HL Deb 15 November 1989 vol 512 cc1329-42

3.35 p.m.

The Paymaster General (The Earl of Caithness)

My Lords, with the leave of the House, I shall repeat a Statement now being 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. Cabinet agreed the Government's expenditure plans this morning. I am now able to inform the House of the public expenditure outturn for this year; the plans for the next three years; proposals for national insurance contributions in 1990–91; and the forecast of economic prospects for 1990 required by the 1975 Industry Act.

"The main public expenditure figures, together with the full text of the economic forecast, will be available from the Vote Office as soon as I sit down. The printed Autumn Statement will be published next Wednesday.

"Tight control of public expenditure remains a central element of the Government's economic strategy. Over the past seven years this has led to a sharp fall in the ratio of public spending, excluding privatisation proceeds, to national income. This fall has made it possible to dramatically improve the Government's finances while still making substantial reductions in tax rates.

"The ratio of public spending to GDP was nearly 47 per cent. in 1982–83. In the current year, it is likely to be 38¾ per cent., significantly below the level expected at the time of the last Autumn Statement.

"For the next two years the plans I am announcing today show ratios of 39 and 38i per cent. These are unchanged from the ratios published in last year's Autumn Statement, and permit a cash increase in general government expenditure in 1990–91 of around £5 billion. By 1992–93 the ratio is expected to fall further to its lowest level since the mid-1960s.

"For the current year, the outturn of expenditure is expected to be about £168 billion, £1 billion higher than the original planning total. This partly reflects a lower estimate of privatisation proceeds, but its principal cause is massive overspending by local authorities on both current and capital account. As the House knows, new arrangements for the finance and control of local authority expenditure in England and Wales are being introduced on 1st April 1990. This year's outturn shows how necessary these new measures are. Central government spending remains firmly under control.

"The plans for the next three years have been set on the new definition of the planning total which the Government announced in July last year and which was welcomed by the TCSC. This includes central government support for local authorities but excludes their self-financed expenditure. The composition of general government expenditure is unchanged.

"For 1990–91, the new planning total has been set at £179 billion and, in the following two years, at £192 billion and £203 billion respectively. Within this the estimates of privatisation proceeds are unchanged at £5 billion a year. There are also substantial reserves, rising from £3 billion in 1990–91 to £6 billion and £9 billion in the following two years.

"The new plans also show continued real growth in spending on the Government's priorities.

"Thus, between this year and next, spending on the NHS in the UK will rise by £2.400 millon. Taking account of income generation and cost savings, this is equivalent to a £2,600 million increase in resources, or 5½ per cent. in real terms. These plans will finance the improvements in the management of the service that are outlined in the NHS Review. They provide more than £200 million extra for hospital building and other capital expenditure next year. And they will finance a continuing growth in services for patients. They are the clearest possible evidence of the Government's practical commitment to improving the care available in the NHS.

"There will be substantial increases also for investment in transport. Spending on national roads is planned to double between 1988–89 and 1992–93. Extra financing of £400 million to £500 million a year is being made available for the railways and London Regional Transport, including upgrading the services on Network South-East and the London Underground, to relieve congestion and improve safety, and for rail services for the Channel Tunnel. In total we have added £1.8 billion to the planned spending on transport in the next two years.

"The plans provide an extra £250 million over the next two years for a new initiative to tackle homelessness, to be announced today by my right honourable friend the Secretary of State for the Environment. And central government support for the provision of new homes by housing associations will more than double from £800 million in 1989–90 to £1,700 million in 1992–93.

"My right honourable friend the Secretary of State for Social Security has already announced real increases in benefits which will help 1½ million families and half a million long-term sick and disabled people.

"There will be an increase of over £500 million in the total resources available for higher education in 1990–91 compared with this year. This will provide for the continuing growth in the number of students, which has risen by 30 per cent. since 1979, and is now at a record level, and cover the cost of the Government's proposals on top-up loans. There is provision for more environmental research, including the new climate change centre and the doubling of our contribution to the UN environmental programme.

"About £1½ billion has been added to planned capital spending by central government and public corporations in 1990–91. This represents a real increase of around 10 per cent. compared with 1989–90.

"The new plans include the money central government provide to support local authority spending. The Government's proposals for aggregate external finance in 1990–91 were announced to the House in July. Measures have also been announced which will ease the transition from rates to community charge. The cost to the taxpayer of these measures will be nearly £700 million in 1990–91, with further substantial sums in each of the following two years.

