Chief Secretary to the Treasury in the last Government, it is the intention of the Government to reduce the percentage of public expenditure year after year after year? May I also ask the noble Minister how much, either in percentage terms or in absolute terms, the expenditure on defence is to be reduced? That is an important figure, and I am sure your Lordships would wish to know it as soon as possible.
May I turn to a point touched on by the noble Lord, Lord Barnett—the increase of some £400 million receipts resulting from the sale of national assets? May I ask the noble Lord whether he is aware that we shall want to look at that in great detail having regard to the fact that many of your Lordships, and a vast number of people outside your Lordships' House, are deeply disturbed at the Government's attitude to good housekeeping; namely, that you sell your national assets and pay no attention to the fact, when you come to make your expenditure, that you have realised assets and that at the end of the period of government, therefore, you will be so much the worse off?
I see that the contingency reserve remains at £3 billion. May I say to the noble Lord how glad I am that a proper reserve has been made in this year, and how interesting it is that it is double the figure that was provided immediately before the general election? May I also ask—and your Lordships will be glad to know it is my final question—about the reference to 1390 the taxpayers' contribution to the fund, and the Treasury supplement being reduced from 13 per cent. to 11 per cent? Could the noble Lord give us some figures to set that in perspective? Off-hand, it seems a large reduction, and one should want to know whether there is a precedent behind the Government making such a substantial reduction.
§ 4.24 p.m.
§ Lord Cockfield
My Lords, I am grateful to both noble Lords for their comments. May I remind the noble Lord, Lord Barnett, of the saying, "Beware of Greeks bearing gifts". One should equally beware of members of the Opposition conveying congratulations. I say that because when the noble Lord referred to his own reputation for creative accounting I suspected that there was a sting in the tail somewhere. Nevertheless, I am sure that my right honourable friend will read his remarks and interpret them in the most charitable sense possible.
The noble Lord asked what assumptions have been changed, and why. Whenever the Autumn Statement is prepared, and indeed whenever the Budget is prepared, all the assumptions are reviewed, including of course the economic assumptions which form the basis of the Autumn Statement anyway. One specific example of another assumption which has been reviewed is of course the pay assumption which has been put in at 3 per cent. against the higher figures that had appeared in the estimates made last February. There is a complete review of all the assumptions which go into the make-up of the figures.
The noble Lord referred to the increase of £400 million in receipts from sales of assets. He asked whether further increases in investment would be provided after that figure. The public expenditure figures which appear in the Autumn Statement have of course been drawn up in the light of the £1,900 million—that is the total figure—which is £400 million more than the figure which had appeared at the time of the previous public expenditure White Paper. This has already been taken into account in determining the level of expenditure in each department. As is customary, an analysis of expenditure between current and capital expenditure will appear in the public expenditure White Paper when it is published just before the Budget.
The noble Lord then referred to energy price increases, and he claimed that they were equivalent to taxation. I summarise his argument briefly. I am not in any way trying to put a gloss on it. This is not in fact a true interpretation of the position. What we are doing is following the policy of economic pricing which has now been adopted for many years by successive Governments. I should like to read the following to the noble Lord:The principle that prices should reflect the cost of supply on a continuing basis while providing an adequate return on capital is now firmly established".I did not write those words. They appeared in the Green Paper on Energy published in 1978 during the lifetime of the previous Administration. I am saying that the principle they then laid down was right, and we have continued that principle.
There is no intention that pricing should exceed economic levels. In fact, the noble Lord will be 1391 interested to know that in the case of gas, for example, the report prepared by Deloitte this year stated:In 1982–83 sales of gas in all markets, apart from the interruptable market, were taking place at prices which were insufficient to meet marginal costs and thus the cost of maintaining supply".So in fact the price of gas is well below economic levels. The price of electricity is at, or below, the levels, and the increases which in the end will of course have to be determined by the industries themselves, not by Government, will not take prices above economic levels.
