HL Deb 12 November 1985 vol 468 cc153-61

3.47 p.m.

Lord Young of Graffham

My Lords, with the permission of the House, 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. I am laying before the House today an Autumn Statement which brings together the Government's outline public expenditure plans, proposals for National Insurance contributions next year, and the forecast of economic prospects for 1986 required by the 1975 Industry Act.

"This year's Autumn Statement contains considerably more information than its predecessors. It breaks new ground by providing a forecast of the public expenditure outturn for 1985–86 for each department, and the plans not just for the year immediately ahead but for each of the next three years. Both these innovations meet specific requests from the Treasury and Civil Service Committee and I hope they will be welcomed by honourable Members.

"The outturn for this financial year is expected to be the same as set out in the Budget, that is, £134 billion. After allowing for inflation, this is lower than last year, which bore the brunt of the public expenditure cost of the coal strike.

"The Government will continue to maintain firm control over public spending. Following this year's review, the planning totals for 1986–87 and 1987–88 will be held to the levels set out in the Budget—£139 billion and £144 billion respectively. For 1988–89 the total has been set at £149 billion. Over these three years public spending in real terms is expected to be broadly flat at very slightly below this year's level. As a percentage of national output, it will continue to decline as it has since 1982–83. By 1988–89, it should be back to its lowest percentage since 1972–73.

"In order to meet contingencies, the plans contain large reserves, rising from £4½ billion in 1986–87 to £8 billion in 1988–89. The reduction in the reserve for 1986–87 as compared with the provisional reserve for that year which I announced at the time of the Budget chiefly reflects the fact that the passage of time allows part of the reserve in any given year to be allocated to individual expenditure programmes as their costs become known more accurately. But the £4½ billion reserve for the year immediately ahead remains a substantial figure.

"Although I expect the planning total for 1985–86 to be the same as I did at the time of the Budget, the PSBR—subject to the usual margin of uncertainty at this time of year—is forecast to be about £1 billion higher: some £8 billion rather than £7 billion. This is due to lower sterling oil revenues. But even at £8 billion the PSBR would be the smallest it has been as a percentage of GDP since 1971–72.

"The PSBR would, of course, have been running at a higher level than this were it not for the proceeds from privatisation, to which I will turn in a moment. But even without the privatisation proceeds, this year's forecast PSBR would still be the smallest as a percentage of GDP since 1971–72.

"The Government's privatisation programme is now getting into top gear and will continue for many years to come. I cannot stress too strongly the importance of this programme—now being emulated throughout the world—as a fundamental objective of Government policy. The transfer of state-owned businesses to the free enterpise sector of the economy brings enormous long-term benefits to the nation as a whole, in terms of greater concern for the customer and increased efficiency. It also provides the opportunity for a massive boost to wider share ownership, both among the public in general and the employees of these great enterprises in particular.

"The increased pace of privatisation means that the proceeds for this programme will rise substantially from £2½ billion this year to £4¾ billion in each of the next three years. In particular, the planned flotation of the British Gas Corporation is included for the first time. At the same time, however, there have been increases in a number of public expenditure programmes, so that the o\erall planning totals have remained unchanged.

"However, this needs to be seen in perspective. Even if the proceeds from privatisation were to be ignored altogether, the public expenditure planning total would still be broadly flat in real terms, at less than 1 per cent. above this year's total; and public spending would still be on a steadily declining path as a percentage of GDP, reaching by 1988–89, its lowest level since 1972–73.

"The annual review of public spending provides an opportunity to reconsider priorities and adjust the balance between programmes. While some programmes this year have been held back, it has been possible to make significant additions to others. There will be increased spending on the National Health Service over previous plans of £250 million in 1986–87 and £300 million in 1987–88. On top of this, health authorities are able to spend the savings from their cost improvement programmes which are expected to amount to £ 150 million this year and still more in future years. This should enable health authorities to meet demographic pressures and deliver improvements in services as well.