"Capital grants and credit approvals will provide central government support for local authority capital expenditure under the new arrangements. The new plans provide support for a sustained programme of school and college building and modernisation, for local authorities to contribute to the homelessness package, for transport projects, as well as capital spending on other local services, including local roads and environmental improvement.

"As in the past, these improvements have been possible only through a rigorous selection of priorities; substantial gains in value for money; and a very welcome reduction in the burden of debt interest. They have been found within an affordable level of total public spending. Overall public spending excluding privatisation proceeds is expected to grow on average by 1¾ per cent. a year in real terms throughout the period between 1988–89 and 1992–93. This was the rate of growth projected in last year's Autumn Statement and we have stuck to it. Over the 1970s, a decade of high borrowing and high inflation as well as high public spending, it grew by 3 per cent. a year.

"Mr. Speaker, the Government's new plans demonstrate their continuing commitment to two vital principles. First, to maintain firm control over total spending; and secondly, to increase efficiency, in order to provide more resources where they are most needed.

"I should like to congratulate my right honourable friend the Chief Secretary for his skilful and successful conduct of the public spending round.

"I turn next to national insurance contributions. As the House knows, we have now implemented the reform of employee contributions announced by my right honourable friend the member for Blaby in the Budget. From last month, two of the three step increases in contribution rates have been abolished. This means that employees who get pay increases taking them just above these steps can no longer lose more in higher contributions than they gain in extra pay. And the initial step at earnings of £43 a week, where people first enter the contribution system, has been more than halved. These measures have reduced contributions by up to £3 a week for nearly 19 million employees and are of particular help to many employees on modest incomes; they have also removed some important disincentives.

"The usual autumn review of contributions has been conducted 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 made in October by my right honourable friend the Secretary of State for Social Security.

"Next year, the initial Class 1 contribution rate payable on earnings up to the lower earnings limit will remain at only 2 per cent. This means that a payment of only 92p per week will buy entitlement to the basic pension and other contributory benefits for those who earn just enough to pay contributions. On additional earnings, up to the upper earnings limit, the rate will remain unchanged at 9 per cent. For employers, the main rate will also be unchanged at 10.45 per cent.

"The lower earnings limit will be increased to £46 a week in line with the single person's pension, and the upper earnings limit will be raised to £350 a week. For employers, the upper limits for the three reduced rate bands will be increased broadly in line with prices.

"I am also publishing today the economic forecast required by the 1975 Industry Act.

"It is clear beyond any doubt that the economy has greatly strengthened over the last decade. We have experienced eight years of strong and sustained growth with inflation at moderate levels. This has brought an increase in employment of about 2i million since March 1983 and a sustained rise in living standards.

"However it is clear that in the last two years, 1987 and 1988, demand, and with it output, rose at a rate which exceeded expectations and could not be sustained. That became apparent in increased inflationary pressures and the growth of the current account deficit.

"These pressures had to be reduced and monetary policy was tightened accordingly. The effects of this tightening are already apparent in recent retail sales figures, and the turnaround in the housing market.

"The Government's fiscal position is also very strong. I now expect this year's fiscal surplus to be about £12½ billion, equivalent to 2½ per cent. of GDP. That represents a very tight fiscal stance by any standards.

"Both tax yield and expenditure are higher than forecast at Budget time. But lower proceeds from privatisation and the high take up of personal pensions mean that the public sector debt repayment will be slightly below the Budget projections.

"Looking at the wider economy, as always a great deal depends on the actions of individuals and companies. So there is bound to be uncertainty about the speed with which the economy will adjust to the present tight stance of policy. Our forecast is that growth in domestic demand will be a little over 3½ per cent. in the current year, a sharp but inevitable slowdown from the 7 per cent. recorded in 1988.

"Non-oil GDP is expected to grow by 3 per cent. this year. GDP growth as a whole for the current year looks like turning out at 2 per cent., a little below the forecast published at Budget time. This results from lower than expected North Sea oil production which is taking longer than expected to recover from the serious accidents of the last two years.

"Business investment is likely to increase by 9¼ per cent. this year, giving a total of over 40 per cent. in the three years to 1989. This is the largest ever rise in business investment over a three year period and is two and a half times as fast as the growth of personal consumption over the same period. This has inevitably contributed to strong import growth and a higher current account deficit in the short run. Notwithstanding this unwelcome effect, the resulting increase in productive capacity will help to sustain the growth of output and in due course bring the deficit down.

