§ 5.32 p.m.
§ Lord Diamond rose to call attention to the Government's policy of selling off the nation's assets and using the proceeds for current spending: and to move for Papers.
§ The noble Lord said: My Lords, I shall not be arguing as to whether or not a particular sale of assets was merited; nor shall I be arguing as to whether or not the general policy of the Government of selling off assets is right. No doubt others may wish to do so. My sole concern is to demonstrate that the Government have embarked upon a policy of selling capital assets and using the proceeds for current spending. It is as simple as that. It is a practice which we all condemn in our private lives or in our business lives, and one which I should have thought was miles removed from the normal Conservative policy. Nevertheless, it is happening, and I am only sorry that I cannot follow my noble friend Lady Burton, who in such an excellent speech spoke in so non-partisan a way, since in what I am about to say I may have to draw attention to the Government's failings. Indeed, I think it is so culpable for a Government deliberately to run down the nation's assets and to use the money towards covering current expenditure that I must be quite sure of my facts and I must be satisfied that the Government have a reason for doing it.
§ Let me deal first with the reason. I do not think that we need look further than statements by the Chancellor of the Exchequer himself, who has made absolutely clear the need to contain public expenditure and has drawn attention to the shortage of cash. Indeed, he has linked the shortage of cash with the proposed sale of assets, and so has made it quite clear that the sale was one of the methods by which he would seek to deal with the shortage.
§ As we all know, as unemployment has soared so has the cost of unemployment. The latest public 309 expenditure White Paper makes the position very clear indeed. It shows (and I am now talking in terms of constant prices) that by this year, as compared with the year when the Government first took office, the public expenditure total has increased by some £7½ billion—I repeat, £7½ billion. Of that £7½ billion, some £64¾ billion—practically the whole amount—has been due to the increase in social security spending. Was that what the Government wanted? Was that what the Government planned? Of course not.
§ When the Government first came to office early in 1980 the then Chancellor of the Exchequer made it absolutely clear that the Government were planning on a fall in public expenditure, at constant prices—a fall this year of 5 per cent., which would have amounted to £5½ billion. So with a planned reduction of £5½ billion and an increase of £7½ billion, there has been a swing of £13 billion between what the Government intended to spend this year and what they are compelled to spend this year. That £13 billion is an exact measure of the failure of the Government's economic policy.
§ So it has transpired that the Government have tried, through the sale of shares, to meet the shortage of cash which has resulted from the way in which the economy has gone under their care. There is no need to argue as to whether it is the Government's desire to do that. In the White Paper that I am talking about it is clearly set out that the Government intend to sell shares at the rate of £2,000 million a year for the next three years—a £6,000 million special sale of assets—and that they intend to apply the proceeds towards annual expenditure. Those of your Lordships good enough to look at the figures will see that in an attempt to go some way towards covering expenditure the incoming moneys are set off against it. I say "to go some way" because, as we all know, the deficit is not covered. At the end of each year the Chancellor of the Exchequer has to borrow money, and that goes only some way towards covering the Government's expenditure. So, to summarise what I have been saying up until this moment, it is clear that the Government have embarked upon a new policy of massive sales of national assets and of using the proceeds for day-to-day expenditure.
§ Now the Government will say that that is not the whole story. As the noble Earl, Lord Gowrie, has already indicated, it is not of course Conservative philosophy—nor would he applaud the practice—to use permanent capital assets for the purpose of covering day-to-day spending. To do so would be highly irresponsible, and therefore the Government say that what I have been indicating is not the whole story. because if we look at public expenditure for the year we shall find that that in itself includes some—I repeat, some—payments of a capital nature. Indeed it does. But that does not go anything like far enough; and I must ask your Lordships to be good enough to bear with me while I draw attention to those important matters which are totally excluded from public expenditure because, of course, it is not appropriate to show them in that way.
§ First of all, the calculation to which I have just referred takes no account whatever of the massive depreciation of our physical assets which takes place every year. Every businessman, every company 310 director, every accountant, every lawyer—we are all of us familiar with what goes on. Indeed, any member of the public has only to look around to see the extent of the depreciation—the falling off in standards of our infrastructure and of our various assets—that is taking place. That is estimated at a figure of some £10 billion a year at the moment. That is the first item. Secondly, no account is taken of the running down of a very important asset, our North Sea oil, to which I imagine other noble Lords will be referring. This is at the moment netting some £9 billion a year. I am talking in billions. These are huge figures.
§ Thirdly, no account is taken of the continuing increase in the financial liabilities of the country. The Chancellor and the Government borrow money. The Government pay off money. At the end of the year, you have to work out the sums and see what is the net result. The net result in 1982–83, the last year for which figures are available, shows that there was an increase in net financial liabilities of £9 billion, an enormous sum. But the biggest of all was one to which the Government have not turned their mind at all, so far as I can see. That is the increase in the value of unfunded public sector pension liabilities—a problem that is arising the whole time. The Government have not yet attempted to face it. It is a figure of the order of between £15 to £20 billion a year.
§ Finally, however you describe capital expenditure—it can be defined in many ways—you find that there has been a massive falling off over the last I 0 years. If you take the normal definition, which is gross domestic fixed capital formation, and if your Lordships are good enough to refer to the Written Answer that I received from the Government on 6th December last year at column 1079, it will be seen that over the last 10 years, capital expenditure, as so defined, has fallen by more than 60 per cent. Of that figure, two-thirds occurred in the first three years of the present Government's tenure of office. So it is absolutely clear that there has been a massive falling off in the value of the nation's assets and that the Government have not attempted to provide new assets for old.
§ As all of your Lordships are interested in accuracy and as I, being an accountant, have a special interest in it, one naturally wants to see, so far as one can, what this fall has amounted to. The only means that I know for arriving at an accurate figure is the preparation of a full balance sheet of the nation's assets and liabilities showing what are the physical assets, the financial assets and the financial liabilities. Then one can see, from one year to another, whether the nation's fortune, as I might call it, has been falling or has been maintained. Fortunately, this exercise has been done for last year by the Institute for Fiscal Studies. Its finding is of great interest to me and also, I hope, to your Lordships.
§ The institute finds that total public sector net assets fell from a figure of £235 billion, a very substantial figure of net assets that the country possessed at the beginning of that year, to £209 billion; that is to say, a fall of £26 billion or, to make it more comprehensible, a fall of 11 per cent. in one year. That figure apparently excludes our falling oil reserves and our rising pension liabilities because the figures I have quoted were prepared on a very narrow definition. I 311 know that it is unwise to rely on one year's figures. They may be affected by temporary circumstances. One wants to he as fair as possible. If the Government have some better figures and have worked out their own balance sheet and would be prepared to publish it, we should be delighted to see it. It was not done in my time at the Treasury because it was obvious that the depreciation that was taking place was covered by cash expenditure and there was no need to go further than that in terms of detail. We were replacing assets all the time.