"Total public sector provision for housing is being increased by £220 million net of receipts in 1986–87 and £200 million in 1987–88, and the housing plans now provide for some £3¼ billion of capital spending next year. Within this total, the Government believe there should be a substantial shift in priorities in favour of renovation of the existing public sector housing stock. An extra £54 million in 1986–87 and £71 million in 1987–88 is being made available for capital expenditure on national and local roads.

"Just over £ 1 billion is being added to the social security programme for 1986–87, largely as a result of the 7 per cent. increase in benefits taking effect this month. Expenditure in the subsequent years of the survey period is subject to decisions on the Government's social security review, on which a White Paper will be published shortly.

"Additional provision has been made under the law and order programme to allow local authorities to direct extra spending towards the police. For defence, the provision is unchanged. After the substantial real increases in spending since 1978–79, from which the defence programme will continue to benefit, the emphasis must now switch to improving our defence capability through greater efficiency and value for money, especially in procurement.

"On employment, there were large additions in the Budget to fund an expansion of the youth training scheme and the community programme. In this survey, a number of new initiatives have been agreed but savings are to be made by a reduction in payments from the redundancy fund. My right honourable friend the Paymaster General will be making a statement giving further details later today.

"There have been significant improvements in efficiency and value for money in many programmes. It is a great mistake to fall into the trap of measuring public expenditure programmes solely in terms of the money put into them: it is improved output that matters. Further details of these and other changes are contained in the Autumn Statement itself, and, of course, full details, together with information on running costs and manpower, will be given in the public expenditure White Paper to be published early in the new year.

"I now turn to national insurance contributions. The Government have conducted the usual autumn review of contributions in the light of advice from the Government Actuary on the prospective income and expenditure of the National Insurance Fund. The lower earnings limit will be increased next April to £38 a week, in line with the single person's pension, and the upper earnings limit will be similarly increased to £285 a week, broadly in line with earnings.

"I announced in the Budget reduced rates of contribution for the lower paid and their employers—5 per cent. for those earning up to £5 5 a week, 7 per cent. for those earning up to £90 a week and 9 per cent. for employers of workers earning up to £ 130 a week. These took effect at the beginning of last month and are already starting to provide welcome assistance to the low paid and their employers, and a stimulus to the employment of the young and unskilled. The limits for these reduced rate bands will also be increased from April, in fine with the lower and upper earnings limits, to £60, £95 and £140 a week respectively.

"There will be no change in the main Class 1 contribution rates, which will remain at 9 per cent. for employees and 10.45 per cent. for employers. This is the third year running in which national insurance contribution rates have been held constant, despite a growing number of pensioners and the substantial uprating of benefits taking effect later this month.

"My right honourable friend the Secretary of State for Social Services will this afternoon announce details of these proposals, and will lay before Parliament the necessary order and the accompanying report by the Government actuary.

"Finally, I turn to the Industry Act forecast. The economy is progressing very much as I envisaged at the time of the Budget. Inflation is falling again, after the predicted temporary rise in the spring, although I now expect inflation in the fourth quarter of this year to be slightly above the Budget forecast: 5½ per cent. rather than 5 per cent.

"The overall growth of the economy this year still looks like turning out at 3½per cent.—the highest rate of growth since 1973. The pattern of growth, too, has been much as envisaged. Exports and business investment, as expected, were the fastest growing elements in demand in 1985. The rise in total investment is now put at 4 per cent. in 1985; within this figure business investment is expected to be up by 7 to 8 per cent. to yet another all-time record.

"As a result of this steady progress, there has been a substantial growth in the number of people in work since 1983. This has now been reflected in a levelling out in unemployment—albeit still at a sadly high level, not least because of the rapid growth in the total labour force. The prospect here is for some further improvement, assisted by the measures I announced in the Budget to help on the jobs front, which will have their main effect in 1986. But that improvement could easily be put at risk by excessive pay settlements.

"The prospect for 1986 is one of continued growth and still lower inflation. The composition of growth is likely to change somewhat, with consumer spending taking up the running as exports—which had an exceptional rise of 7 per cent. this year—grow more slowly. The current account balance of payments surplus is forecast at £4 billion, compared with £3 billion in 1985. Fixed investment is expected to grow, once again, slightly faster than the economy as a whole.