"Looking ahead to 1990, our tight fiscal and monetary policy will have an increasing impact both on household spending and on company spending, which typically reacts later than the personal sector. Investment should continue to grow, but it will do so more slowly.

"The slow down in the economy means that GDP is forecast to increase by only 1¼per cent. in 1990. This will bring the average growth in the four years to 1990 to 3 per cent. a year.

"As domestic demand slows, import growth should moderate. At the same time, the strong rise in exports, which has been one of the most welcome developments in 1989, is forecast to continue. Non-oil visible exports are expected to rise by over 11 per cent. this year, the highest rate since 1973, and we expect a further substantial increase next year. As a result, we now forecast that the current account deficit will fall from some £20 billion in the current year to about £15 billion in 1990.

"We will also see a further reduction in inflation. The headline measure of retail price inflation has already peaked at over 8 per cent. in May and June this year and has since come down a little. Following the recent rise in mortgage rates it will remain high for some months. But our forecast is for it to fall to 5¾ per cent. by the fourth quarter of 1990; and I expect to see it fall still further after that.

Mr. Speaker, our main priority must be to bring inflation decisively down and keep it down. To achieve this the economy must slow down for a while. This does mean that 1990 may not be an easy year. But the economy enters the 1990s in incomparably better shape than it entered the 1980s. The supply side reforms of the past decade have left business and industry better able to handle both the short-term difficulties before us and the longer-term opportunities to come. I have no doubt that we must stick to the policies that have turned the British economy around, and that we are determined to do."

My Lords, that concludes the Statement.

3.52 p.m.

Lord Bruce of Donington

My Lords, we are most grateful to the noble Earl for having made a long and detailed Statement. Obviously, we should like to have time to consider it in greater detail before passing judgment upon it. As I listened to the noble Earl's concluding remarks I very much doubted whether he was living in this world. So far as he is concerned, there has been an economic miracle which seems to have eluded the perception of the great bulk of the people in the United Kingdom.

I should like to turn first to that part of the Statement which deals with public expenditure. According to the Statement, cash expenditure, excluding any North Sea oil proceeds, is due to increase by 5½ billion in cash terms over the next three years. Those various increases in cash terms show an increase in real terms of about 3 to 3½ per cent., which is significantly below the current rate of inflation or any rate of inflation anticipated by the Government in their Statement. Clearly therefore the Government's expenditure in real terms will decrease, at any rate in total.

The whole question of government expenditure needs to be put in a slightly more historical perspective. In order to do that, one must turn to Table A I of the Government's press statement which shows that in real terms, excluding privatisation, government expenditure was as follows: in 1984–85 it was £187.7 billion; in 1985–86 it was £187.7 billion; in 1986–87 it was £190.8 billion; in 1987–88 it was £190.5 billion; and in the current year it was £185.7 billion. On the basis of the Government's own figures, far from having increased in real terms over the past five years, government expenditure has been completely stagnant. That is reflected, as it is bound to be, in the public sector services with which we have become familiar in the United Kingdom.

According to the Statement, expenditure in some areas will increase in real terms. The Minister exemplified, quite correctly, an increase in expenditure in real terms on, for example, the National Health Service. He also mentioned increased expenditure, or proposed increased expenditure, on the transport services. The recitation is impressive but there is still no firm indication from the Government —and one will not be given during the next year or two—because they are intellectually incapable of applying themselves to the whole question of a co-ordinated transport policy.

There are other areas in which the Government claim that they will increase expenditure in real terms, notably on housing. That is welcome, although we have not had time to examine the figures in detail. For all the vaunted prosperity and brilliance of their record and brilliance of the economy's record, it is a little surprising that they still do not permit local authorities to replace their capital stock from the proceeds of the sale of council houses, miserable as those proceeds might be. One would have thought that, with that brilliant record and all that burgeoning prosperity, some effort would surely have been made to release local authorities from that obligation to allow them to proceed, properly financed, to deal with the housing of the homeless and the replacement of obsolete stock, and generally to make some progress on the lines that existed prior to this wretched Government taking office towards solving the housing problem in this country.