§ I agree that it is unwise to rely on one year's figures but what I can certainly assert is that if the nation's assets are to continue to be frittered away at the same rate, it follows that in eight years' time the net value of our assets would be nil. It may be said to me that I am criticising the Government, as indeed I am, for selling assets and not replacing them, and that in particular I am referring to the special sales of £2 billion a year which the Government have specially defined and to which they refer in their White Paper. I may be asked: am I not suggesting that there should be even further pressure on public expenditure? And how are the Government to cover that public expenditure, if they provide for this further £2 billion a year, unless they are to cut social services even further or knock £2 billion a year off the cost of the dole? I am not suggesting that. I am suggesting something quite different. I am saying that if the Government's economic and financial policies are such that they cannot afford to replace the nation's assets as they are running them down, it is high time that the policies were changed.
§ The facts, I think I can say, are outlined in my Motion. In their mad scramble for cash to pay for the huge unemployment that they have caused, and against the background of their massive failure to maintain the value of the nation's assets, the Government have embarked upon an accelerated course of realising capital and using the money for everyday spending. This Rake's Progress, if continued, will have its inevitable consequence. By the end of the present Parliament half our birthright will have been dissipated and the successor Government will inherit a most almighty mess. My Lords, I beg to move for Papers.
§ 5.48 p.m.
§ Lord Barnett
My Lords, I am sure that the House will wish to congratulate the noble Lord, Lord Diamond, as I certainly do, for raising this important topic. It is sometimes thought of as being a highly technical topic, only of interest to a small number of people. In fact, it is a subject that should be of greater interest to this House and to the other place than next week's Budget. However, it usually is not. Nevertheless, I am sure that the House will be grateful 312 to the noble Lord for having raised the subject. The noble Lord, like myself, as a former Chief Secretary to the Treasury, has been frequently attacked during periods of office for cutting public expenditure and for cutting capital expenditure in so doing. If I may say so, in my case, I was most savagely attacked by the present Chancellor and most of his Front Bench colleagues for doing that. However, I am not a vengeful man. I have no objection to the present Chancellor having done that and I shall not seek to reciprocate in kind.
The Earl of Gowrie
My Lords, if the noble Lord will be so kind, it might console him to know that when he was cutting public expenditure he was praised from the Opposition Front Bench by myself.
§ Lord Barnett
My Lords, I am obliged to the noble Earl. It is a pity that some of his friends in another place did not take the same attitude. However, as I say, I am not a vengeful man. The central question that we are debating is whether it is correct to say, as Lord Diamond states in his Motion and has repeated in his speech, that the proceeds of asset sales are being used for current spending. I do not think it will be disputed by the noble Earl the Minister that the Government are technically treating the sale of public assets as what is called "negative expenditure". Indeed, on the question of asset sales I should like to quote from page 15 of volume 1 of the public expenditure White Paper recently issued:Public sector capital expenditure is usually measured net of asset sales, and in particular council house sales. Thus, the Government's policy of selling council houses and the privatisation programme decrease public sector capital spending in the conventional presentation.In other words, they are doing it for exactly the reasons that the noble Lord was indicating to the House. That may be the technical reason, but in reality (as the Treasury and Civil Service Committee of another place recently pointed out in their report) the fact is—and it is an undoubted fact—that it is a receipt. It is not negative expenditure.
Perhaps I should quote to your Lordships what a highly respected all-party committee said on this particular matter. I quote from paragraph 31 of their report:The proceeds of asset sales are a receipt to Government and conceptually we would expect that to be shown either as revenue or as a means of financing the borrowing requirement.Of course, that is not the way the Government deal with it because they deal with it as negative expenditure, which I will refer to again in a moment.
As this all-party committee said, it is a receipt, and, above all, it is an unhypothecated receipt. The noble Lord, Lord Diamond, in a recent question to the Minister had an answer which seemed to indicate that the Government are treating the receipts or sales from public assets as hypothecated income to be used against the purchase of capital assets. It is nothing of the kind. It is no more possible to distinguish receipts from the sale of public assets than it is, so far as public accounts are concerned, to distinguish them from the proceeds of value-added tax, income tax, loans and the rest. So the simplistic Government argument, that perhaps we should look at the fact that capital expenditure is higher in a given year than the proceeds of asset sales, means, putting it very simply, that asset sales are financing capital expenditure.
313 Of course, it would be just as foolish an argument as saying that because the proceeds are higher than expenditure on, for example, arts and libraries, or the expenditure on law and order, it is financing those particular items of expenditure. Your Lordships will know that is not the case, for the plain fact is that the totality of income (including loans) finances the totality of expenditure. That is the way Government accounts are treated, and they are rightly treated in that way.
The Government's case would be much stronger, of course, if it could be shown that asset sales were having the effect of increasing the amount of public expenditure going into capital investment. But as the noble Lord, Lord Diamond, pointed out quite fairly and irrefutably, that is far from being the case. Indeed, at best capital expenditure at present levels is static. Expenditure has been broadly the same since 1978–79. That cannot be disputed. Indeed, I shall quote directly from volume 1 of the Government's own public expenditure White Paper, where we are told at page 9:In cost terms, the level of this expenditure"—that is, capital expenditure—has been broadly the same since 1978–79, £21.7 billion compared with £21.8 billion".I will not go into the very sensible point which the noble Lord, Lord Diamond, made about the whole nature of capital assets, and the points made in an excellent report by the Institute of Fiscal Studies which he quoted. The fact is that capital expenditure has been broadly static and, indeed, much worse, it is planned to stay broadly static despite the fact that the Government are now telling us that the total growth in the economy will be some 2 to 3 per cent., if not more, in the years ahead. In other words, as a percentage of total GNP, capital expenditure is indeed going to fall.
That is the real charge against this Government, and it is an indisputable and deplorable fact because what has happened—what must he happening in current circumstances under Government policy—is that this Government, despite everything they have said in the past, despite all the criticisms they have made of past Governments (including past Conservative Governments) is allowing the nation—indeed compelling the nation—to eat the seed corn with a vengeance. The sale of public assets, including the most important one of all to which the noble Lord, Lord Diamond, referred, the huge and declining asset of North Sea oil, is being used to allow us as a nation on current public expenditure and personal consumption to eat the seed corn, so that when the oil runs out, when the sale of public assets runs out—when there are no more of them to sell—we will then be in the situation where our total stock of public assets will be lower; North Sea oil will have gone, or seriously diminished.
All that is the real charge that must lay at the door of this Government. There can be no doubt about it on their own figures that over the next few years expenditure on capital is going to remain broadly the same. So, despite the money from North Sea oil and money from the sale of public assets, not one penny of all that is going to go on increasing or, indeed, even properly maintaining our stock of capital assets. It is a very serious charge to lay at the door of any 314 Government but I do so because it is, as I say, a fact which cannot be disputed.
The philosophical and party political question apart—and I do not today propose (because it is not part of the Motion) to take up the question whether it is right or wrong to be selling off public assets—there are two main considerations that make asset sales attractive to the Chancellor of the Exchequer. First, by presenting as negative expenditure the total sale of public assets, it reduces the public expenditure planning totally. For a Chancellor, like this one in particular, that is a very useful presentational exercise. Second, at a stroke it removes from the public sector borrowing requirement all future borrowings of the nationalised industry concerned. Those are two primary considerations to this Chancellor, there can be no doubt, even if one accepts the philosophical and party political consideration that everything in the particular industry will be enormously improved if it is in the hands of private investors rather than in those of the public. And it is a bit difficult to accept, to put it mildly, given the fact that most of manufacturing industry has been in private hands, and by comparison with most of our competitors abroad it has not exactly done well over the years. So it is not an easy argument to deploy.