"Overall, the economy in 1986 is expected to grow at a further 3 per cent. the fifth successive year of growth at an average of 3 per cent. a year, and into the sixth; the best performance since before the first oil shock. At the same time, inflation is expected to fall further, to 3¾ per cent. in the fourth quarter of 1986.

"Indeed, if the forecast is correct—and I am the first to admit its inevitable fallibility—1986 promises to be the first year since the 1960s when inflation and growth will be within one point of each other. What is beyond doubt is that we are now achieving the steady growth with low inflation which successive Governments have sought in vain for a generation.

"All in all, Mr. Speaker, the progress and prospects I have described amount to the clearest possible vindication of the policies we have been following these past six years, and will continue to follow.

"The Autumn Statement is now available from the Vote Office, and the House will no doubt wish to take it into account when we debate the economy tomorrow. The framework of public expenditure control which it sets out should allow scope for considered and justified reductions in the burden of taxation. And these in turn will further reinforce the economy's flexibility and dynamism. It is on that prospect that the future prosperity of all our people depends".

My Lords, that concludes the Statement.

4.p.m.

Lord Barnett

My Lords, the House will wish to thank the noble Lord the Minister for repeating the Statement made by the Chancellor but perhaps will regret that he has to be saddled with defending it; for whatever the Chancellor says, a record level of unemployment is hardly a vindication of his policies. Indeed, one can only note with astonishment the briefest of references to unemployment in such a lengthy Statement.

Clearly one needs a little time to consider how the Chancellor has arrived at the figure he first thought of as regards public expenditure. One can only note with fascination his arguments as to why he reduced the contingency reserve. I for my part personally regret that spending Ministers, including the noble Lord himself, have allowed the Chancellor to get away with such high contingency reserves in the following years. I hope that he will do better in the months ahead.

Perhaps the Minister will clarify the Government's somewhat confused position on public expenditure. Following the Prime Minister's speech last night, we now have the Chancellor boasting of significant public expenditure increases. May we take it that public expenditure is now considered by the Government to be a good thing? If so, why does the Chancellor go on to claim with some pride that he will keep public expenditure flat for the succeeding three years?

On the central economic issue, does the noble Lord the Secretary of State for Employment share the Chancellor's view that the economy is booming? If he does, will he tell the House when he expects the 3½ million unemployed—or whatever is the figure he has first thought of, or thought of secondly—to share in the boom we hear so much about? Given the record unemployment figures, how can the Minister justify the Chancellor's pride in claiming the lowest borrowing requirement as a percentage of GDP since 1971–72? Is not that something to be ashamed of, given the record levels of unemployment and the requirements of the public sector?

In view of the noble Lord's own responsibility for employment, does he not accept that increasing capital expenditure would do more for job creation than tax cuts? Will he therefore urge the Chancellor at least to use the surplus that he has artificially created by the sale of public assets in ways more beneficial to the social and economic stability of the nation?

Lord Diamond

My Lords, I should like to follow the noble Lord, Lord Barnett, by first expressing the thanks of these Benches to the noble Lord the Minister for repeating the Statement made by the Chancellor in another place. We are of course aware of the fact that we are to debate the economic situation tomorrow, but noble Lords may not be aware that the Autumn Statement, which gives all the detail anybody in my position might want to have, will, it is hoped, be available in about three-quarters of an hour. It is certainly not yet available because the Chancellor has not finished making his comments in another place. We all understand that situation, but we are as a result in some difficulty. In those circumstances, and having regard to the general wish of the House that comments at this time should be as brief as possible, I am driven to the conclusion that one should reserve much of what one has to say for tomorrow's debate, rather than comment immediately, and off the cuff, today

However, I will comment now on the Government's policy in respect of public expenditure. Clearly the Government are determined not only to keep public expenditure flat in real terms but also to keep it as a continually reducing percentage of our income; that is to say, to avoid redistributing the income of the nation in favour of those who need it most. Let us be quite clear. The figures are absolutely incontrovertible. It is the redistribution of social services under public expenditure which acts as a measure of fairness towards those who want to see a fairer society and which of course goes against the desires of those who want to see a less fair society. I am bound to say that the figures of reducing public expenditure as a percentage of our income are consistent with the Government's and the Prime Minister's declared policy and the policy of creating two nations.