There are other areas in which according to the Statement the Government have planned improvements in real terms. But on the assumption that they have planned real increases in respect of certain priorities and that expenditure will still be below the rate of inflation in total real terms, where have the cuts fallen? Where have the economies taken place? Where have the pinches taken place? If there are to be some increases in real terms and expenditure in total in real terms is below the rate of inflation, where will the cuts take place? The Government are silent on those points.

In their Statement the Government referred to the excessive expenditure of local authorities. Their own spokesmen in the press and media refer to profligate local authorities in the United Kingdom as though the burdens on local authorities in the richer regions of the country—particularly those in the South, but it is not confined to them —are anything like the burdens that are placed on local authorities in other more deprived areas. They refer to excessive expenditure and to the necessity for injecting further funds during the transition period mainly for electoral purposes in order that their voting hinterlands in the country may not be unduly disturbed, especially prior to the forthcoming general election. We shall pass further observations on the Government's expenditure plans as revealed in the Statement and its annexures when we have had time to study the detailed figures.

In the field of national insurance we welcome some of the changes made by the Government. They are overdue but nonetheless welcome, although we wish to examine them in greater detail. It is when we come to the economic forecast section of the Statement —

4 p.m.

Lord Belstead

My Lords, I hope that the noble Lord will forgive me if I interrupt him for a moment. I rarely interrupt but we have to think of our procedures. Certainly the noble Lord has captured the interest of the House. However, he is only about halfway through his intervention. The House decided that it should have 20 minutes for discussion at the end of a Statement. There is no way that the noble Lord will take less than half that time. I wonder whether he could just give this point a little thought in concluding his remarks.

Lord Bruce of Donington

My Lords, I have given the matter some thought. I have already used well over 90 per cent. of the time that I propose to take. I propose to treat with contempt the forecast section of the Government's Statement. It is just as unreliable as the previous one. It is just as full of vague premises as the one we had before which proved to be so wrong. We note that a somewhat chastened Chancellor has admitted that the current account deficit will be some £20 billion at the end of this year and that next year it may be of the order of £ 15 billion. That is roughly in line with the figures that we have given from these Benches, upon which the Government have hitherto cast doubt. However, we welcome the conversion.

However, what has gone out of the window is the whole question of automaticity, whereby the decline in the visible trade balance was supposed to be automatically corrected by services and so on. That has gone out of the window. The fact of the matter —this Statement proves it and a close reading of it will prove it in detail —is that the Government have no grip at all on economic policy; nor can they deal with the free market forces to which they have paid such tribute but which now lie like a millstone round their neck.

Lord Jenkins of Hillhead

My Lords, I too thank the noble Earl for giving the House the benefit of a repeat of the Statement. I must say that the Statement reveals a fairly sombre economic prospect, with growth falling for 1990 as a whole to 1.25 per cent. With the normal margin of error, that could put us right on the threshold of a technical recession. Inflation is to remain at nearly 6 per cent. even by the end of the next year. Interest rates remain cripplingly and isolatedly high to try to sustain an overvalued pound and bite the harder as profitability declines, which it is doing at present, and the companies sector deficit grows bigger.

The only ray of light is the prospect of the balance of payments deficit falling to £15 billion. However, it is a remarkable commentary on the general position that a deficit of £15 billion in conditions of nearly flat growth should be regarded as an achievement. Some of those who spent the past three weeks looking for an explanation of Mr. Lawson's departure, other than intolerable conditions of employment, might do worse than study the position revealed by his successor. However, I still think that conditions of employment hold the field because Mr. Lawson, whatever his other deficiencies, has never lacked courge.

We welcome the slight relaxation of restrictions on some public expenditure, although we are not in favour of a loose fiscal stance, with crippling interest rates being asked to carry the whole burden of stirring the economy. We think that the 1988 Budget still has a lot to answer for.

I should like to ask some questions arising out of the ingenuously bland sleights of hand in the Statement. I begin with paragraph 12, which states that: Spending on national roads is planned to double between 1988–89 and 1992–93. Extra financing of £400 million to £500 million a year is being made available for the railways and London Regional Transport, including upgrading the services of Network South-East and the London Underground". Why is there a totally different method of expression of those two figures? I take it that expenditure on the roads is being very substantially increased and expenditure on public transport is being increased to a very much lesser extent. But at least the Government should put them forward on equal terms and let us see what they are. Will the Paymaster General please tell the House what percentage increase, short of doubling, the £400 million to £500 million represents?