Let me take those two questions of why it is of enormous value to this particular Chancellor and not a very great deal of value to the nation. First, it has no effect on the real economy, other than a damaging effect, by allowing the Chancellor to pretend that the sales have had a real effect somehow or other on the public sector borrowing requirements. As a consequence of that, he can take action which is certainly not justified. As the authors of the recent report of the Institute of Fiscal Studies made clear, by showing a public sector borrowing requirement reduction from the sale of public assets, it appears to imply a tightening of the Government's fiscal stance, when of course they are really doing nothing of the sort. In the process the Government then take policy decisions, and no doubt some of the Chancellor's colleagues in the Cabinet think that, somehow, by sleight of hand, he is doing something wonderful. In fact, he is doing something pretty awful. I am glad to see the noble Earl shaking his head and I hope agreeing with all that I am saying, as I am sure he will tell us shortly.
Let us take the second point—the fact that the Chancellor is at a stroke reducing the public sector borrowing requirement. The reduction of the public sector borrowing requirement, by not having to count future borrowings, simply shows yet again how inadequate the public sector borrowing requirement is as an economic measure. I immediately plead guilty to having used it in the past myself. But the use of a single all-embracing public sector borrowing requirement target means that public current and capital spending are both subject to the same constraints, even though as private individuals and private firms we would apply different considerations to borrowing for investment and borrowing for consumption. That is why the simplistic idea that, by a single reduction in the public sector borrowing requirement, we can make a serious economic change, does great harm to the management of the nation's economy.
315 In drawing to a conclusion, I point out that I have already quoted the Treasury and Civil Service Select Committee view that the proceeds of the sale of public assets should he shown as revenue, or as a means of financing the public sector borrowing requirement, and not as an actual reduction in the public sector borrowing requirement. That is not just my view; it is the view of an all-party committee chaired by a former Conservative Treasury Minister, and it must be taken very seriously. It is not some esoteric question of interest only to experts. The way in which the sales of public assets are treated has a real effect on real issues.
I willingly concede that in 1976 when we had a little problem—a trifling problem—with the International Monetary Fund, I was responsible for disposing of the sale of BP shares. I see the noble Earl nodding; perhaps he even has it in his brief. Just in case he does or does not have it in his brief, I willingly concede right away that at that time I was delighted to take credit for that particular sale.
The Earl of Gowrie
My Lords, I thank the noble Lord for giving way. The only reason that I was nodding was that I thought it was an excellent idea at the time, and I wish that we had sold more.
§ Lord Barnett
My Lords, what I am about to say perhaps will not please the noble Earl quite so much as he found it at the time when I did sell them. At that time we were having a few little local difficulties with the IMF and the outside world, as my noble and learned friend Lord Elwyn-Jones will recall. But in the calm of your Lordships' House I hope that we can look at the situation rather more rationally than perhaps we did even around that very intelligent Cabinet table at the time. The plain fact is that the sale of those shares, the sale of shares now and the sale of public assets now, do nothing whatever for the real economy and do great harm if we imagine that such sales will help or affect the real economy. Let me make it quite clear that I am not suggesting that, in view of what the Treasury and Civil Service Select Committee indicated in their report—namely that if it were treated in the way in which they have suggested it would mean that there had been a growth in public expenditure as a percentage of GDP—the Government should cut public expenditure. On the contrary, I think that the Government should increase public expenditure in the capital field.
But the straight and indisputable fact that public expenditure is declining and the way in which the facts are presented to the nation, have serious and important consequences. The net result is that we have ill-thought-out policies. But the worst consequence of all—whichever way the figures are presented—is that the Government are indeed as the Motion says;selling off the Nation's assets and using the proceeds for current spending".Disastrous consequences must surely follow deliberately neglecting to improve the capital structure of our society, and they will, I fear, be borne by our children and grandchildren.
§ 6.5 p.m.
The Earl of Bessborough
My Lords, I welcome the Motion of the noble Lord, Lord Diamond, this 316 evening, for even if I cannot agree with the implications of what he has said, nor the implications behind the remarks of the noble Lord. Lord Barnett, this debate gives an opportunity for those who believe in it to put up a defence of privatisation.
I know the Opposition claim that the Government's programme is no more than a policy of selling the silver to pay the bills. That charge is wrong on two counts. First, the main object of the programme is not to help the Treasury balance the books, nor even to relieve the public sector borrowing requirement: its object is to introduce, wherever possible, the normal commercial disciplines of competition and private capital into the workings of the nationalised industries. Many of these are, or have been, state monopolies of essential services, and have been widely perceived to be sometimes both inefficient and insensitive to their customers' needs. The aim of privatisation is to improve their efficiency for the benefit of their customers, of their employees, of the taxpayer and of the economy in general.
Secondly, the figures involved disprove the charge. In 1984–85, asset sales are budgeted to be £1.9 billion out of a total public expenditure of about £126 billion, excluding debt interest. The sale of 51 per cent. of British Telecom—the biggest privatisation measure in prospect—is expected to raise approximately £4 billion. But payment may be spread over several years and is unlikely to make a great impact on the Government's total budget. Furthermore, public investment continues greatly to exceed asset sales. This year the nationalised industries alone plan to invest around £7 billion, and total public investment will be around £12 billion. So the Government are in fact investing many times as much as they are realising through asset sales. The charge of selling the silver to pay the bills is therefore baseless.
As the Financial Times has stated, if all goes well the sale of state assets, which, like North Sea oil and gas receipts, can be used in part to fund a public expenditure programme, could add an extra £2 billion a year to Government revenues over the next five years. In addition, the Government have been engaged in a high-powered programme of selling council houses—an often forgotten side of asset sales. These have raised over £6.25 billion since 1979.
One argument in favour of including the asset sales income as an offset to public spending is that the purchase or creation of state assets counted as public expenditure at the time. This has been graphically summed up by Mr. Christopher Johnston, the group economic adviser to Lloyds Bank, when he said that sales of assets by the public sector are counted as reducing the PSBR, not financing it. I cannot go through the whole of this article, but everything he says endorses that point.
My honourable friend Mr. John Moore, the Financial Secretary in another place, has repeatedly stressed that competition and wider share ownership remain the principal motive for disposing of unnatural public monopolies. At all events, as my honourable friend has said, privatisation leads to a fundamental shift in the balance between the public and private sectors. It is already bringing about a profound change in attitudes within state industries. It opens up exciting possibilites for the consumer; better pay, better 317 conditions and better employment opportunities for the employees; and new freedom for the managers of the industries concerned. Yet the rationale here seems to be poorly understood and, indeed, misinterpreted. The Government's privatisation strategy is justified on economic and business criteria as well as making sense in political terms. While the present momentum is maintained, it is helping, and will further help, to remedy some of the ills which have beset United Kingdom industrial performance in the past.