The noble Lord also referred to the effect of the increases on the lowest incomes. In this connection it is important to bear in mind that the increases will be less than the rate of inflation, and that they represent a reduction in price in real terms. At the same time help of £350 million per annum is given through the social security system to people on the lowest incomes.
The noble Lord then referred to the Statement being an optimistic one. I would agree with him that it shows real hope for the future—a matter that he and I were debating in your Lordships' House yesterday. He asked what assumptions had been made for unemployment next year. I think his suggestion was that a lower assumption for unemployment had been made. In fact, the figures will appear in the Actuary's report which is to be published this afternoon. The figure assumed for 1984 is the same as the figure for 1983. These are assumptions, and the figure is 2.85 million for Great Britain, seasonally adjusted. This is the standard method of doing it, and the figure assumed is the same for both years.
The noble Lord then asked about the future level of unemployment. No Government have ever forecast future levels of unemployment. Of course it is our hope and expectation that as the economy grows—and it is now beginning to grow—it will provide additional employment, and thus ultimately reduce unemployment on a sound and long-term basis.
The noble Lord, Lord Diamond, asked, oddly enough, the same number of questions, at least according to the note that I had taken down. I am grateful to him for what he said at the beginning of his comments. He referred to the fact that the Statement had said that the outturn of PSBR was now estimated at £10 billion and he asked why the figure had increased since the July Statement. The reason for the July Statement was that my right honourable friend realised that the PSBR was running ahead of target and he took some measures to rein it back. There are a number of reasons for this.
Perhaps I should preface what I am saying by this brief comment. As noble Lords will know, the PSBR is the difference between two enormous figures and the forecasting errors in this figure over a number of years have been substantial. Therefore, I do not wish to give the impression that we regard the £10 billion as an exact figure. It is not. It could easily turn out at some other figure. However, the reasons are, first, that what is technically called shortfall is very much less than originally anticipated. Secondly, interest charges have proved to be higher than was expected at the time of the last public expenditure White Paper. Thirdly, there has been some fall compared with estimate in revenues 1392 from VAT and customs duties due mainly to a lower rate of inflation than was expected at the time of the last public expenditure White Paper. These are all illustrations of the point raised by the noble Lord, Lord Barnett, about the change in assumptions during a year as time goes on.
The noble Lord then referred to the statement that, on the figures that have been given, there might be some need for a net increase in taxes. The position is that the so-called fiscal adjustment is an arithmetical or statistical figure that arises from comparing large flows on both sides of the account. The figure in question is very small, as the noble Lord will see from the detail in the Autumn Statement. Whether the figures turn out like that at the time of the Budget nobody can say. The whole matter of the Budget strategy will need to be decided much nearer the time.
The noble Lord then referred to the statement that there had been a fall in public expenditure as a percentage of gross domestic product. He asked what the fall was. The answer is that it is a fall from 42½ per cent. this year to an anticipated 42 per cent. next year. It is our intention to continue to ensure that the figure comes down year after year. It reached a peak in 1981 which I believe was about 44 per cent. under this Government. It had been higher, of course, under the previous Administration. But it is now on a downward path although the reductions are relatively small.
The noble Lord then referred to reductions in defence expenditure. He asked what they were. There is no reduction in defence expenditure. On the contrary, the figure provided for defence shows an increase in the coming year of £13 billion, or 82 per cent. In real terms that represents a provision for growth of 3 per cent. over 1983–84 with an addition for the Falklands costs. We are, therefore, fulfilling our NATO commitment in this respect.
§ Lord Diamond
My Lords, I am sorry to interrupt the noble Lord the Minister, but this is very important. I am most grateful to him and many people will be interested in what he has just said. May I read what I understand the noble Lord has repeated in this house?These increases are offset by higher receipts from the sale of council houses and the like and by a reduction in planned spending on home improvement grants, defence et cetera".
§ Lord Cockfield
My Lords, perhaps I might say that I think there is some slight misunderstanding between the noble Lord and myself. There is a reduction compared with the increase that was provided in the public expenditure White Paper last February but it still remains an increase. I am sorry about this. These are complex matters and I think the noble Lord will find a full explanation in the Autumn Statement.