Paragraphs 27 and 28 of the report are a splendid combination. Paragraph 27 states, It is clear beyond any doubt that the economy has greatly strengthened over the past decade". But paragraph 28 notes: However it is also clear that in the last two years, 1987 and 1988, demand, and with it output, rose at a rate which exceeded expectations and could not be sustained". Does that not amount to saying that in the past two years most of the gains that the Government claim for the previous eight years have been thrown away?

At paragraph 32 one comes to the more classic example of the Government's phraseology: Looking at the wider economy, as always, a great deal depends on the actions of individuals and companies". I take it that that is a clear signal that, looking at the general economy, the prospect is pretty awful and therefore the Government are washing their hands of it and putting it back on a series of individual decisions taken by people other than the Government.

Can the Paymaster General tell the House what changes in the fiscal stance interest rate policy the Government now propose in order to avoid the next two years being as unfortunate —I deliberately use a rather cautious word —for macro-economic policy as the past two years undoubtedly have been?

The Earl of Caithness

My Lords, I am grateful for the welcome that both noble Lords gave to the Statement that I repeated. The noble Lord, Lord Bruce of Donington, started to quote from Table A1, to which your Lordships in due course will refer in the greatest detail. It is unfortunate that he stopped when he did. If he had only continued down the line he would have produced some very different figures.

I am grateful that the noble Lord also welcomed the increased expenditure on the health service, transport and housing. I remember that in the debate on the gracious Speech last year the noble Lord took part in what I called the environment section. I said then that he was turning green. I believe that he has turned green not because of the environment but through envy.

If he will recall, under the last Labour Government that the noble Lord supported so well from overseas at the time, public spending on national roads fell by 40 per cent. in real terms. Between 1978–79 and 1990–91, it will have more than doubled. Railway spending was unchanged. Our spending over the period from 1978–79 to 1990–91 has more than doubled. Hospitals —another terrific success story for the Labour Party—had expenditure cut by 30 per cent. in real terms. We have increased it by over 50 per cent. In prisons, capital expenditure was down two-thirds; we have doubled it. I therefore think that the noble Lord has gone green but for a very different reason than I had once hoped.

The noble Lord waxed lyrical about housing. It is a pity that he did not take the opportunity to participate in the recent debates that we have had on housing. I do not wish to bore your Lordships by repeating the arguments that I used. The noble Lord asked where the cuts had been. As he is fully aware, it is a question of priorities. The priorities have had to be made. There has been some delay in some areas where there was going to be public expenditure. I can give him an example. There has been a delay on four new prisons which were in the programme in the light of the recent projections on prison population. However, I would hate the noble Lord to go away solely with that example. I am sure that he would also give the Government credit for the huge savings that we have been able to achieve in debt interest and the improvements i n efficiency that have made room for the increases in our priority areas.

The noble Lord, Lord Jenkins of Hillhead, raised the question of the previous Chancellor of the Exchequer. I do not think that it is an appropriate moment to discuss that story yet again. It has been done in other fora. But I very much take issue with him when he says that the 1988 tax cuts were a mistake. They were not. Those tax cuts were supply side measures to improve incentives. The fiscal stance in 1988–89 was tight, as is shown by the record of the PSBR.

The noble Lord asked about monetary policy. I shall have to keep him on tenterhooks about that because it is a matter that is obviously dealt with at Budget time.

4.15 p.m.

Lord Boyd-Carpenter

My Lords, perhaps I may first join in thanking the Paymaster General for his admirable repetition of the Statement. I also thank him for his vigorous defence of last season's tax cuts. It is the habitual illusion of Left-wing economists and politicians that high levels of taxation help the working of the economy. My noble friend and the former Chancellor are both to be congratulated on their firm rebuttal of such nonsense.

However, I wish to ask my noble friend one question. He gave quite sound expenditure figures and quite hopeful figures regarding the tendency towards reversal of inflation. Are either of those sets of good factors likely to be adversely affected by a settlement both in the public and the private sectors of a very large number of wage claims at levels well above that of inflation? Is there a risk—and, if so, perhaps he should give a warning—that: the sound and sensible prospects that he has outlined might be undermined if that process of high wage demands, backed sometimes by threats of strike action, were to continue?

The Earl of Caithness

My Lords, as my noble friend says, there could be some implication. But I would say that it would be a knock-on effect, because the main implication of high wage claims is to push up unit labour costs and to increase costs to industry. Unfortunately it is invariably the people ancillary to those who have put in the high wage claims who will suffer because it means that businesses have to become more efficient and that could mean a reduction in staff in order to compete. We want manufacturing and other industries to be able to compete. They cannot compete if they have to pay excessive wage costs.

