HL Deb 03 November 1987 vol 489 cc904-14

4.9 p.m.

Lord Young of Graffham

My Lords, with the leave of the House, I should now like to repeat the Autumn Statement which is being made by my right honourable friend the Chancellor of the Exchequer in another place.

"With permission, Mr. Speaker, I should like to make a Statement. I am laying before the House today an Autumn Statement which, as usual, contains first the Government's outline public expenditure plans for the next three years and the expected outturn for this year; secondly, proposals for national insurance contributions next year; and, thirdly, the forecast of economic prospects for 1988 required by the 1975 Industry Act. The forecast of course takes into account the likely effect of the recent worldwide falls in equity markets.

"I turn first to the expected outturn for the current financial year, 1987–88. The public expenditure planning total now looks likely to amount to £147½ billion, or around £1 billion less than was allowed for in last year's Public Expenditure White Paper. The main reason for this shortfall is higher capital receipts by local authorities and new towns. Total spending on programmes, apart from this, is expected to be broadly in line with plans.

"Taking account of miscellaneous items not included in the planning total, the net shortfall on the expenditure side is likely to be slightly in excess of £½ billion.

"On the receipts side, total tax revenues are likely to exceed the Budget forecast by almost £2½ billion. This buoyancy reflects higher than forecast economic growth, greater than expected profitability, and an oil price above the 15 dollars a barrel assumed at the time of the Budget.

"At that time, I set a public sector borrowing requirement for 1987–88 of some £4 billion, or 1 per cent. of GDP. As a result of the higher tax revenues and lower spending, I now expect the PSBR for the current financial year to be only £1 billion or ¼ per cent. of GDP, the third successive year of significant undershoot. Privatisation proceeds have, of course, made an important contribution to this year's low PSBR. But even if there had been no privatisation proceeds at all, it would still be the lowest PSBR for 17 years.

"I turn now to the public expenditure plans for the next three years. Since 1982–83 public spending, both including and excluding privatisation proceeds, has been declining as a proportion of national income. There is likely to be a further substantial reduction this year, which will make this the longest sustained fall in public expenditure as a proportion of national income since the early 1950s.

"In July, Cabinet reaffirmed the objective of ensuring that public spending as a share of national income continued to fall and in particular did not exceed the ratios published in the last White Paper. The plans that I am about to announce secure that objective.

"New planning totals have been set at £156¾ billion for 1988–89 and £167 billion for 1989–90, increases of £2½ billion and £5½ billion respectively over the totals previously published. For 1990–91 the planning total has been set at £176 billion. For the later years, I have judged it prudent to set aside larger reserves within the planning totals than I have done previously. The reserves will therefore rise from £3½ billion in 1988–89 to £7 billion in 1989–90 and £10½ billion in 1990–91. The planning totals also incorporate an estimate for privatisation proceeds of £5 billion a year, unchanged from the last White Paper.

"As I have indicated, these plans mean that public spending, excluding privatisation proceeds, will continue to fall as a share of national income. From nearly 47 per cent. in 1982–83, that share has come down to around 42½ per cent. this year and by 1990–91 will be down to 41¼ per cent., the lowest since 1972–73. The new proportions are lower, for each year, than those published in the last White Paper.

"This progress has been founded on our success in reining back the rate of growth of public spending. In the 1960s and 1970s public spending grew by around 3 per cent. a year in real terms. In our first Parliament the real rate of growth averaged 2¼ per cent. a year; in our second Parliament, it was just under 1¾ per cent.; and in the succeeding four years, that is the current year plus the three survey years, the real growth of public spending is planned to be around 1¼ per cent. a year, well within the prospective growth of the economy as a whole.

"But while public spending as a whole is growing more slowly, the substantial reduction in public borrowing this Government have brought about has, by reducing the burden of debt interest payments, made more room for programme spending. Coupled with strong economic growth this has enabled the Government to provide additional resources for a number of priority services. In each case, the figures I am about to give represent increases over the plans published in the last Public Expenditure White Paper.

"First, health. An extra £700 million is being provided for the National Health Service in England in 1988–89, and an extra £800 million in 1989–90. On top of this, the health service will benefit from additional resources from the cost improvement programmes and from land sales. All this will enable the NHS to continue to improve services.

"Secondly, law and order. Provision has been made for the substantial increase and acceleration in the prison building programme, which my right honourable friend the Home Secretary announced in July. This will provide 4,200 extra places by 1993. Provision for local authority spending on the police has also been increased significantly.