The performance of nationalised industries has been of major importance to the performance of the United Kingdom economy as a whole. Nationalised industries have dominated certain parts of it, especially the transport, energy, communications, steel and shipbuilding sectors. Their actions directly affect every individual in the United Kingdom and every firm, both as suppliers and customers. Their actions have permeated industrial life in Britain. If those nationalised industries which are monopolies exploit their position, if the industries are run as bureaucracies and not as businesses, and if they are unresponsive to their markets, the effect is felt throughout the economy.
As I see it, the reasoning that led to the original establishment of nationalised industries was that nationalisation would increase the equality of income and wealth, and advance the general prosperity of the nation. The outcome has been the reverse. Unfortunatley, the original proponents were strong on idealism but weak on practicalities. They believed that by placing management and workers in public enterprises in a position of responsibility and trust, they would be so imbued with a sense of the public good that their actions would naturally reflect what was best for the country.
Unfortunately, experience over many years shows that, left to their own devices, the industries will not automatically work efficiently for the national good. The commanding heights of the economy were handed over to large, remote monoliths that may have been strong on paper but weak on actual performance. It is, moreover, a mistake to believe that all the nationalised monopolies are in any sense natural monopolies. They are in many cases artificial monopolies. Natural monopolies are few and far between.
Because of the integrated nature of the networks, it may make economic and business sense to organise regional or national monopolies to carry out transmission and distribution of water, gas and electricity, and to provide local district telephone services. But activities such as electricity generation, the production and marketing of gas, coal production and its sale, telecommunications (other than local services), bus transport and sewage treatment and disposal are in no sense natural monopolies. The monopolies in these areas were created; they were not natural. It is by no means evident that they are necessary or even beneficial. The public would not tolerate state monopolies in clothing or food. Imagine nationalised food, with no Sainsbury's, no Tesco, no Co-op, no neighbourhood grocer: just one state-controlled concern! In certain cases direct comparisons can be drawn between the performance of nationalised industries 318 and their private sector counterparts. Be it in civil aviation, rail catering, short sea ship and hovercraft services, the sale of gas and electrical appliances and contracting, comparisons are unfavourableq to public industries. The message is clear: public enterprises perform relatively poorly in terms of their competitive position, and they may use labour and capital inefficiently and be less profitable.
The nationalised industries have also not been good at satisfying their customers. A National Consumer Council survey published in 1981 said that standards of service provided by many of these industries clearly fell short of customers' expectations. They found a pervasive discontent with declining standards.
Why has the performance of these industries been so disappointing? I do not believe that the industries' management and workers are at fault. They do their best, but are faced with an impossible task. The odds are stacked against them. Not only are the industries constantly at risk from political and bureaucratic interference, as the noble Lord, Lord Ezra, knows, but the managers must at times wonder what it is they are supposed to be managing. Are the industries businesses or social services? A host of other reasons contribute to their poor performance. I cannot go into them all this evening, but financing constraints spill over to the industries' investment programmes.
The advantages of privatisation are many. It brings clear benefits to the companies concerned. Managers are set free to manage, and new opportunities are opened up. I see—and it is no surprise—that companies which have been privatised so far are trading very successfully in the private sector. The pretax profits of Cable and Wireless have more than doubled; Associated British Ports raised profits from £1.5 million to £6.8 million in their first six months as a private company; Amersham's profits are up by a third despite fierce overseas competition. The National Freight Company is likely to make a profit of about £5 million this year compared with last year, when the company barely broke even. In all these cases turnover is up and share prices have increased substantially, to the benefit of both employees who hold shares and non-employees.
The finance director of Britoil has recently defined the principal benefits to his firm from being in the private sector. Your Lordships can look them up; I have no time to go into them. It is no wonder that Britoil's profits in the first few months of trading were comfortably above the prospectus forecasts.
It is not just the companies which have benefited. The benefits to those who work for the companies are significant. Only in nationalised concerns are employees debarred from owning a stake in the businesses in which they spend their working lives. As your Lordships know, employee participation has been particularly noteworthy in the case of the National Freight Corporation. But benefits to the employees and managers of privatised firms go much wider than the chance to acquire a stake in their own company. Privatisation sets managers free to manage. It makes it possible to link pay to success, and to provide appropriate rewards. It is a fallacy to believe that nationalisation preserves jobs. In the 15 years from 1963 to 1978, employment in the gas and electricity industries dropped by about 20 per cent., 319 and in coal, as the noble Lord, Lord Ezra, knows, by no less than 51 per cent. In fact, nationalisation has greatly reduced the number of jobs.
Competition, on the other hand, breeds jobs. It forces modernisation and technological change, as has happened in the United States. Competition is an efficient mechanism. It ensures that goods and services preferred by the consumer are delivered at the lowest economic cost. It responds constantly to changes in consumer preferences. Privatisation hands back to the people of this country industries which have no place in the public sector. I should like to join with others in saying: long may the process continue.
§ 6.20 p.m.
§ Lord Ezra
My Lords, I feel a certain diffidence in intervening at this stage of the debate because we have had three such eminent speakers before me; two noble Lords, both former Chief Secretaries to the Treasury, with whom one would not dare to argue on their financial skill—not that I would because I agreed with everything they said. Then we had the noble Earl, Lord Bessborough, with his great political experience. I feel diffident also because it may not be possible for me to remain throughout the period of this debate due to a long-standing commitment for dinner.
I should like to tackle this question on the basis of the Motion put on the Order Paper; namely, to relate the answer I should like to give to the question of the sale of the assets and what is done with them. Much as I would be tempted to wander into the field of privatisation, as a philosophy dealt with by the noble Earl, Lord Bessborough—I say straight away that I did not disagree with all he said, but I have different views with some of what he said—I feel I would rather keep to the other issue.
My experience is an industrial one, and therefore I should like to look at this as though we were dealing with an enterprise. Let us assume that this enterprise had run into great difficulty due to the economic recession, due to structural change and various things, but as far as its accounts were concerned it was helped through this difficult period because it decided, as many enterprises have in these difficult times, to dispose of some of its assets.
When assets are sold one has to choose the best. No buyer will buy assets that are not making money, so the most profitable are disposed of. This is what this particular enterprise has done, and some of those assets in other hands have done even better than they were doing. Whether they would have done still better had they remained under the previous ownership no one can tell. Secondly, the enterprise I am talking about was saved by the fact that it found a product within the area under its ownership which was extremely valuable, namely oil, which it exploited with great skill and made a lot of money out of. Unfortunately that particular product line has a limited life.
Thirdly, this enterprise decided to dispose of a lot of the tied houses in which the personnel lived. Indeed, it did quite well out of those sales in capital terms. I am indebted to the noble Earl, Lord Bessborough, for drawing our attention to it. About £2 billion a year on 320 average has been coming in from the sales. If we tot up all this, it is £2 billion in the sales of assets, £2 billion on the sale of houses and, as my noble friend Lord Diamond said, £9 billion on the oil.
The question then arises, what is this company to do in the future? These assets will not be available indefinitely for sale. The houses will not be available indefinitely for sale and we know that the oil will run out. So what is the future strategy of the company? If this were a company and an enterprise, that is what its Board would now be very seriously considering, and it would have one of two options. It might want to dispose of all its assets and go out of business, but I presume the intention is not for Great Britain to go out of business. Therefore, assuming that we want to remain in business, how will we do that? We have been through these difficult times. These are some very serious underlying difficulties in our remaining activities: very heavy unemployment, under-utilisation of the remaining assets, a very serious underlying adverse balance of payments if the oil is taken away, and we are disposing of many of these valuable assets. So what do we do about it?