The noble Lord referred also to the question of sales of assets. This is a matter which he and I have debated and no doubt will continue to debate. We have a difference of opinion and approach to this matter which I do not think it would be right to pursue in present circumstances.
The noble Lord expressed satisfaction that the contingency reserve had been maintained at £3 billion. We agree with him that it is necessary to have an adequate provision here and we hope that the maintenance of a reserve of this size will make planning 1393 next year more efficient than it has been on some occasions in the past. He asked about the reduction in the Treasury supplement. This supplement has been reduced on a number of occasions in the past. We have had Bills before your Lordships' House which we have debated. The reason for it lies in the change in the relative weight of the contributory and non-contributory benefits. The non-contributory benefits have increased substantially. This is ensuring that part of that cost falls on the employed population rather than on the general taxpayer.
§ Lord Barnett
My Lords, before the noble Lord sits down I should be obliged to have one clarification. He told us that on economic pricing on energy the industries would have increased the prices without any Cabinet instruction. Is that really the case? Were there no discussions and no instructions from the Cabinet to the industries? Would they have made these increases without any dispute between the Secretary of State for Energy and the Chancellor, or without any public expenditure discussions at all?
§ Lord Cockfield
My Lords, the noble Lord is endeavouring to put words into my mouth. The position, as he well knows, is that the Government are responsible for setting the external financial limits and also for setting targets. Within the figures that have been determined it is a matter then for the industries themselves to decide what tariff increases are required.
§ Lord Beswick
My Lords, may I ask the noble Minister three questions? The first is: did I understand him to say that it is impossible to estimate unemployment in future years? This being the case, how is it possible to estimate the Treasury liability for funding the unemployment fund? Secondly, I understood him to say that there is an estimated 3 per cent. growth next year. Is that on the assumption that we shall achieve the estimate for this year?
Thirdly, on the question of the sale of the nation's capital assets, as the amount is to be increased by a very considerable sum next year, and I understand that in the year following it is to be of the order of £3,000 million, will the Minister agree that the country will find it inconceivable if, when they are receiving these large sums of money—£1,250 millions this year, £19 billion the year after and £3,000 million the year after—the Government are unable to find the £400 million refundable loan for the launching of the A320 aircraft?
§ 4.40 p.m.
§ Lord Cockfield
My Lords, so far as the first point raised by the noble Lord, Lord Beswick, is concerned, there is a difference between an estimate and a forecast. The Government Actuary every year prepares a report on the National Insurance Fund. For that purpose he is given certain assumptions. I am not certain whether I used the right word. There is a difference between a forecast and an estimate, on the one hand, and an assumption, on the other. So far as the Government Actuary's report is concerned, the figure included is neither an estimate nor a forecast; it is an assumption which is provided by the Government. This follows what has been done every year under successive Governments.
1394 If you are going to calculate whether or not the fund has sufficient money and whether or not an increase in contributions is necessary, assumptions must be made. This is the basis upon which this is done. It does not mean that there are, in any way, estimates of unemployment over a run of years in the future. There are not. No Government have ever published estimates or forecasts of unemployment for future years. The noble Lord asked whether the 3 per cent. growth estimated for next year is conditional upon the 3 per cent. growth which has been estimated for the current year. It is not possible to answer that question by a simple, Yes or No. We come back to the point which was raised by the noble Lord, Lord Barnett, at the beginning of his questions; namely, that one is continually having to revise or review economic forecasts as one goes on. One cannot say absolutely that the 3 per cent. will be achieved, whether we will go above 3 per cent, or whether we might even go below it. It represents the best forecast that the Government can make at this time.
There is no doubt at all that conditions in the world generally are looking more favourable. We have, in fact, done rather better over the last two years than we thought we were going to do. The noble Lord will find some comparative figures in the Autumn Statement in detail. I hope that he will derive some comfort from them. I say that sincerely because we all want to see an increase in output. This is not a matter of political debate. As to the final point that he raised, namely, the funding of the A.320 Airbus, that I think goes somewhat outside the scope of the present Statement.