"Thirdly, education. Provision for local authority current spending has again been increased substantially. In addition, an extra £60 million a year has been provided for the improvement of school buildings. Spending on the universities will be increased by £115 million in 1988–89 and by £130 million in 1989–90. There will also be an additional £45 million in 1988–89 and £65 million in 1989–90 for science.

"Gross provision for housing investment is being increased by nearly £400 million next year. This will not only sustain the rising trend of spending on local authority renovation but will also provide additional resources for housing associations, much of it to be used in conjunction with private finance. Provision for urban development corporations is being increased by £65 million next year to help tackle the problems of the inner cities.

"There are also substantial increases in provision for social security spending, which has been increased by £1 billion for 1988–89 and £1.9 billion for 1989–90. This is partly because the take-up of benefits is likely to be higher than was previously envisaged. It also takes account of the uprating of benefits announced by my right honourable friend the Secretary of State for Social Services last week, including the cost of compensating income support claimants for their average contribution to rates.

"Spending on defence is to be increased by £230 million in 1988–89 and £490 million in 1989–90.

"The additions to planned capital expenditure for the public sector as a whole amount to some £1 billion in each of the next two years. About half of this is for the nationalised industries, principally for the large scale investment programmes of the electricity and water industries.

"Further information about these and other changes is contained in the printed Autumn Statement which will be available from the Printed Paper Office as soon as I have sat down. Full details, together with information on running costs and manpower, will be given in the Public Expenditure White Paper early in the new year.

"I turn now 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, and taking account of the Statement on benefits which my right honourable friend the Secretary of State for Social Services made on 27th October.

"The lower earnings limit will be increased next April to £41 a week in line with the single person's pension, and the upper earnings limit will be raised to £305 a week. The limits for the reduced rate bands will also be increased. The upper limit for the 5 per cent. and 7 per cent. bands will be raised to £70 a week and £105 a week respectively. The upper limit for the 9 per cent. rate for employers will he raised to £155 a week.

"The taxpayer's contribution to the National Insurance Fund—the so-called Treasury supplement—will be reduced from 7 per cent. to 5 per cent., but this will not require any change in contribution rates. Thus, the main Class contribution rates will once again remain unchanged at 9 per cent. for employees and 10.45 per cent. for employers.

"Finally, I turn to the Industry Act forecast. Growth this year looks to be turning out at 4 per cent. compared with the 3 per cent. growth I forecast at the time of the Budget. This is well above the trend of the steady upswing which began in 1981 and faster than any other major economy. Strong growth in domestic demand has been more than matched by the rapid rise in exports. Manufacturing industry is doing particularly well, with output rising by 5 per cent. This strong performance has led to a substantial fall in unemployment, which is now more than 400,000 lower than a year ago—the largest annual fall on record. Indeed, unemployment has been falling faster in the United Kingdom than in any other major country.

As I forecast at the time of the Budget, inflation in the fourth quarter of this year is likely to be 4 per cent. I also see no need to amend my Budget forecast of a modest current account deficit of some £2½ billion, or about ½ per cent. of GDP.

"Looking ahead to 1988, the prospect is for a continuation of the steady growth with low inflation that we have now enjoyed for over five years. As I have already indicated, the full forecast I am publishing today takes into account the likely implications of the recent falls in world stock markets in so far as it is possible to do so at this early stage. This is clearly a time when economic forecasting is a more than usually hazardous business. But what is clear is that the strength of the British economy and of our public finances puts us in the best possible position to weather any storm. And that strength will also enable us to play a full part in the international co-operation which is more than ever needed today.

"Subject to the uncertainties to which I have just referred, the economy is forecast to grow next year by around 2½ per cent. With North Sea oil output now declining, this implies 3 per cent. growth for the non-North Sea economy as a whole. Domestic demand should continue to expand, though at a slightly lower rate than this year, with consumer spending and investment growing at a similar pace. Business investment is likely to be particularly strong, rising by 5½ per cent.

"With the United Kingdom continuing to grow faster than other major countries, and the oil surplus declining, there is likely to be a further small increase in the current account deficit, to about £3½ billion, or ¾ per cent. of GDP.

"Inflation may rise a little next year, reaching 4½ per cent. in the fourth quarter, by which time it should be on a downward trend again. The defeat of inflation remains at the heart of the Government's economic strategy. With continuing healthy growth in 1988, unemployment should continue to fall.