The other main point to which I want to draw attention is the increasing rush to sell off the family silver in order to pay for the groceries. Noble Lords have heard that phrase used by me many times before, and no doubt they were delighted to hear it being picked up by no less a distinguished Member of your Lordships' House than the noble Earl, Lord Stockton, who apparently shares the view that such is a suitable simile in helping to make the situation understood.

The Government will now have to reconsider, and I put this question to the noble Lord: what will the Government do now that they have been prevented in their attempt to sell not merely their own family silver but also family silver which does not belong to them? That is going a bit far, is it not? At the moment, there is the family silver which we know of as the Trustee Savings Bank capital, which the Government are seeking to claw into their own pockets and sell to the nation—property which does not belong to the Government. However, I understand that because of the wisdom of the Scottish courts the Government have been prevented from pursuing that course. In those circumstances, I am bound to ask the noble Lord this question: to what extent will the figures in the Statement which the Chancellor has just made be altered as a result of that development?

A further question I should like to put to the noble Lord concerns information regarding extra spending on the police. We all heard exactly the promise which the Prime Minister made to the Conservative Party Conference, because we all watched that conference with great interest and were educated. The Prime Minister was able to promise that conference, off-the-cuff, any amount of money which was required by the police. We saw and heard that promise being made.

However, it now turns out that additional provision has been made under the law and order programme to allow local authorities to direct extra spending towards the police. Presumably it means that the proportion of expenditure falling on central Government funds will be the normal percentage, or rather, the percentage which the present Conservative Government allow. Can the Minister therefore give some indication of how much additional funding is expected to fall on central funds in order to meet the Prime Minister's promise of additional expenditure by the police in maintaining law and order?

A further question I am bound to ask is: what is meant in the Statement by, savings are to be made by a reduction in payments from the redundancy fund"? The redundancy fund was set up by statute—I had a little to do with it in the early days—and I should have thought it was safe from raids by the Government. Perhaps the noble Lord will tell us to what extent these reductions in payments from the redundancy fund are to be made.

Perhaps I may echo—I know I am merely echoing, but it is a matter of supreme importance—what has just been said about the lowest percentage of GDP reached by the public sector borrowing requirement. It is perfectly true, as the Statement makes clear, that it is at an extraordinarily low—shall we say, an extraordinarily safe level: that is to say, the Government could borrow a great deal more without affecting inflationary pressures if they wanted to boost the economy. Why do the Government take such pride in getting the level of expenditure and public sector total borrowing at a lower figure than it has ever been before?

May I finally ask for some information about the reference to amounts of additional money being spent in the coming year on the National Health Service and on housing? Is it still the case that we are being fed with figures of cash expenditure for the two following years which mean absolutely nothing? Can we please be told what are the figures in real terms and what they represent as a percentage of the total expenditure on national health and the total expenditure on housing? That will mean something where the present figures mean absolutely nothing. As regards the National Health Service, if in addition the noble Lord can adjust his figures in relation to the demographic changes, that would really be giving the information to which the House is, in my view, entitled.

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Barnett, as I relish the task of explaining the Autumn Statement. I do not need to defend it because I regard it as a Statement which is full of hope and confidence for the future of our nation. The noble Lord, of all noble Lords, asks me to undermine the Treasury's attitude to contingencies and he, of all people, suggests that I take a happy-go-lucky attitude to contingencies. Let me assure him that I adopt the attitude he would himself have adopted when he was in the Treasury, as no doubt he would expect me to.