If we were an enterprise and wanted to remain in business, we would be thinking very seriously about investing in new assets in that situation. Indeed, we had a debate not so long ago on the question of the infrastructure. The infrastructure is vital to this whole question. I should like to quote from the views of the CBI on the subject. In its latest submission to the Government on the Budget it deplored the deterioration in the adequacy and quality of the infrastructure, which is adding to business costs just when efforts are needed to improve our competitiveness.
I submit that one of the things that the enterprise ought to be doing is getting its infrastructure right: the adequacy and the quality of the infrastructure. All the figures show that investments in that sector have fallen very substantially. What we therefore need to address our minds to, assuming that we have so far managed to get the books right by the policies that I have indicated, is to the future, and to replacing those assets with other much needed assets.
Secondly, we must also encourage the investment in new assets in the private sector. I am not one who says that all the investment must be in the public sector. It must be in both. Here, too, the CBI in its submission has made some very good suggestions: to eliminate the National Insurance surcharge, to continue to work—and happily there is a trend in that direction—to reduce interest rates, and to reduce rates on business, In other words, to create a climate in which investment can be stimulated.
I should like to conclude my brief intervention by saying that we have here a very serious problem, because at the moment, as a result of the sale of the assets and the houses, and the benefit of the North Sea, the public accounts both internally and externally look viable. What is worrying is that in about three years' time when this process will reach its normal term, unless we have created something to take its place, the enterprise in which we are all involved will inevitably begin to run down. I do not believe that it is the wish of anyone in this House that that should happen.
§ 6.29 p.m.
§ Lord Simon of Glaisdale
My Lords, in asking to be associated with the expressions of gratitude to the noble Lord, Lord Diamond, in initiating this important debate, I confess that I feel myself somewhat of an intruder. It is true that I was once a member of that detested tribe of Treasury Ministers, but that was long ago and I have had all too much time to forget all that the noble Lord, Lord Roberthall, taught me during those days. I am glad that he is to speak today and I hope to be refreshed by it.
Not only is the experience of the noble Lords, Lord Diamond and Lord Barnett, more recent, but they have brought to their important office a previous experience in accountancy which your Lordships would not have failed to note today and which undoubtedly redounded to the advantage of their tenure of office. We have also heard the noble Lord, Lord Ezra, who has had all the experience as an industrialist, and particularly as the head of a nationalised industry.
In spite of my trepidation, I have ventured to intervene mainly to ask a particular question of the noble Earl, Lord Gowrie. Before I do so may I make two points. The first is a general one on public finance. As your Lordships well know, the big revolution in public finance in this country was the establishment of the consolidated fund. Previous to that, when an item of expenditure was proposed, a tax, generally an excise duty, was raised to finance it. In the technical language which was used by the noble Lord, Lord Barnett, that tax was hypotheticated. But after the establishment of the consolidated fund, all Government revenues, from whatever source, were paid in.
I know that recently there has been a slight modification but, by and large, Customs and Excise was paid in; when Inland Revenue came in, the income tax was paid in; when death duties (which, after all, are a tax on capital) were introduced in 1894, they were paid into the consolidated fund. I think that even Sir Stafford Cripps' once-only capital levy was paid in. So, also, were sales of Government assets. If, for example, to take up a comparatively trivial case, the War Department sold off a drill hall, the proceeds were paid (like all the revenue items and like the capital taxes) into the consolidated fund. The great advantage of that was that the tax was no longer tied to a particular project of expenditure and the committee in the other place, having the consolidated fund, could determine the priorities of payments out of it. That was a big and beneficent revolution.
But from that it will be apparent to your Lordships, first, that the sale of public assets is nothing new in our public finance; and, secondly, that the proceeds of such a sale were paid into the generalised consolidated fund as they are today; and were then available for all types of expenditure, whether an accountant would call that revenue expenditure or capital expenditure. That is the first preliminary point that I should like to make.
My Lords, the second arises out of the influence, I think, of the Prime Minister who really has been a First Lord of the Treasury. She, I think, has taught the country to think of the Exchequer as a prudent housewife thinks of her housekeeping expenditure: in 322 which two matters are particularly relevant. A prudent household lives within its income and, secondly, it is only in exceptional circumstances that capital is drawn on for current expenditure—which is the point that lies behind the Motion of the noble Lord, Lord Diamond.
That Motion really falls into two parts. The first refers to the selling off of national assets—a slightly pejorative phrase which was developed much more pejoratively in the noble Lord's speech and by the noble Lord, Lord Barnett, and answered by the noble Earl. I think that the noble Earl mentioned industries which have no place in the public sector. I do not think it is possible for the Conservative Party or the Labour Party to give a completely satisfactory line of distinction. I do not know what is the attitude of the noble Lord, Lord Barnett, to Clause 4 of his party's constitution. I always imagine that sophisticated members of the Labour Party in their attitude to Clause 4 are rather like Roman senators in the early Empire in their attitude to the Olympian Pantheon: it is not believed in; but it is not done to question it in public.
But I think that the Alliance is in a strong and authoritative position to work out for the benefit of us all what belongs possibly to the pubic sector, what to the private sector and (as the noble Lord, Lord Beswick, is here) what belongs to what really lies between them, the co-operative sector. I, myself, think that this is no occasion to go into where the boundary should be drawn, particularly when it has already been so ably argued today. I would remark on this that, in addition to privatisation of nationalised industries, your Lordships at the moment are concerned with the right to buy council houses; and the noble Lord, Lord Evans, speaking the other day from the Alliance Benches made it quite clear that he—and I do not think that he was speaking purely as an individual—was generally in favour of the selling off of that particular national asset.
The second part of the Motion refers to using the proceeds for current spending. If I have carried your Lordships with me so far, that is no new thing. That has been routine ever since the establishment of a consolidated fund. But what one has to do, undoubtedly, is to watch lest the sale of assets exceed the total capital spending of the nation. If that does take place, then you are, indeed, consuming the seed corn, you are using the proceeds of sale of capital assets for current (in other words, non-capital) expenditure; so that the question which arises is this. Is there such an excess, an excess arising from the sale of the assets to the total capital expenditure of the nation?
My Lords, the answer to that appears in the document that, oddly enough, is called a White Paper. It strikes me—and the noble Earl, Lord Gowrie, will correct me if I am wrong—that the first, crucial table is 1.13 which deals with public-sector capital spending in cost terms. I am going to take only one figure because the noble Earl, Lord Bessborough, has already made this point. The estimated out-turn of 1983–84 was £22,000 million-odd. The other figure, I think, ought to be collected from Table 14. The noble Lord. Lord Barnett, referred to page 9 but the noble Lord, Lord Diamond, spoke to us very severely, I think yesterday, about not dealing with the matter in cost terms; and the cost terms appear on Table 14. That 323 shows public expenditure in cost terms and the special sales of assets in 1983–84, estimated out-turn, is just over 1,000. In other words, there is a figure of 1,000 as against a figure of 22,000 odd, in millions. So if those figures are right, and if I have correctly apprehended them, there is a fundamental fallacy, in my respectful submission, in the noble Lord's argument.