"The progress and prospects I have described demonstrate once again the soundness of the policies we have followed over the past two Parliaments. We will continue to pursue these policies in our third. Despite the recent deterioration in the world economic climate, the prospect 1 am able to offer the House is one of further sustained growth and steadily rising living standards, with inflation low and unemployment continuing to fall. We have brought this about by promoting enterprise, sound money and strong public finances. And that is what we will stick to".

My Lords, that concludes the Statement.

Lord Bruce of Donington

My Lords, we are grateful to the noble Lord for having repeated the Statement made in another place.

I expected that the noble Lord when he sat down would receive the customary approbation of his colleagues on the Government Benches who obviously share his sense of complacency and satisfaction. The Statement is one of the most outstandingly complacent on the economy to have been made in the House, at any rate to the best of my recollection. The Statement says nothing new at all. It is a reiteration of what the noble Lord has been busy saying from the left-hand side of the file that he produces here from time to time for many months—it seems almost many years. The Government must be living in cloud cuckoo land.

The Statement refers to the strength of the British economy. Nobody is quarrelling with the fact that a certain, quite important part of the British economy is strong. But the British economy consists not merely of the limited part to which the noble Lord refers. When we speak of the economy, we speak of all the resources of a nation in terms of manpower and physical resources and their proper utilisation. The fact that we are using only a fraction of them at present belies the noble Lord's statements—very often repeated—about the strength of the economy as a whole.

I do not wish in any way to decry the performance of those sections of the British economy that are doing very well. I will not even refer to the crash—or nosedive, according to taste—of a part of the economy by which the noble Lord has set great store within the financial sector. However, I have a warning to give to the noble Lord. I do not know whether the figures that he has derived come from the computer based on the Treasury model. The noble Lord has made reference to some of the undesirable effects of computers. They can be a dangerous aid in such matters. The noble Lord says: This is clearly a time when economic forecasting is a more than usually hazardous business". We on this side can only say "Hear, hear" and, like him perhaps, hope. We note that only a page further on the noble Lord says: Despite the recent deterioration in the world economic climate, the prospect I am able to offer the House is one of further sustained growth and steadily rising living standards". We on this side of the House devoutly hope that it is so. But it will need a little more work in the Kohl-Chirac-Thatcher axis to produce those conditions of economic expansion to which we on this side of the House have repeatedly referred and which are a vital necessity if the world economy as a whole is to escape from its present predicament—not only the United States but also particularly the South American states and the developed countries. We will of course examine the proposals and the figures in detail.

I wish to return to a theme which I ventured to lay before your Lordships well over a year ago and which I have repeated many times since. What the Government must do is drastically to reduce current interest rates. The Government must increase substantially investment in housing, bearing in mind that 90 per cent. of local authority housing is carried out by private enterprise in the localities. They must take immediate steps to increase, if necessary, the public sector borrowing requirement. I trust that the noble Lord listened to the remarks that fell from his friend Mr. Redwood, the former economic adviser to the Prime Minister, in the course of a television broadcast last Sunday.

We hope that the optimism of the noble Lord is correct. We hope that many of the aspirations he has put forward will turn out; otherwise, it is not merely the wealthy who suffer and who can afford to suffer in some instances, but the ordinary man and woman in the United Kingdom. We therefore devoutly hope that the noble Lord is right. But if there is to be a way forward, if there is to be a constructive growth of prosperity among all our people, the Government require a far greater vision, a far greater purpose, than the complacency which runs right through this Statement.

4.30 p.m.

Lord Diamond

My Lords, on behalf of my noble friends on these Benches, I, too, should like to thank the Secretary of State for repeating this full and fortunately very bullish Statement. I do not share entirely the views which have been expressed. Our approach is somewhat different. The Statement shows continuing growth and good prospects. I am bound as an accountant to recognise that the Statement shows also that previous estimates have been on the low rather than the high side. We trust that the estimates included in these figures are similarly conservative, and that the prospects are therefore hopeful for many people in this country.

I have one major question to ask and one major criticism to make. The question relates to the extent to which the Government have taken account of the effect recent events on stock exchanges throughout the world particularly in this country on the estimated rates of growth and the expected sum needed by way of public sector borrowing requirement. I am not asking what those figures now are compared to what the Government said they would be a year ago. We know that. That is in the Statement. I am asking the Minister to be good enough to give the figures for growth in the current year and next year and the public sector borrowing requirement figures for the two years as they were before the crash—the figures, as we all know. Were clearly prepared by that time—and now? That will give some indication of the extent to which the Government have taken account of those facts and some indication of the extent to which they regard them as affecting the economic outlook.