Lord Taylor of Gryfe

My Lords, from these Benches we also thank the noble Earl for the Statement that he repeated this afternoon. We appreciate, as the Leader of the House has reminded us, that there will be opportunity in debating the gracious Speech to discuss the economic policies of which this Statement is a reflection. Therefore I shall confine myself this afternoon to asking one or two questions regarding the assumptions behind the figures that are now before us.

In relation to paragraph 9 on privatisation proceeds, do the figures take account of the new arrangements in the electricity industry whereby the public sector will inherit substantial costs from taking over the nuclear industry thereby diminishing the anticipated returns from privatisation? Secondly, while I welcome, like other noble Lords, the substantial assistance to the National Health Service, does the £250 million take account of the increase in wage costs that have been agreed in this sector and the demographic pressures on the National Health Service? Will not the £250 million simply maintain the status quo rather than promise any real improvement in the service?

In paragraph 12, I very much welcome the increase in transport investment. However, will the figure that he has given us satisfy the demands of the CBI in its recent policy statement on investment on road and rail transport? Will the Minister take on board that there is no mention in the Statement of regional policy? Presumably any substantial contribution to positive regional policy would help to alleviate the pressures in the South East of England, in particular on transport, and relieve us from the pressure of some extra investment that is called for.

In the attached documents there is a very important figure. It is from the Ministry of Defence. It was not mentioned in the Statement; it appears in the attached information supplied to us. It indicates that for the next three years an additional £1 billion per annum will be spent on defence. I assume that this takes cognisance of the rapidly changing situation in Europe and the opportunities for the major powers to negotiate some substantial reduction in this field. I therefore hope that something might be done in this area.

At the same time, in the attached document the increase for overseas development —the ODA financing —is simply £75 million per annum. The increase in defence is £1 billion per annum; the increase in ODA assistance is £75 million per annum. That brings us far below the anticipated UN target for overseas assistance. It is an area which reflects our moral stance in the world. I suggest that that point should be considered.

As has been stated, the tax reliefs of 1988 have a serious effect on the figures provided in paragraph 28 regarding the pressures of inflation.

In respect of paragraph 29 the Government anticipate that there will be a substantial reduction in retail sales. I hope that the Minister has read the tapes today which indicate that the impact of the policy has meant a substantial reduction in manufacturing industry. The heavy pressure of high interest rates is bound to have that effect. I hope that the optimism that has been expressed by the Minister in his final remarks in the Statement will be justified. However, I cannot agree that those in industry—the CBI —will share the optimistic view that has been declared in the Statement this afternoon.

The Earl of Caithness

My Lords, the noble Lord asked a number of questions. If I cannot answer them all, I shall try to do so in a letter to the noble Lord. The privatisation proceeds of £5 billion are based on the best available figures now available and therefore they take account of the current situation in the best way possible. I was grateful for the noble Lord's welcome of the increase of £2.6 billion in resources for health. That is a 5.5 per cent. increase in real terms. With moderate pay negotiations it should prove to be of considerable benefit not only to the health service but also to the patients who will receive better treatment as a result of our reforms.

From a vested interest point the noble Lord asked whether the CBI will be happy about transport. One must look at the situation in a slightly different light; our achievements amount to a considerable increase in the rail programme for both the Underground and British Rail. They may not meet exactly the wishes of the CBI, but it is the lot of any government to be unable to meet the full demands of every single group.

While I was looking at the earlier answers, I missed a couple of the noble Lord's final points. I shall write to him and try to answer those points.

Lord Jenkin of Roding

My Lords, is my noble friend aware that there will be a warm welcome from these Benches for what appears to be a remarkable Statement —

Noble Lords

Oh!

Lord Jenkin of Roding

My Lords, is my noble friend also aware of the following? Although the Autumn Statement increases next year's spending on health by over £2.5 billion; doubles the expenditure on roads over the next three years; provides additional expenditure of £250 million for homelessness; provides extra expenditure for the housing associations, social security and higher education; and notwithstanding the impact of the necessary counter inflationary measures which the Government are pursuing the total proportion of public expenditure as a proportion of GDP will have risen by only one-quarter of 1 per cent. Is that not an achievement for the Treasury team?