There is great misunderstanding about the level of the PSBR, because a low level of PSBR is the one certain way back towards a world of fuller employment. Surely, what we are concerned about is increased capital expenditure. This year, fixed capital expenditure in this country reached a record level of £55 billion. Next year it will be £60 billion and in 1986–87 it will reach £64 billion. That is good news indeed for investment in this country. It is good news also for public sector investment, which, at over £22 billion, continues at a substantial level. But, at long last, the main growth is happening in the private sector. It is happening because inflation is under control and because those who make the investment and wish to see the outcome of that investment have confidence as to how much it will cost.

Within the public sector there is an additional housing provision of £220 million in 1986–87 and £200 million in 1987–88 intended for council house renovation. In the next three years we will spend no less than £ 10 billion of capital for housing—I repeat, £10 billion—and we very much hope that it will be spent on renovation. I should point out that between 75 per cent. and 80 per cent. of our public housing stock is post-war. Is that not a salutary thought? In view of all we have heard about the state of housing, is it not salutary that 75 per cent. to 80 per cent. should be post-war and yet in the condition in which it appears to be?

Capital spending on the roads is up. Capital spending on repairs and maintenance is up. There are no cuts at all in local authorities' capital spending this year, which remains constant through the survey period at £5.8 billion a year. On that, therefore, I think we are quite sound. Indeed, during the previous Government—although that is going back into dim and distant history—there was a 20 per cent. cut in construction expenditure and cuts in the basic infrastructure; but that is in the past and, I am sure, is no way ahead.

The Government are concerned about unemployment and we believe we are on the right path to defeat it, which is by seeking employment increase. I very much hope that we would not look towards capital expenditure as a way of redistributing wealth, or to many of the points which the noble Lord, Lord Diamond, made about the family silver. It is years since we talked about the commanding heights of the economy. I confess that by 1979 the family silver had become a little tarnished. What we have done is to polish and burnish it bright and it is now sitting in the hands of those to whom it rightly belongs—the shareholders. That is the way that I believe we should deal with the silver. Who could disagree that the service we get today from British Telecom, when 1.25 million of our people are shareholders, is an improvement? It is an improvement on the treatment we received many years ago when the only telephone available was a trimphone, or nothing, and there was a long waiting list for lines, which has now disappeared.

I hope to give an explanation on the redundancy payments when I make a Statement shortly on those measures. Of course, the Prime Minister said that we would hope to make provision for what was required by the police. That is now being considered and I hope that when we can see what is required we shall be able to make an announcement.

Unfortunately, I am not in a position to give the specific figures and detailed breakdown of expenditure on housing and national health at this stage in the expenditure plans. It is a matter which I shall look into and place the information in the Library shortly. However, what the Statement shows as a whole is that for the past five years and into the future we are on the sound road to recovery in economic health. It is a road from which the Government will not be diverted and it is a road on which we can all travel with confidence.

Lord Hylton

My Lords, the noble Lord the Minister twice referred to housing expenditure. Can he confirm that the Minister of Housing obtained only one-third of the amount that he was asking for? Will the Minister put himself in the place of an unemployed person living in a system-built dwelling which is suffering from both damp and condensation?

Lord Young of Graffham

My Lords, I cannot confirm that the Minister of Housing received one-third of what he was asking for. It is my understanding that he now has money to deal with the problems which he has to deal with. However, I put it to your Lordships that if it is so difficult for an unemployed person to live in a system-built house is it prudent to give more money to the same type of authority which built those houses in the first place? What we must do is find the best possible way to get the best housing. So far the records show that the private sector has much to say for itself. In the next three years £ 10 billion will be spent on public sector housing. That is something we should all be proud of.

Lord Diamond

My Lords, may I make a complaint? The noble Lord has not answered a single one of the questions which I put to him. May I ask him, once again, one question only? What are the Government proposing to do about the Trustee Savings Bank—for the sale of which the prospectus is, I understand, ready for distribution—in view of the latest court decision?

Lord Young of Graffham

My Lords, I apologise to the noble Lord, Lord Diamond, for not referring to that. However, since I understand the court judgment was only made today, it would surely be a little premature if I were to make an official statement on that matter. I am sure the noble Lord will understand that matters such as this require a little reflection.