I want to ask a particular question, and it is this. I think that the former practice was that the supply estimates were presented on Budget Day; but the present practice seems to be very much superior, now that we have this information beforehand. But I seem to recollect—the noble Lord. Lord Roberthall, will correct me if I am wrong, or perhaps the noble Earl will—that at some time after the end of the financial year a blue book of Government expenditure was presented and that had a very valuable table, showing capital income and expenditure. It included, if I remember rightly, taxation of capital which at that time was probably estate duty, and it may have been more than one death duty. Perhaps the noble Earl could tell us what has happened to that. This involves the further question: if we are going to have a balance sheet such as was argued for by the noble Lord, Lord Diamond, ought we not to bring capital taxation into account?
Much has been said today about the decline in oil. Of course that is a wasting asset, but we have had the wasting asset of coal for more than two centuries. If you are going to bring in oil, should you not bring in every wasting asset? Also, should you bring in depreciation, as suggested by the noble Lord, Lord Diamond? At any rate, it seems to me that if one looks at the figures in the White Paper it is not true to say that the sale of assets is being used to subsidise—"being frittered away", the phrase was—current expenditure.
§ 6.44 p.m.
§ Lord Roberthall
My Lords, I sympathise so much with what the noble Lord, Lord Ezra, said at the beginning of his remarks: that it was a bold man who was going to speak at all in a debate which was begun by two past Chief Secretaries. Of course, I remember very well working with the noble and learned Lord. Lord Simon, but I do not feel quite so much afraid of him because he pointed out, as I would do, that his memory is a little vague. I thought that when he got on to the Consolidated Fund he was going to defend the present practice; but during the progress of his speech he got more and more on to the fundamental question: that of using the seed corn.
I am going to make just a few rather straightforward remarks from a macro-economic point of view. Beginning with the sale of assets, they are sold to people who regard the purchase as an investment and the funds that they would have used would, if they had not bought these public assets, have gone into the general fund of money awaiting investment and would therefore have been an addition to the nation's capital.
Of course, if one individual sells an asset such as a house and spends the proceeds, he is normally offset by a somewhat more cautious, "saving" person who saves more than his current expenditure; so there is an offsetting process. It would also be true that if the Government, in disposing of these assets, used them in 324 some way which would offset the counter-balancing effect on total investment, there would not be anything to worry about. What is worrying is that, when we look at the national figures of investment, it is quite clear, as has already been pointed out, that public sector investment as a whole is falling rather sharply. In overall figures, I think it has fallen in the last two years from about 10 billion to 8 billion. A great deal of that took place in the housing sector, where, as a deliberate act of policy, there has been this cutback in public sector housing, and more has been done in the way that the noble Lord. Lord Ezra, mentioned, in cutting back on the infrastructure: the sewers, roads and so on.
So, if we look round, we can see that, from the Government's point of view, so far from there being an offsetting element to make up for their expenditure on current spending of the proceeds, there is no government offset at all. They may say: "We will get investment in the private sector to make up." If they did in fact use the proceeds in some way which would directly stimulate private investment, we could say that there was an offset. It is in fact extremely difficult to find a method through reducing taxation which would directly affect investment. All governments have tried it, without much success. The real way to do it would be by direct government expenditure of a capital nature, and that, as I have said, is not going on.
Looking at the private sector investment over the last three or four years, on the whole it makes very gloomy reading. That is to say, private investment in most sectors has been falling rather than rising. There are two main exceptions to that. In the distributive trades it has been keeping up rather than falling, and in the financial sector it has been rising rather sharply. But that does not make up for the fall elsewhere in those parts of the economy where we would mainly look for an increase in employment opportunities.
Looking, therefore, at the economic problems of the country, one cannot help feeling, as has already been stressed, that the Government have got no plans to deal with them. When they came to office they quite rightly gave priority to the control of inflation. They did so by departing from what all governments since the end of the last war had been committed to: the maintenance of employment. They used, and are using, unemployment as an instrument of policy. By means of that policy, they have managed to reduce the rate of inflation to its present figure of about 5 per cent., at the cost of between 3 million and 4 million unemployed, according to how one chooses to count the figures. However, we have now reached the point where most forecasters believe that the rate of inflation will not fall much further and may rise.
The Government are as opposed to an incomes policy in the private sector as ever they were, thereby antagonising the trade unions, who feel bitter and defeated and who are not in the least likely to want to co-operate in any form of incomes restraint if the present slight upward tendency in the rate of inflation leads them to believe that they can get away with it. The Government's overall policy, therefore, of fixing monetary limits for the coming year would result in a marked decrease in unemployment only if the inflation rate were to fall very sharply indeed. The present policy of the Government is that output, GNP and inflation ought to move in opposite directions. 325 The more inflation goes up the more you plan to keep down output.
This subject is no part of today's debate and I do not expect the noble Earl to deal with it in his speech. However, its relevance is this. If one looks at the Government's attitude towards investment, obviously they are giving no priority at all to investment. Their own actions tend towards a reduction in expenditure, not towards replacing, by other forms of investment, the money they receive from the public sector by the sale of existing assets. Therefore one cannot help feeling gloomy that we seem to have reached the position where the Government have no real plans for getting us out of our present difficulties. Their attitude is to give low priority to employment and to the investment which will be needed if the unemployed are ever to to be absorbed into the workforce of this country.
My Lords, it is with very great diffidence that I speak in this debate. I am most grateful to the noble Lord, Lord Diamond, for moving this Motion. I am also grateful to the noble and learned Lord, Lord Simon of Glaisdale, who has made most of my speech for me. I thank him very much for putting what I wanted to say so very much better than I could have put it myself, and with so much authority.
All I wish to add is that I believe that the Government should, as suggested by the noble Lord, Lord Diamond, keep a proper balance sheet which shows clearly the capital and revenue receipts and expenditure for the year and, therefore, just how healthy or unhealthy is the country's financial position, because to spend capital as revenue is never healthy. Moreover, how do the Government—this applies to all governments that I have known—who milk capital in the form of capital taxation out of the country and then spend it as revenue without apparently knowing the difference, expect other people to know the difference? A great many people—in quite responsible positions in this country, and even dealing with finance—do not know the difference between capital and revenue, with disastrous consequences. Because of the example they get from their betters, I do not know how they ever will.
§ 6.55 p.m.
The Earl of Gowrie
My Lords, as always where economic matters are concerned, the Minister winding up can say that it has been a lively and interesting debate—only with, very often, rather more sincerity now than is sometimes the case. I have missed participating in economic debates in your Lordships' House during the last few years, and it is very nice to be allowed back in again.
If your Lordships will forgive me for continuing, very briefly, in a personal vein, there is something deep in my psyche which seems to admire and sympathise with Labour or ex-Labour Chief Secretaries to the Treasury. I suppose it is because they are rather like Arts Ministers. They are Sisyphus figures—always rolling heavy stones uphill, only to have them fall down upon them just as they get to the summit. Therefore I begin with a considerable bias in favour of the noble Lord, Lord Diamond, and the noble Lord, 326 Lord Barnett. But just as they accused us of wasting the assets of the nation so, I am afraid, did I feel that they were wasting the very favourable picture of them that I started by bearing. This can be illustrated by the wording of the Motion, which is both highly emotive and. I believe, unintentionally revealing.