I should like to ask a question related to that asked by the noble Lord, Lord Bruce of Donington. Is it not the case that at least in part that has been made possible because of substantial reductions in debt interest due to the fact that over the past two or three years the Government have been massive repayers of the debt run up by previous governments —notably the last Labour Government —and therefore the reduction in interest has made possible these major increases in desirable expenditure with an increase of only one-quarter of 1 per cent. in the portion represented by public expenditure? I hope that my noble friend will inform his right honourable friend that that is a remarkable achievement.

The Earl of Caithness

My Lords, I am grateful to my noble friend. I shall pass on his comments to my right honourable friends the Chancellor of the Exchequer and the Chief Secretary.

My noble friend is right. We have completely destroyed the myth which pervaded the thoughts of many people during the 1960s and 1970s that public expenditure must continue to increase in every sector and also as a percentage of GDP. Clearly, we have turned that round and shown that one can concentrate on priorities in addition to reducing public expenditure in terms of GDP. As the forecast shows, that will continue to fall over the next three years so that in the third year of the programme it will be at its lowest level since the 1960s.

My noble friend was also right to pick up the point about debt interest. I mentioned it earlier although I know that the noble Lord, Lord Bruce of Donington, did not. However, it is worth recalling that between 1989–90 and 1990–91 debt interest will fall by 16 per cent. in real terms. That will be of great benefit to our children and grandchildren.

Lord Stoddart of Swindon

My Lords, at the end of the Statement the noble Earl said that the Government must stick to the policies which had turned our economy round. Does that mean raising interest rates from 7 per cent. to 15 per cent., raising inflation to 8 per cent. and doubling the balance of payments deficit? Is that what the Government mean by turning the economy round? Frankly, some of us believe that that appears to be doing quite the reverse.

Secondly, is it still the Government's intention to rely entirely on interest rates to control credit expansion? Will the Government not consider feasible the argument that there are methods for controlling domestic credit expansion other than exorbitant interest rates? As other forecasts have been given, will the Minister forecast the rate of interest —that is Bank rate —in June and September 1990?

The Earl of Caithness

My Lords, the answer to the last question is obviously no. Of course we aim to continue the policy of turning the economy round. I know that the noble Lord, Lord Stoddart, would be only too delighted to have our present inflation rate. I do not think the rate stood at that level for very long during the time of the Labour Government, that is if they ever reduced the underlying rate of inflation to the present level. Therefore, we are in an extremely advantageous position which the noble Lord would be happy to take over from us.

There has been a transformation in the economy of this country. We have moved from the heavy public sector debt to a position of debt repayment together and the major boost for industries, particularly manufacturing. That is of benefit to this country and I hope that the noble Lord is also reaping the benefits.

Lord Kearton

My Lords, would the Minister care to modify an earlier answer? With reference to the Treasury's circular, the general government expenditure during the 1960s was as follows: In 1963–64, 36 per cent; in 1964–65, 35 per cent. and continuing with 37 per cent., 38 per cent. and so on. The rise took place during the 1980s and was: 1979–80, 43 per cent; 1980–81, 45 per cent.; continuing with 46 per cent., 46 per cent., 45 per cent., 46 per cent. and 44 per cent. Is it not true that only within the past two years have the Government begun to be remotely within reach of the figures achieved during the 1960s?

The Earl of Caithness

My Lords, it is true that expenditure rose as a proportion of GDP. The point is that it has fallen significantly and will continue to fall to figures which have not been reached since the mid-1960s.

Lord Blease

My Lords, in a Treasury Statement of this kind I should have welcomed comments on two points. First, comments which will inspire or encourage the regions. There is no mention whatsoever of incentives to the regions. My other point is in connection with research and development. Wages have been mentioned in the Statement as one of the ways to overcome problems of our competitiveness internationally. My view is that the Government ought to have made some pronouncement concerning the low rate of research and development that our productive employment and manufacturing industries are faced with in this country.

The Earl of Caithness

My Lords, on the question of regional aid, there has been some alteration in that. That is because it would be wrong, as we have believed for very many years, to intervene too heavily in business. The Government seek to create the right climate for business in all the, regions and we have been extremely successful in doing just that.

On the question of research and development, I know that the noble Lord will be happy to congratulate the Government on the fact that spending on R&D in United Kingdom industry was up by 27 per cent. in real terms between 1983 and 1987 and will go up further.