§ Lord Harmar-Nicholls
My Lords, as far as the implied criticism over the sale of nationalised assets is concerned, should it not be emphasised and re-emphasised that it does not mean that the nation has lost that asset? If it is privately owned, it is just as effective. Perhaps it is more effective, if it is more efficiently run, than merely having the shares and the ownership in the hands of the state.
§ Lord Cockfield
My Lords, I agree with my noble friend. The reasons for privatisation are not either entirely or mainly financial at all. The objective is to introduce a greater degree of competition, a greater degree of response to market forces and a greater degree of response to the interest of consumers.
My Lords, can the noble Lord the Minister give some hope to the 2 million self-employed that the unfair tax which is a tax on them alone, the class IV national insurance contribution, may soon be abolished?
§ Lord Cockfield
My Lords, the noble Lord is a great optimist. He is well aware that I can give him no assurance of that sort. All that I can say is that the rates of contribution are not being increased, although both the lower and the upper earnings—or, in this case, profit—limits are being revised on the basis that I indicated.
§ Baroness Gaitskell
My Lords, may I ask whether the Minister, despite what he said about privatisation, would agree that the real reason for privatisation is to make the rich richer?
§ Baroness Seear
My Lords, may I ask the Minister to say something about the areas in which he proposes to reduce expenditure? It is very assuring to be told that expenditure is going to be increased on health, the social services and education, but is it really sensible? What is the thinking behind the reduction of the home improvement grant, a method for maintaining the value of capital in housing and also an exceptionally good method, very frequently, of job creation in the private sector which, with the present possible financing increases, could have been expanded rather than reduced? As to the reference to reduction in expenditure on employment, presumably this is not a very optimistic forecast. Does it mean a reduction of the number of people unemployed and therefore of unemployment benefits? Does he imply any cuts in the job creation scheme? What is the thinking behind those two areas chosen for reduction?
§ Lord Cockfield
My Lords, I think it would be more appropriate to deal with the details of these programmes on another occasion. The noble Baroness will find an exposition in the Autumn Statement itself. In the case of housing, for example, there is an apparent substantial reduction in net expenditure but more than half of that is not a reduction at all. It is a reflection of higher receipts from the sale of council houses. So far as the home improvement grant is concerned, the temporary home improvement grant scheme has come to an end. It was originally a temporary scheme which was due to expire on 31st December 1982 and twice has been extended. The expiry of the scheme has been announced.
My Lords, may I ask the noble Lord two questions? First, the original Statement said that output had increased over the past year by 5 per cent. I imagine that to be the overall figure for output as a whole. I wonder if that can be broken down and whether the noble Lord can give the House the figure in respect of manufacturing industry. Has that gone up or has it gone down? Secondly, in referring to these programmes for which expenditure will be reduced, the Statement used the phrase "several other programmes". Can the noble Lord say whether or not the overseas aid programme is among those "other programmes" for which reduction is anticipated?
§ Lord Cockfield
My Lords, so far as the first point is concerned, the increase in output over the last year was 3 per cent., not 5 per cent. The 5 per cent. referred to the increase in output since the low point of the recession was reached in early 1981. The noble Lord asked for an analysis of that increase in output. I am afraid that I could not give that to him without notice. So far as the overseas aid is concerned, the noble Lord will find a complete commentary on all the programmes on pages 19 to 21 of the Autumn Statement itself.
§ Lord Ferrier
My Lords, is it not three-quarters of an hour since we began discussing the Statement; is it not now amounting to a debate; and is that in order?
§ Lord Denham
My Lords, I must admit that I was rather looking at the clock myself. But it did occur to 1396 me that the supply of questions for this particular Statement seemed to have dried up naturally—which is always preferable to any form of artificial curtailment. We have discussed this at great length. Noble Lords will want to have a chance to read the various documents. We are only meant to have brief questions for elucidation after a Statement. I regret to remind the House, and my noble friend behind me, that we have another Statement which is now cleared to be made in your Lordships' House.