The Motion contains the implication that the Government are selling off valuable national assets and frittering the proceeds on current indulgences —selling the family silver, so to speak, to pay the butler. The Motion is revealing—it is particularly revealing in the form of the noble Lord, Lord Diamond, as an economic spokesman and, more than that, as perhaps the major economic influence on the Social Democratic Party—because in it the nation is taken to be synonymous with the public sector; as if the activities of the private sector of the nation scarcely mattered; as if, for instance, capital formation by the private sector scarcely mattered. That might have been expected, if we were to catch him in a severely loyalist mood, from the noble Lord, Lord Barnett. But it is curious to hear the noble Lord, Lord Diamond, speaking as if the nation were the same thing as the public sector of the economy.
I shall return in a moment to the family silver point, but let me begin by setting the Government's privatisation policy in its proper context. I apologise for that word. I greatly prefer "liberating policy", even if it is a policy which does not find favour with latter-day Liberals like the noble Lord, Lord Ezra. But "privatisation", like it or not, has passed into common currency, and I feel a bit stuck with it.
There are many activities that can properly be provided only by the public sector. It is clearly right that this should continue. We have no doctrinaire objection to public sector activities in their proper sphere. Defence and law and order services are clearly proper public responsibilities, and in this context perhaps I should wryly add the work and the costs of the major opera companies.
There are other areas where the public sector has a major continuing role—not least, in health and social security and personal social services. Here, the Government's record is one of substantial increases in expenditure. Indeed, one of the fallacies of the argument of the noble Lord, Lord Diamond, is that it was principally Government policy which was creating unemployment, and that therefore this aspect of current spending was to be laid at the door of the Government. The noble Lord leaves out technical changes and structural alterations in the economy. Surely he would agree that it is morally and economically right to ease the burdens of those who, through no fault of their own, are painfully caught in the machinery of an economy that is changing gear in any case. I do not imagine that any of your Lordships would dissent from the proposition that the most valuable asset of the nation is its people, and that the money we are spending on training—some £2 billion a year where young people are concerned—is obviously money for the future in that regard.
I therefore pay tribute to the nationalised industries and to the efforts of many Members of your Lordships' House who have worked in them, often in commanding positions—as in the case of the noble Lord, Lord Ezra. But I believe it is now widely agreed 327 that the public sector is not usually at its best when it comes to managing wealth-creating resources. It does not always provide an environment conducive to the most effective and efficient use of such resources. We see a need to correct an imbalance which has grown up over the years between the public and private sectors and steadily to place the wealth-creating resources in an environment more related to the market place; an environment that can only suit them. A company which has to satisfy customers and compete is more likely to be efficient, alert to technical innovation and to give improved quality of service. For that reason, privatisation is a key element of our overall economic strategy. It is a policy based not on dogma but on recognition of the economic and commercial facts of life.
Consider, my Lords, some aspects of the record of our nationalised industries in recent years—and I pay the warmest tribute to the speech of my noble friend Lord Bessborough, which covered this point. Over the past 20 years, return on capital has been consistently and substantially below that of the private sector; prices have regularly increased faster than the RPI; standards of service have often been subject to consumer criticism; and the productivety record and employment costs have given cause for concern. Of course there are exceptions, and we know that the industries are wrestling with improvements. But overall, since they were set up their performance has not fulfilled original expectations. We need a better course and I suggest that the benefits of our policy are increasingly acknowledged; they were eloquently acknowledged by several noble Lords.
For employees—and again my noble friend touched on this point—privatisation enables initiative and success to be rewarded. If offers employees the chance to own a stake in their business. About 100,000 of them have taken advantage of that opportunity already, and it speaks for itself that they represent about 90 per cent. of the eligible workforce. Privatisation also removes the risk of political and bureaucratic interference. Industries' financing flexibility is no longer circumscribed by public expenditure requirements. The same point was made, with slightly different phrasing, by my noble friend Lord Bessborough, who said that financing constraints spill over into the nationalised industries' investment programmes.
Time and again in economic debates in your Lordships' House I have been urged by noble Lords opposite—particularly from the Alliance Benches —that there shoud be more capital investment by these industries. This seems to me to be a good way of achieving that agreed aim. A few examples of the record of companies already returned to the private sector illustrate the benefits I have mentioned. Cable and Wireless pre-tax profits have more than doubled since privatisation. Associated British Ports raised profits from £1.5 million to £6.8 million in the first six months as a private company. Amersham International's profits are up by a third despite very fierce overseas competition in their field. The National Freight Company made profits exceeding £8 million in 1983 compared with barely breaking even in the last year before they were privatised.
328 It is not enough, of course, to transfer control from the public to the private sector. The problems of monopoly and lack of competition must also be overcome. This is particularly so with the nationalised industries accounting for about-one-tenth of GDP and dominating sectors such as transport, energy, communications, steel and shipbuilding. A critical complement to privatisation is opening up the public sector to competition and market forces. Already, the stir of competition has seen British Telecom increase its range of telephones, British Rail introduce innovative marketing, and British Airways become one of the world's best airlines.
I cannot believe that the process I have been describing is well summed up in the terms of the noble Lord's Motion as,selling off the Nation's assets".The Government's policy is to promote competition and enhance efficiency and productivity—and these are the key to enhanced prosperity—and by proxy to increase revenues in order to meet what are liable to be continuous current expenditure demands. When one sells the family silver, one does not usually continue to gain value from its use. That is why it is a little misleading, as I suspect the noble Lord is aware, to argue from private to public in that context.
The related charges have been that the treatment of asset sales as negative expenditure is in some sense misleading and that once the stock of assets has been sold there will be an unfillable hole in the public sector accounts. These arguments reveal a number of misunderstandings and misconceptions; misunderstandings and misconceptions, I would say, which did not cloud the minds of both noble Lords on the Front Benches opposite when they were Chief Secretary to the Treasury.
It is true that although the principal aim of privatisation is to increase competition and improve efficiency, asset sales do indeed serve to reduce public spending and the PSBR. There is nothing wicked about that. When the Government buy assets, public spending rises. It is quite consistent for sales of assets to reduce public spending. This is the treatment recommended by the IMF; recommended by that body to the previous Labour Government of which the noble Lord, Lord Barnett, was an ornament. The noble Lord spoke about selling off BP shares at that time under the direction of the IMF. I would argue as forcefully as I can that the British nation is not a penny poorer as a result of the sales of BP shares conducted by the noble Lord. I have urged my own colleagues to get on with the selling of the rest of them.
The receipts from asset sales are naturally welcome. In their absence, pressures of public expenditure would of course be greater. But there is certainly no presumption that more asset sales mean more expenditure. Anyone tempted to suggest that the viability of the Government's whole public spending plans rests on asset sales should read the latest public expenditure White Paper (Cmnd. 9143) and the special project sales of assets running, as my noble friend Lord Bessborough reminded us, at some £2 billion a year compared with spending totals of some £130 billion a year. That is hardly a massive proportion. As I said earlier, the improved performance we anticipate from privatised companies 329 will provide more general benefits to the economy and more continuous and current revenue to the Chancellor.