The criticism I have to make is profound. It is quite impossible to comment usefully on the details of the various programmes until one has examined the Autumn Statement and the tables very carefully. But in general terms the Statement shows that the Government have been spending less and less of what they can afford to spend year after year. What they can afford to spend is related to the national product. In family terms, having regard to an increase in income, one would say "What can I afford to give to charity this year?"

The Government are saying that they are deliberately following a policy of giving less and less of what they can afford in public expenditure, in particular to the social services. They are doing this although the prospects for this current year and the coming year are, according to the Statement, good, if not very good. They are doing this although their borrowing is historically extremely low. There is no problem therefore about liquidity, about the cash to enable them to do more.

Against that background the Government are saying "We shall not alter our policy of skimping on public expenditure". The resulting deprivation is not particularly to be seen in Westminster. But go to Wales, to Scotland or North-East England and it hits you in the eye! The Government are saying, "We are continuing our policy of dividing the people into richer and poorer by our tax policies, provided out of our reduction in public expenditure and through selling public assets. We are continuing that policy of making the rich richer and the poor poorer". This is demonstrated by figures I have produced which the Government have accepted. There is no argument any longer about the trend.

We have become a nation of beggars. If noble Lords think my words are exaggerated, I invite them to go round and see the people sleeping rough, sleeping out of doors. This is happening at a time when we are told, "Everything is okay and we could well afford to spend a lot more".

Lord Young of Graffham

My Lords, I am grateful to the noble Lord, Lord Bruce of Donington. The noble Lord is unusually half right on this occasion. I confess to a sense of satisfaction with the figures, but I should never confess to a sense of complacency. What we have and are seeing now is slow, steady progress, but progress which continues above the rate of any other industrialised nation in the world. As the noble Lord said, we are not utilising all our manpower. I had thought that the noble Lord would take this opportunity to congratulate the nation on the fact that the OECD has at long last reported our unemployment in single figures while in France, our nearest neighbour across the water, it is 11 per cent. Our unemployment is going down and is continuing to go down.

The noble Lord also said that interest rates are too high, that we should get them down, and that we should put up the PSBR if necessary. The single effect of putting up the PSBR would be to increase interest rates. That is the one thing that follows, as night follows day. It is only prudent financial policies that enable us to be in this position of relative strength.

I am grateful to the noble Lord, Lord Diamond, for the first part of his contribution which I thought was thoughtful. It is very difficult to give the figures as to what the Chancellor's forecasts may well have been three weeks ago and what they are today—in fact, I do not believe I can do so—save to say that the forecasts we have today take account of the likely outlook as we sec it now of the recent fall in stock exchange prices around the world. However, it is very difficult to forecast normally, and it is even more difficult to forecast in this particular position. We have taken a forecast which at the present time seems right in all the circumstances.

There I fear that I part company with the noble Lord, Lord Diamond. He then went on to say that we were deliberately choosing to give a lower proportion of what we could afford to give, thereby—to use his rich, emotive language —making the rich richer and the poor poorer. He drew attention to a condition where some poor unfortunate individuals are sleeping out, as they have slept out I suspect for the past 100 years—if not them, others in that position.

Noble Lords


Lord Stoddart of Swindon

I thought we had made some progress since then.

Lord Young of Graffham

My Lords, we are talking about a social problem. We are hardly talking about a problem of government expenditure.

I should like to make two points. First, it is only because we are reducing public expenditure as a proportion of GDP that the economy continues to grow and as a result we have more money to spend. Next year we will spend £1,000 million more on social security and the year after we will spend £1,900 million more. Next year we will spend £700 million more on the health service and the following year we will spend £790 million more. Next year we will spend £630 million more on education and the year after we will spend £800 million more. Next year we will spend £360 million more on law and order and the following year we will spend £450 million more.

The list goes on and on. It goes on only because our public expenditure as a proportion of GDP is going down in a planned way. That is the way to run an economy, so that we can have the kind of society that all in your Lordships' House would want.

Lord Boyd-Carpenter

My Lords, is my noble friend aware that what he had just said about the reduced share of GDP taken in taxation is one of the most encouraging things that many of us have heard for many years? It is clear that this whole Statement is one that is of immense reassurance to a great many people both in your Lordships' House and outside. If any of us had had any doubts, we should have been completely reassured by the frenzied efforts of the noble Lord, Lord Bruce of Donington, to find anything the matter with it; they were wholly unsuccessful. Is my noble friend further aware that the making of this Statement has also given us the unique experience of hearing a former Chief Secretary to the Treasury grumbling that expenditure was too low?

Lord Young of Graffham

My Lords, I am extremely grateful to my noble friend.

Lord Peston

My Lords, I should like to ask the Secretary of State about two aspects of the Statement which are slightly puzzling. First, nothing is said about the medium—term financial strategy. Are we to assume that that is now dead and that the Government do not rely on it at all as part of macro-economic policy? Secondly, do the Government have any view on the level of exchange rates as they exist at the present time? In particular, is 1.75 dollars to the pound viewed by the Government as a good development in terms of the present state of the balance of payments or as a bad development?

Lord Young of Graffham

My Lords, I am happy to assure the noble Lord that we are pursuing our medium-term objective of reducing inflation and maintaining conditions for steady growth as set out in the medium-term financial strategy at the time of the Budget; and from that we have not departed. On exchange rates, we can only see the position as it is from day to day and act accordingly. I do not think it would be right at this time to give a forecast.

Lord Somers

My Lords, may I say how delighted I was to hear about the increased expenditure on education, which is not only necessary but urgently necessary. If the plans of the Secretary of State for Education for removing responsibility for education from the local authorities go ahead, I presume that that allocation to the local authorities will not take place. Will there be any guidance as to how this money will be spent? Will it be spent on buildings, new courses, or what?

Lord Young of Graffham

My Lords, I am glad to be able to assure the noble Lord that it is not part of our plans for expenditure to be taken out of the hands of local education authorities. There is, though, a well thought out plan to enable individual schools to opt out of the control of local education authorities where parents and teachers so wish and to enable them to be funded direct. However, they will still fall within state education; they will still provide free state education; they will still fall within the ambit of the national curriculum; but instead of coming under the local authority they will be directly funded state schools. In itself, that should not have too much effect on expenditure totals. It will, I suspect, have a great deal of effect on the quality of education imparted.

Lord Kirkhill

My Lords, while I would not necessarily disagree with the Minister when he failed to link the numbers sleeping rough in, for example, the Westminster area with the overall impact of government public expenditure, would he nevertheless not agree that the constriction as it applies to most local authorities had led to an increasing spirit and sense of urban deprivation? Would he not agree that that is most apparent in the northern areas of this country?

Lord Young of Graffham

No, my Lords; I am afraid I would not agree. The noble Lord mentioned those who are sleeping rough at the moment. That has nothing to do with the lack of accommodation for individual people. It says a great deal about those who for reasons of their own wish to opt out. It is a social problem which must be dealt with, and I hope that it can and will be dealt with.

We have suffered in the past from a feeling that somehow the state is responsible for all and therefore people give up their sense of personal responsibility for their neighbour. It is that sense of hopelessness that has contributed to a sense of degradation. When we have a sense of personal responsibility back again I suspect that we shall see a far better result.

Viscount Eccles

My Lords, while I am delighted to hear the encouraging news of the economy and while I agree that it will enable us to weather—I think that was the word—the international storm, does it not enable us to do rather more than just weather it? Could we not use our stronger position to take a strong lead? The Americans and the other countries—and we are all in it together—need an example and we can give them an example. I should have thought that we could put on the table a substantial reduction in our interest rates if they would do likewise.

Lord Young of Graffham

My Lords, most commentators attribute one of the causes of the world-wide decline in stock exchange prices to the lack of resolution of the problem of the deficit in the United States. One of the very first acts when the fall came about was a reduction of interest rates in this country and in other countries in order to ensure that world-wide liquidity was maintained. I will pass on my noble friend's remarks to my right honourable friend the Chancellor of the Exchequer. I am sure that he has that fully in mind. There is little doubt that we will have an important contribution to make as regards the difficult situation in the world economy, a situation we would not have had a dozen years ago with our economic position at that time.

Lord Carter

My Lords, if the growth in the economy is forecast to fall from 4 per cent. to 2½ per cent. or to 3 per cent. in the non-oil economy, and if the pound is now standing at 1.74 dollars compared with the Chancellor's unofficial target of 1.60 dollars, does this not imply an increase in unemployment?

Lord Young of Graffham No, my Lords. Our forecast is that if the economy remains as we see it at the present time, unemployment will continue to fall. We should be very careful before we take a snapshot view of exchange rates and assume that that view will prevail in the months ahead. It is much too fluid a position at the moment to take that view.