I want quickly to deal with some of the points raised alleging the dependence of the financial strategy on North Sea revenues. Again, I think the arguments are misplaced. We have always known that production and, with a lag, tax revenues would peak in the mid-1980s. But it is extremely hazardous to try to forecast precisely many years ahead. It is necessary to bear in mind the possibility of new finds of oil and gas, new energy technologies and alterations in the dollar price or the dollar price of oil. We are in any event talking about a gradual process of adjustment. There is not some unforeseen black hole round the corner. It would also be fair to claim—and I make this point particularly to the noble Lord, Lord Ezra, and the noble Lord, Lord Roberthall—that ever since North Sea oil and as a consequence, too, of our other liberating policies, British corporate capital has been building up very valuable assets overseas which will more than take the place of North Sea oil revenues.
It is a heroic leap to jump, as the Motion does, directly to the conclusion that the proceeds from asset sales are being used for current spending. It simply is not a conclusion that stands up to logical analysis. First, receipts from special sales of assets are not hypothecated to any particular purpose. They are used in accordance with overall economic policy and, as I have just reminded the House, they are very small in relation to the Government's overall spending. Secondly, accounts show that in recent years the public sector's aggregate current revenues have consistently exceeded its aggregate current spending, and hence provided a contribution towards financing public sector capital spending; including, of course, capital replacements. That takes care of the point made by the noble Lord, Lord Diamond, about depreciation.
This may not accord with some popular versions of the received wisdom but I would refer the House, for example, to Table 5.8 of the Financial Statement and Budget Report published at the time of last year's Budget. So, although one cannot hypothecate particular elements of revenue to particular elements of spending, at the aggregate level public sector current spending is more than financed by current revenues. It is, to adopt a phrase used by the noble Lord, Lord Diamond, as simple as that and simply blows a hole in the noble Lord's Motion.
Thirdly, much comment in recent years has understated the amount of capital spending carried out by the public sector. This brings me to some of the arguments put forward by the noble Lord, Lord Barnett. Understandably, comment has focused on the figures of capital expenditure included within the public expenditure control totals, but these totals have been designed specifically for control purposes and do not give an accurate impression of total capital spending by the public sector. This is because the control totals are after deduction of receipts from council house sales. They show only the external finance of the nationalised industries and not their much larger capital spending.
In accordance with United Nations conventions, virtually all defence spending is classified as current, 330 whereas NATO definitions treat spending on ships, vehicles, equipment, buildings, and so on, as capital. We are now making sensible adjustments for these factors so that the latest White Paper shows, in a commonsense way, how much is being spent on capital goods and construction by the public sector. This is a much better indicator of the impact of public sector transactions on the industries concerned. It shows that, again contrary to much popular belief, public sector capital spending has been broadly constant in real terms over the period since 1978–79. I have in my brief many examples of how we have been spending in terms of roads, prisons, light railways and others, but as this is a short debate I will, if I may, ask that that evidence be taken for the moment on trust.
The serious point is that the case for new capital spending—whether for schools, hospitals, roads or whatever—must be considered on the basis of the best available assessment of the returns it will provide. All too often in the past public sector investments, including those carried out by nationalised industries, have proved to be unjustified. May I say, therefore, to the noble Lord, Lord Roberthall, in particular, that the key is proper project appraisals and not the setting of some simple target for the allegedly "right" level of aggregate capital spending.
In conclusion, as I said at the beginning of my remarks, the issues raised in the debate are important aspects of the Government's overall economic policies. Next week the Chancellor of the Exchequer will be presenting his Budget. Of course, it would not be for me to try to anticipate what he will have to say. At this point may I say how much I enjoyed the speech of the noble and learned Lord, Lord Simon of Glaisdale, and his very telling arguments in respect of the publication of estate duty figures. I assume that the noble and learned Lord was referring to the estimate of taxation receipts given in the Financial Statement and Budget Report published in another place on Budget day. Table 5.11 in last year's FSBR showed figures for residual estate duty payments and capital transfer tax and I hope that the noble and learned Lord will find that helpful
It is clear, as commentators have already suggested, that the economic scene is showing a very considerable improvement. But sadly—and this is the case with all the advanced economies—there is not a hot line, and I wish there were, between overall economic improvement and an improvement in the levels of unemployment. Of course there is a long way to go and I am much too old a hand to show any complacency, hut there is no doubt that the overall strategy, of which this is so important a part, is now starting to pay handsome dividends, despite all the gloomy prognostications that critics have offered in recent years.
In financial planning we have clearly demonstrated our determination to stick to the established plans for aggregate public spending so that it will take a decreasing proportion of the nation's output. That, I respectfully suggest to the noble Lord, is the proper use of the word "nation". This is an essential key to lower taxes and lower interest rates to provide a lasting basis for the recovery that we are now seeing in its infancy. The economy is showing encouraging growth. As has been said, the rate of inflation has been greatly 331 reduced. Indeed, the combination of 3 per cent. growth and 5 per cent. inflation represents the best performance of the British economy since the 1960s. It represents a performance, in this regard, in a much worse international climate. The February CBI industrial trends inquiry pointed to further increases in manufacturing output and further evidence of a broadening of the recovery to capital goods producers.
However, this continued growth is also dependent on further improvements in efficiency and competition. It is here that the privatisation policy, along with other measures to remove controls and stimulate enterprise, is so important. It is totally misleading and intensley damaging to caricature this as "selling off the nation's assets". The benefits from measures already taken are now evident, and further developments will serve only to underpin the recovery we are seeing.
§ 7.19 p.m.
§ Lord Diamond
My Lords, it is my pleasure, as well as my duty, to thank all noble Lords who have taken part in this debate and who have helped me to understand the very important issue of whether or not this country is running down its national assets or maintaining them. I hold to the view I originally held, and I have heard nothing in the course of the debate to cause me to alter my mind.
I have been much reinforced by what the noble Lords, Lord Barnett and Lord Ezra, and my noble friend Lord Roberthall have said. They all speak with far greater authority than I can muster. I have listened most carefully to what the noble Earl the Minister said in reply, and, indeed, to what the noble Earl, Lord Bessborough, said. I note a considerable unity of view from them, particularly on certain aspects of which privatised industries have produced which results. No doubt what we have been told twice must be true.
I do not feel that this is an occasion when your Lordships would wish the debate to be continued. Indeed, I find it difficult to thank noble Lords for what they have said and then proceed to say how violently I disagree with the content of their speeches. We had better leave it that I shall read most carefully what all noble Lords have said. I hope that the noble Earl the Minister will reciprocate. He will find that I have said nothing whatever derogatory about the private sector. On these Benches we believe in a mixed economy. I have said nothing whatever against the policy of selling off. I am concerned only to maintain the nation's assets—if one wants to put it in technical terms, the general Government public sector. That is as patriotic a view as any expressed from any other Bench. I repeat my gratitude to noble Lords. It is very important that we should be quite sure what we are doing in this context. I beg leave to withdraw the Motion for Papers.
§ Motion for Papers, by leave, withdrawn.